<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1999
REGISTRATION NO. 333--
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AVESTA TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 22-3471388
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification Number)
Organization) Classification Code Number)
</TABLE>
--------------------------
Two Rector Street
New York, New York 10006
(212) 285-1500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
KAM M. SAIFI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AVESTA TECHNOLOGIES, INC.
TWO RECTOR STREET
NEW YORK, NEW YORK 10006
(212) 285-1500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. JEFFREY S. MARCUS, ESQ.
LUCI STALLER ALTMAN, ESQ. SCOTT A. YUT, ESQ.
NANCI I. PRADO, ESQ. JUNG-WON HYUN, ESQ.
BROBECK, PHLEGER & HARRISON LLP MORRISON & FOERSTER LLP
1633 BROADWAY, 47TH FLOOR 1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10104
(212) 581-1600 (212) 468-8000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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 this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $0.01 per share..................... $62,100,000 $17,264
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 19, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
COMMON STOCK
--------------
This is Avesta Technologies, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $ and
$ per share. Currently, no public market exists for the shares.
After pricing of this offering, we expect that the common stock will trade on
the Nasdaq National Market under the symbol "AVST."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
-----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price................................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to Avesta.................... $ $
</TABLE>
The underwriters may also purchase up to an additional shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect that the shares of common stock will be ready for delivery in New
York, New York on or about , 2000.
------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
CIBC WORLD MARKETS
------------------
The date of this prospectus is , 2000.
<PAGE>
INSIDE FRONT COVER:
- - At top of page is centered text reading "WHAT IS THE INFRASTRUCTURE OF
E-BUSINESS?"
- - Centered on page is a graphic depicting a cloud and a series of 3-dimensional
rectangles, or planes, aligned vertically to represent a hierarchical model.
The graphic is annotated as follows: - Top layer: a plane with the word
"E-BUSINESS" directly to its right
- - 2(nd) layer:
- a plane containing icons of computer monitors
- to its right the heading: "BUSINESS SERVICES"; with the words
"General Ledger, Market Data, Billing, Customer Care" underneath
- - 3(rd) layer:
- a plane containing icons depicting network devices, servers and a
computer monitor
- to its right the heading: "INFORMATION TECHNOLOGY"; with the words
"Networks, Systems, Applications, Web" underneath
- - 4(th) layer:
- a plane containing icons depicting network devices, servers and disk
storage
- to its right the heading: "SERVICE PROVIDERS"; with the words
"Web & Application Hosting, Managed Network Services" underneath
- - 5(th) layer:
- a cloud containing icons depicting network devices
- to its right the heading: "TELECOMMUNICATIONS PROVIDERS"; with the
words "Bandwidth, Connectivity" underneath
- A cloud encompassing layers 2 through 5 appears in the background
behind the graphic
- A series of one-directional arrows connects each layer along the
left side of the graphic
- To the left of the graphic, the text "SERVICE CHAIN" runs from the
bottom to the top of the graphic
- The bottom right hand corner of the page contains the Avesta
Technologies logo
GATEFOLD:
- - Centered at the top across both pages of the gatefold: Avesta Technologies'
logo, with the text "MANAGING THE INFRASTRUCTURE OF E-BUSINESS." underneath
- - At the bottom center of the gatefold, there is a box containing the
following:
- - Centered at the top of the box is the text "Trinity-TM-", with the text
"ENTERPRISE SERVICE MODEL-TM-" underneath
- - A reduced version of the graphic from the inside front cover:
- - Top layer:
- - a plane with the word "E-BUSINESS" directly to its right
- - 2(nd) layer:
- a plane containing icons of computer monitors
- to its right the text: "BUSINESS SERVICES"
<PAGE>
- - 3(rd) layer:
- a plane containing icons depicting network devices, servers and a
computer monitor
- to its right the text: "INFORMATION TECHNOLOGY"
- - 4(th) layer:
- a plane containing icons depicting network devices, servers and disk
storage
- to its right the text: "SERVICE PROVIDERS"
- - 5(th) layer:
- a cloud containing icons depicting network devices
- to its right the text: "TELECOMMUNICATIONS PROVIDERS"
- A cloud encompassing layers 2 through 5 appears in the background
behind the graphic
- A series of one-directional arrows connect each layer along the left
side of the graphic
- 5 arrows extend from the top of this box to a series of screen shots
which appear as follows:
- Upper left side of the gatefold:
- - 2 screen shots displaying 2-dimensional maps of a sample IT environment
annotated with the text: "DISCOVER RESOURCES AND MAP THEIR SERVICE
RELATIONSHIPS." and "MANAGE SERVICE DELIVERY FROM THE NETWORK TO THE END
USER."
- - Upper center of the gatefold:
- - A screen shot displaying sample Web transaction tests and their results;
annotated with the text: "DETECT AND RESOLVE PROBLEMS BEFORE CUSTOMERS ARE
AFFECTED."
- - Upper right side of the gatefold:
- - A screen shot displaying sample alarms and the priority of their associated
service impacts annotated with the text: "INCREASE UPTIME BY QUICKLY
ISOLATING THE SOURCE OF SERVICE DISRUPTIONS."
- - Lower right side of the gatefold:
- - A screen shot displaying the Avesta Report Explorer within an Internet
Explorer browser window that contains a sample 3-dimensional bar graph
entitled "Number of Program Outages by Duration Range". This screen is
annotated with the text: "MEET SERVICE LEVEL COMMITMENTS."
- - Lower left side of the gatefold:
- - A screen shot displaying a customizable montage of windows including a
scrolling status ticker; a listing of alarms affecting selected "Business
Groups," an "Alarm Detail," and a "NetChat" window. This screen is annotated
with the text "VIEW BUSINESS-CRITICAL SERVICE INFORMATION FROM A CUSTOMIZED
CONSOLE."
INSIDE BACK COVER:
- - The logos of representative clients, resellers and vendors with whom we have
strategic relationships.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Cautionary Note Regarding Forward-Looking Statements........ 15
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 29
Management.................................................. 43
Certain Transactions........................................ 54
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 66
Index to Financial Statements............................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition,
operating results and prospects may have changed since that date.
------------------------
"Avesta Technologies" is a registered mark of Avesta. "Trinity," "eWatcher,"
Mean-Time-to-Business Value," "Enterprise Service Model" and "Customer Service
Views" are trademarks of Avesta. All other trademarks and service marks are the
property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the summary together with
the financial data and related notes before making an investment decision. The
terms "Avesta," "we," "us" and "our" as used in this prospectus refer to Avesta
Technologies, Inc. and its subsidiaries as a combined entity, except where it is
made clear that such term means only the parent company.
AVESTA
We are a leading provider of software that manages the infrastructure of
e-business. Our Trinity and eWatcher software enhances the availability and
performance of an organization's e-business infrastructure, which is fundamental
to its ability to generate revenue, attract and retain customers, and maintain
its competitive position. Our software provides service providers, Internet
companies, other corporations and government agencies with a simple and rapid
way to detect service disruptions, isolate their root cause and identify their
business impact. Trinity, our service management software, offers the
functionality necessary to discover, collect performance data about and analyze
the interrelationships among infrastructure components. In doing so, Trinity
presents a real-time and historical service perspective of the e-business
infrastructure. Through the comprehensive service-based view of Trinity's
unified console, information technology administrators are able to more
efficiently manage resources and maximize business uptime. eWatcher, our Web
monitoring software, simulates and tests a user's Web experience to identify
potential problems before they affect service.
Global competitive pressures are driving organizations to continuously seek
new and improved ways to better serve their customers. To enhance their
competitiveness, organizations are increasingly implementing e-business
initiatives that rely on the Internet. To enable and support these initiatives,
a complex, layered e-business infrastructure comprised of interdependent
networks, systems and applications has evolved. According to International Data
Corporation, the market for Internet infrastructure software alone will grow
from $7.3 billion in 1998 to over $29.1 billion in 2003. What is vital about
this complex e-business infrastructure is the level of service it delivers to
internal users, customers, partners and vendors. E-business infrastructure
downtime or poor performance can have a significant negative impact on an
organization's business productivity, revenues, market valuation, customer
satisfaction and future earnings. Consequently, there is a need for a
comprehensive service-oriented e-business infrastructure management solution
that improves service availability and performance to the level that users
require. We believe we provide the most comprehensive and effective software to
meet this need.
We sell our software worldwide directly through a sales force of 47
professionals and indirectly through resellers and systems integrators. We
develop strategic relationships with other vendors with complementary product
offerings to enhance the value and breadth of our capabilities and to capitalize
upon their sales and marketing resources. We have strategic relationships with
vendors, including BMC Software, Inc., Computer Associates International, Inc.,
Cisco Systems, Inc., Hewlett Packard Company, Tivoli Systems, Inc., Oracle
Corporation, Peregrine Systems, Inc. and Remedy Corporation. We target customers
in these markets: Global 2000 companies, service providers, government agencies
and Internet companies, including online merchants, application service
providers and web-hosting companies. Current customers include: Bell Atlantic
Internetworking and Multimedia Solutions, CBS Corporation, Eddie Bauer Online,
Exodus Communications, Inc., ICG Equipment, Inc., Morgan Guaranty Trust Company,
National Institutes of Health and US West, Inc.
Our headquarters are located at Two Rector Street, New York, New York 10016,
and our telephone number is (212) 285-1500. We have regional offices in
California, Massachusetts, Ottawa, London and Singapore. Information contained
on our Web site at www.avesta.com does not constitute part of this prospectus.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. We intend to use the offering proceeds for
expansion of our sales and marketing
activities, research and product development,
and potential acquisitions as well as working
capital and other general corporate purposes.
Proposed Nasdaq National Market symbol....... AVST
</TABLE>
------------------------
The number of shares that will be outstanding after this offering is based
on the number of shares of common stock outstanding as of September 30, 1999.
This information excludes:
- 3,884,196 shares of common stock issuable upon exercise of options
outstanding at a weighted average exercise price of $0.568 per
share;
- 858,078 shares of common stock reserved for issuance under our
1996 Stock Plan;
- 2,000,000 shares of common stock reserved for issuance under our
1999 Stock Incentive Plan;
- 400,000 shares of common stock reserved for issuance under our
1999 Employee Stock Purchase Plan; and
- 2,218,176 shares of common stock issuable upon exercise of
warrants outstanding at a weighted average exercise price of
$1.356 per share.
Unless otherwise indicated, the information in this prospectus:
- reflects a 3-for-2 stock split of all our outstanding shares of
common stock to be effected immediately prior to the consummation
of this offering;
- reflects the conversion of all shares of our outstanding
convertible preferred stock into 18,307,248 shares of common stock
immediately prior to the consummation of this offering; and
- assumes the underwriters will not exercise their over-allotment
option.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business. You
should read this information with our consolidated financial statements and
notes included elsewhere in this prospectus, "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
FEBRUARY 9, 1996 DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO ------------------- ----------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- -------- -------- ----------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software license.................................... $ -- $ -- $ 1,598 $ 315 $ 8,638
Professional services and maintenance............... 83 1,554 1,155 758 1,084
------ ------- ------- ------- -------
Total revenues.................................... 83 1,554 2,753 1,073 9,722
Cost of revenues...................................... 16 553 1,089 622 1,217
------ ------- ------- ------- -------
Gross profit.......................................... 67 1,001 1,664 451 8,505
Operating expenses:
Sales and marketing................................. -- 562 2,596 1,734 8,607
Research and development............................ -- 1,863 2,816 2,089 2,320
General and administrative.......................... 90 1,681 3,299 2,191 3,911
------ ------- ------- ------- -------
Total operating expenses.......................... 90 4,106 8,711 6,014 14,838
------ ------- ------- ------- -------
Operating loss........................................ (23) (3,105) (7,047) (5,563) (6,333)
Other income (expense), net........................... 3 119 133 122 291
------ ------- ------- ------- -------
Net loss.............................................. (20) (2,986) (6,914) (5,441) (6,042)
Preferred stock dividends............................. 6 240 52 52 --
------ ------- ------- ------- -------
Net loss attributable to common stockholders.......... $ (26) $(3,226) $(6,966) $(5,493) $(6,042)
====== ======= ======= ======= =======
Basic and diluted net loss per share.................. $(0.00) $ (0.40) $ (0.87) $ (0.69) $ (0.71)
Shares used to compute net loss per share:
Basic and diluted................................... 7,995 7,995 8,028 8,010 8,559
</TABLE>
The following table indicates a summary of our balance sheet at
September 30, 1999:
- on an actual basis; and
- on a pro forma as adjusted basis to give effect to the conversion
of all of our outstanding preferred stock into 18,307,248 shares
of common stock immediately prior to the consummation of this
offering and as adjusted to reflect the sale of shares of
common stock in this offering, at an assumed initial public
offering price of $ per share, after deducting the underwriting
discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 769 $
Working capital............................................. 17,684
Total assets................................................ 26,794
Long-term liabilities....................................... 486
Redeemable convertible preferred stocks..................... 35,385
Total stockholders' equity (deficit)........................ (16,021)
</TABLE>
3
<PAGE>
RISK FACTORS
Investing in our common stock will provide you with an equity ownership
interest in Avesta. As an Avesta stockholder, you may be subject to risks
inherent in our business. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to invest
in shares of our common stock. If any of the risks described below occurs, our
business, operating results and financial condition could be adversely affected.
In such cases, the price of our common stock could decline, and you may lose
part or all of your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR INVESTORS TO PREDICT HOW
OUR BUSINESS AND OUR FUTURE OPERATING RESULTS WILL DEVELOP
We were incorporated in February 1996 and commenced operations in
November 1996. We commercially released the initial version of Trinity in
March 1998 and began distributing early versions of eWatcher in June 1998. We
have a limited operating history, and we face many of the risks and
uncertainties encountered by early-stage companies in rapidly evolving markets.
These risks and uncertainties, which are discussed in more detail below,
include:
- no history of profitable operations;
- the risk that fluctuations in our quarterly operating results will be
significant;
- uncertain market acceptance of our software;
- our substantial reliance on Trinity;
- the risks that competition, technological change or evolving customer
preferences could adversely affect sales of our software;
- the risk that we may not be able to effectively use our indirect sales
channels;
- our ability to expand our sales capabilities; and
- the risk that management will not be able to effectively manage growth or
acquisitions we may undertake.
We cannot assure you that we will adequately address these risks and the
additional risks detailed below. In addition, because of our limited operating
history, we have limited experience and insight into trends that may emerge and
affect our business.
WE HAVE INCURRED LOSSES, WE EXPECT TO INCUR FUTURE LOSSES AND WE CANNOT ASSURE
YOU THAT WE WILL ACHIEVE PROFITABILITY
Since our inception in 1996, we have experienced operating losses in each
quarter and we expect to incur significant operating losses for the foreseeable
future. We incurred net losses of $20,425 for the period from February 9, 1996
(date of inception) to December 31, 1996, approximately $3.0 million for the
year ended December 31, 1997, approximately $6.9 million for the year ended
December 31, 1998 and approximately $6.0 million for the nine months ended
September 30, 1999. As of September 30, 1999, we had an accumulated deficit of
approximately $16.3 million. We cannot predict the extent of our future losses
or when we may become profitable. If we do achieve profitability, we may not be
able to sustain or increase profitability in the future. We expect to
significantly increase our sales and marketing, research and development and
general and administrative expenses. These increases in operating expenses will
require us to significantly increase our revenues to achieve and maintain
profitability. We cannot assure you that our revenues will increase. If we do
not significantly increase revenues from these efforts, we will experience
larger losses and our operating results would be
4
<PAGE>
seriously harmed. For a more detailed description of our operating results,
please see "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
WE EXPECT THAT OUR QUARTERLY OPERATING RESULTS WILL FLUCTUATE AND THIS COULD
CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. As a result, we believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as indicators of our future performance. If our
quarterly revenues and operating results fail to meet or exceed the expectations
of securities analysts and investors, the market price of our common stock could
fall substantially. Operating results vary depending on a number of factors,
many of which are outside our control, including:
- demand for our software and services;
- the timing of sales of our software and services;
- delays in introducing new software and services;
- the announcement and introduction of competing software;
- changes in our pricing policies or those of our competitors;
- whether our software and services are sold directly or through indirect
sales channels;
- the mix of domestic and international sales;
- costs related to acquisitions of technology or businesses;
- customer budget cycles and changes in these cycles; and
- deferrals of customer orders in anticipation of software enhancements or
new software.
We anticipate that the average size of individual customer orders may
increase as we focus on larger business accounts. As a result, a delay in
recognizing revenue, even from just one account, could have a significant
negative impact on our quarterly operating results. We typically realize a
significant portion of software license revenues in the last month of a quarter,
frequently in the last weeks or even days of a quarter. As a result, software
license revenues in any quarter are difficult to forecast because they are
substantially dependent on orders booked and shipped in that quarter. As a
result, a delay in an anticipated sale past the end of a particular quarter
could negatively impact our operating results for that quarter. For a more
detailed description of our quarterly results, please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE EXPECT TO RELY ON TRINITY AND RELATED SERVICES FOR SUBSTANTIALLY ALL OF OUR
REVENUES FOR THE FORESEEABLE FUTURE
Trinity accounted for 95% of our software license revenues for the nine
months ended September 30, 1999 and 87% for the year ended December 31, 1998. We
anticipate that software license revenues and related services will continue to
constitute substantially all of our total revenues for the foreseeable future. A
decline in the price of or demand for Trinity or our inability to increase
revenues from Trinity would cause a significant decline in revenues.
5
<PAGE>
WE HAVE BEEN DEPENDENT ON A SMALL NUMBER OF CUSTOMERS FOR A SIGNIFICANT PART OF
OUR REVENUES AND OUR INABILITY TO FIND NEW CUSTOMERS TO MAKE LARGE PURCHASES IN
THE FUTURE COULD HARM OUR OPERATING RESULTS
For the year ended December 31, 1998, three customers accounted for
approximately 52% of our total revenues. For the nine months ended
September 30, 1999, three customers accounted for approximately 78% of our total
revenues. We anticipate that our operating results in any given period will
continue to depend to a significant extent upon revenues from large contracts
with a small number of customers. We expect that the composition of that small
group of customers will continue to change over time so that the achievement of
our long-term revenue goals will require us to obtain additional customers on an
ongoing basis. Our failure to enter into a sufficient number of large contracts
during a particular period could harm our operating results.
OUR FAILURE TO DEVELOP AND INTRODUCE NEW SOFTWARE OR ENHANCEMENTS TO EXISTING
SOFTWARE COULD SERIOUSLY REDUCE THE DEMAND FOR OUR SOFTWARE
The software market in which we compete is characterized by rapid changes in
customer needs, technology and competing software. Existing software becomes
obsolete and unmarketable when products using new technologies are introduced
and new industry standards emerge. New technologies could change the way
software like ours is sold or delivered. As a result, the life cycles of our
software may be very short.
We will need to develop and introduce new software and make enhancements to
our existing software. We may also need to modify our software so that it can
operate with new or enhanced software introduced by others. We may not be able
to develop new software or enhance or modify our software or may experience
delays in new software releases in the future. If we fail to develop new
technologies, deploy new software releases on a timely basis, or if our software
does not obtain market acceptance, our revenues would decline and market
perception of our company would be harmed.
TRINITY HAS A LONG AND VARIABLE SALES CYCLE MAKING IT DIFFICULT TO DETERMINE IF
AND WHEN A SALE WILL OCCUR
Trinity has a long and variable sales cycle, which can be over nine months
in duration. The reasons for the long sales cycle include the following:
- we must typically educate our potential customers of its use and
benefits;
- customer purchase decisions require lengthy budgeting, approval and
competitive evaluation processes that typically accompany significant
capital expenditures;
- customers frequently begin by evaluating Trinity on a limited basis,
devoting time and resources to testing it before they decide whether or
not to purchase a license; and
- customers may defer orders in anticipation of releases of new software or
enhancements by us or our competitors.
As a result of the long and unpredictable sales cycle, we face difficulty
with completing sales and determining the quarter in which they may occur, which
can cause our quarterly operating results to vary widely.
A COMPETITOR HAS CLAIMED THAT WE INFRINGE ITS INTELLECTUAL PROPERTY AND OUR
DEFENSE OF THIS CLAIM IS COSTLY, DIVERTS THE EFFORTS AND ATTENTION OF MANAGEMENT
AND MAY BE UNSUCCESSFUL
On October 31, 1997, a lawsuit was filed against us by Systems Management
ARTS Incorporated in the United States District Court for the Southern District
of New York, alleging that we infringe two patents held by Systems Management.
The complaint also alleges unfair competition, interference with
6
<PAGE>
contractual relations and unjust enrichment against Avesta, as well as a claim
of breach of contract against one of our officers. Remedies sought include
monetary damages, which may be tripled if the infringement is found to have been
willful, punitive damages, an accounting of all revenues received from licensing
Trinity in its current form, permanent injunctions requiring us to stop selling
Trinity in its current form and engaging in the other challenged conduct and
Systems Management's attorneys' fees and costs in bringing this lawsuit.
Litigation is subject to inherent uncertainties, especially in cases like
this where sophisticated factual issues must be assessed and complex technical
issues must be resolved. In addition, these types of cases involve issues of law
that are evolving, presenting further uncertainty. Our defense of this
litigation, regardless of the merits of the complaint, has been, and will likely
continue to be, time consuming, extremely costly and a diversion for our
technical and management personnel. Through September 30, 1999, we have spent
approximately $1.9 million in legal fees and expenses on this litigation and
expect to incur substantial additional expenses even if we ultimately prevail.
In addition, publicity related to this litigation has in the past, and could
likely in the future, have a negative impact on sales of Trinity.
A failure to prevail in the litigation could result in one or more of the
following:
- our paying substantial monetary damages, which could be tripled if the
infringement is found to have been willful, and which may include paying
an ongoing significant royalty to Systems Management or compensation for
lost profits to Systems Management;
- our paying substantial punitive damages;
- our having to provide an accounting of all revenues received from selling
Trinity in its current form;
- the issuance of a preliminary or permanent injunction requiring us to stop
selling Trinity in its current form;
- our having to redesign Trinity, which could be costly and time-consuming
and could substantially delay Trinity shipments, assuming that a redesign
is feasible;
- our having to reimburse Systems Management for some or all of its
attorneys' fees and costs, which could be substantial;
- our having to obtain from Systems Management a license to use its patented
technology, which might not be available on reasonable terms, if at all;
or
- our having to indemnify our customers against any losses they may incur
due to the alleged infringement.
If we are enjoined from selling Trinity in its current form, we may be
required to redesign Trinity to avoid infringing on the intellectual property
rights of others. If we are unable to efficiently redesign commercially
acceptable software, our sales will decline significantly. We expect to continue
to incur substantial costs in defending against this litigation and these costs
could increase significantly if this litigation enters a trial phase. It is
possible that these costs could substantially exceed our expectations in future
periods. For a more detailed description of this litigation, please see
"Business--Legal Proceedings."
OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY
Our markets are new, rapidly evolving and highly competitive. Our failure to
maintain and enhance our competitive position could seriously harm our ability
to license our software and services and our operating results. Our current or
potential competition comes from a number of sources, including:
- our customers' internal technical organizations that produce software that
address particular needs;
7
<PAGE>
- large software and hardware suppliers;
- suppliers of network management and other point products; and
- systems integrators who generally provide consulting services to integrate
third-party hardware and software and develop customer specific
applications.
We expect the intensity of competition in our markets to increase in the
future. This could result in price reductions, reduced gross margins and loss of
market share.
Some of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have more extensive customer bases and broader customer
relationships than us, including relationships with many of our current and
potential customers. Some of these companies also have more established customer
support and professional services organizations than we do. We cannot assure you
that we will be able to compete effectively against our current and future
competitors.
FEDERAL AND STATE GOVERNMENT AGENCY SPENDING REDUCTIONS COULD REDUCE OUR
REVENUES
Contracts with federal and state government agencies accounted for 17% of
our total revenues for the nine months ended September 30, 1999. These contracts
require annual funding approval and are terminable at the discretion of the
agencies. Federal and state government agency spending reductions could limit
the continued funding of our existing contracts with them and could limit our
ability to obtain additional contracts. These limitations, if significant, could
reduce our revenues.
OUR FAILURE TO ATTRACT NEW CUSTOMERS WILL CAUSE OUR REVENUES TO DECLINE
We need to attract new customers or our revenues will decline. Our ability
to attract new customers depends on a variety of factors, including the
reliability, security, scalability and cost-effectiveness of our software and
services as well as our ability to market our software and services effectively.
OUR FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR
COMPETITIVE MARKET POSITION
We rely on a combination of patent, trademark, trade secret and copyright
law and contractual restrictions to protect the proprietary aspects of our
technology. These legal protections afford only limited protection. Our failure
to adequately protect our technology may lead to the development of similar
technology by third parties and reduce our software license revenues. Litigation
may be necessary to enforce our intellectual property rights and to determine
the validity and scope of the proprietary rights of others. Any litigation could
result in substantial costs to us and diversion of our resources and could
seriously harm our operating results. In addition, we have acquired some of the
technology underlying our software and sell our software internationally, and
the laws of many countries do not protect our proprietary rights to the same
extent as the laws of the United States.
CLAIMS THAT OUR SOFTWARE INFRINGES THE PROPRIETARY RIGHTS OF OTHER COMPANIES OR
INDIVIDUALS COULD HARM SALES OF OUR SOFTWARE AND COULD INCREASE OUR COSTS
Other companies or individuals, including our competitors, may have or
obtain patents or other proprietary rights that would prevent, limit or
interfere with our ability to make, use or sell our software. As a result, we
may be found to infringe on the proprietary rights of others. Furthermore,
companies in the software market are increasingly bringing suits alleging
infringement of their proprietary rights by others, particularly patent rights.
For instance, we are currently defending against a lawsuit that was filed
against us alleging, among other things, patent infringement. We could incur
substantial costs to defend any litigation, and our failure to prevail in
intellectual property litigation could force us to do one or more of the
following:
- cease making, licensing or using software or services that incorporate
the challenged intellectual property;
8
<PAGE>
- obtain and pay for licenses from the holder of the infringed intellectual
property right, which licenses may not be available on acceptable terms,
if at all; or
- redesign our software, which can be very costly and force us to interrupt
software licensing and software releases and may not be feasible.
For a description of our current litigation with Systems Management, please
see "Business--Legal Proceedings."
OUR INABILITY TO MAINTAIN AND ESTABLISH NEW INDIRECT SALES RELATIONSHIPS COULD
CAUSE OUR REVENUES TO DECLINE
Our sales strategy requires that we establish multiple distribution channels
in the United States and internationally through resellers and system
integrators. We have agreements with a limited number of resellers, and we may
not be able to increase or maintain our existing relationships. In addition, our
relationships have been established recently, and we cannot predict the extent
to which our resellers will be successful in marketing our software. If we are
unable to maintain and establish these new relationships our future sales volume
may decline. Our current agreements with our resellers do not prevent them from
selling software of other companies, including software that may compete with
our software, and do not generally require them to purchase minimum quantities
of our software. These resellers could give higher priority to other Company's
software or to their own software, than they give to ours. In addition, we
generally sell our software to resellers at a discount to our prices for direct
sales. As a result, an increase in sales through resellers could reduce our
gross margins.
OUR INABILITY TO DEVELOP AND EXPAND OUR DIRECT SALES FORCE WOULD LIMIT OUR
REVENUE GROWTH
To date, we have relied on a limited number of sales people for the majority
of our revenues. We need to and plan to expand the size of our direct sales
force in order to sell Trinity and eWatcher to a greater number of customers and
to generate increased revenues. However, competition for qualified sales
personnel is intense, and we may not be able to hire as many qualified
individuals as we may require in the future. If we do not expand and retain our
direct sales force, revenue growth could be seriously harmed. Sales of our
software and services require a sales force experienced in our market that
targets the senior management of our prospective customers. Newly hired sales
personnel require extensive training and may take six months or longer to
achieve full productivity. This training period and the need to attract and
retain qualified individuals may make it difficult to meet our sales force
growth targets. In addition, we may not generate sufficient sales to offset the
increased expense resulting from our larger sales force or we may be unable to
manage a larger sales force.
OUR INABILITY TO EXPAND OUR CUSTOMER SUPPORT AND PROFESSIONAL SERVICES COULD
SERIOUSLY HARM OUR REPUTATION, REVENUES AND CUSTOMER SATISFACTION
We believe that growth in our software license revenues depends in part on
our ability to provide our customers with professional services and to educate
third-party resellers on how to provide similar services. As a result, we plan
to increase the number of our services personnel to meet these needs. However,
competition for qualified services personnel is intense, and if we are unable to
attract, train or retain the number of highly qualified services personnel that
our business needs, our reputation, revenues and customer satisfaction could be
harmed.
9
<PAGE>
OUR INABILITY TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION COULD SERIOUSLY
HARM OUR ABILITY TO EFFECTIVELY RUN OUR BUSINESS
Our historical growth has placed, and our intended future growth is likely
to continue to place, a significant strain on our management, financial,
personnel and other resources. We have grown from 3 employees at December 31,
1996 to 144 employees at November 15, 1999. Since January 1, 1998, we have
opened additional sales offices and have significantly expanded our operations.
This rapid growth has strained our facilities and required us to lease an
additional floor at our headquarters. Any failure to manage growth effectively
could seriously harm our ability to respond to customers and quality of our
software and services and our operating results. To effectively manage growth,
we will need to implement additional management information systems, improve our
operating, administrative, financial and accounting systems and controls, train
new employees and maintain close coordination among our executive, engineering,
accounting, finance, marketing, sales and operations organizations.
IF WE EXPAND OUR INTERNATIONAL OPERATIONS, OUR BUSINESS WILL BE INCREASINGLY
SUSCEPTIBLE TO NUMEROUS POTENTIAL PROBLEMS ASSOCIATED WITH INTERNATIONAL
OPERATIONS, WHICH COULD HARM OUR OPERATING RESULTS
We plan to increase our international sales force and operations.
Nevertheless, we may not be successful in increasing our international revenues.
Expanding our international business activities will subject us to a variety of
risks, including:
- currency exchange rate fluctuations;
- seasonal fluctuations in purchasing patterns;
- tariffs, duties, export controls and other trade barriers;
- unexpected changes in regulatory requirements and applicable laws;
- longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
- difficulties and costs of staffing and managing foreign
operations;
- reduced protection for or our inability to secure and enforce
intellectual property rights in some countries;
- potentially adverse tax consequences;
- the burdens of complying with a wide variety of foreign laws; and
- political and economic instability.
Any of these factors could harm our operating results.
In the future, our international revenues may be denominated in local
currencies. If we do not adopt a hedging program, we may be vulnerable to
adverse fluctuations in foreign currency which will reduce revenues from
international sales.
OUR INABILITY TO ACQUIRE AND INTEGRATE OTHER BUSINESSES, PRODUCTS OR
TECHNOLOGIES COULD SERIOUSLY HARM OUR COMPETITIVE POSITION
In order to remain competitive, we intend to acquire additional businesses,
products or technologies. For example, in June 1998, we acquired Caravelle Inc.
and its technology, which formed the basis for eWatcher. If we identify an
appropriate acquisition candidate, we may not be successful in negotiating the
terms of the acquisition, financing the acquisition, or effectively integrating
the acquired business, product or technology into our existing business and
operations. Further, completing a potential acquisition and integrating an
acquired business will significantly divert management time and resources. If we
consummate any significant acquisitions using stock or other securities as
10
<PAGE>
consideration, your equity in us could be significantly diluted. If we make any
significant acquisitions using cash consideration, we may be required to use a
substantial portion of our available cash, including the proceeds of this
offering. If we issue debt to finance acquisitions, the debtholders would have
rights senior to common stockholders to make claims on our assets and the terms
of any debt could restrict our operations, including our ability to pay
dividends on our common stock. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our operating results.
OUR SOFTWARE REQUIRES THE USE OF THIRD-PARTY SOFTWARE AND OUR BUSINESS WOULD BE
SERIOUSLY HARMED IF WE FAIL TO OBTAIN OR EMBED IT EFFECTIVELY INTO OUR SOFTWARE
We license third-party software and embed it into our software. This
third-party software may not continue to be available on commercially reasonable
terms, if at all, and providers of this software may fail to enhance it or
respond to emerging industry standards. Any of these events could result in
shipment delays or reductions in the sale of our software and could require us
to redesign our software. Furthermore, we might be forced to limit the features
available in our current or future software offerings. Either alternative could
seriously harm our business and operating results.
THE INABILITY OF TRINITY AND EWATCHER TO OPERATE WITH THE PRODUCTS USED BY OUR
POTENTIAL CUSTOMERS WOULD HARM OUR REVENUES
We have strategic relationships with vendors who have complementary product
offerings. We would be seriously harmed if these products used by our customers
were altered so that they could no longer interoperate with Trinity or eWatcher.
Our inability to respond to any alteration in the products of these companies
with whom we have strategic relationships could result in shipment delays or the
loss of revenues.
DEFECTS IN OUR SOFTWARE WOULD HARM OUR REPUTATION AND EXPOSE US TO POTENTIAL
LIABILITY
Complex software like ours often contains errors or defects when first
introduced or when new versions or enhancements are released. If errors or
defects are discovered in our current or future software, we may not be able to
correct them in a timely manner, or at all. In addition, we may need to expend
significant capital resources in order to eliminate or work around errors and
defects. Errors and defects in our software may result in the loss of, or a
delay in, market acceptance of our software, the diversion of development
resources, damage to our reputation and increased service and warranty costs.
Many of our customers use our software to monitor and manage
business-critical applications. Because of this, errors, defects or other
performance problems in our software could result in significant financial or
other damage to our customers. Our customers could pursue claims against us. A
product liability claim brought against us, even if not successful, would likely
be time consuming and costly to defend and could adversely affect our marketing
efforts.
OUR INABILITY TO HIRE AND RETAIN OUR KEY PERSONNEL WOULD SLOW OUR GROWTH
Our business is dependent on our ability to hire, retain and motivate highly
qualified personnel, including senior management, sales and technical
professionals. Many of our senior management and sales personnel have recently
joined us, including our Chief Financial Officer. Qualified individuals are in
high demand and we may not be able to attract the personnel we need. The loss of
the services of any of our senior management, sales professionals or technical
staff or our inability to attract qualified additional personnel could harm our
business.
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<PAGE>
YEAR 2000 ISSUES COULD HARM OUR BUSINESS
We are highly dependent on our computer software and operating systems to
operate our business. In addition, we depend on the proper functioning of
computer systems of third parties, such as vendors, resellers and customers. The
failure of any of these systems to appropriately interpret the calendar year
2000 could adversely affect our business, operating results and financial
condition. In particular, we are subject to the following risks:
- costs associated with the failure of our software or embedded
third-party software to be year 2000 compliant, including
potential warranty or other claims from our customers, which may
result in significant liability;
- business shutdowns or slowdowns as a result of failure of the
internal management systems we use to run our business, which
could disrupt business operations; and
- reductions or deferrals in our sales activities as a result of
year 2000 compliance concerns of our customers.
We are currently conducting our own year 2000 compliance review and taking
steps to determine whether third parties are doing the same. We cannot assure
you that our year 2000 program will be effective. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
IN THE FUTURE, WE MAY NOT BE ABLE TO SECURE FINANCING NECESSARY TO OPERATE OUR
BUSINESS AS PLANNED
We expect that the net proceeds from this offering together with current
cash, cash equivalents, borrowings under our credit facility and short-term
investments should be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However, our
business and operations may consume resources faster than we anticipate. In the
future, we may need to raise additional funds to expand our sales and marketing
and research and development efforts or to make acquisitions. Additional
financing may not be available on favorable terms, if at all. If adequate funds
are not available on acceptable terms, we may be unable to fund the expansion of
our sales and marketing and research and development efforts or take advantage
of acquisition or other opportunities, which could seriously harm our business
and operating results. If we issue debt, the debtholders would have rights
senior to common stockholders to make claims on our assets and the terms of any
debt could restrict our operations, including our ability to pay dividends on
our common stock. Furthermore, if we issue additional equity securities,
stockholders may experience dilution, and the new equity securities could have
rights senior to those of our common stock.
RISKS RELATED TO OUR INDUSTRY
IF THE E-BUSINESS INFRASTRUCTURE MANAGEMENT SOFTWARE MARKET FAILS TO GROW,
DEMAND FOR OUR SOFTWARE WILL DECLINE
We derive substantially all of our revenues from the sale of software and
services designed to allow our customers to manage their e-business
infrastructure. The market for e-business infrastructure management software has
only recently begun to develop, is rapidly evolving and will likely consist of
an increasing number of competitors. We cannot be certain that a market for our
software will emerge or be sustainable. If that market fails to develop, or
develops more slowly than expected, our business and operating results would be
seriously harmed.
Furthermore, in order to be successful in this emerging market, we must be
able to differentiate ourselves from our competitors through our software and
service offerings and brand name recognition. We may not be successful in
differentiating ourselves or achieving widespread market acceptance of our
software and services. Furthermore, organizations that have already invested
substantial resources in
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<PAGE>
other methods of managing their computer hardware and software systems may be
reluctant or slow to adopt a new approach that may replace, limit or compete
with their existing management systems.
WITHOUT THE CONTINUED USE OF THE INTERNET, DEMAND FOR OUR SOFTWARE WOULD DECLINE
Rapid growth in the use of and interest in the Internet has occurred only
recently. As a result, acceptance and use may not continue to develop at
historical rates, and a sufficiently broad base of consumers may not adopt, and
continue to use, the Internet and other online services as a medium of commerce.
We depend on the continued use of the Internet to provide a market for our
software.
Demand and market acceptance for recently introduced services and products
over the Internet are subject to a high level of uncertainty, and there exist
few proven and profitable services and products. In addition, the Internet may
not be accepted as a long-term commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. Our revenues will depend, in large part, upon third parties
maintaining the Internet infrastructure to provide a reliable network backbone
with the necessary speed, data capacity, security and hardware necessary for
reliable Internet access and services.
OUR INABILITY TO ADAPT TO RAPID CHANGES IN TECHNOLOGY AND CUSTOMER PREFERENCES
WOULD HARM OUR COMPETITIVE POSITION
The market for our e-business infrastructure management software is
characterized by rapid technological change, frequent new product introductions
and enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. New products based on new technologies or new
industry standards can quickly render existing products obsolete and
unmarketable. Our software is complex, and new software and software
enhancements can require long development and testing periods. Any delays in our
ability to develop and release new or enhanced software or to conform to
prevailing standards could seriously harm our ability to compete effectively.
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY
Prior to this offering, there has been no public market for our common
stock. After this offering, an active trading market in our stock might not
develop or continue. If you purchase shares of our common stock in this
offering, you will pay a price that was not established in a competitive market.
Rather, you will pay a price that we negotiated with the representatives of the
underwriters based on factors discussed in "Underwriting--Nasdaq National Market
Listing." The price of our common stock that will prevail in the market after
the offering may be higher or lower than the price you pay.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY
Following this offering, the price at which our common stock will trade is
likely to be highly volatile. The stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
of securities, particularly securities of technology and computer software
companies. As a result, investors may experience a material decline in the
market price of our common stock, regardless of our operating performance. Price
declines in our stock could result from many factors outside of our control
including:
- announcements by our competitors of financial results, new products or
technological innovations;
- disputes concerning patents or other proprietary rights; and
- general market conditions.
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<PAGE>
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 that company. We may become involved in this type of
litigation in the future. Litigation of this type is often extremely expensive
and diverts management's attention and resources.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS
OFFERING, WHICH THEY MAY NOT USE EFFECTIVELY
Management will have significant flexibility in allocating the net proceeds
of this offering, including uses with which stockholders may disagree. The
failure of management to allocate these funds effectively could harm our
financial condition and result in lost business opportunities. See "Use of
Proceeds."
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHO MAY MAKE
DECISIONS WITH WHICH YOU MAY DISAGREE
Our directors, executive officers and affiliates currently beneficially own
approximately 66.4% of the outstanding shares of our common stock, and after the
offering will beneficially own approximately % of the outstanding shares
of our common stock. Accordingly, they will have significant influence in
determining the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, consolidations, the sale of
all or substantially all of our assets and going private transactions, and also
the power to prevent or cause a change in control. They may also have the power
to control the election of members of our board of directors. The interests of
these stockholders may differ from your interests. In addition, this
concentration of ownership may delay, prevent or deter a change in control and
could deprive you of an opportunity to receive a premium for your common stock
as part of a sale of Avesta.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could drop due to sales of a large
number of shares of our common stock in the market after this offering or the
perception that such sales could occur. For information, including information
relating to the timing of these sales, see "Shares Eligible For Future Sales."
These sales could also make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD INHIBIT A
TAKEOVER THAT YOU MAY CONSIDER FAVORABLE
Provisions of our amended and restated certificate of incorporation and
bylaws, including those relating to our ability to issue preferred stock and our
staggered board of directors, as well as provisions of Delaware law, may have
the effect of delaying or preventing a change of control or change in our
management that you consider favorable or beneficial. If a change of control or
change in management is delayed or prevented, the market price of our common
stock could decline. See "Description of Capital Stock--Certain Charter and
Bylaws Provisions and Delaware Anti-Takeover Statute."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution in the net tangible book value of their
common stock. In the past, we issued options and warrants to acquire capital
stock at prices significantly below the initial public offering price. To the
extent these outstanding options and warrants are ultimately exercised, there
will be further dilution to investors. See "Dilution."
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about Avesta and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of several factors, as more fully
described under the caption "Risk Factors" and elsewhere in this prospectus. The
forward-looking statements made in this prospectus relate only to events as of
the date on which the statements are made. We undertake no obligation to
publicly update any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
shares of common stock offered by us will be $ million, assuming a public
offering price of $ per share and after deducting the underwriting discount
and estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds will be $ million.
We intend to use our net proceeds for general corporate purposes, including
working capital, expansion of sales and marketing capabilities and research and
product development. We also may use a portion of our net proceeds to acquire
complementary businesses, products or technologies. We have no specific
understandings, commitments or agreements with respect to any acquisitions. The
amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including revenue growth, if
any, the amount of cash we generate from operations and the progress of our
software development efforts. We will retain broad discretion in allocating the
net proceeds of this offering.
Pending any use, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to provide funds to finance
the expansion of our business. In addition, in connection with a line of credit,
we are restricted from paying dividends in cash. As a result, we do not
anticipate paying any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding
shares of our convertible preferred stock into 18,307,248 shares of
common stock immediately prior to the consummation of this offering;
and
- on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from the sale of shares of common stock at an assumed
initial public offering price of $ per share, after deducting
the underwriting discount and estimated offering expenses payable by
us. Please see "Use of Proceeds".
You should read this information together with our consolidated financial
statements and the related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit and capital lease obligations................ $ 1,559 $ 1,559 $
Redeemable convertible preferred stocks..................... 35,385 --
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding (actual, pro
forma and pro forma as adjusted).......................... -- --
Common stock, $0.01 par value, 100,000,000 shares
authorized; 8,802,306 shares issued and outstanding
actual, 27,109,554 issued and outstanding pro forma and
shares issued and outstanding pro forma as
adjusted.................................................. 88 271
Additional paid-in-capital.................................. 356 35,558
Other comprehensive loss.................................... (125) (125)
Accumulated deficit......................................... (16,340) (16,340)
-------- -------- --------
Total stockholders' equity.................................. (16,021) 19,364
-------- -------- --------
Total capitalization........................................ $ 20,923 $ 20,923 $
======== ======== ========
</TABLE>
This information excludes:
- 3,884,196 shares of common stock issuable upon exercise of options
outstanding as of September 30, 1999 at a weighted average exercise
price of $0.568 per share;
- 858,078 additional shares of common stock reserved for issuance under
our 1996 Stock Plan;
- 2,000,000 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan;
- 400,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
- 2,218,176 shares of common stock issuable upon exercise of warrants
outstanding as of September 30, 1999 at a weighted average exercise
price of $1.356 per share.
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DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $18.8 million, or $0.69 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding after giving effect to conversion of all of our outstanding
preferred stock into common stock. After giving effect to the issuance and sale
of shares of common stock offered by us at an assumed public offering price of
$ and after deducting the underwriting discount and estimated offering
expenses payable by us, our pro forma net tangible book value as of
September 30, 1999 would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of
$ per share to new investors purchasing shares in this offering. If the
initial public offering price is higher or lower, the dilution to the new
investors will be greater or less, respectively. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
Pro forma net tangible book value per share at
September 30, 1999...................................... 0.69
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, as of September 30, 1999, the differences
between the total consideration paid and the average price per share paid by
existing stockholders and by new investors purchasing shares of common stock in
this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 27,110,000 % $35,452,000 % $1.31
New investors.........................
---------- ------ ----------- ------
Total............................... 100.0% $ 100.0%
========== ====== =========== ======
</TABLE>
This information excludes:
- 3,884,196 shares of common stock issuable upon exercise of options
outstanding as of September 30, 1999 at a weighted average exercise
price of $0.568 per share;
- 858,078 additional shares of common stock reserved for issuance under
our 1996 Stock Plan;
- 2,000,000 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan;
- 400,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
- 2,218,176 shares of common stock issuable upon exercise of warrants
outstanding as of September 30, 1999 at a weighted average exercise
price of $1.356 per share.
To the extent that any of these options are exercised, there will be further
dilution to new investors.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
included elsewhere in this prospectus.
The consolidated statement of operations data for the period from
February 9, 1996 (date of inception) to December 31, 1996, for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999 have
been derived from our audited consolidated financial statements included
elsewhere in this prospectus, which have been audited by Ernst & Young LLP. The
consolidated balance sheet data at December 31, 1997 and 1998 and at
September 30, 1999 have been derived from our audited consolidated financial
statements included elsewhere in this prospectus, which have been audited by
Ernst & Young LLP. The consolidated balance sheet data at December 31, 1996 have
been derived from our consolidated audited financial statements not included in
this prospectus, which have been audited by Ernst & Young LLP. The consolidated
statement of operations data for the nine months ended September 30, 1998 have
been derived from our unaudited consolidated financial statements included
elsewhere in this prospectus. The unaudited consolidated financial statements
include all normal recurring adjustments that we consider necessary for a fair
presentation of our results of operations. Operating results for the nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the entire year or for any other future period.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
FEBRUARY 9, 1996 DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO ------------------- ----------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- -------- -------- ----------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software license.................................... $ -- $ -- $ 1,598 $ 315 $ 8,638
Professional services and maintenance............... 83 1,554 1,155 758 1,084
------ ------- ------- ------- -------
Total revenues...................................... 83 1,554 2,753 1,073 9,722
Cost of revenues...................................... 16 553 1,089 622 1,217
------ ------- ------- ------- -------
Gross profit.......................................... 67 1,001 1,664 451 8,505
Operating expenses:
Sales and marketing................................. -- 562 2,596 1,734 8,607
Research and development............................ -- 1,863 2,816 2,089 2,320
General and administrative.......................... 90 1,681 3,299 2,191 3,911
------ ------- ------- ------- -------
Total operating expenses............................ 90 4,106 8,711 6,014 14,838
------ ------- ------- ------- -------
Operating loss........................................ (23) (3,105) (7,047) (5,563) (6,333)
Other income (expense), net........................... 3 119 133 122 291
------ ------- ------- ------- -------
Net loss.............................................. (20) (2,986) (6,914) (5,441) (6,042)
Preferred stock dividend.............................. 6 240 52 52 --
------ ------- ------- ------- -------
Net loss attributable to common stockholders.......... $ (26) $(3,226) $(6,966) $(5,493) $(6,042)
====== ======= ======= ======= =======
Basic and diluted net loss per share.................. $(0.00) $ (0.40) $ (0.87) $ (0.69) $ (0.71)
------ ------- ------- ------- -------
Shares used to compute net loss per share:
Basic and diluted................................... 7,995 7,995 8,028 8,010 8,559
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $2,984 $2,202 $3,667 $ 769
Working capital............................................. 2,875 1,997 3,933 17,684
Total assets................................................ 3,094 3,306 8,021 26,794
Long-term debt.............................................. -- 1,733 2,976 486
Redeemable convertible preferred stocks..................... 3,006 4,296 13,063 35,385
Total stockholders' equity (deficit)........................ (26) (3,252) (9,954) (16,021)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Avesta is a leading provider of software that manages the infrastructure of
e-business. Our Trinity and eWatcher software enhances the availability and
performance of this e-business infrastructure, which is vital to an
organization's ability to generate revenue, interact with its customers and
maintain its competitive position. Our software enables organizations to
discover and understand how their information technology, or IT, resources work
together to provide services to users, then monitors, manages and reports on the
availability and performance of those services in real-time.
We were incorporated in Delaware in February 1996 and commenced operations
in New York in November 1996. We conducted our initial round of equity financing
of $4.0 million of our series A preferred stock in December 1996. Through 1997,
we relied on our initial round of equity financing and revenues from management
consulting services to finance our operations until the release of Trinity. We
began to recognize software license revenues from our initial sale of Trinity in
March 1998. We raised $7.5 million from the issuance of our series B preferred
stock in March 1998, which was used to hire additional employees and expand our
sales and marketing capabilities. In June 1998, we acquired the business and
technology that formed the basis for eWatcher through our acquisition of
Caravelle Inc. (a Canadian company, now our subsidiary, Avesta Technologies
Canada), in exchange for approximately $1.5 million our series B preferred
stock. The acquisition was accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to the assets and liabilities
of Caravelle based on their estimated fair values at the date of acquisition.
Goodwill of approximately $1.1 million recognized on this acquisition is being
amortized over three years. To fund additional expansion, particularly sales and
marketing, we raised an additional $10.9 million in January 1999 from the sale
of our series C preferred stock and $11.4 million in August 1999 from the sale
of our series D preferred stock. All of the outstanding shares of our series A,
B, C and D preferred stock will automatically convert into a total 18,307,248
shares of our common stock immediately prior to the consummation of this
offering.
In 1996 and 1997, management consulting services accounted for all of our
revenues. Since the release of Trinity, we have phased out our management
consulting services, and our revenues have consisted primarily of software
license revenues and professional services and maintenance revenues.
Software license revenues consist of software license fees for Trinity and
eWatcher, and for the nine months ended September 30, 1999 they comprised 89% of
our total revenues. For the year ended December 31, 1998, three customers
accounted for approximately 52% of our total revenues. For the nine months ended
September 30, 1999, three customers accounted for approximately 78% of our total
revenues.
In 1998, we adopted Statement of Position 97-2, SOFTWARE REVENUE
RECOGNITION. We recognize software license revenues when the software is
delivered, provided that a noncancelable license agreement has been signed or
other persuasive evidence of an arrangement exists, the license fee is fixed and
determinable and collection of the fee is considered probable.
Professional services revenues include consulting fees for the
implementation and customization of our software as well as customer training.
These services are generally charged to clients on a time and materials basis
and revenues are recognized as they are earned. Our gross profit margins for
professional services revenues are typically lower than for software license
revenues because of
19
<PAGE>
personnel costs associated with the delivery of professional services and
customer support in connection with maintenance contracts.
Revenues from maintenance contracts, which provide for telephone and on-site
support as well as product upgrades, are recognized ratably as earned over the
life of the maintenance contract term, which is typically one year. The portion
of maintenance revenues that has not yet been recognized is reported as deferred
revenue on our balance sheet.
Our cost of revenues for software licenses consists of direct software
costs, which include royalty costs from third-party software embedded in our
software, software media duplication and software manual costs. Our cost of
revenues for professional services and maintenance consists of personnel costs
associated with the delivery of professional services and customer support in
connection with maintenance service contracts.
Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. Each
category includes expenses that are common to the other two, including salaries,
benefits, travel and entertainment costs. In addition, our sales and marketing
expenses include expenditures specific to the sales and marketing group, such as
sales commissions, public relations and advertising, trade shows, promotional
materials and other marketing activities. Research and development expenses
include expenditures related to the development and testing of our software. We
expense all research and development costs as incurred. General and
administrative expenses consist of salaries, benefits and other personnel costs
for the following departments: administration, finance, information and
technology, human resources and legal. General and administrative expenses also
include the costs of legal fees and facilities costs.
Although our revenues have increased in every quarter since inception, we
have also incurred significant losses. At September 30, 1999, our accumulated
deficit was $16.3 million. Our success is largely dependent on increasing our
customer base and developing new software and enhancing our existing software.
We expect to continue to invest significantly in sales and marketing, research
and development and general and administrative costs, and to incur additional
operating expenses and operating losses for the foreseeable future.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
FEBRUARY 9,
1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------
1996 1997 1998 1998 1999
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license....................... 0.0% 0.0% 58.1% 29.3% 88.9%
Professional services and
maintenance.......................... 100.0 100.0 41.9 70.7 11.1
------- ------- ------- ------- -------
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues......................... 19.2 35.6 39.6 57.9 12.5
------- ------- ------- ------- -------
Gross profit............................. 80.8 64.4 60.4 42.1 87.5
Operating expenses:
Sales and marketing.................... -- 36.2 94.3 161.7 88.5
Research and development............... -- 119.9 102.3 194.7 23.9
General and administrative............. 109.2 108.2 119.8 204.1 40.2
------- ------- ------- ------- -------
Total operating expenses........... 109.2 264.3 316.4 560.5 152.6
------- ------- ------- ------- -------
Operating loss........................... (28.4) (199.9) (256.0) (518.4) (65.1)
Other income (expense)................... 3.6 7.7 4.9 11.3 2.9
------- ------- ------- ------- -------
Net Loss................................. (24.8)% (192.2)% (251.1)% (507.1)% (62.2)%
======= ======= ======= ======= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES. Total revenues increased from $1.1 million in the nine months
ended September 30, 1998 to $9.7 million in the nine months ended September 30,
1999. Software license revenues increased from $314,563 in the nine months ended
September 30, 1998 to $8.6 million in the nine months ended September 30, 1999.
This increase in revenues was primarily due to an expanding customer base.
Revenues from professional services and maintenance increased 42.9% from
$758,368 in the nine months ended September 30, 1998 to $1.1 million in the nine
months ended September 30, 1999. During the nine months ended September 30,
1999, software license revenues accounted for 88.9% and professional services
and maintenance revenues accounted for 11.1% of our total revenues. We believe
that professional services and maintenance revenues may continue to increase as
a percentage of total revenues, due to the increase in the number of maintenance
contracts as our customer base grows.
COST OF REVENUES. Cost of revenues increased 95.9% from $621,505 in the
nine months ended September 30, 1998 to $1.2 million in the nine months ended
September 30, 1999. This increase was primarily attributable to the significant
increase in revenues. As a percentage of total revenues, cost of revenues
decreased from 57.9% in the nine months ended September 30, 1998 to 12.5% in the
nine months ended September 30, 1999. This decrease was due to the increase in
software license revenues, which generate higher gross margins related to
professional services and maintenance revenues as a percentage of total
revenues.
SALES AND MARKETING. Sales and marketing expenses increased from
$1.7 million in the nine months ended September 30, 1998 to $8.6 million in the
nine months ended September 30, 1999. As a percentage of total revenues, sales
and marketing expenses decreased from 161.7% in the nine months ended
September 30, 1998 to 88.5% in the nine months ended September 30, 1999. The
dollar increase in sales and marketing expenses was due to higher personnel
costs in connection with building our sales and marketing force from 13 at
September 30, 1998 to 81 at September 30, 1999, including sales
21
<PAGE>
commissions paid. We expect that sales and marketing expenses will continue to
increase in absolute dollars for the foreseeable future as we continue to expand
our sales force, hire additional marketing personnel and increase spending for
marketing and promotion. Sales and marketing expenses will continue to decrease
as a percentage of total revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 11.0%
from $2.1 million in the nine months ended September 30, 1998 to $2.3 million in
the nine months ended September 30, 1999. As a percentage of total revenues,
research and development expense decreased from 194.7% in the nine months ended
September 30, 1998 to 23.9% in the nine months ended September 30, 1999. The
dollar increase was primarily due to an increase in personnel from 34 at
September 30, 1998 to 45 at September 30, 1999. We expense all research and
development costs as incurred. We intend to continue recruiting and hiring
experienced research and development personnel and to make additional
investments in product development and technological infrastructure. We expect
that research and development expenses will continue to increase in dollars in
future periods and continue to decrease as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
78.6% from $2.2 million in the nine months ended September 30, 1998 to
$3.9 million in the nine months ended September 30, 1999. As a percentage of
total revenues, general and administrative expenses decreased from 204.1% in the
nine months ended September 30, 1998 to 40.2% in the nine months ended
September 30, 1999. The dollar increase was due to an increase in facilities and
equipment costs, compensation and benefits, recruiting and legal fees, and other
administrative costs. In addition, we incurred legal fees in the amount of
$1.1 million in the nine months ended September 30, 1999, as compared to
$378,000 in the nine months ended September 30, 1998 due to litigation. See
"Business--Legal Proceedings." General and administrative expenses decreased as
a percentage of total revenues due to the significant increase in revenues. We
expect that we will incur additional general and administrative expenses and
incur additional costs related to the growth of our business and our operation
as a public company.
OTHER INCOME (EXPENSE). Net interest income increased 138.8% from $121,851
in the nine months ended September 30, 1998, or 11.3% of total revenues, to
$290,982 in the nine months ended September 30, 1999, or 2.9% of total revenues.
This dollar increase was primarily a result of interest earned on capital raised
from the sale of our series C and D preferred stock in 1999.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased 77.2% from $1.6 million in 1997 to
$2.8 million in 1998. Software license revenues increased from $0 to
$1.6 million due to the release of Trinity in March 1998. Revenues from
professional services and maintenance decreased 25.7% from $1.6 million in 1997
to $1.2 million in 1998 as a result of the discontinuance of management
consulting services as a major line of business in 1997.
COST OF REVENUES. Cost of revenues increased 96.8% from $0.6 million in
1997 to $1.1 million in 1998. This increase was primarily attributable to the
overall increase in revenues. As a percentage of total revenues, cost of
revenues increased from 35.6% in 1997 to 39.6% in 1998. This increase was
primarily due to the discontinuance of higher-margin management consulting
services in 1997 and the costs of hiring personnel to deliver professional
services related to Trinity in 1998.
SALES AND MARKETING. Sales and marketing expenses increased from
$0.6 million in 1997 to $2.6 million in 1998. As a percentage of total revenues,
sales and marketing expenses increased from 36.2% in 1997 to 94.3% in 1998. This
increase was due to increased sales and marketing efforts in connection with
building our sales force from 9 in 1997 to 23 in 1998, and higher commission
rates paid because of the increase in revenues.
22
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased 51.1%
from $1.9 million in 1997 to $2.8 million in 1998. This increase was due to
increased headcount of six people as a result of the Caravelle acquisition and
the related costs associated with developing future releases of Trinity and the
integration of the technology acquired from Caravelle with our existing
software. As a percentage of total revenues, research and development expenses
decreased from 119.9% in 1997 to 102.3% in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
96.3% from $1.7 million in 1997 to $3.3 million in 1998. As a percentage of
total revenues, general and administrative expenses increased from 108.2% in
1997 to 119.8% in 1998. This increase was due to facilities, equipment
depreciation and amortization, compensation and benefits, recruiting and
professional development, and other administrative costs necessary to support
our growth and increased scale of operations. This increase was also due to
litigation expenses of $84,000 in 1997 and $601,000 in 1998.
OTHER INCOME (EXPENSE). Net interest income increased 11.3% from $119,408,
or 7.7% of total revenues, in 1997, to $132,888, or 4.9% of total revenues in
1998. This small increase was primarily due to increased interest income as a
result of higher average cash balances.
PERIOD FROM FEBRUARY 9, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996 AND YEAR
ENDED DECEMBER 31, 1997
REVENUES. Revenues increased from $82,500 in 1996 to $1.6 million in 1997.
All revenues in 1996 were from management consulting services and the majority
of revenues in 1997 were from professional services. In 1997, with the
anticipated release of Trinity, we began to phase out management consulting
services. The increase in professional services revenues resulted from the
commencement of our operations in November 1996.
COST OF REVENUES. Cost of revenues increased from $15,800 in 1996 to
$553,362 in 1997. This increase was due to additional personnel costs associated
with the delivery of professional services. As a percentage of total revenues,
cost of revenues increased from 19.2% in 1996 to 35.6% in 1997. This increase
was due to the relatively low cost of revenues in 1996 as a result of a lump sum
payment on a management consulting project.
SALES AND MARKETING. Sales and marketing expenses increased from $0 to
$562,458 in 1997. As a percentage of total revenues, sales and marketing
expenses increased from 0% in 1996 to 36.2% in the 1997. This increase was due
to the commencement of our sales and marketing efforts in 1997, the hiring of
sales and marketing personnel and commissions paid.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$0 to $1.9 million in 1997. We incurred no research and development expenses in
1996. As a percentage of total revenues, research and development expenses
increased from 0% in 1996 to 119.9% in 1997. The increase was due to the hiring
of research and development personnel, costs associated with the development and
initial testing of Trinity and costs related to the purchase of computer
equipment and software development tools.
23
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $90,080 in 1996 to $1.7 million in 1997. As a percentage of total revenues,
general and administrative expenses decreased from 109.2% in 1996 to 108.2% in
1997. This increase in dollars was due to an increase in costs of facilities,
depreciation and amortization, compensation and benefits, recruiting and
professional development and other administrative costs.
OTHER INCOME (EXPENSE). Net interest income increased from $2,955 in 1996
to $119,408 in 1997. This increase was due to interest income on higher average
cash balances.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth our unaudited quarterly results of operations
for each of the seven quarters ended September 30, 1999 in dollars and as a
percentage of total revenues. You should read the following tables in
conjunction with our consolidated financial statements and the related notes
included elsewhere in this prospectus. In the opinion of management, all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with our financial statements and the
related notes. The unaudited results of operations for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license..................... $ 45 $ 102 $ 168 $ 1,284 $ 1,548 $ 2,596 $ 4,494
Professional services and
maintenance........................ 196 255 307 396 353 406 325
------- ------- ------- ------- ------- ------- -------
Total revenues................... 241 357 475 1,680 1,901 3,002 4,819
Cost of revenues....................... 217 185 219 468 160 472 585
------- ------- ------- ------- ------- ------- -------
Gross profit........................... 24 172 256 1,212 1,741 2,530 4,234
Operating expenses:
Sales and marketing.................. 386 690 658 862 2,016 2,350 4,241
Research and development............. 639 761 689 727 692 785 843
General and administrative........... 565 792 834 1,108 1,237 1,279 1,395
------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 1,590 2,243 2,181 2,697 3,945 4,414 6,479
------- ------- ------- ------- ------- ------- -------
Operating loss......................... (1,566) (2,071) (1,925) (1,485) (2,204) (1,884) (2,245)
------- ------- ------- ------- ------- ------- -------
Other income (expense)................. -- 80 41 12 64 67 160
------- ------- ------- ------- ------- ------- -------
Net Loss............................... $(1,566) $(1,991) $(1,884) $(1,473) $(2,140) $(1,817) $(2,085)
======= ======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license...................... 19% 29% 35% 76% 81% 86% 93%
Professional services and
maintenance......................... 81 71 65 24 19 14 7
---- ---- ---- --- ---- --- ---
Total revenues.................... 100 100 100 100 100 100 100
Cost of revenues........................ 90 52 46 28 8 16 12
---- ---- ---- --- ---- --- ---
Gross profit............................ 10 48 54 72 92 84 88
Operating expenses:
Sales and marketing................... 160 193 139 51 106 78 88
Research and development.............. 265 213 145 43 36 26 17
General and administrative............ 234 222 176 66 65 43 29
---- ---- ---- --- ---- --- ---
Total operating expenses.......... 659 628 460 160 207 147 134
---- ---- ---- --- ---- --- ---
Operating loss.......................... (649) (580) (406) (88) (115) (63) (46)
Other income (expense).................. -- 22 9 1 3 2 3
---- ---- ---- --- ---- --- ---
Net Loss................................ (649)% (558)% (397)% (87)% (112)% (61)% (43)%
==== ==== ==== === ==== === ===
</TABLE>
REVENUES. Total revenues have increased in each of the seven consecutive
quarters ended September 30, 1999. Software license revenues increased in
dollars in each consecutive quarter due to increased acceptance of Trinity and
eWatcher, expansion of our direct sales force and expansion of our relationships
with resellers. Professional services and maintenance revenues generally
increased, other than the quarters ended March 31, 1999 and September 30, 1999.
Professional services and maintenance revenues decreased in the quarters ended
March 31, 1999 and September 30, 1999 due to decreased professional services
revenues associated with Trinity, which was offset by an increase in maintenance
revenues.
COST OF REVENUES. Cost of revenues has fluctuated as a percentage of
revenues primarily due to the variability of the revenue mix and because
professional services and maintenance revenues have a higher cost of total
revenues than software license revenues.
SALES AND MARKETING. Sales and marketing expenses generally increased in
dollars in each quarter primarily due to the hiring of additional sales and
marketing personnel and an increase in marketing program activities, as well as
an increase in commissions paid as a result of higher revenues. A reduction in
marketing activities for the quarter ended September 30, 1998 resulted in a
decrease in overall sales and marketing expenses for that quarter. Sales and
marketing expenses fluctuated as a percentage of total revenues due to
variability in marketing expenditures and our internal hiring cycles for sales
and marketing personnel as well as significant increases in revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in absolute dollars each quarter. General and administrative expenses decreased
as a percentage of total revenues in each quarter. The increase in dollars is
primarily due to an increase in facilities and equipment costs, compensation and
benefits, recruiting and legal fees, and other administrative costs. The
decrease as a percentage of total revenues is due to the significant increase in
revenues. We have historically experienced significant quarterly fluctuations in
our revenues and operating results and expect significant fluctuations to
continue. A number of factors contribute to these variations, many of which are
beyond our control. These factors include, among other things:
- changes in the demand for our software and services;
- the timing of sales of our software and services and a long and
unpredictable sales cycle;
25
<PAGE>
- delays in introducing new software and services;
- new product introductions and changes in pricing policies by competitors;
- customer budget cycles and changes in these cycles; and
- deferrals of customer orders in anticipation of software enhancements or
software products.
We typically realize a significant portion of software license revenues in
the last month of a quarter, frequently in the last weeks or even days of a
quarter. As a result, software license revenues in any quarter are difficult to
forecast because they are substantially dependent on orders booked and shipped
in that quarter.
A high percentage of our operating expenses, particularly personnel and
rent, are relatively fixed in any particular quarter. As a result, unanticipated
variations in the amount and timing of our revenues may cause significant
variations in operating results in any particular quarter. Any significant
shortfall of revenues in relation to our expectations or a customer's decision
not to pursue a new project or proceed to succeeding stages of a current
project, could require us to pay underutilized employees and would have a
material adverse effect on our business, operating results and financial
condition.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the sale
of equity securities through which we have raised approximately $32.5 million.
We have also financed our operations through equipment lease financing and
borrowings from our line of credit.
As of September 30, 1999, we had approximately $18.3 million in cash and
cash equivalents and marketable securities. In October 1998, we entered into a
$3.0 million revolving line of credit. Borrowings under this facility cannot
exceed 85% of our eligible accounts receivable and bear interest at the bank's
prime rate plus 2%. At September 30, 1999 the interest rate was 10.25%. In
connection with the facility, we issued the bank a warrant to purchase 45,000
shares of our common stock at an exercise price of $2.89 per share. The facility
is secured by all of our assets, including our intellectual property. At
September 30, 1999, $1.5 million was outstanding under the credit facility. The
credit facility restricts our ability to pay dividends, sell assets, change the
nature of our business, create liens on our property, and enter into
partnerships and joint ventures. In October 1999, we entered into an amendment
with the bank, under which the line of credit was increased to $7.5 million and
expires in October 2000. We also issued the bank an additional warrant to
purchase 21,428 shares of common stock at an exercise price of $4.16 per share.
Net cash used in operating activities was $5.5 million for the nine months
ended September 30, 1999, $7.3 million for the year ended December 31, 1998 and
2.5 million for the year ended December 31, 1997. Net cash provided by operating
activities was $91,096 for 1996. Net cash used in operating activities resulted
primarily from the net losses we incurred and increases in accounts receivable,
partially offset by increases in deferred revenue, deferred rent and accounts
payable.
Net cash provided by financing activities was $20.7 million for the nine
months ended September 30, 1999, and $9.2 million, $2.4 million and
$3.0 million for the years ended December 31, 1998, 1997 and 1996. Net cash used
in financing activities resulted primarily from the issuance of our preferred
stocks.
Our capital expenditures were $540,917 for the nine months ended
September 30, 1999, and $344,428, $313,023 and $107,567 for the years ended
December 31, 1998, 1997 and 1996, respectively. Capital expenditures were made
to purchase computer equipment and furniture and fixtures.
We believe that the net proceeds from this offering, together with our
current cash, cash equivalents, borrowings under our credit facility and
short-term investments should be sufficient to
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meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. The execution of our business plan will require
substantial additional capital to fund our operating losses, sales and marketing
expenses, capital expenditures, lease payments and other working capital
requirements. We intend to consider future financing alternatives, which may
include the incurrence of indebtedness, the sale of additional equity or
convertible debt securities. Actual capital requirements may vary based upon the
timing and success of the expansion of our operations. Our capital requirements
may change based upon technological and competitive developments. In addition,
several factors may affect our capital requirements, including:
- demand for our software or our anticipated cash flow from operations
being less than expected;
- our development plans or projections proving to be inaccurate; or
- our engaging in acquisitions or other strategic transactions.
Other than our $7.5 million line of credit, we have no present commitments
or arrangements assuring us of any future equity or debt financing, and we
cannot assure you that any such equity or debt financing will be available to us
on favorable terms, or at all. Our failure to raise additional capital when
needed on acceptable terms could substantially harm our financial condition and
results of operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with these year 2000
requirements. The use of software and computer systems that are not year 2000
ready could result in system failures or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Year 2000 complications may disrupt the operations, viability or commercial
acceptance of the Internet, which could adversely affect the market acceptance
of our software.
STATE OF READINESS. We have conducted a review of our software, including
the third-party software embedded into or delivered with our software, and
believe that they are substantially year 2000 ready. We believe that our
software is year 2000 compliant. Nevertheless, it is possible that we will
experience year 2000 problems with our software. With respect to third-party
software embedded or delivered with our software, we have relied on disclosure
statements provided by the third parties which reveal no year 2000 issues
specifically relating to the use of the software with our software. We have no
assurance of the accuracy of these third-party disclosure statements.
We currently believe that our internal software systems are year 2000
compliant. We make it our regular practice to obtain year 2000 warranties from
vendors and our IT department has been meeting with hardware and other suppliers
in order to obtain reassurances regarding the impact of the year 2000 on our
internal systems. We have obtained assurances from the majority of our material
hardware and other suppliers. Nevertheless, failure of the internal hardware or
software systems to operate properly with regard to the year 2000 and thereafter
could disrupt our business and require us to incur significant unanticipated
expenses to remedy any problems or replace products of affected vendors, and
could have a material adverse effect on our business, operating results and
financial condition.
COSTS. To date, we have not incurred significant incremental costs in order
to comply with year 2000 requirements for our software or internal systems, and
we do not believe that we will incur significant incremental costs in the
foreseeable future.
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RISKS. We cannot assure you that other Internet applications, database
software or computer hardware of our customers, which interface with our
software and which may be necessary in order to use our software, are year 2000
ready. Therefore, we cannot assure you that implementations of our software on
our customers' systems are, or will be, year 2000 ready.
We provide a warranty covering year 2000 problems in the current versions of
our software, including software licensed from third parties that we supply with
our software. We may face claims based on year 2000 issues if our software does
not prove to be year 2000 compliant, or claims arising from problems with
third-party software embedded in or delivered with our software or with the
integration of multiple software within an overall system. Year 2000 claims
could result in costly and distracting litigation and in material liability to
us. If our software has significant year 2000 defects, we could suffer damage to
our business and reputation. Correcting any defects could be costly, and we
might have to delay sales of our software while we make corrections. In
addition, any year 2000 problems that occur in our internal systems could
disrupt of our business. Any disruption in the business of our suppliers or
resellers as a result of year 2000 issues, or any general disruption or failure
of the financial, telecommunications, power, transportation or other
infrastructure also could disrupt our business.
The year 2000 issue may also cause us to experience reduced sales during the
remainder of 1999, as existing and potential customers reduce their budgets for
discretionary expenditures, such as e-business infrastructure management
solutions, due to increased expenditures on the year 2000 issue generally.
Potential customers may also defer new software purchases and deployments to
avoid distracting from year 2000 compliance efforts and to preclude the
possibility of introducing new year 2000 issues.
CONTINGENCY PLAN. We have not currently developed a contingency plan for
unanticipated year 2000 issues relating to our software. We cannot assure you
that year 2000 issues will not be discovered in our software or internal
software systems. If year 2000 issues are discovered, we cannot assure you that
the costs of making software and systems year 2000 ready will not have a
material adverse effect on our business, operating results and financial
condition.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We provide our services to customers primarily in the United States and to a
lesser extent, in Europe, Asia and elsewhere throughout the world. As a result,
our financial results could be affected by factors, including changes in foreign
currency exchange rates or weak economic conditions in foreign markets. All
sales are currently made in U.S. Dollars. A strengthening of the U.S. Dollar
could make our software less competitive in foreign markets.
Our interest income is sensitive to changes in the general level of U.S.
interest rates. Due to the nature of our cash equivalents and short-term
investments, which are primarily money market funds and commercial paper, we
have concluded that there is no material market risk exposure.
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BUSINESS
OVERVIEW
We are a leading provider of software that manages the infrastructure of
e-business. Our Trinity and eWatcher software enhance the availability and
performance of this e-business infrastructure, which is vital to an
organization's ability to generate revenue, interact with its customers and
maintain its competitive position. Our software enables organizations to
discover and understand how their information technology, or IT, resources work
together to provide services to users, then monitors, manages and reports on the
availability and performance of those services in real-time. Our client base of
service providers, Internet companies, other corporations and government
agencies includes: ALLTEL Information Services, Inc., Bell Atlantic
Internetworking and Multimedia Solutions, CBS Corporation, Eddie Bauer Online,
Exodus Communications, Inc., ICG Equipment, Inc., Morgan Guaranty Trust Company,
National Institutes of Health, US West, Inc. and Waterhouse Securities, Inc.
INDUSTRY BACKGROUND
Global competitive pressures are driving organizations to continuously seek
new and better ways to develop, market and maintain their products and services
and to attract, serve and retain their customers. To enhance their
competitiveness, organizations are increasingly implementing e-business
initiatives that rely on the Internet. E-business occurs when employees,
customers, partners and vendors communicate and conduct business electronically.
For example, enterprise resource planning, or ERP, applications, once the
exclusive domain of corporate networks, are increasingly enabling customers to
enter orders and view and pay bills using the Internet. Furthermore, the
deregulation of the telecommunications industry has forced service providers to
differentiate themselves by offering new value-added services to support
e-business. Examples of these services are: virtual private networks, or VPNs;
managed network services; and high bandwidth connectivity, including digital
subscriber lines, or DSLs, and integrated services digital networks, or ISDNs.
Moreover, e-business is driving the emergence of whole new categories of
companies whose core offerings are dependent on the Internet, including online
merchants, application service providers, or ASPs, and Web hosting companies.
To enable and support these initiatives, a complex, layered e-business
infrastructure of technology, resources and services has evolved. This
infrastructure consists of interdependent networks, systems, applications and
bandwidth. Time-to-market pressures and increasing adoption of e-business
activities place an inordinate amount of strain on an organization's e-business
infrastructure and are forcing the interaction of its infrastructure with those
of its customers, partners and vendors. To support e-business, organizations
have been forced to add new networks, systems and applications, layering new
technologies onto existing technologies and creating an increasingly
heterogeneous and widely dispersed computing environment. Further complicating
this computing environment is the rapid and unpredictable change in technology
that is dictated by the emergence of new and more complex products with shorter
product life cycles. These new products are neither interoperable nor scaleable
and often render installed technologies obsolete. In addition, the proliferation
of remotely accessed applications like e-mail and sales automation create
additional points of entry to the e-business infrastructure thereby adding to
its complexity. Also, the growth of voice, video and data traffic over the
Internet has intensified e-business infrastructure congestion.
Since the success of many businesses is directly related to the reliability,
availability and integrity of their e-business infrastructure, this is an area
in which organizations are investing significantly. According to International
Data Corporation, the market for Internet infrastructure software alone will
grow from $7.3 billion in 1998 to over $29.2 billion in 2003.
Historically, a significant portion of the costs associated with the
management and operations of e-business infrastructure has been related to IT
personnel. With the increasing adoption of e-business initiatives and the
general shortage of qualified IT professionals, organizations are finding it
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increasingly more challenging and expensive to hire and retain the necessary
personnel to manage their e-business infrastructures. Consequently,
organizations are increasingly outsourcing their IT functions and seeking more
intelligent software solutions to help manage their e-business infrastructures
so they can reduce the costs associated with maintaining IT personnel and
increase focus on their core competencies.
E-business infrastructure delivers vital services to is an organization's
internal users, customers, partners and vendors. In a traditional organization,
internal users expect to have uninterrupted access to all systems, applications
and information sources to which they are entitled, including e-mail, intranet,
and other transaction-based services. Similarly, an organization that has
outsourced network connectivity or Web hosting to a service provider expects
that the response time and availability of its network or Web site will adhere
to contractual commitments. For example, Internet companies, like online
merchants, are accountable to their customers, who can easily switch to a
competitor's Web site if they find that a site is unavailable or performing
poorly. Moreover, there is a spectrum of business priorities associated with all
of these services. For example, in a financial services company, access to
e-mail is less important than the uptime of the global trading floor. This
business priority is escalated when service is extended to external users, as is
the case with online trading. Web site downtime or poor performance can not only
significantly impact business productivity, it can have a serious effect on an
organization's revenues, market valuation, customer satisfaction and future
earnings. Whether a service provider, Internet company, other corporation or
government agency, failure to deliver the level of service required by users can
have an immediate negative impact on any organization.
Consequently, we believe it is imperative for organizations to manage their
e-business infrastructure from the perspective of the services it delivers in
accordance with business priorities. Enterprise management software, point
products and internally developed software represent three different approaches
to manage the e-business infrastructure.
- ENTERPRISE MANAGEMENT SOFTWARE is designed to automate and
centralize the management function of network, system and
application resources across the e-business infrastructure. It is
event-focused, meaning it alerts IT administrators when an
infrastructure problem has occurred, but is unable to determine
the root cause or impact on business services. Moreover, this
software generally tends to be costly and time consuming to
deploy.
- POINT PRODUCTS focus on managing discrete components of the
e-business infrastructure, including networks, systems, devices or
Web servers. They provide only a limited view of the e-business
infrastructure and frequently do not interoperate with one
another. As a result, organizations that install multiple point
products may incur substantial integration costs in order to have
a comprehensive view of all of the components that may impact
service delivery.
- INTERNALLY DEVELOPED SOFTWARE is designed to address an
organization's particular e-business infrastructure. This
customized software is often costly, inflexible and has difficulty
interacting with the infrastructures of customers, partners and
vendors.
There is an opportunity for a more comprehensive, yet quickly deployable
e-business infrastructure management solution that improves service availability
and performance to the level that employees, customers, partners and vendors
require. There is also a need for a solution that can identify e-business
infrastructure resources and how they work together to deliver services,
determine in real-time the business impact of a service disruption and address
problems based on business priorities.
SOLUTION
We are a leading provider of software that manages the infrastructure of
e-business. Trinity and eWatcher help service providers, Internet companies,
other corporations and government agencies enhance the availability and
performance of their e-business infrastructures. Trinity discovers e-business
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infrastructure resources and their inter-relationships, monitors events
generated from these resources, determines the root cause of problems and their
impact on service delivery in real time, provides a means to automate problem
resolution, and reports on and manages service delivery. e-Watcher is Web
monitoring software that simulates the user's experience to detect potential
problems before service is affected.
Our software enables our customers to:
IMPROVE BUSINESS UPTIME. Our software provides organizations with a simple
and rapid way to detect service disruptions, isolate their root cause and
identify the business problems they create. Understanding the cause of service
disruption and its impact on e-business allows an organization's service desk to
proactively alert users and focus on priority-based problem resolution. This
enables organizations to improve the uptime of critical, often
revenue-generating, business services.
ENHANCE CUSTOMER RELATIONSHIPS. Competitive pressures are driving
organizations to extend their e-business infrastructures in order to deliver
reliable and high performance services to their customers. Our software helps
organizations detect problems and take remedial action before their customers
are affected.
REDUCE MEAN-TIME-TO-BUSINESS-VALUE. Our software's open architecture is
designed for fast deployment, which often results in a rapid return on
investment to our customers. By quickly and automatically discovering an
organization's resources and their service dependencies, Trinity delivers value
in a matter of days or weeks rather than months or years. This enables our
customers to accelerate the rate at which they can extend their e-business
infrastructures to address time to market pressures.
REDUCE MANAGEMENT COSTS. Our software's unified console provides a
comprehensive service-based view of an organization's e-business infrastructure.
This enables IT administrators to more efficiently manage resources and
eliminates the need to integrate multiple point products. In addition, our
software complements existing enterprise management, element management and help
desk software enhancing our customers' ability to realize the full value of
these investments in their infrastructure.
STRATEGY
Our objective is to become the leading provider of software that manages the
infrastructure of e-business. The key elements of our strategy include:
EXTEND TECHNOLOGICAL LEADERSHIP POSITION. We intend to extend our
service-based approach and open architecture to address an organization's
evolving e-business infrastructure management requirements. Our goal is to
provide the most comprehensive e-business infrastructure management software by
using our technological expertise to develop innovative new software through our
internal research and development efforts, technology acquisitions and strategic
relationships.
ENTER NEW MARKETS. To date, a significant percentage of our total revenues
have been derived from licensing our software to service providers, other
corporations and government agencies. We believe, however, that our software is
also well-positioned to meet the needs of emerging Internet companies, including
online merchants, ASPs and Web hosting companies.
CAPITALIZE ON THREE-PRONGED SALES STRATEGY. We will continue to develop our
distribution capabilities through the use of a three-pronged sales effort
combining direct, indirect and inside sales forces. To augment our direct sales
effort, we intend to increase the size of our sales force and the number of our
sales offices both domestically and internationally. We plan to expand our
current distribution channels with additional resellers and system integrators.
We will continue to use our inside
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sales group to sell eWatcher and to identify potential customer opportunities.
We also intend to increase our participation in trade shows and invest more
heavily in marketing.
INCREASE PENETRATION INTO CUSTOMER BASE. Our strategy is to sell additional
software into our existing domestic and international customer base. For
example, we plan to pursue opportunities to sell additional new modules and
enhancements to Trinity customers, sell Trinity to eWatcher customers and sell
eWatcher or Trinity to other departments or subsidiaries within our customer
base.
COMPLEMENT OUR CUSTOMER'S EXISTING AND FUTURE TECHNOLOGY INVESTMENTS. We
intend to continue to develop software that can be easily integrated into our
customers' existing e-business infrastructure management investments. We also
plan to use strategic relationships with enterprise management, element
management and help desk vendors to expand our software offerings.
PURSUE STRATEGIC ACQUISITIONS. Through our purchase of Caravelle, we
acquired the technology underlying our eWatcher software. We will continue to
pursue the acquisition of businesses, products and technologies that enable us
to enhance and expand our existing software offerings. In addition, we intend to
make acquisitions that help us expand our customer base and distribution
channels.
PRODUCTS
Our product offerings include: Trinity, our service management software, and
eWatcher, our Web monitoring software. Our software helps organizations to
manage the availability, performance and cost of their e-business
infrastructures.
TRINITY
Trinity enables our customers to manage their e-business infrastructure by
constructing an Enterprise Service Model that depicts how the components of
their infrastructure work together to support business functions. Trinity
incorporates data collection Agents that continuously pass information gathered
from a wide range of resources to the Model Server that tracks in real-time the
inter-relationships among those different streams of information. This allows
the Model Server to automatically isolate the root cause and business impact of
service disruptions. Trinity enables an organization's technical staff to focus
on quickly restoring services based on business priority. Trinity provides a
context in which technical staff can link third-party tools, user policies and
documentation to automatically resolve these problems.
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The following table summarizes the Trinity family of service management
software. Customers are able to license Trinity and any combination of modules
depending on their needs.
<TABLE>
<CAPTION>
BASE PRODUCT DESCRIPTION
- ------------ --------------------------------------------------------
<S> <C>
TRINITY Provides all functionality necessary to discover,
collect, analyze, distribute and present a real-time and
historical service perspective of the e-business
infrastructure.
MODULES
- ------------------------------------------
TRINITY SERVICE AVAILABILITY REPORTER Online processing capabilities for analyzing the root
cause and business impact of service disruptions.
TRINITY AGENT SERVER Identifies possible disruptions by simulating the user's
Web experience; monitors Web response time, latency and
integrity; forwards exceptions to the Trinity base
product to pinpoint the root cause of the problem.
TRINITY AGENTS Java-based distributed data collectors that determine if
a service disruption has taken place. Support network
devices, including Cabletron Systems, Inc., Cisco,
Nortel Networks Corporation, and 3Com Corporation and
common operating systems, including NT and Solaris.
TRINITY GATEWAYS AND INTERFACES Integrates Trinity with enterprise management software,
including Unicenter TNG and Tivoli, element management
software, including BMC Patrol and help desk software,
including Peregrine's ServiceCenter and Remedy's Action
Request System.
</TABLE>
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EWATCHER
eWatcher manages the availability and performance of service delivered by
Web applications. With eWatcher, organizations can simulate their users' Web
experience and proactively manage Web response time. eWatcher is well-suited to
manage business-critical Web environments through simulated transaction testing
and intelligent notification. For example, an online merchant can use eWatcher
to test and monitor sales transactions to ensure that they are being processed
and order information is being delivered in a timely fashion. eWatcher also
enables organizations to test for and verify the existence of acceptable
performance levels. It enhances customer satisfaction by managing a site from
the user's perspective and identifying problems before customers encounter them.
eWatcher can be installed and operational in less than one hour.
PLANNED ENHANCEMENTS AND NEW PRODUCTS
We have plans to introduce several new products and software release updates
during 2000. New software will include Trinity Performance Reporter, a real-time
network performance reporting and historical trending software for carrier and
enterprise high-speed data networks, including asynchronous transfer mode, or
ATM, frame relays and Internet Protocol, or IP-based networks. Trinity
Performance Reporter collects vital data about the performance of resources and
services, and translates this data into a variety of meaningful reports.
TECHNOLOGY
Trinity's four-tiered architecture consists of Agents; Model, Data and
Reporting Servers; Object Servers; and Clients. The following diagram provides a
description of Trinity's basic components.
TRINITY ARCHITECTURE GRAPHIC DESCRIPTION:
- - This graphic depicts a cloud with four tiers of boxes arranged above it. Down
the left hand side of the graphic and horizontally aligned to the appropriate
corresponding tier of boxes, the following text appears from top to bottom:
- "4(th) Tier" heading, with "Presentation" underneath
- "3(rd) Tier" heading, with "Distribution" underneath
- "2(nd) Tier" heading, with "Correlation" underneath
- "1(st) Tier" heading with "Monitoring" underneath
- - The cloud at the bottom of the graphic appears as follows:
- Centered at the top inside of the cloud is the text "e-Business
Infrastructure"
- Beneath this text, there is a collection of icons representing network
devices, servers, and monitors joined by lines and a small cloud to
depict their network connectivity.
- Three arrows point upward from the top of the cloud to the 1(st)tier of
boxes
- - This tier appears as a rectangle containing five smaller boxes, as follows:
- Centered at the top of the rectangle is the word "Agents"
- There are five boxes arranged along the inside bottom of the rectangle,
annotated from left to right as follows: "Network Agents", "System
Agents", "Application Agents", "Business Agents", and "API"
- Two arrows point upward from the top of the rectangle to the 2(nd)tier of
boxes
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- - The second tier is represented as a rectangle containing the following text
and graphics:
- A smaller version of the cloud that appears at the bottom of the page
with the text "Model Server" appearing at the top
- two smaller rectangular boxes appear to the right of this smaller cloud
and are described as follows:
- they are vertically aligned with each other
- the bottom rectangle contains the text "Data Server" and "Long Term
Data" centered on two lines
- the upper rectangle contains the text "Reporting Service &" and
"Report Generation" centered on two lines
- these two rectangles are joined by a small arrow pointing upward
from the bottom rectangle to the top rectangle
- A thicker two-way arrow appears above the center of the "Model Server"
rectangle, connecting this tier with the 3(rd) tier above it
- A longer, thinner two-way arrow extends from near the top left corner of
the "Model Server" rectangle to a box at the 4(th) tier that contains the
text "3(rd)-Party Help Desk Solutions", centered on three lines
- - The third tier contains a succession of three polygons. In the center of the
top-most polygon appears the text "Object Servers". One two-way arrow extends
from the top of these polygons to the bottom of the 4(th) tier.
- - In addition to the "3(rd)-Party Help Desk Solutions" box described above, the
4(th) tier contains a rectangle with three smaller boxes inside of it. This
rectangle appears as follows:
- Centered at the top of the box is the text "Clients"
- The three boxes are arranged along the inside bottom of this rectangle
and are annotated from left to right as follows:
- "Trinity Service Manager"
- "Trinity Open Console"
- "Trinity Web-Based Reporting"
TRINITY'S ARCHITECTURE
Trinity's four-tiered architecture is designed for efficient data
collection, analysis and distribution. Trinity modules have an object-oriented
design that enables communication through the Common Object Request Broker
Architecture, or CORBA.
TRINITY AGENTS. Trinity Agents make up the first tier of the Trinity
architecture. Numerous types of Agents can interact with enterprise management
software, third-party agents or directly with resources under management through
standard protocols, including application log files, simple network management
protocol, or SNMP, or through proprietary third-party application programming
interfaces, or APIs. Agents also recognize the SNMP management information
bases, or MIBs, from network device vendors, including Cisco, Nortel, Cabletron
and 3Com. Agent Managers serve as the foundation that supports multiple
concurrent Agents and enable message delivery to the Model Server.
Trinity Agent Server measures Web response time and latency through
automated, customized tests that check every phase of a user's Web experience.
When any aspect of a Web transaction fails or its performance degrades, Trinity
correlates network and system variables and performs root cause analysis
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to determine why it is not performing and which e-business services are
impacted. These tests identify, any failures or changes in performance levels
below defined thresholds and forward the information to the Model Server for
analysis of the service being delivered.
We have developed interfaces and API toolkits that enable Trinity to
discover, manage and integrate with a wide range of resources in our customers'
e-business infrastructure. We also provide a development kit for customers to
build Agents for specialized or legacy systems.
TRINITY SERVERS. The second tier of the Trinity architecture is comprised
of the Trinity Model Server, Trinity Data Server and Trinity Reporting Server.
- TRINITY MODEL SERVER maintains and records a real-time, data-driven
information model that tracks e-business infrastructure resources,
services and their inter-relationships. It performs root cause and impact
analysis through the Enterprise Service Model, and also provides a means
by which IT administrators can automatically resolve service disruptions.
- TRINITY DATA SERVER stores events, alarms, long-term service availability
information and Agent code and instructions. This information is used for
service, availability, reporting, investigating historical alarms and
centralized management of distributed Agents.
- TRINITY REPORTING SERVER provides service availability reporting through
a Web browser. It supports scheduled report generation and delivery of
the historical data stored in the Trinity Data Server.
TRINITY OBJECT SERVERS. Trinity Object Servers form the third tier of the
Trinity architecture. The Object Servers function as the information
distribution mechanism that provides users with efficient access to the Model
Server. By distributing multiple Object Servers across local area or wide area
networks, Trinity can be efficiently deployed to minimize the use of network
bandwidth.
TRINITY CLIENTS. Trinity Clients, the fourth tier of the Trinity
architecture, are a set of integrated software applications designed to meet the
diverse needs of Trinity users. Trinity Clients run on multiple operating
systems, including NT and Solaris. Three types of clients are available: Trinity
Service Manager, Trinity Open Console and Web-Based Reporting Clients.
- TRINITY SERVICE MANAGER allows IT administrators to create user-defined
views of e-business infrastructure information and then use these views
to inspect, update and modify managed resources and services.
- TRINITY OPEN CONSOLE is a Java-based console that provides a customizable
read-only view of the Enterprise Service Model.
- WEB-BASED REPORTING CLIENTS report on the root cause of a service
disruption and its business impact as well as historical views of service
availability information.
EWATCHER ARCHITECTURE
eWatcher securely monitors a Web site both within and outside a firewall to
help ensure its availability and performance relative to defined levels.
eWatcher does this by testing each phase of a defined transaction from a user's
perspective, including logging-in, traversing links and accessing servers,
pages, databases and Web services like e-mail, news and file transfers. eWatcher
simulates a user's experience by capturing and playing back complete online
transactions at times determined by the IT administrator, enabling managers to
identify and fix a problem before service is affected.
eWatcher's web-based architecture supports comprehensive Web monitoring from
a Java-enabled Web browser, including configuration, testing, control and
reporting on the status of Web and network components in real-time. Access to
eWatcher is also available through non-Java browsers or personal digital
assistants. eWatcher supports the simultaneous testing of hundreds of managed
devices.
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CUSTOMERS
We have a diverse set of customers in a variety of industries, including
financial services, government, insurance, retail, manufacturing and
telecommunications. To date, we have targeted organizations in these key
markets: Global 2000 companies, service providers, and Internet companies,
including online merchants, ASPs and web-hosting companies. As of November 15,
1999, we had over 100 customers in the following nine countries: United States,
Canada, United Kingdom, France, Germany, Singapore, Japan, China and Australia.
The following is a representative list of organizations that have each
purchased, either directly or through resellers, at least $75,000 of our
software and services in the last 18 months and with whom we have current
maintenance agreements:
<TABLE>
<S> <C> <C>
ALLTEL Information Services, Inc. Morgan Guaranty Trust Company Peregrine Systems, Inc.
CSG Systems, Inc. National Institutes of Health Refco Capital Holdings,
ICG Equipment, Inc. PageMart Wireless, Inc. Inc.
Jazz IT, Inc. United Rentals
</TABLE>
In the nine months ended September 30, 1999, three customers, ALLTEL, ICG
Equipment and National Institutes of Health, each accounted for greater than 10%
of our total revenues. In 1998, three customers, ALLTEL, Citibank, N.A. and
Morgan Guaranty Trust Company, each accounted for greater than 10% of our total
revenues.
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CUSTOMER CASE STUDIES
The following case studies illustrate representative customer applications
of our software within our target markets:
<TABLE>
<CAPTION>
THE CHALLENGE AVESTA'S SOLUTION THE RESULT
<S> <C> <C>
DELIVER ON SERVICE LEVEL COMMITMENTS WHILE CONTROLLING COSTS
ALLTEL INFORMATION SERVICES Trinity diagnoses the root ALLTEL is accelerating their
is a customer-focused cause and assesses the response time to and
information technology business impact of network, resolution of service
company providing information systems, resources and disruptions. As a result,
processing management, applications disruptions. they have improved their
outsourcing services and service quality, and
applications software to the differentiated their service
telecommunications and offerings to better address
financial services industry. their customers' business
Their strategy to continually issues.
improve the quality of their
products and services
required a better solution
for monitoring business
transactions.
EFFECTIVELY MONITOR THE AVAILABILITY OF CUSTOMER'S INTERNET APPLICATIONS
EXODUS COMMUNICATIONS, a Using eWatcher, Exodus was Exodus now uses e-Watcher to
leading outsourcer of able to monitor response offer value-added
mission-critical Internet times and availability across availability monitoring.
operations, needed to manage all of its data centers.
all of its customers' Web
sites and network
infrastructure systems from
13 Internet data centers
located throughout the United
States and Europe.
</TABLE>
SALES AND MARKETING
We sell our software worldwide based on a three-pronged sales strategy,
including direct, indirect and inside sales forces. In addition, we have
established relationships with vendors to market complementary products and
services to help us gain broader market acceptance, as well as enhance our sales
and marketing capabilities. As of November 15, 1999, we had a total of 47 sales
professionals of whom 16 were located in our New York City headquarters, 24 in
regional offices in the United States and 7 in our offices in Canada, the United
Kingdom and Singapore.
DIRECT SALES. Our direct sales force is comprised of full-time sales
professionals who primarily target senior executives of potential Trinity
customers. We have two specialized sales teams focused on the telecommunications
industry and United States government agencies. We intend to expand our direct
sales force and establish additional sales offices domestically and
internationally.
INDIRECT SALES. We have contractual relationships with resellers and system
integrators, that range from co-marketing relationships to authorized reselling
agreements. Our resellers purchase our software at discounts from our list
prices and bundle their services with our software to offer a complete,
integrated solution to their customers. We offer our resellers special discounts
and volume incentives,
38
<PAGE>
complete marketing programs, and sales and technical training and support to
help them market their complete technology solutions. In return, we gain entry
into accounts in which these resellers already have established long-standing
business relationships. Our resellers act as an extension of our own sales and
technical teams, giving us broad and valuable access to customers using few
internal resources.
INSIDE SALES. Our inside sales team focuses on telemarketing eWatcher.
Potential customer opportunities are identified from Web downloads of trial
copies of eWatcher, contacts at trade shows and telemarketing campaigns. These
contacts also serve as points of entry for future opportunities.
STRATEGIC RELATIONSHIPS. By integrating our software with products
developed by vendors with whom we have strategic relationships, we can offer
significant value-added products and services to customers. These strategic
relationships are with organizations that have established national and
worldwide sales forces, a broad installed base of customers, and a strong
branded presence in the marketplace. We have created a team of 12 people in
business development focused on cultivating these relationships and
collaborating with their internal sales and technical teams and customer base.
The vendors with whom we have strategic relationships include: Oracle, Cisco,
Hewlett-Packard, Computer Associates, BMC, Tivoli, Peregrine and Remedy.
We conduct a variety of marketing programs worldwide to educate our target
market, create awareness and generate sales of our products. In addition to
building awareness of our brand, our marketing activities focus on generating
leads for our sales efforts. Our marketing activities include Web seminars,
direct mailings, online advertising campaigns, trade shows and telemarketing. In
addition to our current marketing efforts, we intend to implement a worldwide
print advertising campaign, executive seminar series, and joint marketing
efforts with vendors with whom we have strategic relationships and resellers
throughout 2000. As of November 15, 1999, our marketing organization consisted
of ten individuals, nine of whom are based in our New York City headquarters,
and one of whom resides in our Canadian office.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
We believe that a high level of professional service and customer support is
important to the successful marketing and sale of our software. We plan to
increase the number of our service personnel and educate third parties and
resellers on how to provide similar services.
PROFESSIONAL SERVICES. Our professional services organization assists our
customers with customizing and integrating our software into their existing
infrastructure. As of November 15, 1999, our professional services organization
consisted of five employees.
CUSTOMER SUPPORT. We offer a variety of customer support services to meet
the specific needs of our customers, including telephone support, e-mail,
newsgroups and on-site support. In addition, we are currently building a product
support Web site for our customers, which will offer online access to the latest
documentation and interactive self-help functionality. We also offer formal
training and technical certification programs that address the needs of general
users, system administrators, resellers and other system integrators. Our
customer support organization consisted of three employees as of November 15,
1999.
RESEARCH AND DEVELOPMENT
Our product development team is responsible for the design, development and
release of our software. Within our product development team is an advanced
research group that focuses on emerging trends, architectural issues and product
technology strategies. As of November 15, 1999, our research and development
organization consisted of 45 employees.
39
<PAGE>
Our product development expenses were $1,863,085 in 1997, $2,815,953 in
1998, and $2,319,852 for the nine months ended September 30, 1999. No product
development expenses were incurred in 1996. We expect our product development
expenses to increase as we hire additional personnel to develop new products and
to enhance our existing software.
COMPETITION
Our software is designed for use in the new, rapidly evolving and highly
competitive e-business infrastructure software market. Competition in this
market is intense and is characterized by rapid technological change, evolving
industry standards, frequent product introductions and dynamic customer
requirements. We expect competition to intensify in the future. Our primary
sources of competition fall within the following five categories:
- - our customer's internal technical organization that produces software that
addresses particular needs, including software and hardware vendors like
Hewlett Packard, Sun Microsystems, Inc. and Microsoft Corporation;
- - large software and hardware suppliers, including Computer Associates, Tivoli
and BMC Software;
- - suppliers of network and system management products, including Hewlett
Packard, Sun Microsystems, Tivoli, Veritas Software Corporation and
Cabletron;
- - suppliers of point products, including Micromuse, Inc., Visual Networks, Inc.
and several smaller software vendors; and
- - systems integrators who generally provide consulting services to develop
customer specific applications, including Telcordia Technologies, Inc.,
Objective Systems Integrators, Inc. and TCSI Corporation.
Some of our competitors have longer operating histories and significantly
greater financial, technical and marketing resources than we do. In addition,
other companies may enter the e-business infrastructure management market.
Many of our existing and potential customers evaluate on an on-going basis
whether to develop their own e-business management software or purchase it from
outside suppliers. As a result, we must on an on-going basis educate existing
and potential customers as to the advantages of our software over internally
developed e-business infrastructure management software.
Our existing and potential customers have a pre-set IT budget for which we
compete along with our competitors. We currently compete primarily on the basis
of the following factors:
- - breadth of functionality;
- - scalability;
- - product performance;
- - ease of deployment and use; and
- - price.
We believe that we currently compete favorably with respect to each of these
factors. However, the e-business infrastructure management market is still
rapidly evolving, and we may not be able to compete successfully against present
or future competitors, which could harm our operating results.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete are dependent on our ability to develop,
maintain and protect the proprietary aspects of our technology. We rely on a
combination of patent, trademark, trade secret, and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
We
40
<PAGE>
presently have two pending patent applications in the United States covering
Trinity's Enterprise Service Model, Trinity Open Console and Trinity Data
Server. Based on these applications, we have filed applications under an
international treaty, which may eventually lead to the filing of patent
applications in foreign countries. We also own a trademark registration for our
company name and have pending applications for trademark registrations for
Trinity and eWatcher in the United States. Trademark applications have been
filed in several foreign countries. Our patent and trademark applications might
not result in the issuance of any valid patents or trademarks. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We license Trinity to end-users
under signed license agreements and eWatcher under electronic agreements.
Finally, we seek to avoid disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. In addition, we sell our products
internationally. The laws of many countries do not protect our proprietary
rights to the same extent as the laws of the United States. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets and to determine the validity and scope of the proprietary
rights of others. Any resulting litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our business
and operating results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability to
license the infringed technology on acceptable terms, our business and operating
results would be significantly harmed. Currently, we are engaged in litigation
with Systems Management concerning the alleged infringement of two patents held
by Systems Management which is described in detail in this section under "Legal
Proceedings."
EMPLOYEES
At November 15, 1999, we had a total of 144 employees, 116 in the United
States, 4 in the United Kingdom, 18 in Canada, and 3 in Singapore. Of the total,
81 were engaged in sales and marketing, 45 were in research and development, and
21 were in general and administration. None of our employees is subject to a
collective bargaining agreement and we believe that our relations with our
employees are good.
FACILITIES
Our headquarters, located in New York City, occupy approximately 16,300
square feet of office space under a lease which expires in June 2008. We also
lease regional offices located in Redwood City, California, Burlington,
Massachusetts, Ottawa, Canada, London, England and Singapore. We believe that
our existing facilities are adequate for our current needs and that suitable
additional or alternative space should be available in the future on
commercially reasonable terms as needed.
LEGAL PROCEEDINGS
On October 31, 1997, Systems Management ARTS Incorporated filed a complaint
against us in the United States District Court for the Southern District of New
York, alleging infringement by us of two patents held by Systems Management
(U.S. Patent Nos. 5,528,516 and 5,661,668). Systems Management alleges that
Trinity is especially adapted for use in and constitutes a material part of the
inventions claimed in the Systems Management patents. The complaint also alleges
unfair competition, interference with contractual relations and unjust
enrichment against us, as well as a claim of breach of contract against one of
our officers. Remedies sought include monetary damages, which may be tripled
41
<PAGE>
if the infringement is found to have been willful, punitive damages, and an
accounting of all revenue received from licensing Trinity in its current form,
permanent injunctions requiring us to stop selling Trinity in its current form
and engaging in the other challenged conduct, and Systems Management's
attorneys' fees and costs in bringing this lawsuit.
On December 9, 1997, we filed our answer to Systems Management's complaint
and filed counterclaims against Systems Management. Our answer denies their
allegations and asserts defenses to their claim. Our counterclaims against
Systems Management and one of its officers are for declaratory judgment that we
do not infringe the patents and that the patent claims are invalid and
unenforceable based on prior art, violations of the Lanham Act, patent misuse,
unfair competition, and violations of the New York General Business Law. We seek
injunctive and declaratory relief as well as monetary and punitive damages. We
are also seeking attorneys' fees and costs for this lawsuit. On December 18,
1997, Systems Management replied to our counterclaims, denying all material
allegations of the counterclaims. Both parties have requested a jury trial.
The parties have, with certain exceptions, completed fact discovery and are
currently conducting expert discovery. Also, Systems Management moved for
partial summary judgment seeking dismissal of some of our counterclaims and
limiting our counterclaims and defenses based on portions of our prior art. The
motion has been fully briefed and was argued to the Court in October 1999. The
Court has not yet issued a decision on either motion. The parties expect to
complete expert discovery in the first quarter of 2000. Subsequently, the
parties will submit briefs on the interpretation of the patents claims, which
interpretation will then be decided by the Court. Damages discovery will follow,
succeeded by pre-trial motions and hearings, if any. Thereafter, the Court would
set the matter for trial; no trial date has yet been set.
We received an opinion from our patent counsel that Trinity did not infringe
the Systems Management patent. Since then, we have released additional versions
of Trinity. Although we do not believe that any changes to Trinity made in the
newer versions cause Trinity to infringe any claim of the Systems Management
patent, the opinion from our patent counsel did not address the additional
versions of Trinity that we have released since October 31, 1997. An opinion of
counsel only represents such counsel's view of the claims raised under
applicable laws and is not binding on any court or governmental agency and does
not provide any guarantees that we will prevail on the merits.
We believe that we have strong defenses against Systems Management's
lawsuit. Accordingly, we intend to defend this suit vigorously. However, we may
not prevail in this litigation. Litigation is subject to inherent uncertainties,
especially in cases like this where sophisticated factual issues must be
assessed and complex technical issues must be decided. In addition, cases
similar to this involve issues of law that are evolving, presenting further
uncertainty. Our defense of this litigation, regardless of the merits of the
complaint, has been, and will likely continue to be, time-consuming, extremely
costly and a diversion for our technical and management personnel. Through
September 30, 1999, we have spent $1.9 million in legal fees and expenses on
this litigation and expect to incur substantial additional expenses even if we
ultimately prevail. In addition, publicity related to this litigation has in the
past, and could likely in the future, have a negative impact on sales of
Trinity.
A failure to prevail in the litigation could result in one or more of the
following:
- - our paying substantial monetary damages, which could be tripled if the
infringement is found to have been willful; and which may include paying an
ongoing significant royalty or compensation for lost profits to Systems
Management;
- - our paying substantial punitive damages;
- - our having to provide for an accounting of all revenue received from selling
Trinity in its current form;
42
<PAGE>
- - the issuance of a preliminary or permanent injunction requiring us to stop
selling Trinity in its current form;
- - our having to redesign Trinity, which could be costly and time-consuming and
could substantially delay Trinity shipments, assuming that a redesign is
feasible;
- - our having to reimburse Systems Management for some or all of its attorneys'
fees and costs, which could be substantial;
- - our having to obtain from Systems Management a license to use its patented
technology, which license might not be made available to us on reasonable
terms, if at all; or
- - our having to indemnify our customers against any losses they may incur due
to the alleged infringement.
If we are enjoined from selling Trinity in its current form, we may be
required to redesign Trinity to avoid infringing on the intellectual property
rights of others. If we are unable to efficiently redesign commercially
acceptable software, our sales will decline significantly. Furthermore, we
expect to continue to incur substantial costs in defending against this
litigation and these costs could increase significantly if our dispute goes to
trial. It is possible that these costs could substantially exceed our
expectations in future periods.
43
<PAGE>
MANAGEMENT
The executive officers and directors of Avesta, their ages as of
October 31, 1999 and the positions held by them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- -------- --------------------------------------------------------
<S> <C> <C>
Kam M. Saifi......................... 39 President, Chief Executive Officer and Director
David Arbeitel....................... 38 Senior Vice President, Product Management, Chief
Technology Officer and Director
Cameron Saifi........................ 38 Senior Vice President and Chief Operating Officer
Kenneth L. Campbell.................. 43 Chief Financial Officer
Andrew C. Cooper..................... 38 Senior Vice President, Business Development and Channels
Robert Kostes........................ 35 Senior Vice President, Engineering
Anthony R. Williams.................. 43 Senior Vice President, Global Sales
David Zager.......................... 44 Vice President and Chief Scientist
Helen Donnelly Toth.................. 34 Vice President, Marketing
R. Bradford Burnham.................. 45 Director
Donald R. Dixon...................... 52 Director
Carlos Dominguez..................... 41 Director
John Faccibene....................... 54 Director
James C. Hale, III................... 47 Director
Royce Holland........................ 49 Director
Venetia Kontogouris.................. 48 Director
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
KAM M. SAIFI is a founder of Avesta and has served on its Board of Directors
since April 1996 and as its President and Chief Executive Officer since
November 1996. Prior to founding Avesta, Mr. Saifi served as Vice President and
Investment Officer of Morgan Stanley Venture Partners, a venture capital fund,
from January 1996 to October 1996. From January 1994 to January 1996, Mr. Saifi
served as Vice President and Director of Telecommunications and Networking
Services at Morgan Stanley. Mr. Saifi serves on the Board of Directors of
Quadrian Holdings, Inc. Mr. Saifi received a B.S. in electrical engineering from
Rutgers University.
DAVID ARBEITEL is a founder of Avesta and has served as its Senior Vice
President, Product Management and Chief Technology Officer since November 1996.
Mr. Arbeitel has served on the Board of Directors of Avesta since
December 1996. Prior to founding Avesta, Mr. Arbeitel served as Vice President
of Global Network Services at Morgan Stanley & Co., Inc. from 1992 to
October 1996. Mr. Arbeitel received a B.E. in electrical engineering from the
Stevens Institute of Technology, and an M.B.A. and an M.S. in electrical
engineering from Boston University.
CAMERON SAIFI has served as Senior Vice President and Chief Operating
Officer of Avesta since January 1997. From January 1996 to January 1997,
Mr. Saifi served as Project and Contracts Manager of MFS Network Technologies,
an operating company of MFS Communications Company, Inc., a global exchange
carrier acquired by MCI WorldCom in 1997. From November 1994 to January 1996,
Mr. Saifi served as Operations Manager of Castle Construction and Management
Services, Inc. a national construction management and engineering company.
Mr. Saifi received a B.S. in mechanical engineering from Rutgers University.
Mr. Saifi is the brother of Mr. Kam Saifi.
KENNETH L. CAMPBELL has served as Chief Financial Officer of Avesta since
October 1999. Prior to joining Avesta, Mr. Campbell served as Chief Financial
Officer of Wang Government Services, an IT services company, from July 1999 to
October 1999. From July 1998 to June 1999, Mr. Campbell was self-employed. From
July 1997 to June 1998, Mr. Campbell served as Chief Financial Officer of ICF
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<PAGE>
Kaiser International Inc., an engineering and consulting company. From May 1996
to July 1997, Mr. Campbell was a partner of Perseus International, a privately
held merchant bank. From 1988 to May 1996, Mr. Campbell held various management
positions. Mr. Campbell received a B.A. in economics from Wesleyan University,
and an M.B.A. from the University of Pennsylvania.
ANDREW C. COOPER has served as Senior Vice President, Business Development
and Channels of Avesta since February 1997. From July 1984 to January 1997
Mr. Cooper held various positions at Morgan Stanley & Co., Inc. and most
recently served as a Principal. Mr. Cooper received a B.A. in economics and
geology from Duke University.
ROBERT KOSTES is a founder of Avesta and has served as Senior Vice
President, Engineering since November 1996. Prior to joining Avesta, Mr. Kostes
was self-employed as a software consultant from February 1996 to November 1996.
From April 1994 to February 1996, Mr. Kostes served as software developer at
PLATINUM technology, inc., a software company. Mr. Kostes received a B.S. in
computer science from Haverford College.
ANTHONY R. WILLIAMS has served as Senior Vice President, Global Sales of
Avesta since October 1998. Prior to joining Avesta, Mr. Williams served as
Director of Sales, Asia Pacific for Tivoli Systems, an IBM company from 1983 to
October 1998. Mr. Williams received a B.B.A. in computer science from Temple
University and a M.S. in computer science from Marist College.
DAVID ZAGER has served as Vice President and Chief Scientist of Avesta since
January 1997. Prior to joining Avesta, Mr. Zager served at Morgan Stanley &
Co., Inc. from 1984 to January 1997 in various capacities, most recently as
Vice-President, Information Technology. Mr. Zager received a B.A. in classics
from Haverford College, an M.A. in classics and linguistics and a Ph.D. in
linguistics from the State University of New York at Buffalo.
HELEN DONNELLY TOTH has served as Vice President, Marketing of Avesta since
May 1999. Prior to joining Avesta, Ms. Donnelly Toth served as Vice President,
Marketing of Computer Associates International, Inc., a software company, from
June 1994 to May 1999. Ms. Donnelly Toth received a B.S. in computer science
from the University of Central Florida.
R. BRADFORD BURNHAM has served as a Director of Avesta since March 1998.
Since 1993, Mr. Burnham has served as General Partner of AT&T Ventures, a
venture capital firm. From 1990 to 1993, Mr. Burnham served as Chief Executive
Officer of Echologic Software Corporation, a software development company, which
he also founded. Mr. Burnham serves as a director of several privately held
companies, including Physicians Online, Meigher Communications, L.P., Dash.com
and Peoplelink, Inc. and also serves as a director of Audible, Inc. Mr. Burnham
received a B.A. in politicial science from Wesleyan University.
DONALD R. DIXON has served as a Director of Avesta since December 1996.
Since 1993, Mr. Dixon has served as a Managing Director of Trident Capital, a
venture capital firm, which he also co-founded. From 1988 to 1993, Mr. Dixon was
a Co-President of Partech International, a private equity fund manager
associated with Banque Paribas. From 1983 to 1988, Mr. Dixon was a Managing
Director of Alex. Brown & Sons. Previously, Mr. Dixon was a Vice President at
Morgan Stanley & Co., Inc., and a Senior Account Officer at Citibank, N.A.
Mr. Dixon serves as a Director of Epicor Software Corporation, Evolving
Systems, Inc., and several private companies. Mr. Dixon received a B.S.E. in
aerospace and mechanical engineering from Princeton University and an M.B.A.
from Stanford University.
CARLOS DOMINGUEZ has served as a Director of Avesta since September 1998.
Since 1992, Mr. Dominguez has served in a variety of sales management positions
at Cisco Systems, Inc., a company specializing in internetworking, and currently
serves as its Northeast Area Vice President. Prior to joining Cisco Systems,
Mr. Dominguez held sales and sales management positions at Timeplex
44
<PAGE>
Group, Bell Atlantic--New Jersey and Bell Atlanticom Systems, Inc.
Mr. Dominguez received a B.S.E. in electrical engineering from the University of
Puerto Rico.
JOHN FACCIBENE has served as a Director of Avesta since December 1996. Since
March 1999, Mr. Faccibene has served as Managing Director, Americas of
iXNet, Inc., a network services company, and served as Vice President of Network
Implementation from December 1998 to March 1999. From September 1997 to
December 1998, Mr. Faccibene served as Executive Director of CIBC Oppenheimer.
From 1988 to August 1997, Mr. Faccibene served as Senior Vice President of
Garban plc, an interdealer broker of government bonds. Mr. Faccibene serves as a
director of TimeStep Corporation, a software security company, and Netrix Corp.,
a hardware company.
JAMES C. HALE, III has served as a Director of Avesta since July 1999. Since
July 1998, Mr. Hale has served as a General Partner and Managing Member of
Financial Technology Ventures, a venture capital firm. Prior to joining
Financial Technology Ventures, Mr. Hale served in various capacities at
Montgomery Securities, from 1982 to 1998 and most recently as Senior Managing
Director, Director of Financial Technology. Mr. Hale serves as a director of
ValiCert, Inc. and Duke University Management Company. Mr. Hale received a B.S.
in management from the University of California at Berkeley and an M.B.A. from
Harvard University.
ROYCE HOLLAND has served as a Director of Avesta since February 1997. Since
April 1997, Mr. Holland has served as Chairman of the Board and Chief Executive
Officer of Allegiance Telecom, Inc., a local exchange carrier. From 1990 to
September 1996, Mr. Holland served as President and Chief Operating Officer of
MFS Communications Company, Inc., a local exchange carrier, and from
September 1996 to February 1997, Mr. Holland was Vice Chairman of MFS
Communications Company, Inc. Mr. Holland serves on the board of directors of CSG
Systems International, Inc., CompleTel LLC, Open Port Technology Inc., and WNP
Communications, and is Chairman of the Association for Local Telecommunications
Services. Mr. Holland received a B.S. in engineering from the University of
Texas and an M.S. in engineering from the University of Pennsylvania.
VENETIA KONTOGOURIS has served as a Director of Avesta since December 1996.
Since November 1999, Ms. Kontogouris has served as a Managing Director of
Trident Capital, a venture capital firm. Prior to joining Trident Capital,
Ms. Kontogouris served as President of Enterprise Associates, LLC, the venture
capital division of IMS Health, Inc., from 1994 to November 1999.
Ms. Kontogouris serves as a director of Berkeley Enterprise Partners, Inc.,
Cognizant Technology Solutions, Customer Analytics, Inc., eCredit.com, Inc.,
T.R.A.D.E., Inc., Vality Technology Inc. and Viant Corporation. Ms. Kontogouris
received a B.A. in political science from Northeastern University and an M.B.A.
from the University of Chicago.
CLASSIFIED BOARD OF DIRECTORS
In accordance with the terms of our amended and restated certificate of
incorporation effective upon consummation of this offering, our board of
directors will be divided into three classes of directors serving staggered
three-year terms. Upon expiration of the term of a class of directors, the
directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which their term expires. With respect to
each class, a director's term will be subject to the election and qualification
of their successors, or their earlier death, resignation or removal. In
addition, our directors may be removed only for cause and only by the
affirmative vote of holders of not less than 66 2/3% of our outstanding capital
stock entitled to vote generally in the election of directors. These provisions,
when coupled with the provision of our amended and restated certificate of
incorporation authorizing the board of directors to fill vacant directorships,
may delay a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the vacancies with its own
nominees.
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<PAGE>
BOARD COMMITTEES
The audit committee reports to the board regarding the appointment of our
independent public accountants, the scope and results of our annual audits,
compliance with our accounting and financial policies and management's
procedures and policies relative to the adequacy of our internal accounting
controls. The audit committee consists of John Faccibene and Donald R. Dixon.
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding our compensation policies and all forms
of compensation to be provided to our executive officers and directors. In
addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The current members of the
compensation committee are Venetia Kontogouris, R. Bradford Burnham and Royce
Holland.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships exist between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past other than with respect to Mr. Holland who is the president of Allegiance
Telecom.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses of
attending board of directors or committee meetings, Avesta does not currently
compensate its directors. In June 1997, Messrs. Faccibene and Holland were each
granted options to purchase 6,000 shares of common stock at an exercise price of
$.115 per share. In September 1998, Messrs. Dominguez and Holland were each
granted options to purchase 5,000 shares of common stock at an exercise price of
$.44 per share. In February 1999, Messrs. Holland, Faccibene and Burnham and
Ms. Kontogouris were each granted options to purchase 5,000 shares of common
stock at a purchase price of $2.03 per share. 25% of the options vest upon the
first anniversary of the grant, and the remainder vest monthly for a period of
36 months thereafter.
The non-employee directors will also receive option grants at designated
intervals over their period of continued service on the board. The grants will
be made pursuant to the automatic option grant program which will be in effect
for them under our new 1999 Stock Incentive Plan. The provisions of that program
are summarized below under the section entitled 1999 Stock Incentive Plan.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to our Chief Executive Officer and to each
other executive officer, other than the Chief Executive Officer, whose salary
and bonus for that year exceeded $100,000.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------- -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY($) BONUS($) AWARDS(#) OPTIONS(#)
- ------------------------------ --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Kam M. Saifi......................................... $150,000 $ -- (1) --
President and Chief Executive Officer
David Arbeitel....................................... 120,000 -- (2) 60,000
Senior Vice President, Product Management
and Chief Technology Officer
David Zager.......................................... 120,000 -- -- 60,000
Vice President and Chief Scientist
Cameron Saifi........................................ 111,900 -- -- 165,000
Senior Vice President and Chief Operating Officer
Robert Kostes........................................ 106,250 -- (3) 195,000
Senior Vice President, Engineering
</TABLE>
- ------------------------
(1) No restricted stock grants were made to Mr. Saifi during the last year. As
of the last day of the year, Mr. Saifi held 6,575,844 shares of restricted
common stock, subject to a Stock Restriction Agreement, dated December 16,
1996. These restricted shares were deemed to have a value of $ as of
the last day of the year, based on the assumed initial offering price of
$ per share less the $.0000013 price per share paid for those shares.
The restricted shares will vest at the rate of 136,997 shares per month over
Mr. Saifi's period of continued service with us.
(2) No restricted stock grants were made to Mr. Arbeitel during the fiscal year.
As of the last day of the year, Mr. Arbeitel held 1,168,371 shares of
restricted common stock, subject to a Stock Restriction Agreement, dated
December 16, 1996. These restricted shares were deemed to have a value of
$ as of the last day of the year, based on the assumed initial offering
price of $ per share less the $.0000013 price per share paid for those
shares. The restricted shares will vest at the rate of 24,341 shares per
month over Mr. Arbeitel's period of continued service with us.
(3) No restricted stock grants were made to Mr. Kostes during the last year. As
of the last day of the year Mr. Kostes held 250,365 shares of restricted
common stock, subject to a Stock Restriction Agreement, dated December 16,
1996. These restricted shares were deemed to have a value of $ as of
the last day of the year, based on the assumed initial offering price of
$ per share less the $.0000013 price per share paid for those shares.
The restricted shares will vest at the rate of 3,654 shares per month over
Mr. Kostes' period of continued service with us.
47
<PAGE>
OPTION GRANTS IN LAST YEAR
The following table sets forth grants of stock options for the year ended
December 31, 1998 to our Chief Executive Officer and to our most highly
compensated executive officers other than the Chief Executive officer, whose
salary and bonus for that fiscal year exceeded $100,000. We have never granted
any stock appreciation rights. The potential realizable value is calculated
based on the term of the option at its time of grant. It is calculated assuming
that the fair market value of common stock on the date of grant appreciates at
the indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth. The percentage of total options granted to employees
in the last fiscal year is based on options to purchase an aggregate of
1,604,928 shares of common stock granted during the fiscal year under our 1996
Stock Option Plan to our employees, consultants and directors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------ ----------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES PRICE PER
OPTIONS IN FISCAL SHARE EXPIRATION
NAME GRANTS(#) YEAR(%) ($/SHARE) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Kam M. Saifi..................... -- -- -- -- -- --
David Arbeitel................... 30,000 1.87% $.15 4/08 $2,830 $ 7,172
30,000 1.87% .29 9/08 5,471 13,866
David Zager...................... 15,000 .93% .15 4/08 1,415 3,586
45,000 2.80% .29 9/08 8,207 20,798
Cameron Saifi.................... 45,000 2.80% .15 4/08 4,245 10,758
120,000 7.48% .29 9/08 21,886 55,462
Robert Kostes.................... 45,000 2.80% .15 4/08 4,245 10,758
150,000 9.35% .29 9/08 27,357 69,328
</TABLE>
Each option will vest in a series of installments over the optionee's period
of continued service with us as follows: 25% on the first anniversary of the
agreement, and one-thirty-sixth monthly for the three years thereafter. However,
the option shares will immediately vest in full in the event we are acquired by
a merger or asset sale in which the options are not assumed or replaced with a
comparable cash or equity incentive program. The exercise price may be paid in
cash, shares of our common stock or through a cashless exercise procedure
involving the same-day sale of the purchased shares. Should the optionee
terminate service with us prior to the expiration of the ten-year option term,
then he will have only a limited period of time to exercise the option for any
shares which vested prior to such termination of service.
YEAR-END OPTION VALUES
The following table provides information about stock options held as of
December 31, 1998 by our Chief Executive Officer and by our most highly
compensated executive officers, other than the Chief Executive Officer, whose
salary and bonus for that fiscal year exceeded $100,000. No options were
exercised during 1998 by any of these executive officers. There was no public
trading market for the common stock as of December 31, 1998. Accordingly, the
value of unexercised in-the-money options at
48
<PAGE>
year-end is based on the assumed initial public offering price of $ per
share, less the exercise price per share, multiplied by the number of shares
underlying the options. All options indicated are to purchase shares of common
stock.
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXECISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kam M. Saifi................................... -- -- $ $
David Arbeitel................................. 55,190 126,440
David Zager.................................... 20,379 99,626
Cameron Saifi.................................. 107,750 321,251
Robert Kostes.................................. 97,992 303,318
</TABLE>
1996 STOCK PLAN
Our 1996 Stock Plan was adopted by the board of directors in December 1996
and was subsequently approved by the stockholders in December 1996. A reserve of
5,550,000 shares of our common stock has been set aside for issuance under the
1996 plan. Employees, consultants and the non-employee members of our board of
directors are eligible to receive option grants or direct stock issuances under
the 1996 plan, and 808,078 shares were available for future grants or direct
issuances. As of September 30, 1999, options to purchase 1,290,930 shares of
common stock were outstanding, and 884,196 shares had been issued under the 1996
plan. All the outstanding options will be transferred to the successor 1999
Stock Incentive Plan when the purchase agreement for this offering is signed,
and no further option grants or share issuances will be made under the 1996
plan.
The 1996 plan is administered by the compensation committee. Option grants
are made with exercise prices not less than the fair market value of the option
shares on the grant date, as determined by the plan administrator, and generally
become exercisable in installments over the optionee's period of service with
us. No option may have a term in excess of ten years, and each option will be
subject to earlier termination following the optionee's cessation of service
with us.
The exercise price for the outstanding options under the 1996 plan may be
paid in cash or in shares of our common stock valued at fair market value on the
exercise date. Alternatively, the plan administrator may allow the optionee to
deliver a full-recourse promissory note in payment of the exercise price. After
this offering is completed, the option may also be exercised through a same-day
sale program without any cash outlay by the optionee.
In the event we are acquired by merger or asset sale, our board of directors
or the board of directors of the successor corporation may take any of the
following actions with respect to the outstanding options under the 1996 plan:
(i) substitute for the securities subject to those options either the same type
of consideration payable to our common stockholders in the acquisition or
securities of the successor corporation, (ii) accelerate the vesting of one or
more outstanding options in whole or in part or (iii) terminate those options in
exchange for a cash payment from us equal to the excess of the fair market value
of the option shares at the time of the acquisition over the aggregate exercise
price payable for those shares. A number of currently outstanding options under
the 1996 plan contain automatic acceleration provisions pursuant to which those
options will accelerate as to one year's worth of vesting upon the closing of
the acquisition.
49
<PAGE>
All direct stock issuances under the 1996 plan must be made for a purchase
price not less than the fair market value of the shares at the time of issuance.
The purchase price may be paid in cash, or, at the discretion of the
compensation committee, by promissory note. The issued shares will normally vest
in installments over the individual's period of service with us.
The board may amend or modify the 1996 plan at any time, subject to any
required stockholder approval.
1999 STOCK INCENTIVE PLAN
INTRODUCTION. We intend to adopt the 1999 Stock Incentive Plan, which is
intended to serve as the successor program to our 1996 Stock Option Plan. The
1999 plan will be subject to stockholder approval. The 1999 plan will become
effective when the purchase agreement for this offering is signed. At that time,
all outstanding options under our existing 1996 plan will be transferred to the
1999 plan, and no further option grants will be made under the 1996 plan. The
transferred options will continue to be governed by their existing terms, unless
our compensation committee decides to extend one or more features of the 1999
plan to those options. Except as otherwise noted below, the transferred options
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 1999 plan.
SHARE RESERVE. 2,000,000 shares of our common stock have been authorized
for issuance under the 1999 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1996 plan plus an additional
increase of approximately 1,400,000 shares. The share reserve under our 1999
plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2001, by an amount equal to four
percent (4%) of the total number of shares of our common stock outstanding on
the last trading day of December in the prior calendar year, but in no event
will this annual increase exceed 2,000,000 shares. In addition, no participant
in the 1999 plan may be granted stock options or direct stock issuances for more
than 500,000 shares of common stock in total in any calendar year.
PROGRAMS. Our 1999 plan has five separate programs:
- - the discretionary option grant program, under which eligible individuals in
our employ may be granted options to purchase shares of our common stock at
an exercise price not less than the fair market value of those shares on the
grant date;
- - the stock issuance program, under which eligible individuals may be issued
shares of common stock directly, upon the attainment of performance
milestones or the completion of a specified period of service or as a bonus
for past services;
- - the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the opportunity
to apply a portion of their base salary each year to the acquisition of
special below market stock option grants;
- - the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to the
fair market value of those shares on the grant date; and
- - the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any retainer fee
otherwise payable to them in cash each year to the acquisition of special
below-market option grants.
ELIGIBILITY. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
we hire.
ADMINISTRATION. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the
50
<PAGE>
vesting schedule to be in effect for the option grant or stock issuance and the
maximum term for which any granted option is to remain outstanding. The
compensation committee will also have the authority to select the executive
officers and other highly compensated employees who may participate in the
salary investment option grant program in the event that program is put into
effect for one or more calendar years.
PLAN FEATURES. Our 1999 plan will include the following features:
- - The exercise price for any options granted under the plan may be paid in cash
or in shares of our common stock valued at fair market value on the exercise
date. The option may also be exercised through a same-day sale program
without any cash outlay by the optionee.
- - The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 plan, in return for the grant of new
options for the same or different number of option shares with an exercise
price per share based upon the fair market value of our common stock on the
new grant date.
- - Stock appreciation rights may be issued under the discretionary option grant
program. These rights will provide the holders with the election to surrender
their outstanding options for a payment from us equal to the fair market
value of the shares subject to the surrendered options less the exercise
price payable for those shares. We may make the payment in cash or in shares
of our common stock. None of the options under our 1996 plan have any stock
appreciation rights.
CHANGE IN CONTROL. The 1999 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
- - In the event that we are acquired by merger or asset sale, each outstanding
option under the discretionary option grant program which is not to be
assumed by the successor corporation will immediately become exercisable for
all the option shares, and all outstanding unvested shares will immediately
vest, except to the extent our repurchase rights with respect to those shares
are to be assigned to the successor corporation.
- - The compensation committee will have complete discretion to grant one or more
options which will become exercisable for all the option shares in the event
those options are assumed in the acquisition but the optionee's service with
us or the acquiring entity is subsequently terminated. The vesting of any
outstanding shares under our 1999 plan may be accelerated upon similar terms
and conditions.
- - The compensation committee may grant options and structure repurchase rights
so that the shares subject to those options or repurchase rights will
immediately vest in connection with a successful tender offer for more than
fifty percent of our outstanding voting stock or a change in the majority of
our board through one or more contested elections. This accelerated vesting
may occur either at the time of the transaction or upon the subsequent
termination of the individual's service.
- - In the event we are acquired by merger or asset sale, our board of directors
or the board of directors of the successor company may take any of the
following actions with respect to the options currently outstanding under our
1996 plan: (i) substitute for the securities subject to those options either
the same type of consideration payable to our common stockholders in the
acquisition or securities of the successor corporation, (ii) accelerate the
vesting of one or more of those options in whole or in part or
(iii) terminate those options in exchange for a cash payment from us equal to
the excess of the fair market value of the option shares at the time of the
acquisition over the aggregate exercise price payable for those shares. A
number of options currently outstanding under the 1996 plan contain an
automatic acceleration provision pursuant to which those options will
accelerate as to one year's worth of vesting upon the closing of the
acquisition.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her
51
<PAGE>
salary reduction is to be in effect, an option to purchase that number of shares
of common stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of our common stock on the grant date. The
option will have an exercise price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the option
will be structured so that the fair market value of the option shares on the
grant date less the exercise price payable for those shares will be equal to the
amount of the salary reduction. The option will become exercisable in a series
of twelve equal monthly installments over the calendar year for which the salary
reduction is to be in effect.
AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive an option grant to purchase 12,000 shares of common stock on the
date such individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 3,000 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
12,000-share automatic option grant will vest in a series of four (4) successive
annual installments upon the optionee's completion of each year of board service
over the four (4)-year period measured from the grant date. The shares subject
to each 3,000-share annual option grant will vest upon optionee's completion of
one year of board service measured from the grant date. The shares subject to
each option will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while a board member.
DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member.
ADDITIONAL PROGRAM FEATURES. Our 1999 plan will also have the following
features:
- - Outstanding options under the salary investment and director fee option grant
programs will immediately vest if we are acquired by a merger or asset sale
or if there is a successful tender offer for more than 50% of our outstanding
voting stock or a change in the majority of our board through one or more
contested elections.
- - Limited stock appreciation rights will automatically be included as part of
each grant made under the salary investment option grant program and the
automatic and director fee option grant programs, and these rights may also
be granted to one or more officers as part of their option grants under the
discretionary option grant program. Options with this feature may be
surrendered to us upon the successful completion of a hostile tender offer
for more than 50% of our outstanding voting stock. In
52
<PAGE>
return for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share based upon the
highest price per share of our common stock paid in that tender offer.
- - The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later than
, 2009.
1999 EMPLOYEE STOCK PURCHASE PLAN.
INTRODUCTION. We intend to adopt the 1999 Employee Stock Purchase Plan,
which is designed to allow our eligible employees and the eligible employees of
our participating subsidiaries to purchase shares of common stock, at
semi-annual intervals, with their accumulated payroll deductions. The plan will
become effective immediately upon the signing of the purchase agreement for this
offering. The employee plan will be subject to stockholder approval.
SHARE RESERVE. 400,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to one percent (1%) of the total number of outstanding shares of
our common stock on the last trading day in December in the prior calendar year.
In no event will this annual increase exceed 500,000 shares.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the purchase agreement for this offering is signed and
will end on the last business day in January 2002. The next offering period will
start on the first business day in February 2002, and subsequent offering
periods will set by our compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of February and August each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her
base salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of January and July each
year. However, a participant may not purchase more than 750 shares on any
purchase date, and not more than 100,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.
PLAN PROVISIONS. The following provisions will also be in effect under the
plan:
- - The plan will terminate no later than the last business day of January 2010;
and
- - The board may at any time amend, suspend or discontinue the plan. However,
certain amendments may require stockholder approval.
53
<PAGE>
CERTAIN TRANSACTIONS
FOUNDERS STOCK
In April 1996, Kam M. Saifi, our President and Chief Executive Officer,
purchased 6,575,844 shares of common stock for a total purchase price of $8.23.
David Arbeitel, an officer and director of Avesta, purchased 1,168,371 shares of
common stock for a total purchase price of $1.46. Robert Kostes, an Avesta
officer, purchased 250,365 shares of common stock for a total purchase price of
$0.31.
In December 1996, in connection with the series A preferred stock financing,
Mr. Saifi exchanged his 6,575,844 shares of common stock for 6,575,844 shares of
unvested common stock of Avesta. Similarly, Mr. Arbeitel exchanged his 1,168,371
shares of common stock for 1,168,371 shares of unvested common stock, and
Mr. Kostes exchanged his 250,365 shares of common stock for 250,365 shares of
unvested common stock. In accordance with the terms of a stock restriction
agreement with Avesta, the shares of Mr. Saifi, Mr. Arbeitel and Mr. Kostes vest
at a rate of 25% on the first anniversary of the agreement, and one-thirty-sixth
monthly for the three years thereafter.
PRIVATE PLACEMENTS
In December 1996, February 1997, and September 1997, we sold an aggregate of
1,767,243 shares of series A preferred stock to a number of investors at a
purchase price of $2.29 per share and in connection with such sales issued
warrants for the purchase of common stock at an exercise price of $0.77 per
share. Of these, our directors, officers and 5% stockholders, and their
affiliates purchased shares and received warrants as follows:
<TABLE>
<CAPTION>
SHARES OF SERIES A WARRANTS FOR SHARES
NAME OF INVESTOR PREFERRED STOCK OF COMMON STOCK
- ---------------- ------------------ -------------------
<S> <C> <C>
Information Associates, L.P................. 1,231,097 318,388
Information Associates, C.V................. 34,357 8,885
Kanata Research Park Corporation............ 436,335 109,084
Royce Holland............................... 21,818 --
</TABLE>
In December 1997, we issued an aggregate of $1,343,000 of convertible
subordinated notes and warrants to purchase an aggregate of 61,889 shares of
series B preferred stock at an exercise price comparable to the purchase price
of series B preferred stock in a private placement to a number of investors. In
March 1998, we sold an aggregate of 1,418,664 shares of series B preferred stock
at a purchase price of $4.34 per share. Upon the closing of the private
placement of series B preferred stock the convertible subordinated notes
automatically converted into an aggregate of 309,338 shares of series B
preferred stock. Upon the closing of the private placement of series B preferred
stock, our directors, officers, and 5% stockholders, and their affiliates held
shares and warrants as follows:
<TABLE>
<CAPTION>
WARRANTS FOR
SHARES OF SERIES B SHARES OF SERIES B
NAME OF INVESTOR PREFERRED STOCK PREFERRED STOCK
- ---------------- ------------------ ------------------
<S> <C> <C>
Information Associates, L.P.................. 469,404 44,832
Information Associates, C.V.................. 13,101 1,251
Kanata Research Park Corporation............. 55,991 15,806
AT&T Venture Fund I, L.P..................... 56,441 --
AT&T Venture Fund II, L.P.................... 507,961 --
AT&T Special Partners Fund, L.P.............. 85,887 --
AT&T Special Partners Fund International,
L.P........................................ 478,514 --
</TABLE>
In January 1999 and February 1999, we sold an aggregate of 2,688,951 shares
of series C preferred stock at a purchase price of $4.06 and warrants to
purchase 407,292 shares of series C preferred stock
54
<PAGE>
at an exercise price of $4.06 per share to a number of investors. Of these, our
directors, officers and 5% stockholders and their affiliates purchased shares
and received warrants as follows:
<TABLE>
<CAPTION>
SHARES OF SERIES C WARRANTS FOR SHARES OF
NAME OF INVESTOR PREFERRED STOCK SERIES C PREFERRED STOCK
- ---------------- ------------------ ------------------------
<S> <C> <C>
Information Associates, L.P................. 589,635 94,342
Information Associates, C.V................. 16,455 2,633
AT&T Venture Fund I, L.P.................... 16,126 2,581
AT&T Venture Fund II, L.P................... 145,132 23,222
AT&T Special Partners Fund, L.P............. 24,539 3,927
AT&T Special Partners Fund International,
L.P....................................... 136,718 21,875
</TABLE>
In July 1999 and February 1999, we sold an aggregate of 1,827,667 shares of
series D preferred stock to a number of investors at a purchase price of $6.24
per share. Of these our directors, officers and 5% stockholders and their
affiliates purchased shares as follows:
<TABLE>
<CAPTION>
SHARES OF SERIES D
NAME OF INVESTOR PREFERRED STOCK
- ---------------- ------------------
<S> <C>
AT&T Venture Fund I, L.P.................................... 7,084
AT&T Venture Fund II, L.P................................... 63,746
AT&T Special Partners Fund, L.P............................. 10,779
AT&T Special Partners Fund International, L.P............... 60,051
Financial Technology Ventures (Q), L.P...................... 772,676
Financial Technology Ventures, L.P.......................... 28,606
Venetia Kontogouris......................................... 8,013
Carlos Dominguez............................................ 4,007
Donald R. Dixon............................................. 16,026
</TABLE>
PRODUCT SALES
In November 1998, Avesta made product sales of $74,000 to Allegiance Telecom
whose president is Royce Holland, a director of Avesta. This transaction was
made on terms no less favorable to us than could have been obtained from
unaffiliated third parties.
In March 1999, Avesta made product sales of $195,000 to iXNet, Inc. The
Managing Director, Americas of iXNet is John Faccibene, a director of Avesta.
This transaction was made on terms no less favorable to us than could have been
obtained from unaffiliated third parties.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of November 15, 1999 and as adjusted to
reflect the sale of common stock offered by us in this offering for:
- - each person known by us to beneficially own more than 5% of our common stock;
- - each executive officer named in the Summary Compensation Table;
- - each of our directors; and
- - all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for those
listed below is c/o Avesta Technologies, Inc., Two Rector Street, New York, New
York 10006. Except as indicated by footnote, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. The number of shares of common stock outstanding used in calculating the
percentage for each listed person includes the shares of common stock underlying
options or warrants held by such persons that are exercisable within 60 days of
November 15, 1999, but excludes shares of common stock underlying options held
by any other person. Percentage of beneficial ownership is based on 29,358,933
shares of common stock outstanding as of November 15, 1999 and shares of
common stock outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
---------------------
NUMBER OF SHARES PRIOR TO AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ --------- ---------
<S> <C> <C> <C>
Information Associates, L.P. (1)........................... 7,418,543 25.3%
AT&T Venture Fund I, L.P. (2).............................. 4,160,079 14.2
Kanata Research Park Corporation (3)....................... 1,851,648 6.2
Kam M. Saifi (4)........................................... 4,794,887 16.2
David Arbeitel (5)......................................... 995,652 3.4
Cameron Saifi (6).......................................... 152,438 *
Andrew C. Cooper (7)....................................... 435,000 1.5
Robert Kostes (8).......................................... 389,808 1.3
Anthony R. Williams (9).................................... 37,501 *
David Zager (10)........................................... 58,188 *
R. Bradford Burnham (11)................................... 4,160,079 14.2
Donald R. Dixon (12)....................................... 7,442,582 25.4
Carlos Dominguez (13)...................................... 8,510 *
John Faccibene (14)........................................ 3,938 *
James C. Hale, III (15).................................... 1,201,923 4.1
Royce Holland (16)......................................... 71,517 *
Venetia Kontogouris (17)................................... 7,430,563 25.3
All directors and executive officers as a group (16
persons) (18)............................................ 19,759,043 66.4
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Reflects 5,985,956 shares owned by and 1,231,173 shares issuable upon
exercise of warrants held by Information Associates, L.P., and 167,057
shares owned by and 34,358 shares issuable upon exercise of warrants held
by Information Associates, C.V. Mr. Dixon, a director, is a general partner
of Information Associates, L.P. and Information Associates, C.V. Mr. Dixon
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest.
(2) Reflects (i) 204,138 shares owned by and 3,872 shares issuable upon
exercise of warrants held by AT&T Venture Fund I, L.P., (ii) 1,837,200
shares owned by and 34,833 shares issuable upon
56
<PAGE>
exercise of warrants held by AT&T Venture Fund II, L.P., (iii) 310,638
shares owned by and 5,891 shares issuable upon exercise of warrants held by
AT&T Special Partners Fund, L.P., and (iv) 1,730,696 shares owned by and
32,813 shares issuable upon exercise of warrants held by AT&T Special
Partners Fund Intl, L.P. Mr. Burnham, a director, is a general partner of
the AT&T group partnerships. Mr. Burnham disclaims beneficial ownership of
these shares. Mr. Burnham's address is c/o AT&T Ventures, 295 North Maple
Avenue, Room 3353CI, Basking Ridge, New Jersey, 07920.
(3) Includes 374,670 shares issuable upon the exercise of warrants.
(4) Includes 273,993 shares of common stock that will vest within 60 days of
November 15, 1999.
(5) Includes 32,455 shares of common stock that will vest within 60 days of
November 15, 1999 and 7,569 shares subject to options exercisable within
60 days of November 15, 1999.
(6) Includes 17,874 shares subject to options exercisable within 60 days of
November 15, 1999.
(7) Includes 30,750 shares subject to options exercisable within 60 days of
November 15, 1999.
(8) Includes 7,308 shares of common stock that will vest within 60 days of
November 15, 1999 and 14,694 shares subject to options exercisable within
60 days of November 15, 1999.
(9) Includes 5,001 shares subject to options exercisable within 60 days of
November 15, 1999.
(10) Includes 5,002 shares subject to options exercisable within 60 days of
November 15, 1999.
(11) Reflects (i) 204,138 shares owned by and 3,872 shares issuable upon
exercise of warrants held by AT&T Venture Fund I, L.P., (ii) 1,837,200
shares owned by and 34,833 shares issuable upon exercise of warrants held
by AT&T Venture Fund II, L.P., (iii) 310,638 shares owned by and 5,891
shares issuable upon exercise of warrants held by AT&T Special Partners
Fund, L.P., and (iv) 1,730,696 shares owned by and 32,813 shares issuable
upon exercise of warrants held by AT&T Special Partners Fund Intl, L.P.
Mr. Burnham, a director, is a general partner of the AT&T group
partnerships. Mr. Burnham disclaims beneficial ownership of these shares.
(12) Includes 5,985,956 shares owned and 1,231,173 shares issuable upon exercise
of warrants held by Information Associates, L.P. and 167,057 shares owned
and 34,358 shares issuable upon exercise of warrants held by Information
Associates, C.V. Mr. Dixon, a director, is a general partner of Information
Associates, L.P. and Information Associates, C.V. Mr. Dixon disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest.
(13) Includes 312 shares subject to options exercisable within 60 days of
November 15, 1999.
(14) Includes 375 shares subject to options exercisable within 60 days of
November 15, 1999.
(15) Reflects 1,159,014 shares owned by Financial Technology Ventures (Q) L.P.
and 42,909 shares owned by Financial Technology Ventures, L.P. Mr. Hale is
a managing member of Financial Technology Ventures (Q) L.P. and Financial
Technology Ventures, L.P. Mr. Hale disclaims beneficial ownership of these
shares.
(16) Includes 687 shares subject to options exercisable within 60 days of
November 15, 1999.
(17) Reflects 5,985,956 shares owned and 1,231,173 shares issuable upon exercise
of warrants held by Information Associates, L.P. and 167,057 shares owned
and 34,358 shares issuable upon exercise of warrants held by Information
Associates, C.V. Ms. Kontogouris is a Managing Director of Trident Capital
Management. Trident Capital Management is a general partner of Information
Associates, L.P and Information Associates, C.V.
(18) Includes 313,756 shares of common stock that will vest within 60 days of
November 15, 1999 and 45,264 shares subject to options exercisable within
60 days of November 15, 1999.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation, which will become
effective upon the consummation of this offering, authorizes the issuance of up
to 100,000,000 shares of common stock, par value $0.01 per share, 5,000,000
shares of preferred stock, par value $0.01 per share, the rights and preferences
of which may be established from time to time by our board of directors. As of
September 30, 1999, 8,802,306 shares of common stock were outstanding, and
18,307,248 shares of preferred stock convertible into shares of common stock
were outstanding. As of September 30, 1999, we had 161 stockholders.
COMMON STOCK
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, including the election of
directors. They do not have cumulative voting rights. Subject to preferences
that may be applicable to any then-outstanding preferred stock, holders of our
common stock are entitled to receive ratably dividends, if any, as may be
declared by the board of directors out of legally available funds. In case of a
liquidation, dissolution or winding up of Avesta, the holders of common stock
will be entitled to share ratably in the net assets legally available for
distribution to stockholders after payment of all of our liabilities and any
preferred stock then outstanding. Holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. The rights, preferences
and privileges of holders of the common stock are subject to the rights of the
holders of the shares of any series of preferred stock that we may designate and
issue in the future.
PREFERRED STOCK
Our board of directors has the authority, without further action by the
stockholders, to issue from time to time shares of preferred stock in one or
more series. The board of directors may fix the number of shares, designations,
preferences, powers and other special rights of the preferred stock. The
preferences, powers, rights and restrictions of different series of preferred
stock may differ. The issuance of preferred stock could decrease the amount of
earnings and assets available for distribution to holders of common stock or
adversely affect the rights and powers, including voting rights, of the holders
of common stock. The issuance may also have the effect of delaying, deferring or
preventing a change in control of Avesta. All outstanding shares of preferred
stock will be automatically converted to common stock upon consummation of this
offering. After the closing of this offering we will not have any preferred
stock outstanding and have no plans to issue any preferred stock.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 18,307,248 shares of common
stock, 1,354,071 shares of common stock issuable upon the exercise of warrants
to purchase common stock and the shares of common stock issuable upon the
automatic conversion of outstanding warrants to purchase preferred stock, will
be entitled to rights with respect to the registration of those shares under the
Securities Act. Immediately prior to the closing of the offering, the
outstanding warrants to purchase preferred stock shall automatically convert
into the number of shares of common stock issuable upon the conversion to common
stock of the preferred stock issuable upon a net issue exercise of the warrants.
Under the terms of the registration rights agreement, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other stockholders exercising registration rights, these
holders are entitled to notice of the registration and are entitled to include
shares of common stock in the registration. The rights are subject to conditions
and limitations, among them the right of the underwriters of an offering subject
to the registration to limit the number of shares included in the registration.
58
<PAGE>
Holders of these rights may also require us to file two registration
statements under the Securities Act at our expense with respect to their shares
of common stock, and we are required to use our best efforts to effect the
registration, subject to conditions and limitations. Furthermore, stockholders
with registration rights may require us to file additional registration
statements on Form S-3, subject to conditions and limitations. We have agreed to
pay all expenses related to these registration rights, except for underwriting
discounts and commissions, to effect the registration and sale of the shares of
common stock subject to these rights. Upon registration such shares will be
freely tradeable in the public market without restriction.
WARRANTS
In connection with the sale and issuance of our series A preferred stock, we
have issued warrants to purchase 1,309,071 shares of common stock at an exercise
price of $0.77 per share. The exercise price and number of shares are subject to
adjustment upon a stock split, stock dividend or other recapitalization of our
common stock. The holders of the warrants do not possess any voting or other
rights until exercised for shares of common stock.
In connection with a debt financing, we have issued a warrant to purchase
45,000 shares of common stock at an exercise price of $2.89 per share and a
warrant to purchase 21,428 shares of common stock at an exercise price of $4.16
per share to TBCC Funding Trust II. The exercise prices and numbers of shares
are subject to adjustment upon a stock split, stock dividend or other
recapitalization of our common stock. The holders of warrants do not possess any
voting or other rights until exercised for shares of common stock. In the event
we propose to register any of our stock for offerings to the public, TBCC
Funding Trust II has the right to require us to register the shares of common
stock issuable upon exercise of its warrants at any time.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents Delaware corporations from
engaging under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder" unless:
- - the transaction in which such stockholder became an "interested stockholder"
is approved by the board of directors prior to the date the "interested
stockholder" attained this status;
- - upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding those shares owned by persons who are
directors and also officers; or
- - on or after the date the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding voting stock
that is not owned by the interested stockholder.
Our amended and restated certificate of incorporation, which will become
effective upon the consummation of this offering, provides that the board of
directors will be divided into three classes of directors serving staggered
three-year terms. Upon expiration of the term of a class of directors, the
directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which their term expires. With respect to
each class, a director's term will be subject to the election and qualification
of their successors, or their earlier death, resignation or removal. In
addition, our directors may be removed only for cause and only by the
affirmative vote of holders of not less
59
<PAGE>
than 66 2/3% of our outstanding capital stock entitled to vote generally in the
election of directors. These provisions, when coupled with the provision of our
amended and restated certificate of incorporation authorizing the board of
directors to fill vacant directorships, may delay a stockholder from removing
incumbent directors and simultaneously gaining control of the board of directors
by filling the vacancies with its own nominees.
Our amended and restated certificate of incorporation eliminates the right
of stockholders to act by written consent without a meeting and our amended and
restated bylaws eliminate the right of stockholders to call special meetings of
stockholders. The amended and restated certificate of incorporation and amended
and restated bylaws do not provide for cumulative voting in the election of
directors. The authorization of undesignated preferred stock makes it possible
for the board of directors to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to change control of
Avesta. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of Avesta. The amendment
of any of these provisions would require approval by holders of at least 66 2/3%
of the outstanding common stock.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise.
Our amended and restated certificate of incorporation provides for
indemnification of our directors and officers against, and absolution of,
liability to us and our stockholders. We maintain directors' and officers'
liability insurance covering liabilities that may be incurred by our directors
and officers in connection with the performance of their duties.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock
Transfer & Trust Company.
LISTING
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "AVST."
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices of our common stock and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after
September 30, 1999. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act. The remaining shares of
common stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act. Restricted securities may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or 701 under the Securities Act,
which rules are summarized below.
Holders of approximately 17,290,211 shares of common stock have entered into
lock-up agreements providing that, subject to limited exceptions, they will not
sell, directly or indirectly, any common stock without the prior consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated for a period of 180 days from
the date of this prospectus.
Subject to the provisions of Rules 144, 144(k) and 701, all of these
restricted securities will be eligible for sale in the public market beginning
180 days after the date of this prospectus upon expiration of the lock-up
agreements described above.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- - 1% of the number of shares of common stock then outstanding, which will equal
approximately shares immediately after this offering; or
- - the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Therefore, unless otherwise restricted,
"144(k) shares" may be sold immediately upon the completion of this offering.
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell such shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
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<PAGE>
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 18,307,248 shares of our
common stock or their transferees, will be entitled to certain rights with
respect to the registration of their shares under the Securities Act. Please see
"Description of Capital Stock-Registration Rights".
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
on Form S-8 under the Securities Act covering shares of common stock reserved
for issuance under our 1996 Plan, 1999 stock incentive plan and 1999 employee
stock purchase plan. As of September 30, 1999, options to purchase 2,301,196
shares of common stock were issued and outstanding.
Upon the expiration of the lock-up agreements described above, at least
shares of common stock will be subject to vested options, based on options
outstanding as of November 15, 1999. Such registration statement is expected to
be filed and effective as soon as practicable after the effective date of this
offering. Accordingly, shares registered under such registration statement will,
subject to vesting provisions and Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the
180-day lock-up agreements expire.
62
<PAGE>
UNDERWRITING
GENERAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Thomas Weisel Partners LLC and CIBC World
Markets Corp. are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement, we
have agreed to sell to the underwriters, and each of the underwriters severally
and not jointly has agreed to purchase the number of shares of common stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
CIBC World Markets Corp.....................................
Total.............................................
====
</TABLE>
Subject to the terms and conditions set forth in the purchase agreement,
each of the underwriters is committed to purchase all of the shares of our
common stock being sold pursuant to the purchase agreement if any shares of our
common stock are purchased. Under certain circumstances, under the terms of the
purchase agreement, the commitments of the non-defaulting underwriters may be
increased or the purchase agreement may be terminated. We have agreed to
indemnify the underwriters against some liabilities, including some liabilities
under the Securities Act, or to contribute to payments the underwriters may be
required to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 88 filed
public offerings of equity securities, of which 65 have been completed, and has
acted as a syndicate member in an additional 46 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the purchase
agreement entered into in connection with this offering.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of our common stock to the public at the public offering
price set forth on the cover page of this prospectus and to dealers at such
price less a concession not in excess of $. per share of common stock. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $. per share of common stock on sales to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
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<PAGE>
The following table shows the per share and total public offering price, the
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price.................................
Underwriting discount.................................
Proceeds, before expenses, to Avesta..................
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of an additional
shares of our common stock at the public offering price set forth on the
cover of this prospectus, less the underwriting discount. The underwriters may
exercise this option solely to cover over-allotments, if any, made on the sale
of our common stock offered hereby. To the extent that the underwriters exercise
this option, each underwriter will be obligated, subject to customary
conditions, to purchase a number of additional shares of our common stock
proportionate to such underwriter's initial amount reflected in the foregoing
table.
RESERVED SHARES
At our request, the underwriters have reserved approximately shares of
our common stock for sale at the public offering price to our directors,
consultants and other persons with relationships to Avesta. The number of shares
of our common stock available for sale to the general public will be reduced to
the extent such persons purchase such reserved shares. Any reserved shares which
are not orally confirmed for purchase within one day of the pricing of the
offering will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and substantially all of our
existing stockholders have agreed, for a period of 180 days after the date of
this prospectus, not to directly or indirectly
- - offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, lend or otherwise dispose of or transfer any shares
of our common stock or securities convertible into or exchangeable or
exercisable for our common stock, whether now owned or later acquired by the
person executing the agreement or with respect to which the person executing
the agreement later acquires the power of disposition, or file any
registration statement under the Securities Act relating to any shares of our
common stock; or
- - enter into any swap or other agreement that transfers, in whole or in part,
the economic consequence of ownership of our common stock whether any such
swap or transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise.
without the prior written consent of Merrill Lynch, other than transfers as bona
fide gifts or to any trust for the direct or indirect benefit of the holder or
his or her immediate family, in each case so long as any transferee agrees in
writing with Merrill Lynch to be bound by the restrictions above. See "Shares
Eligible for Future Sale."
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<PAGE>
NASDAQ NATIONAL MARKET LISTING
Before this offering, there has been no market for our common stock. The
initial public offering price will be determined through negotiations between us
and the representatives of the underwriters. The factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, will include:
- - the valuation multiples of publicly traded companies that the representatives
believe to be comparable to us;
- - some of our financial information;
- - the history of, and the prospects for, us and the industry in which we
compete;
- - an assessment of our management, our past and present operations, the
prospects for, and timing of, our future revenues;
- - the present state of our development;
- - the percentage interest of Avesta being sold as compared to the valuation of
Avesta; and
- - the above factors in relation to market values and various valuation measures
of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market subsequent
to the offering at or above the initial public offering price.
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the symbol "AVST."
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the total
number of shares of our common stock being offered by them.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase our common stock. As an exception to these rules, the
underwriters are permitted to engage in transactions that stabilize the price of
our common stock. Such transactions consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of our common
stock than are set forth on the cover of this prospectus, the underwriters may
reduce that short position by purchasing our common stock in the open market.
The underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
PENALTY BIDS
The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase shares of
our common stock in the open market to reduce their short position or to
stabilize the price of our common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
65
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Avesta by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal
matters will be passed upon for the underwriters by Morrison & Foerster LLP, New
York, New York.
EXPERTS
The consolidated financial statements of Avesta Technologies, Inc. and
subsidiaries at December 31, 1997, December 31, 1998 and September 30, 1999 and
for the period from February 9, 1996 (date of inception) to December 31, 1996,
the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits and schedules thereto) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration statement. For
further information with respect to Avesta and the common stock, reference is
made to the registration statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each case reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the registration statement for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by such reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in our files in the Commission's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C., 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the Commission.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our Commission filings, including the
registration statement, will also be available to you on the Commission's
Internet site (http://www.sec.gov).
We intend to furnish to our stockholders annual reports containing financial
statements audited by our independent auditors and to make available to our
stockholders quarterly reports containing unaudited financial data for the first
three quarters of each fiscal year.
66
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998 and
September 30, 1999...................................... F-3
Consolidated Statements of Operations for the period from
February 9, 1996 (date of inception) to December 31,
1996, the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1998 (unaudited) and
1999.................................................... F-4
Consolidated Statements of Stockholders' Equity for the
period from February 9, 1996 (date of inception) to
December 31, 1996, the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999....... F-5
Consolidated Statements of Cash Flows for the period from
February 9, 1996 (date of inception) to December 31,
1996, the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1998 (unaudited) and
1999.................................................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Avesta Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Avesta
Technologies, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1998 and September 30, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from February 9,
1996 (date of inception) to December 31, 1996, for each of the two years in the
period ended December 31, 1998 and for the nine months ended September 30, 1999.
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Avesta
Technologies, Inc. and Subsidiaries at December 31, 1997 and 1998 and
September 30, 1999, and the consolidated results of their operations and their
cash flows for the period from February 9, 1996 (date of inception) to
December 31, 1996, for each of the two years in the period ended December 31,
1998 and for the nine months ended September 30, 1999, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
November 4, 1999 except for the first
paragraph of Note 8 as to which
the date is November 19, 1999
------------------------
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts described in the first paragraph of Note 8
to the consolidated financial statements.
/s/ Ernst & Young LLP
New York, New York
November 19, 1999
F-2
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,201,821 $ 3,666,743 $ 768,949
Marketable securities--available for sale.......... -- -- 17,546,230
Accounts receivable, net of allowance for doubtful
accounts of $0, $100,000 and $431,000 in 1997,
1998 and 1999, respectively...................... 161,730 1,894,443 5,923,763
Prepaid expenses and other current assets.......... 162,793 307,356 388,275
----------- ------------ ------------
Total current assets................................. 2,526,344 5,868,542 24,627,217
Fixed assets, net.................................... 443,795 637,531 943,433
Security deposits.................................... 335,935 323,773 347,967
Goodwill............................................. -- 878,228 548,877
Other assets......................................... -- 312,770 326,065
----------- ------------ ------------
Total assets......................................... $ 3,306,074 $ 8,020,844 $ 26,793,559
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit..................................... $ -- $ 620,456 $ 1,452,456
Accounts payable and accrued expenses.............. 491,424 1,005,480 3,664,106
Current portion of obligations under capital
leases........................................... 38,124 58,776 69,548
Deferred revenue................................... -- 250,672 1,757,432
----------- ------------ ------------
Total current liabilities............................ 529,548 1,935,384 6,943,542
Obligations under capital leases..................... 75,208 63,566 37,288
Convertible subordinated notes....................... 1,343,000 -- --
Deferred rent payable................................ 271,776 452,035 448,580
Other long-term payables............................. 43,125 -- --
Deposit in connection with preferred stock
issuance........................................... -- 2,460,725 --
Redeemable convertible preferred stocks stated at
aggregate liquidation value........................ 4,295,698 13,063,414 35,385,197
Commitments and contingency
Stockholders' equity:
Common stock--$0.01 par value; authorized
20,000,000 shares at December 31, 1997 and 1998
and 25,000,000 shares at September 30, 1999;
7,994,580, 8,096,547 and 8,802,306 shares issued
and outstanding at December 31, 1997 and 1998 and
September 30, 1999, respectively................. 79,946 80,965 88,023
Additional paid-in capital......................... -- 304,426 356,615
Other comprehensive loss........................... -- (41,757) (125,444)
Accumulated deficit................................ (3,332,227) (10,297,914) (16,340,242)
----------- ------------ ------------
Total stockholders' equity........................... (3,252,281) (9,954,280) (16,021,048)
----------- ------------ ------------
Total liabilities and stockholders' equity........... $ 3,306,074 $ 8,020,844 $ 26,793,559
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED NINE MONTHS ENDED
FEBRUARY 9, 1996 --------------------------- -----------------------------
(DATE OF INCEPTION) TO DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1996 1997 1998 1998 1999
---------------------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license......................... $ -- $ -- $ 1,598,161 $ 314,563 $ 8,638,252
Professional services and maintenance.... 82,500 1,553,901 1,154,729 758,368 1,083,809
---------- ----------- ----------- ----------- -----------
Total revenues......................... 82,500 1,553,901 2,752,890 1,072,931 9,722,061
Cost of revenues........................... 15,800 553,362 1,089,190 621,505 1,217,413
---------- ----------- ----------- ----------- -----------
Gross profit............................... 66,700 1,000,539 1,663,700 451,426 8,504,648
Operating expenses:
Sales and marketing........................ -- 562,458 2,595,726 1,734,322 8,606,834
Research and development................... -- 1,863,085 2,815,953 2,089,262 2,319,852
General and administrative................. 90,080 1,680,562 3,298,667 2,190,290 3,911,272
---------- ----------- ----------- ----------- -----------
90,080 4,106,105 8,710,346 6,013,874 14,837,958
---------- ----------- ----------- ----------- -----------
Operating loss............................. (23,380) (3,105,566) (7,046,646) (5,562,448) (6,333,310)
Other income (expense):
Interest expense......................... -- (5,857) (55,772) (31,386) (120,800)
Interest income.......................... 2,955 125,265 188,660 153,237 411,782
---------- ----------- ----------- ----------- -----------
Net loss................................... (20,425) (2,986,158) (6,913,758) (5,440,597) (6,042,328)
Preferred stock dividends.................. 5,918 239,780 51,929 51,929 --
---------- ----------- ----------- ----------- -----------
Net loss attributable to common
stockholders............................. $ (26,343) $(3,225,938) $(6,965,687) $(5,492,526) $(6,042,328)
========== =========== =========== =========== ===========
Basic and diluted net loss per share....... $ (0.00) $ (0.40) $ (0.87) $ (0.69) $ (0.71)
========== =========== =========== =========== ===========
Shares used to compute net loss per share:
Basic and diluted........................ 7,994,580 7,994,580 8,027,955 8,010,223 8,559,025
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 9, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996, THE YEARS
ENDED
DECEMBER 31, 1997 AND 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON ADDITIONAL OTHER
-------------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNTS CAPITAL LOSS DEFICIT TOTAL
--------- -------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
conjunction with
incorporation................... 7,994,580 $79,946 $ -- $ -- $ (79,946) $ --
Accrual of cumulative dividends to
preferred stockholders.......... -- -- -- -- (5,918) (5,918)
Net loss.......................... -- -- -- -- (20,425) (20,425)
--------- ------- -------- --------- ------------ ------------
Balance at December 31, 1996........ 7,994,580 79,946 -- -- (106,289) (26,343)
Accrual of cumulative dividends to
preferred stockholders.......... -- -- -- -- (239,780) (239,780)
Net loss.......................... - - - - (2,986,158) (2,986,158)
--------- ------- -------- --------- ------------ ------------
Balance at December 31, 1997........ 7,994,580 79,946 -- -- (3,332,227) (3,252,281)
Translation adjustment............ -- -- -- (41,757) -- (41,757)
Net loss.......................... -- -- -- -- (6,913,758) (6,913,758)
------------
Comprehensive loss................ -- -- -- -- -- (6,955,515)
Accrual of cumulative dividends to
preferred stockholders.......... -- -- -- -- (51,929) (51,929)
Dividends on preferred stock
contributed to the Company...... -- -- 297,627 -- -- 297,627
Exercise of stock options......... 101,967 1,019 6,799 -- -- 7,818
--------- ------- -------- --------- ------------ ------------
Balance at December 31, 1998........ 8,096,547 80,965 304,426 (41,757) (10,297,914) (9,954,280)
Translation adjustment............ -- -- -- (83,687) -- (83,687)
Net loss.......................... -- -- -- -- (6,042,328) (6,042,328)
------------
Comprehensive loss................ -- -- -- -- -- (6,126,015)
Exercise of stock options......... 705,759 7,058 52,189 -- -- 59,247
--------- ------- -------- --------- ------------ ------------
Balance at September 30, 1999....... 8,802,306 $88,023 $356,615 $(125,444) $(16,340,242) $(16,021,048)
========= ======= ======== ========= ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED NINE MONTHS ENDED
FEBRUARY 9, 1996 --------------------------- -----------------------------
(DATE OF INCEPTION) TO DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1996 1997 1998 1998 1999
---------------------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................ $ (20,425) $(2,986,158) $(6,913,758) $(5,440,597) $ (6,042,328)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities, excluding effects
of acquisition:
Depreciation and
amortization................ 2,988 99,275 569,491 325,149 598,692
Provision for bad debts....... -- -- 91,826 -- 330,508
Deferred rent................. -- 271,776 180,259 172,837 (3,455)
Changes in operating assets
and liabilities:
Accounts receivable......... -- (161,730) (1,742,083) (458,503) (4,385,742)
Prepaid expenses and other
current assets............ (5,750) (157,043) (36,266) (62,403) (164,539)
Other assets................ -- -- (10,557) (10,557) --
Accounts payable and accrued
expenses.................. 31,783 502,766 327,135 62,697 2,689,239
Deferred revenue............ 82,500 (82,500) 235,902 107,889 1,535,776
---------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities,
excluding effects of
acquisition................... 91,096 (2,513,614) (7,298,051) (5,303,488) (5,441,849)
---------- ----------- ----------- ----------- ------------
INVESTING ACTIVITIES
Purchase of marketable
securities.................... -- -- -- -- (17,546,230)
Security deposits, net.......... -- (335,935) 12,162 12,486 (24,055)
Purchase of fixed assets........ (107,567) (313,023) (344,428) (317,783) (540,917)
Acquisition, net of cash
acquired...................... -- -- (63,000) (63,000) --
---------- ----------- ----------- ----------- ------------
Net cash used in investing
activities.................... (107,567) (648,958) (395,266) (368,297) (18,111,202)
---------- ----------- ----------- ----------- ------------
FINANCING ACTIVITIES
Principal payments under capital
lease obligations............. -- (12,136) (44,588) (32,503) (48,589)
Proceeds from convertible notes
payable to stockholders....... -- 1,343,000 -- -- --
Proceeds from sale of
preferred stock............... 3,000,000 1,050,000 6,157,000 6,157,000 19,861,058
Net proceeds from line of
credit........................ -- -- 620,456 -- 832,000
Financing costs................. -- -- (48,628) -- --
Deposit in connection with
Series C preferred stock...... -- -- 2,460,725 -- --
Proceeds from exercise of stock
options....................... -- -- 7,818 4,390 59,247
---------- ----------- ----------- ----------- ------------
Net cash provided by financing
activities.................... 3,000,000 2,380,864 9,152,783 6,128,887 20,703,716
---------- ----------- ----------- ----------- ------------
Effect of exchange rate changes
on cash and cash
equivalents................... -- -- 5,456 5,752 (48,459)
---------- ----------- ----------- ----------- ------------
Increase (decrease) in cash and
cash equivalents.............. 2,983,529 (781,708) 1,464,922 462,854 (2,897,794)
Cash and cash equivalents at
beginning of period........... -- 2,983,529 2,201,821 2,201,821 3,666,743
---------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end
of period..................... $2,983,529 $ 2,201,821 $ 3,666,743 $ 2,664,675 $ 768,949
========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period:
Interest expense.............. $ -- $ 5,857 $ 43,458 $ 31,386 $ 120,801
========== =========== =========== =========== ============
</TABLE>
During 1997, 1998 and 1999, the Company entered into capital lease
obligations for fixed assets of $125,468, $53,598 and $33,083, respectively, and
outstanding notes of $1,343,000 were converted into Series B Preferred stock in
1998.
See accompanying notes.
F-6
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
Avesta Technologies, Inc., and subsidiaries (the "Company") provide software
that enhances the availability and performance of an organization's e-business
infrastructure. The software enables organizations to discover and understand
how their information technology, resources work together to provide services to
users, then monitors, manages and reports on the availability and performance of
those services in real-time.
2. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Avesta
Technologies, Inc. (operations commenced November 1996) and its wholly-owned
subsidiaries, Avesta Technologies Canada, Inc., ("Avesta Canada") (see Note 4)
located in Canada, and Avesta Technologies PTE Ltd, ("Avesta Singapore") located
in Singapore (operations commenced June 1999). All significant intercompany
account balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December 31, 1997,
December 31, 1998 and September 30, 1999, the Company has substantially all its
cash and cash equivalents in one financial institution.
MARKETABLE SECURITIES
The Company classifies, in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," all of its marketable securities as available for sale. The
marketable securities consist primarily of commercial paper and equity
securities and are stated at fair value, with unrealized gains and losses, net
of tax, reported in other comprehensive income. Realized gains and losses and
declines in value, judged to be other than temporary, on available for sale
securities are included in other income. The costs of investments sold are
determined using the specific identification method. Estimated fair values of
investments are based on quoted market prices at the end of each accounting
period. At September 30, 1999, the cost of marketable securities approximated
their estimated fair value and for the nine months ended September 30, 1999,
there were no sales of securities and unrealized gains and losses were
insignificant.
FIXED ASSETS
Fixed assets are stated at cost and depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting. Amortization of leasehold improvements is computed by the
straight-line method over the shorter of the estimated useful lives of the
improvements or the term of the applicable lease.
DEFERRED RENT
Pursuant to Statement of Financial Accounting Standard No. 13, "Accounting
for Leases," the aggregate of the future minimum lease payments is being
recognized on a straight-line basis over the
F-7
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
term of the lease. The difference between rent expense calculated on a
straight-line basis and rent paid has been recorded as deferred rent.
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.
REVENUE RECOGNITION
Revenues related to services are generally recognized either as services are
rendered, on a time and materials basis, or utilizing the
percentage-of-completion method. The percentage-of-completion method generally
applies to revenues from fixed fee contracts which are recognized as a
percentage of the costs incurred to date to the estimated total costs for each
contract. The cumulative impact of revisions in estimates of the percentage to
complete is reflected in the period in which the revisions are made. Provisions
for estimated losses on uncompleted contracts are made on a contract by contract
basis and are recognized in the period in which such losses are determinable.
Billings in excess of earned revenues are classified as deferred revenue.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-2, Software Revenue Recognition ("SOP
97-2"). Software license revenues are recognized upon delivery of the software,
provided that persuasive evidence of an arrangement exists, the license fee is
fixed and determinable and collection of the fee is considered probable.
Maintenance revenues from ongoing customer support and product upgrades are
deferred and recognized ratably over the term of the maintenance agreement,
typically twelve months. Payments for maintenance fees (on initial order or on
renewal) are generally made in advance and are nonrefundable. Revenues for
consulting and training services are recognized as the services are performed.
RESEARCH AND DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" ("SFAS 86"), the Company capitalizes costs incurred to develop new
software products upon determination that technological feasibility has been
established for the product, whereas costs incurred prior to the establishment
of technological feasibility are charged to expense. The Company has not
capitalized any such development costs under SFAS 86, as the costs incurred
between the attainment of technological feasibility through the date when such
products are available for general release are immaterial.
FOREIGN CURRENCY AND INTERNATIONAL OPERATIONS
The functional currencies of Avesta Canada and Avesta Singapore are the
Canadian and Singapore dollars, respectively. The financial statements of these
subsidiaries are translated to U.S. dollars using year-end rates of exchange for
assets and liabilities and average rates during the relevant period for
F-8
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
revenues and expenses. Translation gains and losses are deferred and accumulated
as a component of other comprehensive loss in stockholders' equity. Revenues
earned by, and assets of, the subsidiaries were not significant for the year
ended December 31, 1998 and the nine months ended September 30, 1999.
COMPREHENSIVE LOSS
The Company reports comprehensive income (loss) in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes rules for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires foreign currency
translation adjustments and marketable securities unrealized gains and losses,
net of tax, to be included in other comprehensive income.
LOSS PER SHARE
The Company calculates net loss per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings per share excludes any dilution for common
stock equivalents and is computed on the basis of net loss divided by the
weighted average number of common shares outstanding during the relevant period.
Diluted earnings per share reflects the potential dilution that could occur if
options or other securities or contracts entitling the holder to acquire shares
of common stock were exercised or converted, resulting in the issuance of
additional shares of common stock that would then share in earnings. However,
diluted earnings per share does not consider such dilution if its effect would
be antidilutive.
STOCK-BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
certain employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, recognizes compensation expense only if
the fair value of the underlying common stock exceeds the exercise price of the
stock option on the date of grant. In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which provides an
alternative to APB Opinion No. 25 in accounting for stock-based compensation. As
permitted by SFAS No. 123, the Company continues to account for stock-based
compensation in accordance with APB Opinion No. 25 and has elected the pro forma
disclosure alternative of SFAS No. 123.
SEGMENT REPORTING
The Financial Accounting Standards Board issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. Effective
January 1, 1999, the Company adopted
F-9
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
SFAS 131, which did not affect results of operations or financial position or
require disclosure of segment information.
3. CONVERTIBLE SUBORDINATED NOTES
On December 23, 1997, the Company sold 6% Convertible Subordinated Notes
(the "Notes") maturing on June 30, 1998, for $1,343,000 to some of its existing
stockholders. On March 19, 1998 ("Conversion Date"), the Notes were converted
into 309,452 shares of Series B preferred stock and warrants that expire on
December 23, 2002 to purchase 61,889 additional shares of Series B preferred
stock (185,667 common shares) (see Note 7) at an exercise price of $4.34 per
share.
4. ACQUISITION
On June 6, 1998, the Company acquired all of the outstanding equity of
Caravelle Inc., a Canadian software developer, in exchange for 348,747 shares of
its Series B preferred stock, valued at $1,513,414. This acquisition has been
accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets and liabilities of Caravelle
based on their estimated fair values at the date of acquisition. The excess
purchase price over the fair value of the net assets acquired was $1,090,213,
including approximately $143,000 of acquisition costs, and has been recorded as
goodwill, which is being amortized on a straight-line basis over three years. At
December 31, 1998 and September 30, 1999, the related accumulated amortization
amounted to approximately $212,000 and $541,000, respectively. The operating
results of Caravelle have been included in the Company's results of operations
from the date of acquisition.
The pro forma unaudited consolidated results of operations, assuming
consummation of the Caravelle acquisition as of January 1, 1997, are
approximately as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Total revenue...................................... $ 1,757,000 $ 2,906,000
Net loss attributable to common stockholders....... $(4,731,000) $(7,374,000)
Basic and diluted net loss per share attributable
to common stockholders........................... $ (0.59) $ (0.92)
</TABLE>
5. INVESTMENT IN QHI
In September 1998, the Company licensed certain technology rights to
Quadrian Holdings, Inc. ("QHI") in exchange for shares of QHI's preferred stock.
QHI is a development stage software company whose success depends on many
factors including its ability to attain profitable growth, obtain adequate
capital and maintain positive cash flow from operations. The Company has
recorded its investment in QHI at a nominal value.
F-10
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
6. FIXED ASSETS
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, ESTIMATED
1997 1998 1999 USEFUL LIVES
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Furniture and fixtures....................... $128,239 $181,604 $ 183,873 5 years
Leasehold improvements....................... 12,128 21,413 50,297 5 years
Computer equipment and software.............. 405,691 771,339 1,344,518 3 years
-------- -------- ---------
546,058 974,356 1,578,688
Less accumulated depreciation and
amortization............................... 102,263 336,825 635,255
-------- -------- ---------
$443,795 $637,531 $ 943,433
======== ======== =========
</TABLE>
Included in fixed assets is computer equipment and software resulting from
capital lease obligations totaling $125,468, $179,066 and $212,149 at
December 31, 1997 and 1998 and September 30, 1999, respectively (see Note 10).
The accumulated depreciation attributable to assets acquired under capital
leases is $20,911, $71,667 and $115,980 at December 31, 1997 and 1998 and
September 30, 1999, respectively.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In 1996 and 1997, the Company sold 1,767,243 shares of Series A Redeemable
Convertible Preferred Stock ("Series A") for $4,050,000, or $2.29 per share. The
Series A is convertible into the Company's common stock on a three-for-one
basis, subject to certain anti-dilution privileges, as defined.
The purchasers of the Series A also received warrants that expire on
December 19, 2001 or February 27, 2002, respectively, to purchase 981,819 and
327,252 shares of the Company's common stock at an exercise price $0.77 per
share. The fair value of the warrants are nominal.
In March 1998, the Series A stockholders agreed to forgive and cancel their
rights to annual cumulative dividends of 6%. Amounts previously accrued by the
Company have been reclassified to additional paid-in capital.
In March 1998, the Company sold 1,418,664 shares of Series B Redeemable
Convertible Preferred Stock ("Series B") for $6,157,000, or $4.34 per share. The
Series B is convertible into the Company's common stock on a three-for-one
basis, subject to certain anti-dilution privileges, as defined.
In January 1999, the Company reduced the authorized number of its Series B
to 2,138,752 from 5,000,000 and, concurrently, authorized 4,060,000 shares of
Series C Redeemable Convertible Preferred Stock ("Series C").
In March 1999, the Company reduced the authorized number of its Series C to
3,096,335 from 4,060,000 and consummated the sale of 2,669,246 shares of its
Series C for approximately $10,837,000, or $4.06 per share. Purchasers of the
Series C also received warrants that expire on January 4, 2004 to purchase
426,997 additional shares of Series C, at an exercise price of $4.06 per share.
19,705 warrants were exercised in 1999. In December 1998, a purchaser of
Series C paid for its shares in advance of the
F-11
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Company authorizing the sale. Such amounts have been classified as a liability
as of December 31, 1998.
In August 1999, the Company consummated the sale of 1,827,667 shares of its
Series D Convertible Redeemable Preferred Stock ("Series D") for approximately
$11,405,000 or $6.24 per share.
The Series C and D are convertible into the Company's common stock on a one
and a half-for-one basis, subject to certain anti-dilution privileges, as
defined.
The holders of the Series A, Series B, Series C and Series D (collectively
"All Series Preferred Stock") are entitled to a discretionary noncumulative
dividend, and to the number of votes equal to the number of shares of common
stock into which such shares of preferred stock could be converted on the date
of the vote. Upon liquidation, the holders of All Series Preferred Stock are
due, prior and in preference to the holders of common stock, their original
investment. At September 30, 1999, the aggregate liquidation preferences are
$4,050,000 for Series A, $9,013,414 for Series B, $10,917,141 for Series C and
$11,404,642 for Series D.
Holders of All Series Preferred Stock also may elect to have the Company
redeem one-third of their investment on each of December 31, 2001, 2002 and
2003. The redemption value is equal to the liquidation preference.
All Series Preferred Stock shall automatically be converted upon the
occurrence of certain events including a qualified initial public offering of
the Company's common stock, as defined.
F-12
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
The following is redeemable convertible preferred stock outstanding for the
period from February 9, 1996 (date of inception) to December 31, 1996, the years
ended December 31, 1997 and December 31, 1998 and the nine months ended
September 30, 1999.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
---------------------- ---------------------- ----------------------- -----------------------
SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS
--------- ---------- --------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of Series A
preferred
stock............ 1,309,090 $3,000,000 -- $ -- -- $ -- -- $ --
Accrual of
cumulative
dividends to
preferred
stockholders..... -- 5,918 -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------- --------- -----------
Balance at December
31, 1996........... 1,309,090 3,005,918 -- -- -- -- -- --
Sale of Series A
preferred
stock............ 458,153 1,050,000 -- -- -- -- -- --
Accrual of
cumulative
dividends to
preferred
stockholders..... -- 239,780 -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------- --------- -----------
Balance at December
31, 1997........... 1,767,243 4,295,698 -- -- -- -- -- --
Sale of Series B
preferred
stock............ -- -- 1,418,665 6,157,000 -- -- -- --
Conversion of notes
for Series B
preferred
stock............ -- -- 309,452 1,343,000 -- -- -- --
Accrual of
cumulative
dividends to
preferred
stockholders..... -- 51,929 -- -- -- -- -- --
Dividends on
preferred stock
contributed to
the Company...... -- (297,627) -- -- -- -- -- --
Issuance of Series
B preferred stock
for
acquisition...... -- -- 348,747 1,513,414 -- -- -- --
--------- ---------- --------- ---------- --------- ----------- --------- -----------
Balance at December
31, 1998........... 1,767,243 4,050,000 2,076,864 9,013,414 -- -- -- --
Sale of Series C
preferred
stock............ -- -- -- -- 2,688,951 10,917,141 -- --
Sale of Series D
preferred
stock............ -- -- -- -- -- -- 1,827,667 11,404,642
--------- ---------- --------- ---------- --------- ----------- --------- -----------
Balance at September
30, 1999........... 1,767,243 $4,050,000 2,076,864 $9,013,414 2,688,951 $10,917,141 1,827,667 $11,404,642
========= ========== ========= ========== ========= =========== ========= ===========
<CAPTION>
TOTAL
-----------
<S> <C>
Sale of Series A
preferred
stock............ $ 3,000,000
Accrual of
cumulative
dividends to
preferred
stockholders..... 5,918
-----------
Balance at December
31, 1996........... 3,005,918
Sale of Series A
preferred
stock............ 1,050,000
Accrual of
cumulative
dividends to
preferred
stockholders..... 239,780
-----------
Balance at December
31, 1997........... 4,295,698
Sale of Series B
preferred
stock............ 6,157,000
Conversion of notes
for Series B
preferred
stock............ 1,343,000
Accrual of
cumulative
dividends to
preferred
stockholders..... 51,929
Dividends on
preferred stock
contributed to
the Company...... (297,627)
Issuance of Series
B preferred stock
for
acquisition...... 1,513,414
-----------
Balance at December
31, 1998........... 13,063,414
Sale of Series C
preferred
stock............ 10,917,141
Sale of Series D
preferred
stock............ 11,404,642
-----------
Balance at September
30, 1999........... $35,385,197
===========
</TABLE>
F-13
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY
On March 23, 1998, the Company effected a 2-for-1 stock split. The
accompanying financial statements give retroactive effect to this stock split.
On November , 1999, the Company's stockholders approved a three-for-two split
of the outstanding shares of common stock which was effectuated as a stock
dividend, and on , 1999, the Company filed an amended and restated
certificate of incorporation increasing the number of authorized shares of
common stock from 25,000,000 to 100,000,000. Retroactive effect has been given
to these stock splits. All common share, option and warrant data have been
restated to reflect the stock splits.
In December 1998, the Company entered into an agreement with one of its
customers whereby the Company will issue warrants to purchase a certain number
of shares of the Company's common stock if the customer meets certain purchase
volume targets. In June 1999, the Company issued to the customer warrants that
expire in June 2003 to purchase 67,500 shares of the Company's common stock at
an exercise price of $2.71 per share, as certain purchase volume targets were
met during the current year. The valuation of such warrants is nominal.
The Company has reserved for issuance (i) 18,307,248 shares of common stock
for conversion of All Series Preferred Stock, (ii) 2,218,176 shares of common
stock upon exercise of warrants and (iii) 4,742,274 shares of common stock under
the 1996 Stock Plan (as defined in Note 11).
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
earnings (loss) per common share:
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED NINE MONTHS ENDED
FEBRUARY 9, 1996 --------------------------- -----------------------------
(DATE OF INCEPTION) TO DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1996 1997 1998 1998 1999
---------------------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss...................... $ (20,425) $(2,986,158) $(6,913,758) $(5,440,597) $(6,042,328)
Preferred stock dividends..... (5,918) (239,780) (51,929) (51,929) --
--------- ----------- ----------- ----------- -----------
Numerator for basic and diluted
net loss per share--net loss
applicable to common
stockholders.................. $ (26,343) $(3,225,938) $(6,965,687) $(5,492,526) $(6,042,328)
========= =========== =========== =========== ===========
Denominator:
Denominator for basic and
diluted net loss per
share--weighted average common
shares outstanding............ 7,994,580 7,994,580 8,027,955 8,010,223 8,559,025
========= =========== =========== =========== ===========
Basic and diluted net loss per
share......................... $ (0.00) $ (0.40) $ (0.87) $ (0.69) $ (0.71)
========= =========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
9. EARNINGS PER SHARE (CONTINUED)
Securities for issuance of common stock excluded from diluted earnings per
share due to their antidilutive effect are as follows:
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED NINE MONTHS ENDED
(DATE OF INCEPTION) --------------------------- -----------------------------
FEBRUARY 9, 1996 TO DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Stock options..................... -- 185,316 967,199 723,572 1,290,930
Common stock purchase warrants.... -- -- 45,000 -- 112,500
Convertible preferred stock-Series
A............................... 3,927,270 5,301,729 5,301,729 5,301,729 5,301,729
Convertible preferred stock-Series
B............................... -- -- 6,230,592 6,230,592 6,230,592
Convertible preferred stock-Series
C............................... -- -- -- -- 4,033,427
Convertible preferred stock-Series
D............................... -- -- -- -- 2,741,500
Convertible subordinated notes.... -- 618,904 -- -- --
Convertible preferred stock
purchase warrants-Series A...... 981,819 1,309,071 1,309,071 1,309,071 1,309,071
Convertible preferred stock
purchase warrants-Series B...... -- 185,667 185,667 185,667 185,667
Convertible preferred stock
purchase warrants-Series C...... -- -- -- -- 610,938
</TABLE>
10. COMMITMENTS AND CONTINGENCY
CAPITAL LEASES
In 1997, 1998 and 1999 the Company entered into various capital lease
agreements for computer equipment. The agreements provide for monthly payments
of approximately $7,250 through January 2002, including interest at rates
ranging from 12.26% to 15.51%.
The following is a schedule of future minimum lease payments under capital
leases, together with the present value of the net minimum lease payments:
<TABLE>
<CAPTION>
<S> <C>
Year ending September 30:
2000...................................................... $ 80,000
2001...................................................... 34,000
2002...................................................... 6,000
--------
Total minimum lease payments................................ 120,000
Less amount representing interest........................... 13,000
--------
Present value of net minimum lease payments................. $107,000
========
</TABLE>
F-15
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCY (CONTINUED)
OPERATING LEASES
The Company is obligated to make payments under noncancellable operating
leases through 2008. The minimum annual rental commitments under these
noncancellable operating leases as of September 30, 1999 are approximately as
follows:
<TABLE>
<S> <C>
2000........................................................ $ 294,000
2001........................................................ 303,000
2002........................................................ 311,000
2003........................................................ 326,000
2004........................................................ 328,000
Thereafter.................................................. 1,284,000
----------
$2,846,000
==========
</TABLE>
Total rent expense on real estate charged to operations was approximately
$7,000, $272,000, $347,000, $256,000 and $301,000, respectively, for the period
from February 9, 1996 to December 31, 1996, the years ended December 31, 1997
and December 31, 1998 and the nine months ended September 30, 1998 and
September 30, 1999.
CONTINGENCY
In October 1997, a lawsuit was filed against the Company and one of its
employees that alleges patent infringement, unfair competition, breach of
contract and interference with contractual relations resulting in unjust
enrichment. The Company answered the complaint, denying all allegations, and
also asserted counterclaims against the plaintiff for patent misuse, unfair
competition, interference with business and patent invalidity. The Company
intends to vigorously defend itself against these allegations and management
believes that they acted appropriately in connection with the matters at issue.
The Company cannot presently determine the ultimate outcome of this action and
the effect, if any, on the accompanying financial statements. A negative outcome
could have a material adverse effect on the Company's financial position.
11. STOCK OPTION PLAN
In 1996, the Company established the Avesta Technologies 1996 Stock Option
Plan, as amended ("1996 Stock Plan"), for employees, directors and consultants
of the Company to purchase shares of common stock. The compensation committee of
the Company's Board of Directors is responsible for determining the type of
awards, when and to whom awards are granted, the number of shares and terms of
the awards and the exercise price. The options are exercisable for a period not
to exceed ten years from the date of the grant and vest 25% after the completion
of one year of employment at the Company, and 25% annually thereafter on a
monthly basis. As of September 30, 1999, the Company has reserved 5,550,000
shares of common stock for exercise and future grants of stock options under the
1996 Stock Plan.
F-16
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
11. STOCK OPTION PLAN (CONTINUED)
Activity in the 1996 Stock Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted in 1996 and outstanding at December 31,
1996............................................... 741,264 $0.077
Granted in 1997...................................... 2,019,150 0.077
---------
Outstanding at December 31, 1997..................... 2,760,414 0.077
Granted in 1998...................................... 1,604,928 0.168
Exercised............................................ (101,967) 0.077
Canceled and expired................................. (291,654) 0.081
---------
Outstanding at December 31, 1998..................... 3,971,721 0.113
Granted in 1999...................................... 975,975 2.032
Exercised............................................ (705,759) 0.084
Canceled and expired................................. (357,741) 0.481
---------
Outstanding at September 30, 1999.................... 3,884,196 0.568
=========
Exercisable at December 31, 1996..................... -- 0.000
=========
Exercisable at December 31, 1997..................... 185,316 0.077
=========
Exercisable at December 31, 1998..................... 967,199 0.077
=========
Exercisable at September 30, 1999.................... 1,290,930 0.117
=========
</TABLE>
Information regarding the options outstanding under 1996 Stock Plan at
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
CURRENTLY WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICE RANGE OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE
- -------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.077.......................... 1,677,053 $0.077 7.7 years 971,534 $0.077
$0.147.......................... 351,382 0.147 8.6 years 122,047 0.147
$0.293.......................... 936,786 0.293 9.0 years 197,349 0.293
$0.800.......................... 89,250 0.800 9.3 years -- --
$1.35-$1.76..................... 544,200 1.526 9.6 years -- --
$3.33........................... 285,525 3.333 10.0 years -- --
--------- ---------
3,884,196 1,290,930
========= =========
</TABLE>
F-17
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
11. STOCK OPTION PLAN (CONTINUED)
Pro forma information regarding net income (loss) is required by SFAS
No. 123, "Accounting for Stock-Based Compensation," and has been determined as
if the Company had accounted for its employees' stock options under the fair
value method provided by that Statement.
The fair value of the options was estimated at the date of grant using the
minimum value method with the following assumptions for vested and nonvested
options:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSUMPTION
Risk-free interest rate..... 5.99% 6.04% 5.62% 5.51%
Dividend yield.............. -- -- -- --
Average life................ 4 years 4 years 4 years 4 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options under SFAS 123 is amortized to expense over the options' vesting period.
Had compensation cost for the Company's 1996 Stock Plan been determined based
upon the fair value at the grant date for awards under the 1996 Stock Plan,
consistent with the methodology prescribed under SFAS 123, the Company's net
loss and loss per share would not have changed for the period from February 9.
1996 to December 31, 1996 and would have increased by approximately $276,000 or
$0.03 per share and $540,000 or $0.07 per share for the years ended
December 31, 1997 and 1998, respectively, and by approximately $391,000 or $0.04
per share and $662,000 or $0.08 per share for the nine months ended
September 30, 1998 and September 30, 1999, respectively.
The weighted average fair value of options granted during the period from
February 9, 1996 to December 31, 1996, the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999 was $0.020, $0.020, $0.046 and
$0.579, respectively.
12. MAJOR CUSTOMERS
In 1997, three customers accounted for approximately 64%, 16% and 11% of
revenues. In 1998, three customers accounted for approximately 18%, 18% and 16%
of revenues. In the nine months ended September 30, 1999, three customers
accounted for approximately 44%, 24% and 10% of revenues.
At December 31, 1997, three customers accounted for all of the Company's
accounts receivable balance. At December 31, 1998, two customers accounted for
26% and 13% of the Company's accounts receivable balance. At September 30, 1999,
three customers accounted for 21%, 17% and 12% of the Company's accounts
receivable balance.
13. CREDIT FACILITIES
In October 1998, the Company entered into a one-year, $3,000,000 revolving
line of credit agreement with a financial institution (the "Facility").
Borrowings under the Facility cannot exceed 85% of outstanding eligible accounts
receivable ("Tranche A"), as defined, and bear interest at the bank's prime rate
plus 2%. The Company can also draw up to $1,500,000 of the Facility on a
non-formula basis, subject to the $3 million maximum and the level of eligible
accounts receivable, at the bank's
F-18
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
13. CREDIT FACILITIES (CONTINUED)
prime rate plus 3% ("Tranche B"). At September 30, 1999, the interest rate under
Tranche A was 10.25%. Borrowings under the Facility are secured by all of the
Company's assets, including its intellectual property and the payments of cash
dividends are restricted. At December 31, 1998 and September 30, 1999,
borrowings under the Facility were approximately $620,000 and $1,452,000,
respectively.
In connection with the Facility, the Company issued to the financial
institution warrants that expire in October 2003 to purchase 45,000 shares of
the Company's common stock at an exercise price of $2.89 per share. The value of
the warrants is nominal. The Company incurred approximately $48,000 of fees in
connection with the Facility. Such fees have been capitalized as deferred
financing cost and are being amortized over the life of the Facility through
September 30, 1999.
In October 1999, the financial institution increased the amounts available
under the Facility to $7,500,000 maturing in October 2000. The terms of the
borrowings remain substantially as disclosed above. In connection with the
extension of the Facility, the Company issued to the financial institution
additional warrants that expire in October 2004 to purchase 21,428 shares of the
Company's common stock at an exercise price of $4.16 per share.
In February 1997, and renewed annually thereafter, the Company entered into
a $300,000 letter of credit bearing interest at prime rate plus 1%. The letter
of credit was unused at September 30, 1999.
14. INCOME TAXES
There was no provision for federal, state and local income taxes as the
Company has incurred losses since inception.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-19
<PAGE>
AVESTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
14. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $1,202,000 $4,031,000 $5,927,000
Deferred rent......................................... 126,000 209,000 207,000
Organizational fees................................... 24,000 24,000 24,000
Bad debts............................................. -- 43,000 199,000
Other................................................. 31,000 23,000 23,000
---------- ---------- ----------
Gross deferred tax assets............................... 1,383,000 4,330,000 6,380,000
Deferred tax liabilities:
Depreciation and amortization......................... 14,000 21,000 25,000
Other................................................. -- -- 2,000
---------- ---------- ----------
Gross deferred tax liabilities.......................... 14,000 21,000 27,000
---------- ---------- ----------
Valuation allowance..................................... 1,369,000 4,309,000 6,353,000
---------- ---------- ----------
Net deferred tax assets................................. $ -- $ -- $ --
========== ========== ==========
</TABLE>
The Company established a valuation allowance of approximately $22,000 at
December 31, 1996. At September 30, 1999, the Company has approximately
$12,836,000 of net operating loss carryforwards ("NOLs") for Federal income tax
purposes, which begin to expire in 2012.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the NOLs can be utilized and the temporary differences become deductible.
Since the Company has incurred losses since inception, the Company has
established a valuation allowance for deferred tax assets at September 30, 1999.
15. RELATED PARTY TRANSACTION
During 1998 and 1999, the Company recorded sales in the amount of
approximately $74,000 and $200,000, respectively, to customers whose executives
are board members of the Company.
16. RETIREMENT PLAN
The Company has a 401(k) plan covering substantially all its domestic
employees. The plan does not require a matching contribution by the Company.
17. SUBSEQUENT EVENTS
The Company intends to file a Form S-1 Registration Statement under the
Securities Act of 1933, as amended, in which it will offer shares of its common
stock to the public. Effective with this offer, the Company will authorize
5,000,000 shares of preferred stock, with a par value of $0.01 per share.
F-20
<PAGE>
- ---------------------------------------
- ---------------------------------------
Through and including , 2000 (the 25(th) day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
CIBC WORLD MARKETS
, 2000
- ---------------------------------------
- ---------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses, other
than the underwriting discounts and commissions, payable by the Registrant in
connection with the issuance and distribution of the common stock being
registered.
<TABLE>
<S> <C>
SEC registration fee........................................ $17,264
NASD filing fee............................................. 6,710
NASDAQ listing fee.......................................... *
Legal fees and expenses..................................... *
Accountants' fees and expenses.............................. *
Printing expenses........................................... *
Blue sky fees and expenses.................................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous............................................... *
-------
Total................................................... $ *
-------
</TABLE>
- ------------------------
* To be completed by amendment.
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation in effect
as of the date hereof (the "Certificate") provides that, except to the extent
prohibited by the Delaware General Corporation Law, as amended (the "DGCL"), the
Registrant's directors shall not be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Registrant. Under the DGCL, the directors have a fiduciary duty to the
Registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
Registrant obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or
(iv) for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. One of Registrant's officers has been named as a defendant in the
claims made by Systems Management ARTS Incorporated against Registrant and such
officer.
Other than as noted above, there is no pending litigation or proceeding
involving any director, officer, employee or agent as to which indemnification
may be required or permitted under the Certificate. The Registrant is not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant has issued the following securities since February 9, 1996:
COMMON STOCK. On April 29, 1996, the registrant issued shares of common
stock to its three founders. The registrant issued 6,575,844 shares to Kam
Saifi, for the purchase price of $8.23, 1,168,371 shares to David Arbeitel, for
the purchase price of $1.46, and 250,365 shares to Robert Kostes for the
purchase price of $0.31.
PREFERRED STOCK AND WARRANTS. On December 19, 1996 the registrant sold an
aggregate of 1,309,090 shares of Series A Preferred Stock and 981,819 Warrants
to Purchase Common Stock to Information Associates C.V., Information Associates,
L.P., WS Investment Company 96B, Jeffrey Saper, and Jonathan Axelrad for an
aggregate purchase price of $3,000,041.55. The warrants are exercisable until
December 19, 2001.
II-2
<PAGE>
On February 27, 1997, the registrant sold 436,335 shares of Series A
Preferred Stock and Warrants to Purchase 327,252 shares of Common Stock to
Kanata Research Park Corporation for a purchase price of $999,948.92. The
warrants are exercisable until February 27, 2002.
On September 17, 1997 the registrant sold 21,818 shares of Series A
Preferred Stock to Royce Holland for a purchase price of $50,000.
Upon the closing of this offering, all of the outstanding shares of
Series A Preferred stock will convert into an aggregate of 5,301,729 shares of
common stock.
On December 23, 1997, the registrant sold Convertible Subordinated Notes for
$1,343,000 to Information Associates, C.V., Information Associates, L.P., and
Kanata Research Park Corporation. On March 19, 1998, the Notes were converted
into 309,452 shares of Series B Preferred Stock. Purchasers of the Notes also
received warrants to purchase 61,889 additional shares of Series B Preferred
Stock at an exercise price of $4.34 per share. The warrants are exercisable
until December 23, 2002.
On March 19, 1998, the registrant sold an aggregate of 1,728,116 shares of
Series B Preferred Stock to Information Associates, L.P., Information
Associates, C.V., Venture Fund I, LP, AT&T Venture Fund II, LP, Special Partners
Fund International, L.P., David Tory, Robert James, Jonathan Axelrad, Jeffrey
Saper, and Kanata Research Park Corporation for an aggregate purchase price of
$7,500,027.70 in cash and notes.
On May 8, 1998, the registrant issued an aggregate of 354,464 shares of
Series B Preferred Stock to the shareholders of Caravelle, Inc., in connection
with the acquisition of Caravelle, Inc. by Avesta Technologies, Canada, Inc.
Upon the closing of this offering, all of the outstanding shares of
Series B Preferred stock will convert into an aggregate of 6,230,592 shares of
common stock.
On October 16, 1998, the registrant issued warrants to purchase 45,000
shares of common stock, at an exercise price of $4.34 per share to TBCC Funding
Trust II, in connection with a line of credit. The warrants have a 5 year
exercise period.
On January 4, 1999 and February 4, 1999, the registrant sold an aggregate of
2,669,246 shares of Series C Preferred Stock and Warrants to Purchase an
aggregate of 427,089 shares of Series C preferred stock to 28 investors for an
aggregate price of $10,837,138. The warrants are exercisable until January 4,
2004.
Upon the closing of this offering, all of the outstanding shares of
Series C Preferred Stock will convert into an aggregate of 4,033,427 shares of
common stock.
On July 13, 1999 and August 12, 1999, the registrant sold an aggregate of
1,827,667 shares of Series D Preferred Stock to 40 investors for an aggregate
price of $11,404,642. Upon the closing of this offering, all of the outstanding
shares of Series D Preferred Stock will convert to 2,741,501 of common stock.
On October 15, 1999, the registrant issued warrants to purchase 14,285
shares of common stock, at an exercise price of $6.24 per share to TBCC Funding
Trust II, in connection with a line of credit. The warrants expire on
October 31, 2003.
OPTIONS. Since February 9, 1996, the registrant from time to time has
granted stock options to employees, directors and consultants. From February 9,
1996 to September 30, 1999, the registrant issued 807,726 shares of common stock
upon the exercise of these options at prices ranging from $.077 to $0.29 per
share.
The above securities were sold by registrant in reliance upon exemptions
from registration pursuant either to (i) Section 4(2) of the Securities Act of
1933, as transactions not involving any public offering, or (ii) rule 701 under
the Securities Act of 1933. No underwriters were involved in connection with the
sales of securities referred to in this Item 15.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of the initial public
offering.
3.3 By-laws.
3.4* Form of Amended and Restated By-laws to be in effect upon
the closing of the initial public offering.
4.1* Specimen Common Stock Certificate.
4.2 See Exhibits 3.1, 3.2, 3.3, and 3.4 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining the rights of holders of Common Stock of the
Registrant.
4.3 Warrant to purchase shares of Common Stock issued to TBCC
Funding Trust II, dated October 16, 1998.
4.4 Warrant to purchase shares of Common Stock issued to TBCC
Funding Trust II, dated October 15, 1999.
4.5 Form of Warrant to purchase shares of Common Stock issued to
Series A Preferred Stock Purchasers.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1996 Stock Plan, as amended.
10.2* 1999 Stock Incentive Plan.
10.3* 1999 Employee Stock Purchase Plan.
10.4 Third Amended and Restated Investors Rights Agreement among
Avesta Technologies, Inc. and Investors, dated July 13,
1999.
10.5 Lease Agreement dated February 15, 1997 between Avesta
Technologies, Inc. and OTR an Ohio general partnership.
10.6 First Amendment of Lease Agreement dated February 15, 1997
between Avesta Technologies, Inc. and OTR an Ohio general
partnership, made August 27, 1999.
10.7 Lease Agreement dated May 21, 1999 between Avesta
Technologies, Inc. and Regus Business Centre Corp.
10.8 Lease Agreement dated January 27, 1999 between Avesta
Technologies, Inc. and InterOffice/ Boston.
10.9 Lease Agreement dated January 13, 1995 between Avesta
Technologies, Canada, Inc. and David Developments, as
amended.
10.10 Lease Agreement dated April 9, 1998 between Avesta
Technologies, Inc. and Swallowfield Offices Services
Limited.
10.11 (a) Stock Restriction Agreement by and among Avesta
Technologies, Inc. and Kam Saifi, dated December 19, 1996
(b) Stock Restriction Agreement by and among Avesta
Technologies, Inc. and David Arbeitel, dated December 19,
1996
(c) Stock Restriction Agreement by and among Avesta
Technologies, Inc. and Robert Kostes, dated December 19,
1996
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
10.12 Agreement and Plan of Amalgamation by and among Avesta
Technologies, Inc. and Avesta Technologies Canada, Inc. and
Caravelle Inc. and the Caravelle shareholders, dated May 8,
1998.
10.13 First Amendment, dated June 1, 1998 to Agreement and Plan of
Amalgamation by and Among Avesta Technologies, Inc. and
Avesta Technologies Canada, Inc. and Caravelle Inc. and the
Caravelle Shareholders as of May 8, 1998.
10.14 Lease Agreement dated June 6, 1999 between Avesta
Technologies, Inc. and Wangz Business Center.
11.1* Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (included in the Signature Page).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Purchase Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on this 19th day of November, 1999.
<TABLE>
<S> <C> <C>
AVESTA TECHNOLOGIES, INC.
By: /s/ KAM M. SAIFI
-----------------------------------------
Kam M. Saifi
President and Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Avesta Technologies, Inc.
(the "Company"), hereby severally constitute and appoint Kam M. Saifi and
Kenneth Campbell, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full powers
to them and each of them to sign for us, in our names and in the capacities
indicated below, the registration statement on Form S-1 filed with the
Securities and Exchange Commission, and any and all amendments to said
registration statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this 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 below:
<TABLE>
<S> <C> <C>
Dated: November 19, 1999 /s/ KAM M. SAIFI
-----------------------------------------
Kam M. Saifi
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 19, 1999 /s/ KENNETH L. CAMPBELL
-----------------------------------------
Kenneth L. Campbell
Chief Financial Officer (Principal
Financial and Accounting Officer)
Dated: November 19, 1999 /s/ DAVID ARBEITEL
-----------------------------------------
David Arbeitel
Senior Vice President
Product Management Director
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
Dated: November 19, 1999 /s/ R. BRADFORD BURNHAM
-----------------------------------------
R. Bradford Burnham
Director
Dated: November 19, 1999 /s/ DONALD R. DIXON
-----------------------------------------
Donald R. Dixon
Director
Dated: November 19, 1999 /s/ CARLOS DOMINGUEZ
-----------------------------------------
Carlos Dominguez
Director
Dated: November 19, 1999 /s/ JOHN FACCIBENE
-----------------------------------------
John Faccibene
Director
Dated: November 19, 1999 /s/ JAMES C. HALE III
-----------------------------------------
James C. Hale III
Director
Dated: November 19, 1999 /s/ ROYCE HOLLAND
-----------------------------------------
Royce Holland
Director
Dated: November 19, 1999 /s/ VENETIA KONTOGOURIS
-----------------------------------------
Venetia Kontogouris
Director
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of the initial public
offering.
3.3 By-laws.
3.4* Form of Amended and Restated By-laws to be in effect upon
the closing of the initial public offering.
4.1* Specimen Common Stock Certificate.
4.2 See Exhibits 3.1, 3.2, 3.3, and 3.4 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining the rights of holders of Common Stock of the
Registrant.
4.3 Warrant to purchase shares of Common Stock issued to TBCC
Funding Trust II, dated October 16, 1998.
4.4 Warrant to purchase shares of Common Stock issued to TBCC
Funding Trust II, dated October 15, 1999.
4.5 Form of Warrant to purchase shares of Common Stock issued to
Series A Preferred Stock Purchasers.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1996 Stock Option Plan, as amended.
10.2* 1999 Stock Incentive Plan.
10.3* 1999 Employee Stock Purchase Plan.
10.4 Third Amended and Restated Investors Rights Agreement among
Avesta Technologies, Inc. and Investors, dated July 13,
1999.
10.5 Lease Agreement dated February 15, 1997 between Avesta
Technologies, Inc. and OTR an Ohio general partnership.
10.6 First Amendment of Lease Agreement dated February 15, 1997
between Avesta Technologies, Inc. and OTR an Ohio general
partnership, made August 27, 1999.
10.7 Lease Agreement dated May 25, 1999 between Avesta
Technologies, Inc. and Regus Business Centre Corp.
10.8 Lease Agreement dated January 27, 1999 between Avesta
Technologies, Inc. and InterOffice/ Boston.
10.9 Lease Agreement dated January 13, 1995 between Avesta
Technologies, Canada, Inc. and David Developments, as
amended.
10.10 Lease Agreement dated April 9, 1998 between Avesta
Technologies, Inc. and Swallowfield Offices Services
Limited.
10.11 (a) Stock Restriction Agreement by and among Avesta
Technologies, Inc. and Kam Saifi, dated December 19, 1996
(b) Stock Restriction Agreement by and among Avesta
Technologies, Inc. and David Arbeitel, dated December 19,
1996
(c) Stock Restriction Agreement by and among Avesta
Technologies, Inc. and Robert Kostes, dated December 19,
1996
10.12 Agreement and Plan of Amalgamation by Avesta Technologies,
Inc. and Avesta Technologies Canada, Inc. and Caravelle Inc.
and the Caravelle shareholders, dated May 8, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
10.13 First Amendment, dated June 1, 1998 to Agreement and Plan of
Amalgamation by and Among Avesta Technologies, Inc. and
Avesta Technologies Canada, Inc. and Caravelle Inc. and the
Caravelle Shareholders as of May 8, 1998.
10.14 Lease Agreement dated June 6, 1999 between Avesta
Technologies, Inc. and Wangz Business Center.
11.1* Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (included in the Signature Page).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AVESTA TECHNOLOGIES, INC.
a Delaware Corporation
The undersigned, acting in their capacities as President and Secretary,
respectively, of Avesta Technologies, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certify as follows:
1. The name of the corporation is Avesta Technologies, Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on February 9, 1996.
A Restated Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on December 16, 1996. Certificates of Amendment to the
Restated Certificate of Incorporation were filed with the Secretary of State of
the State of Delaware on February 26, 1997, September 17, 1997, December 24,
1997 and December 31, 1997. On March 19, 1998, the Corporation filed an Amended
and Restated Certificate of Incorporation with the Secretary of State of the
State of Delaware. A Certificate of Amendment of the Amended and Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on March 20, 1998. An Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on January 4,
1999. An Amended and Restated Certificate of Incorporation was filed on July 13,
1999.
2. The amendment and restatement to the Amended and Restated Certificate
of Incorporation set forth herein in full was authorized in the following
manner: This Amended and Restated Certificate of Incorporation was approved in
its entirety by the Board of Directors of the Corporation and consented to in
writing by the stockholders of the Corporation pursuant to Sections 228, 242 and
245 of the General Corporation Law of the State of Delaware ("Delaware Law").
3. The text of the Amended and Restated Certificate of Incorporation is
hereby amended and restated to read in its entirety as follows:
FIRST: The name of this corporation is Avesta Technologies, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Delaware Law.
<PAGE>
FOURTH: This Corporation is authorized to issue two classes of shares to
be designated respectively Preferred Stock and Common Stock. The total number of
shares of Common Stock this Corporation shall have the authority to issue is
25,000,000 shares, with a par value of $0.01 per share ("Common"), and the total
number of shares of Preferred Stock this Corporation shall have authority to
issue is 8,829,997, with a par value of $0.01 per share ("Preferred"),
consisting of 1,767,243 shares of Preferred which shall be designated as Series
A Preferred Stock ("Series A Preferred"), 2,138,752 shares of Preferred which
shall be designated as Series B Preferred Stock ("Series B Preferred"),
3,096,335 shares of Preferred which shall be designated as Series C Preferred
Stock ("Series C Preferred"), and 1,827,667 shares of Preferred which shall be
designated as Series D Preferred ("Series D Preferred").
Each share of Preferred issued by the Corporation, if reacquired by the
Corporation (whether by redemption, repurchase, conversion to Common or other
means), shall upon such reacquisition resume the status of authorized and
unissued shares of Preferred, undesignated as to series and available for
designation and issuance by the Corporation in accordance with the immediately
preceding paragraph.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common if at any time
the number of shares of Common remaining unissued and available for issuance
shall not be sufficient to permit conversion of the Preferred.
A description of the respective classes of stock and statement of the
designations, preferences, voting powers (or lack of voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Series A Preferred, Series B
Preferred, Series C Preferred, and Common are as follows:
A. PREFERRED STOCK
Section 1. Liquidation Rights.
(a) Series D Liquidation Preference. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation (or the deemed occurrence of such event pursuant to subsection (e)
of this Section 1), the holders of each share of Series D Preferred shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or property of the Corporation to the holders of the Series C Preferred,
the holders of the Series A Preferred, the holders of the Series B Preferred or
the holders of Common by reason of their ownership thereof, an amount equal to
the sum of $6.24 per share (subject to adjustments for stock splits, dividends
and recapitalizations) (the "Series D Purchase Price") and all dividends
previously declared but unpaid prior to the date fixed for distribution on each
share of Series D Preferred held by them (the "Series D Liquidation
Preference").
All of the preferential amount to be paid to the holders of the Series D
Preferred under this subsection 1(b) shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation the holders of the Series C
Preferred, the holders of the Series A Preferred, the holders of the Series B
Preferred and the holders of the Common in connection with any such liquidation,
dissolution or winding
<PAGE>
up. After the payment or the setting apart for payment to the holders of the
Series D Preferred of the full preferential amounts so payable to them, the
remaining assets of the Corporation available for distribution shall be
distributed in accordance with the provisions of subsection (b), subsection (c)
and subsection (d) of this Section 1.
If the assets or property to be distributed are insufficient to permit the
payment to holders of the Series D Preferred of their full preferential amount,
the entire assets and property legally available for distribution shall be
distributed ratably among the holders of the Series D Preferred in proportion to
the full preferential amount each such holder is otherwise entitled to receive.
(b) Series C Liquidation Preference. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation (or the deemed occurrence of such event pursuant to subsection (e)
of this Section 1), following the amounts payable to holders of Series D
Preferred set forth in subsection (a) of this Section 1, the holders of each
share Series C Preferred shall be entitled to receive, prior and in preference
to any distribution of any of the assets or property of the Corporation to the
holders of the Series A Preferred, the holders of the Series B Preferred or the
holders of Common by reason of their ownership thereof, an amount equal to the
sum of (i) $4.06 per share (subject to adjustments for stock splits, dividends
and recapitalizations) (the "Series C Purchase Price") and (ii) all dividends
previously declared but unpaid prior to the date fixed for distribution on each
share of Series C Preferred held by them (the "Series C Liquidation Preference".
All of the preferential amount to be paid to the holders of the Series C
Preferred under this subsection 1(b) shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Series A
Preferred, the holders of the Series B Preferred and the holders of the Common
in connection with any such liquidation, dissolution or winding up. After the
payment or the setting apart for payment to the holders of the Series C
Preferred of the full preferential amounts so payable to them, the remaining
assets of the Corporation available for distribution shall be distributed in
accordance with the provisions of subsection (c) and subsection (d) of this
Section 1.
If the assets or property to be distributed are insufficient to permit the
payment to holders of the Series C Preferred of their full preferential amount,
the entire assets and property legally available for distribution shall be
distributed ratably among the holders of Series C Preferred in proportion to the
full preferential amount each such holder is otherwise entitled to receive.
(c) Series A Liquidation Preference and Series B Liquidation
Preference. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation (or the deemed
occurrence of such event pursuant to subsection (e) of this Section 1),
following the amounts payable to the holders of the Series D Preferred set forth
in subsection (a) of this Section 1 and the holders of the Series C Preferred
set forth in subsection (b) of this Section 1, the holders of each share of
Series A Preferred and Series B Preferred, respectively, shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
property of the Corporation to the holders of the Common by reason of their
ownership thereof, an amount equal to the sum of (i)(a) in the case of the
Series A Preferred, $2.2917 per share (subject to adjustments for stock splits,
dividends and recapitalizations) (the "Series A Purchase
<PAGE>
Price") for each share of Series A Preferred then held by them, and (b) in the
case of the Series B Preferred, $4.34 per share (subject to adjustments for
stock splits, dividends and recapitalizations) (the "Series B Purchase Price")
for each share of Series B Preferred then held by them and (ii) all dividends
previously declared but unpaid prior to the date fixed for distribution on each
share of Series A Preferred or Series B Preferred held by them (the "Series A
Liquidation Preference" and the "Series B Liquidation Preference,"
respectively).
All of the preferential amount to be paid to the holders of the Series A
Preferred and Series B Preferred respectively, under this subsection 1(c) shall
be paid or set apart for payment before the payment or setting apart for payment
of any amount for, or the distribution of any assets of the Corporation to, the
holders of the Common in connection with any such liquidation, dissolution or
winding up. After the payment or the setting apart for payment to the holders of
the Series A Preferred and Series B Preferred of the full preferential amounts
so payable to them, the remaining assets of the Corporation available for
distribution shall be distributed in accordance with the provisions of
subsection (d) of this Section 1. The Series A Preferred and Series B Preferred
shall rank on parity as to the receipt of the respective preferential amount for
each such series.
If the assets or property to be distributed are insufficient to permit the
payment to holders of the Series A Preferred and Series B Preferred of their
full preferential amount, the entire remaining assets and property legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred and Series B Preferred in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
(d) Distributions after Payment of Liquidation Preference. After the
payment or setting apart for payment to the holders of Preferred of the
preferential amounts set forth in subsection (a), subsection (b) and subsection
(c) above, the remaining assets of the Corporation legally available for
distribution, if any, shall be distributed PRO RATA among the holders of the
outstanding Common, the outstanding Series A Preferred, the outstanding Series B
Preferred, the outstanding Series C Preferred, and the outstanding Series D
Preferred in a manner such that the remaining amount distributed to each holder
of the Series A Preferred, the Series B Preferred, the Series C Preferred, the
Series D Preferred and Common shall equal the amount obtained by multiplying the
entire assets and funds of the Corporation legally available for distribution
hereunder by a fraction, (x) the numerator of which shall be the number of
shares of Common then held by such holder plus the number of shares of Common
then issuable upon conversion of the shares of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred then held by such holder,
and (y) the denominator of which shall be the total number of shares of Common
then outstanding plus the total number of shares of Common issuable upon
conversion of the shares of Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred then outstanding.
(e) Effect of Merger. A merger, reorganization, acquisition or
consolidation of the Corporation with or into any other corporation or
corporations (except where a majority of the outstanding equity securities of
the surviving corporation immediately after the merger or consolidation is held
by persons who were stockholders of this Corporation immediately prior to the
merger or consolidation), or a sale or other transfer of all or substantially
all of the assets of the Corporation (or any series of related transactions
resulting in the sale or other transfer of all
<PAGE>
or substantially all of the assets of the Corporation) (the foregoing
transactions are collectively referred to herein as the "Liquidation
Transactions") shall be treated as a liquidation, dissolution or winding up only
if the holders of at least fifty percent (50%) of the then outstanding shares of
Series A Preferred, the holders of at least fifty percent (50%) of the then
outstanding shares of Series B Preferred the holders of at least fifty percent
(50%) of the then outstanding shares of Series C Preferred and the holders of at
least fifty percent (50%) of the then outstanding shares of Series D Preferred
so elect by giving written notice thereof to the Corporation at least three (3)
days before the effective date of such event. The Corporation shall provide the
holders of Series A Preferred, the holders of Series B Preferred, the holders of
Series C Preferred and the holders of Series D Preferred with notice of all
transactions which may be treated as a liquidation, dissolution or winding up of
the Corporation pursuant to this Section 1(e) twenty (20) days prior to the
earlier of the vote relating to such transaction or the closing of such
transaction. In the event the holders of Series A Preferred, the holders of
Series B Preferred, the holders of Series C Preferred and the holders of Series
D Preferred so elect pursuant to the preceding sentence, the holders of
outstanding Series A Preferred, outstanding Series B Preferred, outstanding
Series C Preferred and the holders of outstanding Series D Preferred shall each
receive from the assets of the Corporation legally available for distribution
such amounts pursuant to the procedures and preferences set forth in (i) Section
1(a) (until the holders of outstanding Series D Preferred have received an
amount equal to the Series D Purchase Price), (ii) Section 1(b) (until the
holders of outstanding Series C Preferred Series received an amount equal to the
Series C Purchase Price), (iii) Section 1(c) (until the holders of outstanding
Series A Preferred and Series B Preferred have received amounts equal to the
Series A Purchase Price and the Series B Purchase Price, respectively) and (iv)
Section 1(d) (until, together with the amounts received by the holders of
Preferred pursuant to clauses (i), (ii) and (iii) of this sentence, the holders
of the outstanding Series D Preferred have received an amount equal to three (3)
times the Series D Purchase Price, the holders of the outstanding Series C
Preferred have received an amount equal to three (3) times the Series C Purchase
Price, the holders of the outstanding Series A Preferred have received an amount
equal to three (3) times the Series A Purchase Price, and the holders of the
outstanding Series B Preferred have received an amount equal to three (3) times
the Series B Purchase Price). After the payment or setting apart for such
amounts pursuant to the foregoing provisions of this Section 1(e) to the holders
of outstanding Preferred and Common, the holders of Common (which shall include
holders of Preferred who elect to convert such holder's shares of Preferred into
Common pursuant to the last sentence of this Section 1(e), but shall not include
holders of Preferred who receive distributions pursuant to the first sentence of
this Section 1(e)) shall be entitled to receive all remaining assets of the
Corporation available for distribution. Notwithstanding the foregoing, before
any distribution is made pursuant to this Section 1(e), the holders of Series A
Preferred, the holders of Series B Preferred, the holders of Series C Preferred,
and the holders of Series D Preferred acting pursuant to Section 2(a) may each
elect to convert such holder's shares of Preferred into Common; no distribution
shall be made pursuant to this Section 1(e) until the Corporation has received
from all holders of outstanding Series A Preferred, outstanding Series B
Preferred, outstanding Series C Preferred, and outstanding Series D Preferred
written notification stating whether or not such holders elect to convert such
holder's shares of Preferred into Common; provided the rights of any individual
holder shall be waived to the extent such rights are not exercised prior to the
date of the Liquidation Transaction.
(f) Consent. Each holder of an outstanding share of Preferred shall
be deemed to have consented, for purposes of Sections 151 and 160 of the
Delaware General Corporation Law,
<PAGE>
to distributions made by the Corporation in connection with the repurchase of
shares of Common issued to or held by employees or consultants upon termination
of their employment or services pursuant to agreements between the Corporation
and such persons providing for the Corporation's right of said repurchase.
Section 2. Conversion Rights.
The holders of the Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, and Series D Preferred, respectively, shall be
convertible, without the payment of any additional consideration by the holder
thereof, at the option of the holder thereof, at any time after the date of
issuance of such shares, at the office of the Corporation or any transfer agent
for the Series A Preferred, Series B Preferred, Series C Preferred, or Series D
Preferred into such number of fully paid and nonassessable shares of Common as
is determined by dividing, in the case of the Series A Preferred, $2.2917 by the
Series A Conversion Price, in the case of the Series B Preferred, $4.34 by the
Series B Conversion Price, in the case of the Series C Preferred, $4.06 by the
Series C Conversion Price, and in the case of the Series D Preferred, $6.24 by
the Series D Conversion Price with such Conversion Price determined as
hereinafter provided, in effect on the date on which the certificate is
surrendered for conversion. The price at which shares of Common shall be
deliverable upon conversion of Series A Preferred (the "Series A Conversion
Price") shall initially be $1.145850 (which amount reflects a two-for-one Common
Stock split previously effected by the Company on March 20, 1998) per share of
Common, the price at which shares of Common shall be deliverable upon conversion
of Series B Preferred (the "Series B Conversion Price") shall initially be $2.17
(which amount reflects a two-for-one Common Stock split previously effected by
the Company on March 20, 1998) per share of Common, the price at which shares of
Common shall be deliverable upon conversion of Series C Preferred (the "Series C
Conversion Price") shall initially be $4.06 per share of Common, and the price
at which shares of Common shall be deliverable upon conversion of Series D
Preferred (the "Series D Conversion Price") shall initially be $6.24 per share
of Common (collectively, the "Conversion Prices"). Such initial Conversion
Prices shall be subject to adjustment, as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, and Series D Preferred, respectively, shall
automatically be converted into shares of Common at the then effective Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
or the Series D Conversion Price, respectively:
(i) upon the closing of the sale of Common in a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
(other than a registration relating solely to an employee benefit plan of the
Corporation) at a public offering price of at least $8.25 per share (as adjusted
for stock splits, stock dividends, reclassifications, and like events) and in
which the gross aggregate proceeds received by the Corporation in such offering
equal or exceed $15,000,000 (a "Qualified Public Offering"). In the event of a
Qualified Public Offering, the person(s) entitled to receive the Common issuable
upon such conversion of the Series A
<PAGE>
Preferred, the Series B Preferred, the Series C Preferred, or the Series D
Preferred, respectively, shall not be deemed to have converted that Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred,
respectively, (x) until immediately prior to the closing of the Qualified Public
Offering or (y) in the case of the Series A Preferred, Series B Preferred,
Series C Preferred, and Series D Preferred, upon the receipt by the Corporation
of the affirmative vote at a duly noticed stockholders meeting or pursuant to a
duly solicited written consent of the holders of at least two-thirds (2/3) of
the then outstanding shares of Series A Preferred, the holders of at least
two-thirds (2/3) of the then outstanding shares of Series B Preferred, the
holders of at least two-thirds (2/3) of the then outstanding shares of Series C
Preferred, and the holders of at least two thirds (2/3) of the then outstanding
shares of Series D Preferred, each voting as a separate class, in favor of the
conversion of the shares of Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred respectively, into Common.
(c) Mechanics of Conversion. No fractional share of Common shall be
issued upon conversion of the Series A Preferred, the Series B Preferred, the
Series C Preferred, or the Series D Preferred. In lieu of any fractional shares
to which the holder would otherwise be entitled, after aggregating all shares of
Common (including fractional shares thereof) issuable upon the conversion of all
shares of Series A Preferred, Series B Preferred, Series C Preferred and Series
D Preferred respectively, held by the holder which are to be converted, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of a share of Common at the time (as determined in good faith by the
Board).
Before any holder of Series A Preferred, Series B Preferred, Series C
Preferred, or Series D Preferred shall be entitled to convert the same into
shares of Common and before the Corporation shall be obligated to issue
certificates for shares of Common upon the automatic conversion of the Series A
Preferred, the Series B Preferred, Series C Preferred, or Series D Preferred as
set forth in Section 2(b) hereof, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred, the Series B Preferred, the Series C
Preferred, or the Series D Preferred, as the case may be, and shall give written
notice to the Corporation at such office that such holder elects to convert the
same and shall state therein the name or names in which such holder wishes the
certificate or certificates for shares of Common to be issued (except that no
such written notice of intent to convert shall be necessary in the event of an
automatic conversion pursuant to Section 2(b) hereof). The Corporation shall use
reasonable commercial efforts to effectuate such conversion within five (5)
business days after receipt of such certificate or certificates and such notice
of conversion. In the event of the loss, theft or destruction of the holder's
certificate or certificates, the holder shall notify the Corporation or its
transfer agent that such certificate or certificates have been lost, stolen or
destroyed and shall execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificate or certificates. The Corporation shall, in the case of a lost,
stolen or destroyed certificate, as soon as practicable after the execution and
delivery of the agreement and indemnity, issue and deliver at such office to
such holder of Series A Preferred, Series B Preferred, Series C Preferred, or
the Series D Preferred as the case may be, or to such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common to
which such holder shall be entitled as aforesaid together with cash in lieu of
any fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate representing shares of Series A Preferred,
<PAGE>
the Series B Preferred, the Series C Preferred, or the Series D Preferred, to be
converted (except that in the case of an automatic conversion pursuant to
Section 2(b) hereof, such conversion shall be deemed to have been made
immediately prior to the closing of the public offering (in the case of
automatic conversion pursuant to Section 2(b)(i) or immediately upon receipt by
the Corporation of the vote or written consent (in the case of automatic
conversion pursuant to Section 2(b)(ii), and the person or persons entitled to
receive the shares of Common issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common on such
date.
(d) Adjustments to Conversion Prices for Certain Diluting Issues.
(i) Special Definitions. For purposes of this Section 2(d),
the following definitions apply:
(1) "Options" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common or Convertible
Securities.
(2) "Original Issue Date" shall mean the date on which a
share of Series A Preferred, Series B Preferred, or Series C Preferred, as
applicable, was first issued.
(3) "Convertible Securities" shall mean any evidence of
indebtedness, shares (other than Common) or other securities convertible into or
exchangeable for Common.
(4) "Additional Shares of Common" shall mean all shares
of Common issued (or, pursuant to Section 2(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common issued,
issuable or, pursuant to Section 2(d)(iii), deemed to be issued:
(A) upon conversion of shares of Series A
Preferred, Series B Preferred, or Series C Preferred;
(B) shares of Common issued to officers, directors
or employees of, or consultants to, the Corporation pursuant to any stock grant,
option or purchase plan or other employee stock incentive program or arrangement
approved by the Board up to a maximum of 3,700,000 shares of Common;
(C) upon exercise of warrants to purchase Series C
Preferred, upon exercise of warrants to purchase Series B Preferred outstanding
as of December 31, 1998, and upon exercise of warrants to purchase Common Stock
outstanding as of December 31, 1998;
(D) as a dividend or distribution on the Series A
Preferred, the Series B Preferred, the Series C Preferred, or the Series D
Preferred, respectively; and
(E) in connection with any transaction for which
adjustment is made pursuant to Section 2(e) or Section 2(f) hereof.
<PAGE>
(ii) No Adjustment of Conversion Price. No adjustment in the
Conversion Price applicable to Series A Preferred, Series B Preferred, Series C
Preferred, or the Series D Preferred respectively, shall be made in respect of
the issuance of Additional Shares of Common unless the consideration per share
for an Additional Share of Common issued or deemed to be issued by the
Corporation is less than the Conversion Price for such series in effect on the
date of, and immediately prior to, such issue.
(iii) Options and Convertible Securities. In the event that
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 then entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any provision
contained therein designed to protect against dilution) of Common issuable upon
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common issued as of the time of such
issue 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 shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Section 2(d)(v) hereof) of such Additional Shares of Common 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 are
deemed to be issued:
(1) no further adjustments in the applicable Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common issuable, upon the exercise, conversion or exchange thereof, the
applicable 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, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
applicable Conversion Price shall affect Common previously issued upon
conversion of the Preferred);
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Prices computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of Convertible Securities or
Options for Common, the only Additional Shares of Common issued were the shares
of Common, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such
<PAGE>
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of all such
exercised Options, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of such exercised Options, plus the consideration
deemed to have been received by the Corporation (determined pursuant to Section
2(d)(v)) upon the issue of the Convertible Securities with respect to which such
Options were actually exercised;
(4) no readjustment pursuant to clauses (2) or (3) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date or
(ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common between the original adjustment date and such
readjustment date; and
(5) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Prices shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. In the event that the Corporation shall issue
Additional Shares of Common (including Additional Shares of Common deemed to be
issued pursuant to Section 2(d)(iii)) without consideration or for a
consideration per share less than the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, or the Series D Conversion
Price, as the case may be, in effect on the date of and immediately prior to
such issue, then and in such event, the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, and/or the Series D Conversion
Price, as the case may be, shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by multiplying the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
or the Series D Conversion Price as the case may be, by a fraction, (x) the
numerator of which shall be the sum of the number of shares of Common
outstanding immediately prior to such issue plus the number of shares of Common
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common so issued would purchase at such
Conversion Price; and (y) the denominator of which shall be the sum of the
number of shares of Common outstanding immediately prior to such issue plus the
number of such Additional Shares of Common so issued; provided that, for
purposes of calculating the number of shares of Common outstanding for this
Section 2(d)(iv), (1) all shares of Common issuable upon conversion or exercise
of outstanding Options (to the extent vested), Convertible Securities (to the
extent vested) and Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred shall be deemed to be outstanding, (2) shares of Common
not received upon the exercise of an Option, whether or not subject to any
option of the Corporation to repurchase such shares at the
<PAGE>
purchase price of such shares from the Company, shall be deemed outstanding, (3)
shares of Common Stock received upon the exercise of outstanding Options that
are subject to any option of the Corporation to repurchase such shares at the
purchase price of such shares from the Corporation shall NOT be deemed
outstanding, (4) shares of Common Stock reserved for issuance upon the exercise
of Options approved but not yet granted shall not be deemed outstanding, and (5)
immediately after any Additional Shares of Common are deemed issued pursuant to
Section 2(d)(iii), such Additional Shares of Common shall be deemed to be
outstanding to the extent vested as described in clause (1) above and not
subject to repurchase as described in clause (3) above.
(v) Determination of Consideration. For purposes of this
Section 2(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board; and
(C) in the event that Additional Shares of Common
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 (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities: The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 2(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(A) 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 designed to protect against dilution) 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
(B) the maximum number of shares of Common (as set
forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
<PAGE>
(e) Adjustments for Subdivisions, Stock Dividends, Combinations or
Consolidation of Common. In the event that the Corporation at any time or from
time to time declares or pays, without consideration, any dividend on Common
payable in Common or in any right to acquire Common for no consideration, or
effects a subdivision or combination of its outstanding shares of Common into a
greater or smaller number of shares without a proportionate and corresponding
subdivision or combination of the outstanding shares of Series A Preferred,
Series B Preferred, Series C Preferred, or Series D Preferred, then and in each
such event the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, or the Series D Conversion Price, as the case may be,
shall be appropriately increased or decreased proportionally.
(f) Adjustments for Other Dividends and Distributions. In the event
that the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common and other than as otherwise adjusted in this Section 2, then and in each
such event provision shall be made so that the holders of Series A Preferred,
Series B Preferred, Series C Preferred, and Series D Preferred, respectively,
shall receive upon conversion thereof, in addition to the number of shares of
Common receivable thereupon, the amount of securities of the Corporation which
they would have received had their shares of Series A Preferred, Series B
Preferred, Series C Preferred, or Series D Preferred respectively, been
converted into Common on the date of such event and had they thereafter, during
the period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 2 with respect to the rights of the holders of the Series A Preferred,
the Series B Preferred, and the Series C Preferred, and Series D Preferred,
respectively.
(g) No Impairment. Except as provided for in Sections 4 and 6, the
Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, recapitalization, transfer of assets, 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 Section 2 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 the Series A Preferred, Series B
Preferred, Series C Preferred, and Series D Preferred against impairment.
(h) Certificate as to Adjustments. Within thirty (30) days following
the occurrence of each adjustment or readjustment of the applicable Conversion
Prices of a series of Preferred pursuant to this Section 2, the Corporation at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred, as the
case may be, 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 Preferred, Series B Preferred, Series C Preferred, or Series D
Preferred, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Prices
at the time in effect and (iii) the number of shares of Common and the amount,
if any, of other property which
<PAGE>
at the time would be received upon the conversion of such holder's shares of
Series A Preferred, Series B Preferred, Series C Preferred, or Series D
Preferred.
(i) Notices of Record Date. In the event that the Corporation shall
propose at any time:
(i) to declare any dividend or distribution upon its Common,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights; or
(iii) to effect any reclassification or recapitalization of
its Common outstanding involving a change in the Common;
then, in connection with each such event, this Corporation shall send to the
holders of the Series A Preferred, Series B Preferred, Series C Preferred, and
Series D Preferred:
(A) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
shall be entitled thereto) or for determining rights to vote in respect of the
matters referred to in (iii) above; and
(B) in the case of the matters referred to in
(iii) above, at least 20 days' prior written notice of the date on which the
same shall take place (and specifying the date on which the holders of Common
shall be entitled to exchange their Common for securities or other property
deliverable upon the occurrence of such event).
Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common, solely for the purpose of effecting the conversion of the
shares of the Series A Preferred, Series B Preferred, Series C Preferred, and
Series D Preferred, such number of its shares of Common as shall from time to
time be sufficient to effect the conversion of all then outstanding shares of
the Series A Preferred, Series B Preferred, Series C Preferred, and Series D
Preferred; and if at any time the number of authorized but unissued shares of
Common shall not be sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred, Series B Preferred, Series C Preferred, and
Series D Preferred, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common to such number of shares as shall be sufficient for such
purpose.
(j) Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
business day after the business day of facsimile transmission, if delivered by
facsimile transmission with copy by first class
<PAGE>
mail, postage prepaid, and shall be addressed to each holder of record at his
address appearing on the books of the Corporation.
(k) Adjustments. Subject to Section 1(d) above, in case of any
reorganization or any reclassification of the capital stock of the Corporation
(other than a subdivision or combination of shares provided for above), any
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series A Preferred, Series B Preferred,
Series C Preferred, and Series D Preferred, respectively, shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common deliverable
upon conversion of such share of Series A Preferred, Series B Preferred, Series
C Preferred, and Series D Preferred, respectively, would have been entitled upon
the record date of (or date of, if no record date is fixed) such reorganization,
reclassification, merger or conveyance; and, in any case, appropriate adjustment
(as determined by the Board) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the Series A Preferred, Series B Preferred, the Series C Preferred,
and the Series D Preferred, respectively, to the end that the provisions set
forth herein shall thereafter be applicable, as nearly as equivalent as is
practicable, in relation to any shares of stock or the securities or property
(including cash) thereafter deliverable upon the conversion of the shares of
such Series A Preferred, Series B Preferred, Series C Preferred, and Series D
Preferred, respectively.
(l) Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common on conversion of shares of Series A Preferred, Series B Preferred, Series
C Preferred, and Series D Preferred, respectively, pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
Section 3. Redemption Rights.
(a) In the event of an election at least sixty (60) days prior to
December 31, 2002, December 31, 2003, and December 31, 2004 (each, a "Redemption
Date") or no more than twenty (20) days after receiving a notice pursuant to
Section 3(d) below by any holder of outstanding shares of Series A Preferred,
Series B Preferred, Series C Preferred, or Series D Preferred to effect the
provisions of this Section 3, the Corporation shall redeem, out of and only to
the extent of funds legally available therefor, (i) on December 31, 2002, up to
one-third, as requested by such holder, of the issued, outstanding and
unconverted shares of Series A Preferred, Series B Preferred, Series C
Preferred, or Series D Preferred, held by such holder, (ii) on December 31,
2003, up to fifty percent, as requested by such holder, of the issued,
outstanding and unconverted shares of Series A Preferred, Series B Preferred,
Series C Preferred, or Series D Preferred, held by such holder, and (iii) on
December 31, 2004, up to all, as requested by such holder, of the issued,
outstanding and unconverted shares of Series A Preferred, Series B Preferred,
Series C Preferred, or Series D Preferred held by such holder.
<PAGE>
(b) Notwithstanding Section 3(a) hereof, in the event of a
transaction which could be treated as a Liquidation Transaction (but which is
not treated as a Liquidation Transaction in accordance with the voting
procedures set forth in Section A.1.(d)) and pursuant to which the holders of
Series C Preferred or Series D Preferred would receive less than the Series C
Liquidation Preference for each share of Series C Preferred then outstanding or
the Series D Liquidation Preference for each share of Series D then outstanding
(the "Redemption Transaction"), any holder of outstanding shares of Series C
Preferred may redeem their shares of Series C Preferred and any holder of Series
D Preferred may redeem their shares of Series D Preferred in accordance with the
provisions of this Section 3(b). The Corporation will provide notice to the
holders of Series C Preferred and the holders of Series D Preferred at least
twenty (20) days before the proposed closing of any Redemption Transaction. No
less than ten (10) days prior to the proposed closing of the Redemption
Transaction, any holder of Series C Preferred or Series D Preferred shall have
the option to notify the Corporation of its intention to invoke its redemption
rights under this Section 3(b). Thereafter, on or before the closing of the
Redemption Transaction (the "Series C or Series D Redemption Date") the
Corporation shall redeem the shares of Series C Preferred or Series D Preferred,
as the case may be, out of and only to the extent of funds legally available
therefor, from the holders exercising such option under this Section 3(b). The
price for shares of Series C Preferred redeemed in accordance with this Section
3(b) shall be equal to the Series C Liquidation Preference per share of Series C
Preferred (the "Series C Redemption Price") and the price for shares of Series D
Preferred for redeemed in accordance with this Section 3(b) shall be equal to
the greater of the fair market value per share or the Series D Liquidation
Preference per share of Series D Preferred (the "Series D Redemption Price").
Nothing in this Section 3(b) is intended to limit a holder of Series C Preferred
or Series D Preferred from participating in the distributions set forth in
Section A.1.(d) in the event the Liquidation Transaction is to be treated as a
liquidation, dissolution or winding up of the Corporation. Notwithstanding
anything to the contrary contained in this Section 3(b), in the event that the
holders of Preferred Stock elect to treat the Redemption Transaction as a
liquidation pursuant to Section A.1.(d) after any holder of Series C Preferred
or Series D Preferred has invoked its redemption right pursuant to this Section
3(b), each holder of Series C Preferred or Series D Preferred shall receive the
benefits of Section A.1.(d) in lieu of a redemption under this Section 3(b).
(c) Each share of Series A Preferred, Series B Preferred, or Series
C Preferred, respectively, shall be redeemed at the Liquidation Preference
applicable to such series on the Redemption Date. Each share of Series D
Preferred shall be redeemed at a price equal to the greater of (i) fair market
value or (ii) the Series D Liquidation Preference on the Redemption Date. In no
event, shall a share of Series A Preferred, Series B Preferred, or Series C
Preferred be redeemed prior to a share of Series D Preferred.
(d) In the event of the election by any holder of outstanding shares
of Series A Preferred, Series B Preferred, Series C Preferred, or Series D
Preferred, as provided in Section 3(a) above, the Corporation shall send to each
holder of Series A Preferred, each holder of Series B Preferred, each holder of
Series C Preferred, and each holder of Series D Preferred respectively, not less
than forty (40) and not more than sixty (60) days before the Redemption Date, at
the address last shown on the records of the Corporation for such holder, the
audited financial statements of the Corporation for the prior fiscal year and
the most recent unaudited year-to-date financial statements of the Corporation,
together with a written notice (the
<PAGE>
"Redemption Notice") advising such holders of the proposed redemption pursuant
to this Section 3, specifying the Redemption Date, the Redemption Price and the
place at which payment may be obtained.
(e) In the event that more than one holder of a series of Preferred
Stock requests redemption, shares of Series A Preferred, Series B Preferred,
Series C Preferred, or Series D Preferred, as the case may be, shall be redeemed
from each holder of Series A Preferred, Series B Preferred, Series C Preferred,
and Series D Preferred requesting redemption pursuant to this Section 3, pro
rata based on the number of shares of Series A Preferred, Series B Preferred, or
Series C Preferred, or Series D Preferred requested to be redeemed by such
holder to the extent that the Corporation does not have funds legally available
to effect such redemption. On or after the Redemption Date, each holder of
Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred
to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order of such holder,
at such office or other place designated by the holder, a check for cash with
respect to the shares so redeemed.
(f) From and after the Redemption Date, or the Series C or Series D
Redemption Date, as applicable, unless there shall have been a default in
payment of the Redemption Price, the Series C Redemption Price, or Series D
Redemption Price all rights of the holders of the outstanding shares of Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred to be
redeemed shall cease as holders of such Series A Preferred, Series B Preferred,
Series C Preferred, or Series D Preferred as the case may be, (except the right
to receive the appropriate Redemption Price, Series C Redemption Price, or
Series D Redemption Price, as applicable, without interest upon surrender of
their certificate or certificates) and such shares shall not thereafter be
transferred on the books of the Corporation, be convertible into shares of
Common or be deemed to be outstanding for any purpose whatsoever. If the funds
of the Corporation legally available for redemption of shares of Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred
scheduled to be redeemed on a Redemption Date, Series C Redemption Date, or
Series D Redemption Date are insufficient to redeem the total number of shares
of Series A Preferred, Series B Preferred, Series C Preferred, or Series D
Preferred to be redeemed on such date, then those funds which are legally
available will be used to redeem the maximum possible number of such shares and
shares of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred, as the case may be, shall be redeemed from each holder of Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred
requesting redemption pursuant to this Section 3 pro rata based on the number of
shares of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred requested to be redeemed by such holder. In such event,
notwithstanding the first sentence of this Section 3(f), the shares of Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred not
redeemed shall remain outstanding and be entitled to all the rights and
preferences provided herein and a new certificate shall be issued representing
the unredeemed shares. At the end of any fiscal quarter of the Corporation at
which additional funds of the Corporation are legally available for the
redemption of the shares of Series A Preferred, Series B Preferred, Series C
Preferred, or Series D Preferred as the case may be, that remain outstanding,
<PAGE>
such funds will within thirty (30) days thereafter be used to redeem the balance
of the shares which the Corporation has become obligated to redeem on the
Redemption Date, Series C Redemption Date or Series D Redemption Date but which
it has not redeemed. In the event that the Corporation shall not have redeemed
shares of Series A Preferred, Series B Preferred, Series C Preferred, or Series
D Preferred scheduled to be redeemed on a Redemption Date, Series C Redemption
Date or Series D Redemption Date, as applicable, the amount at which each such
share of Series A Preferred, Series B Preferred, Series C Preferred, or Series D
Preferred shall be redeemed shall be increased by twenty percent (20%) per annum
(compounded annually) for the period from the scheduled Redemption Date, Series
C Redemption Date or Series D Redemption Date, as applicable, to the date on
which such shares are actually redeemed.
Section 4. Voting Rights.
(a) General. Except as otherwise provided herein, or as required by
law, each issued and outstanding share of Common shall be entitled to one vote
on all matters. Except as required by law or by the provisions hereof, the
holders of the Series A Preferred, the holders of the Series B Preferred, the
holders of the Series C Preferred, and the holders of Series D Preferred shall
be entitled to vote on all matters with the holders of the Common on an as if
converted basis.
(b) Board of Directors and Observers. Notwithstanding the provisions
of Section 4(a) above, (i) so long as any shares of Series A Preferred are
outstanding, the holders of shares of the Series A Preferred, voting as a
separate series, shall have the right to elect two directors (the "Series A
Directors"), (ii) so long as any shares of Series B Preferred are outstanding,
the holders of shares of the Series B Preferred, voting as a separate series,
shall have the right to elect one director (the "Series B Director"), (iii) so
long as any shares of Series C Preferred are outstanding, the holders of shares
of the Series C Preferred, voting as a separate series, shall be entitled to
designate one (1) non-voting observer nominated by Pilgrim Baxter Hybrid
Partners I, L.P. (such right of Pilgrim Baxter Hybrid Partners I, L.P. to
nominate the observer on behalf of the holders of Series C Preferred to cease
when Pilgrim Baxter Hybrid Partners I, L.P. no longer owns any shares of Series
C Preferred) to attend all Board of Directors meetings (the "Series C Preferred
Observer"), subject to the obligation of the holders of Series C Preferred to
maintain the confidentiality of the discussions and resolutions of such meetings
and the materials distributed prior to, at or after such meetings, or in
connection therewith, (iv) so long as any shares of Series D Preferred are
outstanding, the holders of shares of Series D Preferred, voting as a separate
series, shall be entitled to elect one director (the "Series D Director"), and
(v) the holders of the shares of Common, voting as a separate class, shall have
the right to elect the remaining directors. A vacancy in directorship elected by
the holders of the Series A Preferred shall be filled only by vote or written
consent of the holders of the Series A Preferred as provided above. A vacancy in
the directorship elected by the holders of the Series B Preferred shall be
filled only by vote or written consent of the holders of the Series B Preferred
as provided above. A vacancy in the directorship elected by the holders of the
Series D Preferred shall be filled only by vote or written consent of the
holders of the Series D Preferred as provided above. A vacancy in any
directorship elected by the holders of Common shall be filled only by vote or
written consent of the holders of Common as provided above, provided that such
nominee is reasonably acceptable to a majority of the Preferred then
outstanding.
<PAGE>
Section 5. Dividend Rights.
(a) The holders of outstanding Series A Preferred, the holders of
outstanding Series B Preferred, the holders of outstanding Series C Preferred,
and the holders of outstanding Series D Preferred shall be entitled to receive,
when and as declared by the Board of Directors and out of funds legally
available therefore, cash dividends at the annual rate of $0.1375 per share of
outstanding Series A Preferred, $0.2604 per share of outstanding Series B
Preferred, $0.2436 per share of outstanding Series C Preferred, and $.3744 per
of outstanding Series D Preferred (each as adjusted for stock splits, stock
dividends, reclassifications, and like events), payable in preference and
priority to any payment of any dividend on Common, when and as declared by the
Board of Directors in its discretion. The right to such dividends on shares of
Preferred shall not be cumulative, and no right shall accrue to holders of
Preferred by reason of the fact that dividends on said shares are not declared
or paid in any previous year. No dividends or other distributions shall be made
with respect to the Common in any fiscal year, other than dividends payable
solely in Common, until all such dividends on Preferred for that year have been
paid or set apart for payment. In the event that the Corporation shall have
declared and unpaid dividends outstanding immediately prior to, and in the event
of, conversion of Preferred, the Corporation shall, at its option, pay in cash
to the holder(s) of Preferred subject to conversion the full amount of any such
dividends or convert such dividends into Common at the then effective Conversion
Prices referred to in Section 2 or a combination thereof, together with cash in
lieu of any fractional shares of Common. The holders of Preferred will be
treated on a pari-passu basis for purposes of dividends and shall share pro-rata
based on the per share dividend amount set forth in this Section 5(a) in any
dividends to the extent such dividends are not in an amount to pay in full the
dividend amount set forth in this Section 5(a) with respect to each series.
(b) Dividends may be paid on the Common as and when declared by the
Board of Directors, subject to the prior dividend rights of the Preferred and
only if a dividend of equal or greater amount, on a per share and
as-if-converted basis, is paid at the same time on the Series A Preferred, the
Series B Preferred, the Series C Preferred, and the Series D Preferred.
Section 6. Covenants.
(a) Preferred. Except as set forth in Section 6(b), so long as
greater than 1,000,000 shares of Preferred shall be outstanding, the Corporation
shall not, without first obtaining the majority affirmative vote or written
consent of holders of such outstanding shares of Preferred voting together as a
class (except that for the purposes of Sections 6(a)(i) through 6(a)(iv) and
6(a)(vi), if one series of Preferred is affected in a manner different than
another, a majority vote of each series of Preferred so disproportionately
affected, voting as a series, shall be required, and except that with respect to
Section 6(v), where the Corporation shall first obtain the affirmative vote or
written consent of seventy-five percent (75%) of the Preferred then
outstanding):
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or Bylaws if such action would
materially and adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the Preferred;
<PAGE>
(ii) reclassify any Common or other series of its capital
stock shares into shares having any preference or priority as to dividends,
liquidation, redemption, blocking rights, voting rights, conversion or otherwise
superior to or on a parity with any such preference or priority of the
Preferred;
(iii) pay or declare any dividend or distribution (other than
of shares of Common) on any shares of Preferred, Common or any other series of
its capital stock or apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Preferred, Common, or any other series of its
capital stock (or derivative instrument therefor) except from directors or
employees of, or consultants to, the Corporation upon termination of employment,
service as a director or consultancy pursuant to restricted stock purchase
agreements approved by the Board of Directors and except for redemption of
Preferred or dividends on Preferred in accordance with this Amended and Restated
Certificate of Incorporation;
(iv) create or issue any other class or classes of stock or
series of Preferred senior to or on parity with the Series A Preferred, the
Series B Preferred, the Series C Preferred, or the Series D Preferred with
respect to dividends, liquidation, redemption, blocking rights, voting rights,
conversion or otherwise increase the number of authorized shares of any series
of Preferred;
(v) merge or consolidate with or into, or acquire, any other
corporation (except where a majority of the outstanding equity securities of the
surviving corporation immediately after the merger or consolidation is held by
persons who were stockholders of this Corporation immediately prior to the
merger or consolidation), or sell or otherwise transfer in a single transaction
or a series of related transactions all or substantially all of the assets of
the Corporation (unless transferred to a wholly owned subsidiary of the Company)
Corporation (which shall require the affirmative vote or written consent of
seventy-five percent (75%) of the Preferred then outstanding);
(vi) authorize a liquidation, dissolution, recapitalization or
reorganization of the Corporation;
(vii) increase or decrease the authorized number of directors
of the Corporation;
(viii) transfer any material assets of the Corporation to any
person or entity other than a wholly-owned subsidiary of the Corporation;
(ix) permit any subsidiary to issue or sell, or sell or
obligate itself to issue or sell, except to the Corporation, a wholly-owned
subsidiary of the Corporation, any securities of such subsidiary; and
(x) materially change the Corporation's business as conducted
on the date of filing of this Restated Certificate of Incorporation or as
contemplated by the Corporation's most recently available Business Plan.
<PAGE>
(b) Series D Preferred. So long as greater than 450,000 shares of
Series D Preferred remain outstanding, the Corporation shall not, without first
obtaining the majority affirmative vote or written consent of holders of the
outstanding Series D Preferred which majority shall include Financial Technology
Ventures, L.P. and Financial Technology Ventures (Q), L.P. so long as they in
aggregate hold 35% or more of the Series D Preferred outstanding:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or Bylaws if such action would
materially and adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the Series D
Preferred;
(ii) reclassify any Common or other series of its capital
stock shares into shares having any preference or priority as to dividends,
liquidation, redemption, blocking rights, voting rights, conversion or otherwise
superior to any such preference or priority of the Series D Preferred;
(iii) create or issue any other class or classes of stock or
series of Preferred senior to the Series D Preferred with respect to dividends,
liquidation, redemption, blocking rights, voting rights, conversion or otherwise
increase the number of authorized shares of the Series D Preferred;
(iv) merge or consolidate with or into, or acquire, any other
corporation (except where a majority of the outstanding equity securities of the
surviving corporation immediately after the merger or consolidation is held by
persons who were stockholders of this Corporation immediately prior to the
merger or consolidation), or sell or otherwise transfer in a single transaction
or series of related transactions all or substantially all of the assets of the
Corporation (unless transferred to a wholly owned subsidiary of the Corporation)
at a valuation per share less than one and one-half (1.5) times the Series D
Purchase Price during the one year following July 13, 1999 and two (2) times the
Series D Purchase Price thereafter.
(c) Series B Preferred. The Corporation shall not, without first
obtaining the majority affirmative vote or written consent of the holders of a
majority of such outstanding shares of Series B Preferred voting together as a
class take any action which would alter the tax liability of the Series B
Preferred pursuant to Section 305 of the Internal Revenue Code of 1986, as
amended.
(d) Series C Preferred. The Corporation shall not, without first
obtaining the majority affirmative vote or written consent of the holders of a
majority of such outstanding shares of Series C Preferred voting together as a
class take any action which would alter the tax liability of the Series C
Preferred pursuant to Section 305 of the Internal Revenue Code of 1986, as
amended.
(e) Series D Preferred. The Corporation shall not, without first
obtaining the majority affirmative vote or written consent of the holders of a
majority of such outstanding shares of Series D Preferred voting together as a
class take any action which would alter the tax liability of the Series D
Preferred pursuant to Section 305 of the Internal Revenue Code of 1985 as
amended.
<PAGE>
Section 7. Residual Rights.
All rights accruing to the outstanding shares of the Corporation not
expressly provided for to the contrary herein shall be vested in the Common.
Section 8. Partial Conversion or Redemption.
In the event that less than all of a holder's shares of Preferred shall be
converted at any time pursuant to Section 2 hereof or redeemed at any time
pursuant to Section 3 hereof, the Corporation shall promptly upon receipt of
such holder's certificate for shares to be converted or promptly after the later
of the date fixed for redemption or the receipt of such holder's certificate for
shares to be redeemed, issue a new certificate to such holder representing the
unconverted or unredeemed shares, as the case may be.
B. COMMON STOCK
1. Relative Rights of Preferred Stock and Common Stock. All preferences,
voting powers, relative, participating, optional or other special rights and
privileges, and qualifications, limitations, or restrictions of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this Restated
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation. The number of authorized shares of Common
Stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation, with each such share
being entitled to such number of votes per shares as is provided in this Article
FOURTH.
3. Dividends. Subject to the preferential rights of the Preferred Stock,
if any, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the Board of Directors, out of the assets of the Corporation
which are by law available thereof, dividends payable either in cash, in
property or in shares of capital stock.
4. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Restated Certificate of
Incorporation, to receive their PRO RATA share of the remaining assets pursuant
to Section A.1(c) of Article Fourth.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:
<PAGE>
a. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation.
b. Elections of directors need not be by written ballot unless the By-Laws
of the Corporation shall so provide.
c. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-Laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH: The Corporation eliminates the personal liability of each member
of its Board of Directors to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that, to
the extent provided by applicable law, the foregoing shall not eliminate the
liability of a director (1) for any breach of such director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any
transaction from which such director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH: The Corporation reserves the right to amend or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon a
stockholder herein are granted subject to this reservation.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Restated Certificate of Incorporation to be signed by
its President and attested by its Secretary this 24th day of September, 1999.
AVESTA TECHNOLOGIES, INC.
By: /s/ Kam M. Saifi
--------------------------------------
Kam M. Saifi
President and Chief Executive Officer
ATTEST:
By: /s/ Andrew C. Cooper
----------------------------
Andrew C. Cooper
Secretary
<PAGE>
Exhibit 3.3
BY-LAWS OF
AVESTA TECHNOLOGIES, INC.
A DELAWARE CORPORATION
December 10, 1996
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EXHIBIT 3.3
TABLE OF CONTENTS
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ARTICLE I....................................................................1
SECTION 1. PLACE OF MEETINGS...........................................1
SECTION 2. ANNUAL MEETING..............................................1
SECTION 3. SPECIAL MEETINGS............................................1
SECTION 4. NOTICE OF MEETINGS..........................................1
SECTION 5. VOTING LIST.................................................1
SECTION 6. QUORUM......................................................2
SECTION 7. ADJOURNMENTS................................................2
SECTION 8. ACTION AT MEETINGS..........................................2
SECTION 9. VOTING AND PROXIES..........................................2
SECTION 10. ACTION WITHOUT MEETING......................................3
ARTICLE II...................................................................3
SECTION 1. NUMBER, ELECTION, TENURE AND QUALIFICATION..................3
SECTION 2. ENLARGEMENT.................................................3
SECTION 3. VACANCIES...................................................3
SECTION 4. RESIGNATION AND REMOVAL.....................................3
SECTION 5. GENERAL POWERS..............................................4
SECTION 6. CHAIRMAN OF THE BOARD.......................................4
SECTION 7. PLACE OF MEETINGS...........................................4
SECTION 8. REGULAR MEETINGS............................................4
SECTION 9. SPECIAL MEETINGS............................................4
SECTION 10. QUORUM, ACTION AT MEETING, ADJOURNMENTS.....................4
SECTION 11. ACTION BY CONSENT...........................................4
SECTION 12. TELEPHONIC MEETINGS.........................................5
SECTION 13. COMMITTEES..................................................5
SECTION 14. COMPENSATION................................................5
ARTICLE III..................................................................5
SECTION 1. ENUMERATION.................................................5
SECTION 2. ELECTION....................................................6
SECTION 3. TENURE......................................................6
SECTION 4. PRESIDENT...................................................6
SECTION 5. VICE-PRESIDENTS.............................................6
SECTION 6. SECRETARY...................................................7
SECTION 7. ASSISTANT SECRETARIES.......................................7
SECTION 8. TREASURER...................................................7
SECTION 9. ASSISTANT TREASURERS........................................7
SECTION 10. BOND........................................................8
ARTICLE IV...................................................................8
SECTION 1. DELIVERY....................................................8
(i)
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EXHIBIT 3.3
SECTION 2. WAIVER OF NOTICE............................................8
ARTICLE V....................................................................8
SECTION 1. ACTIONS OTHER THAN BY IN THE RIGHT OF THE CORPORATION.......8
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION...............9
SECTION 3. SUCCESS ON THE MERITS.......................................9
SECTION 4. SPECIFIC AUTHORIZATION......................................9
SECTION 5. ADVANCE PAYMENT.............................................9
SECTION 6. NON-EXCLUSIVITY.............................................9
SECTION 7. INSURANCE..................................................10
SECTION 8. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES ..................................................10
SECTION 9. SEVERABILITY...............................................10
SECTION 10. INTENT OF ARTICLE..........................................10
ARTICLE VI..................................................................10
SECTION 1. CERTIFICATES OF STOCK......................................10
SECTION 2. LOST CERTIFICATES..........................................11
SECTION 3. TRANSFER OF STOCK..........................................11
SECTION 4. RECORD DATE................................................11
SECTION 5. REGISTERED STOCKHOLDERS....................................12
ARTICLE VII.................................................................12
SECTION 1. TRANSACTIONS WITH INTERESTED PARTIES.......................12
SECTION 2. QUORUM.....................................................12
ARTICLE VIII................................................................12
SECTION 1. DIVIDENDS..................................................12
SECTION 2. RESERVES...................................................13
SECTION 3. CHECKS.....................................................13
SECTION 4. FISCAL YEAR................................................13
SECTION 5. SEAL.......................................................13
ARTICLE IX..................................................................13
Addendum
Register of Amendments to the By-Laws
(ii)
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* * * * *
BY-LAWS
* * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at such place within or without the State of Delaware as may be fixed from
time to time by the Board of Directors or the Chief Executive Officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
on the third Tuesday of April in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time by the Board of
Directors or the Chief Executive Officer, at which meeting the stockholders
shall elect by a plurality vote a Board of Directors and shall transact such
other business as may properly be brought before the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient,
which meeting shall be designated a special meeting in lieu of annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the Board of Directors or the Chief
Executive Officer and shall be called by the Chief Executive Officer or
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of stockholders owning a MAJORITY IN amount of the
entire capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. Voting List. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city or town
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place
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EXHIBIT 3.3
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these By-Laws. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter. If no quorum
shall be present or represented at any meeting of stockholders, such meeting may
be adjourned in accordance with Section 7 hereof, until a quorum shall be
present or represented.
Section 7. Adjournments. Any meeting of stockholders may be adjourned from
time to time to any other time and to any other place at which a meeting of
stockholders may be held under these By-Laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote (whether or not a
quorum is present), or, if no stockholder is present or represented by proxy, by
any officer entitled to preside at or to act as Secretary of such meeting,
without notice other than announcement at the meeting. At such adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting, provided that a quorum either was present at the original
meeting or is present at the adjourned meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any meeting,
the affirmative vote of the holders of a majority of the stock present in person
or represented by proxy, entitled to vote and voting on the matter (or where a
separate vote by a class or classes is required, the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting) shall decide any matter (other than the election of
Directors) brought before such meeting, unless the matter is one upon which by
express provision of law, the certificate of incorporation or these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such matter. The stock of holders who abstain from
voting on any matter shall be deemed not to have been voted on such matter.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting, entitled to vote and voting on
the election of Directors.
Section 9. Voting and Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
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EXHIBIT 3.3
Section 10. Action Without Meeting. Any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be (1) signed and dated by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and (2) delivered to
the Corporation within sixty days of the earliest dated consent by delivery to
its registered office in the State of Delaware (in which case delivery shall be
by hand or by certified or registered mail, return receipt requested), its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
Directors which shall constitute the whole board shall be not less than one.
Within such limit and subject to the terms of the Company's Certificate of
Incorporation, the number of Directors shall be determined by resolution of the
Board of Directors or by the stockholders at the annual meeting or at any
special meeting of stockholders. The Directors shall be elected at the annual
meeting or at any special meeting of the stockholders, except as provided in
Section 3 of this Article, and each director elected shall hold office until his
successor is elected and qualified, unless sooner displaced. Directors need not
be stockholders.
Section 2. Enlargement. Subject to the terms of the Company's Certificate
of Incorporation, the number of the Board of Directors may be increased at any
time by vote of a majority of the Directors then in office.
Section 3. Vacancies. Subject to the terms of the Company's Certificate of
Incorporation, vacancies and newly created Directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, though less than a quorum, or by a sole remaining
director, and the Directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute. In the event of a
vacancy in the Board of Directors, the remaining Directors, except as otherwise
provided by law or these By-Laws, may exercise the powers of the full board
until the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any time
upon written notice to the Corporation at its principal place of business or to
the Chief Executive Officer or Secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of
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EXHIBIT 3.3
the shares then entitled to vote at an election of Directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors, which may exercise all powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 6. Chairman of the Board. If the Board of Directors appoints a
chairman of the board, he shall, when present, preside at all meetings of the
stockholders and the Board of Directors. He shall perform such duties and
possess such powers as are customarily vested in the office of the chairman of
the board or as may be vested in him by the Board of Directors.
Section 7. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the Board of Directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be called
by the Chief Executive Officer, Secretary, or on the written request of two (2)
or more Directors, or by one director in the event that there is only one
director in office. Two (2) days' notice to each director, either personally or
by telegram, cable, telecopy, commercial delivery service, telex or similar
means sent to his business or home address, or three (3) days' notice by written
notice deposited in the mail, shall be given to each director by the Secretary
or by the officer or one of the Directors calling the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of
the board a majority of Directors then in office, but in no event less than one
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of Directors last fixed by the stockholders or Directors, as the case
may be, in accordance with law and these By-Laws; provided, however, that if
less than all the number so fixed of Directors were elected, the "entire board"
shall mean the greatest number of Directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the Board of Directors, a majority of the Directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of
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EXHIBIT 3.3
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these By-Laws, members of the Board of Directors
or of any committee thereof may participate in a meeting of the Board of
Directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the Directors of the
corporation. The board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to (a) adopting, amending or repealing the
By-Laws of the Corporation or any of them or (b) approving or adopting, or
recommending to the stockholders any action or matter expressly required by law
to be submitted to stockholders for approval. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors. Each committee shall keep regular minutes of
its meetings and make such reports to the Board of Directors as the Board of
Directors may request. Except as the Board of Directors may otherwise determine,
any committee may make rules for the conduct of its business, but unless
otherwise provided by the Directors or in such rules, its business shall be
conducted as nearly as possible in the same manner as is provided in these
By-Laws for the conduct of its business by the Board of Directors.
Section 14. Compensation. Unless otherwise restricted by the certificate
of incorporation or these By-Laws, the Board of Directors shall have the
authority to fix from time to time the compensation of Directors. The Directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and the performance of their responsibilities as Directors and may
be paid a fixed sum for attendance at each meeting of the Board of Directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the Corporation or its parent or subsidiary corporations in any
other capacity and receiving compensation therefor. The Board of Directors may
also allow compensation for members of special or standing committees for
service on such committees.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer and
such other officers with such titles, terms of office and duties as the Board of
Directors may from time to time
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EXHIBIT 3.3
determine, including a Chairman of the Board, one or more Vice-Presidents, and
one or more Assistant Secretaries and Assistant Treasurers. If authorized by
resolution of the Board of Directors, the Chief Executive Officer may be
empowered to appoint from time to time Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these By-Laws otherwise provide.
Section 2. Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer. Other officers may be appointed by the Board of Directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the Corporation shall hold office until
their successors are chosen and qualify, unless a different term is specified in
the vote choosing or appointing him, or until his earlier death, resignation or
removal. Any officer elected or appointed by the Board of Directors or by the
Chief Executive Officer may be removed at any time, with or without cause, by
the affirmative vote of a majority of the Board of Directors or a committee duly
authorized to do so, except that any officer appointed by the Chief Executive
Officer may also be removed at any time, with or without cause, by the Chief
Executive Officer. Any vacancy occurring in any office of the Corporation may be
filled by the Board of Directors, at its discretion. Any officer may resign by
delivering his written resignation to the Corporation at its principal place of
business or to the Chief Executive Officer or the Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
Section 4. President. The President shall be the Chief Operating Officer
of the corporation. He shall also be the Chief Executive Officer unless the
Board of Directors otherwise provides. If no Chief Executive Officer shall have
been appointed by the Board of Directors, all references herein to the "Chief
Executive Officer" shall be to the President. The President shall, unless the
Board of Directors provides otherwise in a specific instance or generally,
preside at all meetings of the stockholders and the Board of Directors, have
general and active management of the business of the Corporation and see that
all orders and resolutions of the Board of Directors are carried into effect.
The President shall execute bonds, mortgages, and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
Section 5. Vice-Presidents. In the absence of the President or in the
event of his or her inability or refusal to act, the Vice-President, or if there
be more than one Vice-President, the Vice-Presidents in the order designated by
the Board of Directors or the Chief Executive Officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The
Vice-Presidents shall perform such other duties and have such other powers as
the Board of Directors or the Chief Executive Officer may from time to time
prescribe.
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EXHIBIT 3.3
Section 6. Secretary. The Secretary shall have such powers and perform
such duties as are incident to the office of Secretary. The Secretary shall
maintain a stock ledger and prepare lists of stockholders and their addresses as
required and shall be the custodian of corporate records. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the Stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be from time to time prescribed by the Board of Directors or Chief
Executive Officer, under whose supervision the Secretary shall be. The Secretary
shall have custody of the corporate seal of the Corporation and the Secretary,
or an assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his or her signature.
Section 7. Assistant Secretaries. The assistant Secretary, or if there be
more than one, the assistant secretaries in the order determined by the Board of
Directors, the Chief Executive Officer or the Secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the Secretary or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time
prescribe. In the absence of the Secretary or any assistant Secretary at any
meeting of stockholders or Directors, the person presiding at the meeting shall
designate a temporary or acting Secretary to keep a record of the meeting.
Section 8. Treasurer. The Treasurer shall perform such duties and shall
have such powers as may be assigned to him or her by the Board of Directors or
the Chief Executive Officer. In addition, the Treasurer shall perform such
duties and have such powers as are incident to the office of Treasurer. The
Treasurer shall have the custody of the corporate funds and securities and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chief Executive Officer and the
Board of Directors, when the Chief Executive Officer or Board of Directors so
requires, an account of all his or her transactions as Treasurer and of the
financial condition of the corporation.
Section 9. Assistant Treasurers. The assistant Treasurer, or if there
shall be more than one, the assistant Treasurers in the order determined by the
Board of Directors, the Chief Executive Officer or the Treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the Treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Treasurer may from time to time
prescribe.
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EXHIBIT 3.3
Section 10. Bond. If required by the Board of Directors, any officer shall
give the Corporation a bond in such sum and with such surety or sureties and
upon such terms and conditions as shall be satisfactory to the Board of
Directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the Corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
Certificate of Incorporation or these By-Laws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Unless written notice by mail is required by law, written notice
may also be given by telegram, cable, telecopy, commercial delivery service,
telex or similar means, addressed to such director or stockholder at his address
as it appears on the records of the corporation, in which case such notice shall
be deemed to be given when delivered into the control of the persons charged
with effecting such transmission, the transmission charge to be paid by the
Corporation or the person sending such notice and not by the addressee. Oral
notice or other in-hand delivery (in person or by telephone) shall be deemed
given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of law or of the certificate of incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
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EXHIBIT 3.3
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person described
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section 1 or
2 of this Article V (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Sections. Such determination shall be made (1) by the Board of Directors by
a majority vote of Directors who were not parties to such action, suit or
proceeding (even though less than a quorum), or (2) if there are no
disinterested Directors or if a majority of disinterested Directors so directs,
by independent legal counsel (who may be regular legal counsel to the
corporation) in a written opinion, or (3) by the stockholders of the
corporation.
Section 5. Advance Payment. Expenses incurred in defending a pending or
threatened civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of any person
described in said Section to repay such amount if it shall ultimately be
determined that he or she is not entitled to indemnification by the Corporation
as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which those provided
indemnification or advancement of
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EXHIBIT 3.3
expenses may be entitled under any By-Law, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
Section 7. Insurance. The Board of Directors may authorize, by a vote of
the majority of the full board, the Corporation to purchase and maintain
insurance 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 or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
Section 8. Continuation of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 9. Severability. If any word, clause or provision of this Article
V or any award made hereunder shall for any reason be determined to be invalid,
the provisions hereof shall not otherwise be affected thereby but shall remain
in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to provide
for indemnification and advancement of expenses to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware. To the extent that
such Section or any successor section may be amended or supplemented from time
to time, this Article V shall be amended automatically and construed so as to
permit indemnification and advancement of expenses to the fullest extent from
time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the chairman or Vice-chairman of the Board of Directors, or the
President or a Vice-President and the Treasurer or an assistant Treasurer, or
the Secretary or an assistant Secretary of the corporation, certifying the
number of shares owned by such holder in the corporation. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue. Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
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EXHIBIT 3.3
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give
reasonable evidence of such loss, theft or destruction, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which shall not be more than sixty days
nor less then ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date is fixed, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by statute,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation as provided
in Section 10 of Article I. If no record date is fixed and prior action by the
Board of Directors is required, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the date on which the Board of Directors adopts the
resolution taking such prior action. In order that the Corporation may determine
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted, and which shall be not more than sixty days prior to
such action. If no record date is fixed, the record date for
11
<PAGE>
EXHIBIT 3.3
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating to
such purpose.
Section 5. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
transaction between the Corporation and one or more of its Directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
officers are Directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof
which authorizes the contract or transaction or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
if any, may be declared by the Board of Directors at any regular or special
meeting or by written
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EXHIBIT 3.3
consent, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Reserves. The Directors may set apart out of any funds of the
Corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 5. Seal. The Board of Directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the Board
of Directors.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new By-Laws be
contained in the notice of such meeting.
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EXHIBIT 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
No.
STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
AVESTA TECHNOLOGIES, INC. (The "Company")
DATE OF INITIAL ISSUANCE: October 16, 1998
THIS CERTIFIES THAT for value received, TBCC Funding Trust II, a
Delaware business trust or its registered assigns (hereinafter called the
"Holder") is entitled to purchase from the Company, at any time during the Term
of this Warrant, THIRTY THOUSAND (30,000) shares of common stock, $.01 par
value, of this Warrant shall be subject to the provisions, limitations and
restrictions herein contained, and may be exercised in whole or in part.
SECTION 1. Definitions
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock - shall mean and include the Company's authorized
Common Stock, $.01 par value, as constituted at the date hereof.
Exchange Act - shall mean the Securities Exchange Act 1934, as
amended from time to time.
Securities Act - the Securities Act of 1933, as amended.
Term of this Warrant - shall mean the period beginning on the date
of initial issuance hereof and ending on October __, 2003.
Warrant Price - $4.34 per share, subject to adjustment in accordance
with Section 5 hereof.
Warrants - this Warrant and any other Warrant or Warrants are issued
in connection with a Loan and Security Agreement dated October __, 2003 by and
between the Company and Transamerica Business Credit Corporation (the "Loan
Agreement") to the original holder of this Warrant, or any transferees from such
original holder or this Holder.
<PAGE>
Warrant Shares - shares of Common Stock purchased or purchasable by
the Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant.
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in
whole, the Holder shall deliver to the Company at its office referred to in
Section 13 hereof at any time and from time to time during the Term of this
Warrant: (i) the Notice of Exercise in the form attached hereto, (ii) cash,
certified or official bank check payable to the order of the Company, wire
transfer of funds to the Company's account, or evidence of any indebtedness of
the Company to the Holder (or any combination of any of the foregoing) in the
amount of the Warrant Price for each share being purchased, and (iii) this
Warrant. Notwithstanding any provisions herein to the contrary, if the Current
Market Price (as defined in Section 5) is greater than the Warrant Price (at the
date of calculation, as set forth below), in lieu of exercising this Warrant as
hereinabove permitted, the Holder may elect to receive shares of Common Stock
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the office of the Company
referred to in Section 13 hereof, together with the Notice of Exercise, in which
event the Company shall issue to the Holder that number of shares of Common
Stock computed using the following formula:
CS = WCS x (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the
Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such
calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the
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<PAGE>
holder of such shares at the close of business on the next succeeding date on
which the stock transfer books are open.
2.2. Transfer Restriction Legend. Each certificate for Warrant
Shares shall bear the following legend (and any additional legend required by
(i) any applicable state securities laws and (ii) any securities exchange upon
which such Warrant Shares may, at the time of such exercise, be listed) on the
face thereof unless at the time of exercise such Warrant Shares shall be
registered under the Securities Act:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be sold, offered for
sale, pledged, hypothecated or otherwise transferred in the absence of a
registration statement in effect with respect to the Securities under such
Act or an opinion of counsel or other evidence satisfactory to be Company
that such registration is not required."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees that
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance in consideration for the receipt
of the Warrant Price pursuant to Section 2.1 hereof, be validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. The
Company further covenants and agrees that if any shares of capital stock to be
reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such
3
<PAGE>
adjustment and dividing the product thereof by the Warrant Price resulting from
such adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject to
adjustment from time to time as follows:
(i) If the Company shall at any time or from time to time during the Term
of this Warrant issue shares of Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share less
than the Warrant Price in effect immediately prior to the issuance of such
Common Stock, the Warrant Price in effect immediately prior to each such
issuance or adjustment shall forthwith (except as provided in this clause (i))
be adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have issued pursuant
to subdivision (3) of this clause (i) and to clause (ii) below)
immediately prior to such issuance multiplied by the Warrant Price
in effect immediately prior to such issuance, plus
(y) the consideration received by the Company upon such issuance,
BY
(B) the total number of shares of Common Stock outstanding (including any
shares of Common Stock deemed to have been issued pursuant to subdivision
(3) of this clause (i) and to clause (ii) below) immediately after the
issuance of such Common Stock.
For the purposes of any adjustment of the Warrant Price pursuant to
this clause (i), the following provisions shall be applicable:
1. In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts, commissions or other
expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale
thereof.
2. In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof as determined by
the Board of Directors of the Company, irrespective of any
accounting treatment; provided, however, that such fair market value
as determined by the Board of Directors, together with any cash
consideration being paid, shall not exceed the aggregate Current
Market Price (as hereinafter defined) of the shares of Common Stock
being issued.
3. In the case of the issuance of (i) options to purchase or rights to
subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for
4
<PAGE>
Common Stock or (iii) options to purchase or rights to subscribe for
such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in
the manner provided in subdivisions (1) and (2) above with the
proviso in subdivision (2) being applied to the number of
shares of Common Stock deliverable upon such exercise), if
any, received by the Company upon issuance of such options or
rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversions or exchanges thereof shall be deemed to have been
issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities
and related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the
Company upon the conversion or exchange of such securities or
the exercise of any related options or rights (the
consideration in each case to be determined in the manner
provided in subdivisions (1) and (2) above with the proviso in
subdivision (2) being applied to the number of shares of
Common Stock deliverable upon such conversion, exchange or
exercise);
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable
securities, other than a change resulting from the
antidilution provisions thereof, the Warrant Price shall
forthwith be readjusted to such Warrant Price as would have
obtained had the adjustment made upon the issuance of such
options, rights or securities not converted prior to such
change being made upon the basis of such change; and
(D) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related such convertible
or exchangeable securities, the Warrant Price shall forthwith
be readjusted to such Warrant Price as would have obtained had
the adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities
being made upon the basis of the issuance of only the number
of shares of Common
5
<PAGE>
Stock actually issued upon the conversion or exchange of such
securities or upon the exercise of the options or rights
related to such securities.
(ii) "Excluded Stock" shall mean shares of Common Stock issued by the
Company (1) as a stock dividend payable in shares in Common Stock or upon any
subdivision or split-up of the outstanding shares of Common Stock; (2) the
issuance of shares of Common Stock (including any shares of Common Stock deemed
to have been issued pursuant to subdivision 3 of clause (i) above (appropriately
adjusted for stock splits and combinations) to directors, or employers of, or
consultants to the Company in connection with their services a directors or
consultants of the Company or their employment by the Company; (3) the issuance
of options or warrants for shares of Common Stock (including any shares of
Common Stock deemed to have been issued pursuant to subdivision 3 of clause (i)
above) (appropriately adjusted for stock splits and combinations) to commercial
lenders and lessors to the Company that are not intended, by virtue of the
related lending or lease transaction, to contribute to the equity capital of the
company and; (4) the issuance of shares of Common Stock (including any shares of
Common Stock deemed to have been issued pursuant to subdivision 3 of clause (i)
above) in connection with acquisition transactions relating to the Company.
(iii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Warrant Price shall be appropriately decreased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be increased in
proportion to such increase in outstanding shares.
(iv) If, at any time during the Term of this Warrant, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then following the record date for such combination, the
Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(v) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders Common Stock entitled to receive such dividend
or distribution, the Warrant Price in effect thereafter shall be determined by
multiplying the Warrant Price in effect immediately prior to such record date by
a fraction of which the numerator shall be an amount equal to the difference of
(x) the Current Market Price of one share of Common Stock minus (y) the fair
market value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the stock, securities, evidences of
indebtedness, assets, options or rights so
6
<PAGE>
distributed in respect of one share of Common Stock, and of which the
denominator shall be such Current Market Price.
(vi) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(vii) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 15 consecutive business days
ending on the last business day before the day in question (as adjusted for any
stock dividend, split, combination or reclassification that took effect during
such 15 business day period) The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported by Nasdaq (or if the
Common Stock is not at the time listed or admitted for trading on any such
exchange or if prices of the Common Stock are not reported by Nasdaq then such
price shall be equal to the average of the last reported bid and asked prices on
such day as reported by The National Quotation Bureau Incorporated or any
similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (vii) are available for the period required hereunder, the
Current Market Price shall be determined in good faith by the Board of Directors
of the Company.
(viii) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of Warrant at its, his or her address appearing
on the Company's records. Where appropriate, such copy may be given in advance
and may be included as part of the notice required to be mailed under the
provisions of subsection (viii) of this Section 5.
(viii) Adjustments made pursuant to clauses (iii), (iv) and (v) above
shall be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(ix) In the event the Company shall propose to take any action of the
types described in clauses (iii), (iv) or (v) of this Section 5, the Company
shall forward, that the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
(x) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment
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<PAGE>
required by such event over and above the shares of capital stock issuable upon
such exercise before giving effect to such adjustment exercise; provided,
however, that the Company shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
SECTION 6. Ownership.
6.1. Ownership of This Warrant The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
are transferable in whole upon the books of the company by the Holder hereof in
person or by duly authorized attorney, and a new Warrant or Warrants, of the
same tenor as this Warrant but registered in the name of the transferee or
transferees shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof, provided that the Holder agrees not to transfer this Warrant to a
competitor of the Company without the consent of the Company. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft or
destruction, and in such case, of indemnity or security reasonably satisfactory
to it, and upon surrender of this Warrant if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant; provided that
if the Holder hereof is an instrumentality of a state or local government or an
institutional holder or a nominee for such an instrumentality or institutional
holder an irrevocable agreement of indemnity by such Holder shall be sufficient
for all purposes of this Section 6, and no evidence of loss or theft or
destruction shall be necessary. This Warrant shall be promptly cancelled by the
Company upon the surrender hereof in connection with any transfer or
replacement. Except as otherwise provided above, in the case of the loss, theft
or destruction of a Warrant, the Company shall pay all expenses, taxes and other
charges payable in connection with any transfer or replacement of this Warrant,
other than stock transfer taxes (if any) payable in connection with a transfer
of this Warrant, which shall be payable by the Holder. Holder will not transfer
this Warrant and the rights hereunder except in compliance with federal and
state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision shall
be made with respect to the
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rights and interests of the Holder of this Warrant to the end that the
provisions shall thereafter be applicable as nearly as may be, in relation to
any shares of stock, securities or assets thereafter deliverable upon the
exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution of
the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon exercise of this Warrant for the largest number of whole shares then called
for, pay a sum in cash equal to the excess of the value of such fractional share
(determined in such reasonable manner as may be prescribed in good faith by the
Board of Directors of the Company) over the Warrant Price for such fractional
share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. Will Reverse Shares. The Company will reserve and set apart
and have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Registration Rights; etc.
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12.1. Certain Definitions. As used in this Section 12, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Warrant Shares less any
Warrant Shares theretofore sold to the public or in private placement or which
are then eligible for sale pursuant to Rule 144K promulgated under the
Securities Act.
The terms "register", "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Section 12.2 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 12.5 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company or who are permitted by the
Company to have securities included in a registration of the Company's
securities.
12.2. Company Registration.
(a) Notice of Registration. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does not
permit secondary sales the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved
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<PAGE>
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, subject to (A)
any limitations on the number of shares as set forth in Section 12.2(b) below;
(B) the requirements of the Company's existing rights agreements with other
investors of the Company; and (C) the covenant of the Company set forth in
Section 12.3 below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 12.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 12.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement and a
lock-up agreement, in each case in customary form with the underwriter or
underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 12.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
or all of the Registrable Securities which would otherwise be underwritten
pursuant hereto. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. The number of shares that may be included in the
registration and underwriting on behalf of such Holders, directors and officers
and Other Shareholders shall be allocated among such Holders, directors and
officers and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement.
If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, it, he or
she may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
12.3. Registration Rights. The Holder acknowledges that the current
investor rights agreements of the Company prohibit, without the consent of such
rights holders (the "Rights Holders"), the granting of additional registration
rights unless such rights are subordinate to the rights of such Rights Holders.
The Holder hereby acknowledges that at the time of the issuance of this Warrant
the Company has solicited the consent of the Rights Holders and therefore
acknowledges that the registration rights granted hereunder at this time are
subordinate to the those of the Rights Holders. However, the Company hereby
covenants and agrees that at such time the Company otherwise solicits the
consent of the Rights Holders relating to another issue or transaction, the
Company shall include in such solicitation a consent request from the Rights
Holders, to render the registration rights granted to the Holder pari passu
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<PAGE>
with those of the Rights Holders, and upon the Company's receipt of proper
approval therefor from the Rights Holders, the registration rights hereunder
shall automatically be deemed equal as to priority in the inclusion in the
registration as to those of the Rights Holders, provided it is understood and
agreed that the registration rights hereunder shall be limited to piggyback
registration rights only and shall not include demand registration rights.
Further, in such eventuality, any underwriter cut back in the number of shares
available for participation in any registration shall apply pari passu to the
Holder and the Rights Holders desiring to participate therein.
12.4. Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Section 12.2 hereof. All
Selling Expenses shall be borne by the holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
12.5. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 12, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of ninety
(90) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs.
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) use reasonably commercial efforts to register or qualify
the Registrable Securities under the securities laws or blue-sky laws of such
jurisdictions as any Holder may request; provided, however, that the Company
shall not be obligated to register or qualify such Registrable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
12.6. Indemnification.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 12, will
indemnify and hold harmless each Holder, each of its officers, directors,
partners, and agents and each party controlling such Holder, and each
underwriter, if any, and each party who controls any underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission)
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<PAGE>
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors, partners, and agents, and each
party controlling such Holder, each such underwriter and each party who controls
any such underwriter, for any reasonable legal and any other reasonable expenses
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss damage, liability or expense
arises out of or is based on any untrue statement or omission based solely upon
written information furnished the Company by such Holder or underwriter, as the
case may be, and stated to be specifically for use in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by it, him or her are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify and
hold harmless the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each party who controls the Company or such underwriter, each other
such Holder and Other Shareholder and each of their respective officers,
directors, partners, and agents, and each party controlling such Holder or Other
Shareholder, against all claims, losses damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Shareholders, directors, officers, partners,
agents, parties, underwriters or control persons for any reasonable legal or any
other reasonable expenses incurred in connection with investigating or defending
any such claim, loss damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance; provided, however that the
obligations of such Holders and Other Shareholders hereunder shall be limited to
an amount equal to the proceeds to each such Holder or Other Shareholder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
12.6 ( the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the
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<PAGE>
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense
(unless the Indemnified Party shall have been advised by counsel that actual or
potential differing interests or defenses exist or may exist between
Indemnifying Party and the Indemnified Party, in which case such expense shall
be paid by the Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 12 unless the rights of
Indemnifying Party have been prejudiced. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgement or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
provide such information as may be reasonably requested by an Indemnifying Party
in order to enable such Indemnifying Party to defend a claim as to which
indemnity is sought.
12.7. Information by Holder. Each Holder of Registrable Securities,
and each Other Shareholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 12.
12.8. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Registrable Securities to the public without registration, 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
from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time
after it has become subject to such reporting requirements and;
(c) So long as the Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement in connection with an offering of its Securities to the
general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Holder to sell any such
securities without registration.
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SECTION 13. Notices. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered at or sent by certified or
registered mail to, the Holder at 15260 Ventura Blvd., Suite 1240 Sherman Oaks,
California 91403, with a copy to Holder at Riverway II, West Office Tower, 9399
West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department or to
such other address as shall have been permitted to be given or delivered to the
Company shall be delivered at, or sent by certified or registered mail to, the
Company at 2 Rector Street, New York, NY 10006, with a copy to Alexander D.
Lynch, Esq., Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New
York, NY or to such other address as shall have been furnished in writing to the
Holder by the Company. Any notice so addressed and mailed by registered or
certified mail shall be deemed to be given when so mailed. Any notice so
addressed and so delivered shall be deemed to be given when actually received by
the addressee.
SECTION 14. No Rights as Stockholder; Limitation of Liability. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 15. Lock-Up Agreements. Holder hereby agrees to be bound by such lock-up
agreements (not to exceed a period of 180 days following the date of the
prospectus relating to the Company's initial public offering) as the managing
underwriter of any such initial public offering shall specify as a requirement
to any such underwriting, provided that the entry of such Holder into such
agreements shall be conditioned upon all directors of the Company also agreeing
to execute the same form of lock-up agreement.
SECTION 16. Holder Representation. Holder represents and warrants to the Company
that (a) Holder is an "accredited investor" within the meaning of Rule 501 under
the Securities Act and was not organized for the specific purpose of acquiring
the Warrant or Warrant Shares; (b) Holder has sufficient knowledge and
experience in investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the risks and merits
of its investment in the Company and it is able financially to bear the risks
thereof; (c) Holder has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management; (d) the Warrant
is being acquired, and the Warrant Shares upon exercise will be acquired, for
Holder's own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof; and (e) Holder understands
that (i) the Warrant and the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
or Rule 505 or 506 promulgated under the Securities Act, (ii) the Warrant and,
upon exercise thereof, the Warrant Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Warrant and the Warrant Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effort.
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<PAGE>
SECTION 17. Law Governing. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 18. Miscellaneous.
(a) This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by both
parties (or any respective predecessor in interest thereof). The headings in
this Warrant are for purposes of reference only and shall not affect the meaning
or construction of any of the provisions hereof.
(b) All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Loan Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on October ___, 1998.
AVESTA TECHNOLOGIES, INC.
[CORPORATE SEAL]
By: /s/ Cameron Saifi
-------------------------------------
Title: VP Operations & Admin
----------------------------------
17
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FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of the Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase __________
shares of Common Stock which the undersigned is entitled to purchase by the
terms of the within Warrant according to the conditions thereof, and herewith
[check one]
o make payment of $______ therefor;
or
o directs the Company to issue _____
shares, and to withhold ____ shares
in lieu of payment of the Warrant
Price, as described in Section 2.1
of the Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The Shares are to be issued in certificates of the following
denominations:
------------------------------
[Type Name of Holder]
By:
-------------------------------------
Title:
----------------------------------
Dated:
--------------------------
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<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[To be signed only upon transfer of entire Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _____________________ hereby sells, assigns and
transfers unto _________________________ all rights of the undersigned under and
pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint __________________________ Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
------------------------------
[Type Name of Holder]
By:
-------------------------------------
Title:
----------------------------------
Dated:
--------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the
name as written upon the face of the within in every particular, without
alteration or enlargement or any change whatsoever.
19
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : _________________________
SELLER : AVESTA TECHNOLOGIES, INC.
COMPANY : AVESTA TECHNOLOGIES, INC.
SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE STOCK
PURCHASE WARRANT ISSUED ON ________________, 199_
AMOUNT : ___________ SHARES
DATE : __________, 19__
In connection with the purchase of the above-listed Securities, the Purchaser
represents to the Seller and to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
purchasing these Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of its
investment intent as expressed herein. In this connection, Purchaser understands
that, in the view of the Securities and Exchange Commission (the "SEC"), the
statutory basis for such exemption may be unavailable if its representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future.
(c) Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of
"restricted securities"
<PAGE>
acquired, directly or indirectly, from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, of a non-affiliate who has held the securities less
than three years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) Purchaser agrees, in connection with any underwritten public offering
of the Company's securities, (1) not to sell, make short sale of, loan, grant
any options for the purchase of, or otherwise dispose of any shares of Common
Stock of the Company held by me (other than those shares included in the
registration) without the prior written consent of the Company or the
underwriters managing such underwritten public offering of the Company's
securities for one hundred eighty (180) days from the effective date of such
registration, and (2) Purchaser further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; provided however that the officers and directors of the Company
who own the stock of the Company also agree to such restrictions.
(f) Purchaser further understands that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
--------------------------------------------
By:
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Title:
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Date:
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EXHIBIT C
FORM OF TRANSFER
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________________________ the right represented by the
attached Warrant to purchase __________* shares of Common Stock of AVESTA
TECHNOLOGIES, INC., to which the attached Warrant relates, and appoints
__________ Attorney to transfer such right on the books of RESEARCH HOLDINGS,
LTD., with full power of substitution in the premises.
Dated: ____________________
--------------------------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
--------------------------------------------------
(Address)
Signed in the presence of:
- ----------
* Insert here the number of shares without making any adjustment for additional
shares of Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise.
<PAGE>
Exhibit 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE COMMON STOCK OF
AVESTA TECHNOLOGIES, INC. (THE "COMPANY")
DATE OF INITIAL ISSUANCE: OCTOBER 15, 1999
THIS CERTIFIES THAT for value received, TBCC FUNDING TRUST II, A
DELAWARE BUSINESS TRUST OR its registered assigns (hereinafter called the
"Holder") is entitled to purchase from the Company, at any time during the Term
of this Warrant, 14,285 shares of common stock, $.01 par value, of the Company
(the "Common Stock"), at the Warrant Price, payable as provided herein. The
exercise of this Warrant shall be subject to the provisions, limitations and
restrictions herein contained, and may be exercised in whole or in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
COMMON STOCK - shall mean and include the Company's authorized Common
Stock, $.01 par value, as constituted at the date hereof.
EXCHANGE ACT - shall mean the Securities Exchange Act of 1934, as
amended from time to time.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending on OCTOBER 31, 2003.
WARRANT PRICE - $6.24 per share, subject to adjustment in accordance
with Section 5 hereof.
WARRANTS - this Warrant and any other Warrant or Warrants are issued in
connection with a Loan and Security Agreement dated OCTOBER 16, 1998 by and
between the Company and Transamerica Business Credit Corporation, as amended
from time to time (the "Loan
<PAGE>
Agreement") to the original holder of this Warrant, or any transferees from such
original holder or this Holder.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
2.1. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in
whole, the Holder shall deliver to the Company at its office referred to in
Section 13 hereof at any time and from time to time during the Term of this
Warrant: (i) the Notice of Exercise in the form attached hereto, (ii) cash,
certified or official bank check payable to the order of the Company, wire
transfer of funds to the Company's account, or evidence of any indebtedness of
the Company to the Holder (or any combination of any of the foregoing) in the
amount of the Warrant Price for each share being purchased, and (iii) this
Warrant. Notwithstanding any provisions herein to the contrary, if the Current
Market Price (as defined in Section 5) is greater than the Warrant Price (at the
date of calculation, as set forth below), in lieu of exercising this Warrant as
hereinabove permitted, the Holder may elect to receive shares of Common Stock
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the office of the Company
referred to in Section 13 hereof, together with the Notice of Exercise, in which
event the Company shall issue to the Holder that number of shares of Common
Stock computed using the following formula:
CS = WCS X (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be
issued to the Holder
WCS equals the number of shares of Common Stock
purchasable under the Warrant or, if only a portion
of the Warrant is being exercised, the portion of the
Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such
calculation)
WP equals the Warrant Price (as adjusted to the date of
such calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the
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<PAGE>
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
2.2. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
offered for sale, pledged, hypothecated or otherwise transferred in the
absence of a registration statement in effect with respect to the
Securities under such Act or an opinion of counsel or other evidence
satisfactory to the Company that such registration is not required."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees that
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance in consideration for the receipt
of the Warrant Price pursuant to Section 2.1 hereof, be validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. The
Company further covenants and agrees that if any shares of capital stock to be
reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
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<PAGE>
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be subject to
adjustment from time to time as follows:
(i) If the Company shall at any time or from time to time during the
Term of this Warrant issue shares of Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share less
than the Warrant Price in effect immediately prior to the issuance of such
Common Stock, the Warrant Price in effect immediately prior to each such
issuance or adjustment shall forthwith (except as provided in this clause (i))
be adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding (including any shares of Common Stock
deemed to have been issued pursuant to subdivision
(3) of this clause (i) and to clause (ii) below)
immediately prior to such issuance multiplied by the
Warrant Price in effect immediately prior to such
issuance, plus
(y) the consideration received by the Company upon such
issuance,
BY
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been
issued pursuant to subdivision (3) of this clause (i) and to
clause (ii) below) immediately after the issuance of such
Common Stock.
For the purposes of any adjustment of the Warrant Price pursuant to
this clause (i), the following provisions shall be applicable:
1. In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor after deducting therefrom any discounts, commissions
or other expenses allowed, paid or incurred by the Company for
any underwriting or otherwise in connection with the issuance
and sale thereof.
2. In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined by the Board of Directors
of the Company, irrespective of any accounting treatment;
provided, however, that such fair market value as determined
by the Board of Directors, together with any cash
4
<PAGE>
consideration being paid, shall not exceed the aggregate
Current Market Price (as hereinafter defined) of the shares of
Common Stock being issued.
3. In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by their
terms convertible into or exchangeable for Common Stock or
(iii) options to purchase or rights to subscribe for such
convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such
options or rights were issued and for a consideration
equal to the consideration (determined in the manner
provided in subdivisions (1) and (2) above with the
proviso in subdivision (2) being applied to the
number of shares of Common Stock deliverable upon
such exercise), if any, received by the Company upon
the issuance of such options or rights plus the
minimum purchase price provided in such options or
rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable
securities and subsequent conversions or exchanges
thereof shall be deemed to have been issued at the
time such securities were issued or such options or
rights were issued and for a consideration equal to
the consideration received by the Company for any
such securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company
upon the conversion or exchange of such securities or
the exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in subdivisions (1) and (2) above
with the proviso in subdivision (2) being applied to
the number of shares of Common Stock deliverable upon
such conversion, exchange or exercise);
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or
rights or conversion of or exchange for such
convertible or exchangeable securities, other than a
change resulting from the antidilution provisions
thereof, the Warrant Price shall forthwith be
readjusted to such Warrant Price as would have
obtained had the adjustment made upon the issuance of
such options, rights or securities not converted
prior to such change or options or rights related to
such securities not converted prior to such change
being made upon the basis of such change; and
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<PAGE>
(D) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange
or the expiration of any options or rights related to
such convertible or exchangeable securities, the
Warrant Price shall forthwith be readjusted to such
Warrant Price as would have obtained had the
adjustment made upon the issuance of such options,
rights, securities or options or rights related to
such securities being made upon the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the conversion or exchange of
such securities or upon the exercise of the options
or rights related to such securities.
(ii) "Excluded Stock" shall mean shares of Common Stock issued by the
Company (1) as a stock dividend payable in shares of Common Stock or upon any
subdivision or split-up of the outstanding shares of Common Stock; (2) the
issuance of shares of Common Stock (including any shares of Common Stock deemed
to have been issued pursuant to subdivision 3 of clause (i) above)
(appropriately adjusted for stock splits and combinations) to directors,
officers, or employees of, or consultants to, the Company in connection with
their services as directors or consultants of the Company or their employment by
the Company; (3) the issuance of options or warrants for shares of Common Stock
(including any shares of Common Stock deemed to have been issued pursuant to
subdivision 3 of clause (i) above) (appropriately adjusted for stock splits and
combinations) to commercial lenders and lessors to the Company that are not
intended, by virtue of the related lending or lease transaction, to contribute
to the equity capital of the Company; and (4) the issuance of shares of Common
Stock (including any shares of Common Stock deemed to have been issued pursuant
to subdivision 3 of clause (i) above) in connection with acquisition
transactions relating to the Company.
(iii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Warrant Price shall be appropriately decreased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be increased in
proportion to such increase in outstanding shares.
(iv) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of shares of Common Stock issuable upon the exercise hereof shall be decreased
in proportion to such decrease in outstanding shares.
(v) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of
6
<PAGE>
Common Stock entitled to receive such dividend or distribution, the Warrant
Price in effect thereafter shall be determined by multiplying the Warrant Price
in effect immediately prior to such record date by a fraction of which the
numerator shall be an amount equal to the difference of (x) the Current Market
Price of one share of Common Stock minus (y) the fair market value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the stock, securities, evidences of indebtedness, assets,
options or rights so distributed in respect of one share of Common Stock, and of
which the denominator shall be such Current Market Price.
(vi) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(vii) For the purpose of any computation pursuant to this Section 5,
the Current Market Price at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 15 consecutive
business days ending on the last business day before the day in question (as
adjusted for any stock dividend, split, combination or reclassification that
took effect during such 15 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or as reported by
Nasdaq (or if the Common Stock is not at the time listed or admitted for trading
on any such exchange or if prices of the Common Stock are not reported by Nasdaq
then such price shall be equal to the average of the last reported bid and asked
prices on such day as reported by The National Quotation Bureau Incorporated or
any similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (vii) are available for the period required hereunder, the
Current Market Price shall be determined in good faith by the Board of Directors
of the Company.
(viii) Whenever the Warrant Price shall be adjusted as provided in
Section 5, the Company shall prepare a statement showing the facts requiring
such adjustment and the Warrant Price that shall be in effect after such
adjustment. The Company shall cause a copy of such statement to be sent by mail,
first class postage prepaid, to each Holder of this Warrant at its, his or her
address appearing on the Company's records. Where appropriate, such copy may be
given in advance and may be included as part of the notice required to be mailed
under the provisions of subsection (viii) of this Section 5.
(viii) Adjustments made pursuant to clauses (iii), (iv) and (v) above
shall be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made. and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(ix) In the event the Company shall propose to take any action of the
types described in clauses (iii), (iv) or (v) of this Section 5, the Company
shall forward, at the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
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<PAGE>
(x) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. OWNERSHIP.
6.1. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder
are transferable in whole upon the books of the Company by the Holder hereof in
person or by duly authorized attorney, and a new Warrant or Warrants, of the
same tenor as this Warrant but registered in the name of the transferee or
transferees shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof, provided that the Holder agrees not to transfer this Warrant to a
competitor of the Company without the consent of the Company. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft or
destruction, and, in such case, of indemnity or security reasonably satisfactory
to it, and upon surrender of this Warrant if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant; provided that
if the Holder hereof is an instrumentality of a state or local government or an
institutional holder or a nominee for such an instrumentality or institutional
holder an irrevocable agreement of indemnity by such Holder shall be sufficient
for all purposes of this Section 6, and no evidence of loss or theft or
destruction shall be necessary. This Warrant shall be promptly cancelled by the
Company upon the surrender hereof in connection with any transfer or
replacement. Except as otherwise provided above, in the case of the loss, theft
or destruction of a Warrant, the Company shall pay all expenses, taxes and other
charges payable in connection with any transfer or replacement of this Warrant,
other than stock transfer taxes (if any) payable in connection with a transfer
of this Warrant, which shall be payable by the Holder. Holder will not transfer
this Warrant and the rights hereunder except in compliance with federal and
state securities laws.
SECTION 7. MERGERS, CONSOLIDATION, SALES. In the case of any proposed
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of
the-Common Stock of the Company immediately
8
<PAGE>
theretofore purchasable hereunder, such shares of stock, securities or assets as
may (by virtue of such consolidation, merger, sale, reorganization or
reclassification) be issued or payable with respect to or in exchange for the
number of shares of such Common Stock purchasable hereunder immediately before
such consolidation, merger, sale, reorganization or reclassification. In any
such case appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
shall thereafter be applicable as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of this
Warrant.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any distribution of
the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1 WILL RESERVE SHARES. The Company will reserve and set apart and
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. WILL NOT AMEND CERTIFICATE. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
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<PAGE>
11.3. WILL BIND SUCCESSORS. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. REGISTRATION RIGHTS; ETC.
12.1. CERTAIN DEFINITIONS. As used in this Section 12, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Warrant Shares less any Warrant
Shares theretofore sold to the public or in a private placement or which are
then eligible for sale pursuant to Rule 144K promulgated under the Securities
Act.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 12.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 12.5 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company or who are permitted by the
Company to have securities included in a registration of the Company's
securities.
12.2. COMPANY REGISTRATION.
(A) NOTICE OF REGISTRATION. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does not
permit secondary sales, the Company will:
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<PAGE>
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within fifteen (15) days
after receipt of the written notice from the Company described in clause (i)
above, subject to (A) any limitations on the number of shares as set forth in
Section 12.2(b) below; (B) the requirements of the Company's existing rights
agreements with other investors of the Company; and (C) the covenant of the
Company set forth in Section 12.3 below.
(b) UNDERWRITING. If the registration of which the Company gives notice
is for a registered-public offering involving an underwriting, the Company shall
so advise the Holders as part of the written notice given pursuant to Section
12.2(a)(i). In such event, the right of any Holder to registration pursuant to
Section 12.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement and a lock-up
agreement, in each case in customary form with the underwriter or underwriters
selected for underwriting by the Company.
Notwithstanding any other provision of this Section 12.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
or all of the Registrable Securities which would otherwise be underwritten
pursuant hereto. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. The number of shares that may be included in the
registration and underwriting on behalf of such Holders, directors and officers
and Other Shareholders shall be allocated among such Holders, directors and
officers and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement.
If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, it, he or
she may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
12.3. REGISTRATION RIGHTS. The Holder acknowledges that the
registration rights hereunder shall be limited to piggyback registration rights
only and shall not include demand registration rights.
12.4. EXPENSES OF REGISTRATION. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company
11
<PAGE>
pursuant to Section 12.2 hereof. All Selling Expenses shall be borne by the
holders of the securities so registered pro rata on the basis of the number of
their shares so registered.
12.5. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Section 12, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of ninety
(90) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) use reasonably commercial efforts to register or qualify
the Registrable Securities under the securities laws or blue-sky laws of such
jurisdictions as any Holder may request; provided, however, that the Company
shall not be obligated to register or qualify such Registrable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
12.6. INDEMNIFICATION.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 12, will
indemnify and hold harmless each Holder, each of its officers, directors,
partners, and agents, and each party controlling such Holder, and each
underwriter, if any, and each party who controls any underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
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
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners, and agents, and each party controlling such Holder, each
such underwriter and each party who controls any such underwriter, for any
reasonable legal and any other reasonable expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based solely upon written information furnished
to the Company by such Holder or underwriter, as the case may be, and stated to
be specifically for use in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance.
12
<PAGE>
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by it, him or her are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify and
hold harmless the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each party who controls the Company or such underwriter, each other
such Holder and Other Shareholder and each of their respective officers,
directors, partners, and agents, and each party controlling such Holder or Other
Shareholder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Shareholders, directors, officers, partners,
agents, parties, underwriters or control persons for any reasonable legal or any
other reasonable expenses incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Other Shareholder and stated to be specifically for use in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance; provided, however, that the obligations of such
Holders and Other Shareholders hereunder shall be limited to an amount equal to
the proceeds to each such Holder or Other Shareholder of securities sold as
contemplated herein.
(c) Each party entitled to indemnification under this Section
12.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense (unless the Indemnified
Party shall have been advised by counsel that actual or potential differing
interests or defenses exist or may exist between the Indemnifying Party and the
Indemnified Party, in which case such expense shall be paid by the Indemnifying
Party), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 12 unless the rights of Indemnifying Party have
been prejudiced. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall provide such information as may be
reasonably requested by an Indemnifying Party in order to enable such
Indemnifying Party to defend a claim as to which indemnity is sought.
12.7. INFORMATION BY HOLDER. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such
13
<PAGE>
information regarding such Holder or Other Shareholder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
12.
12.8. RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, 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
from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time
after it has become subject to such reporting requirements; and
(c) So long as the Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement in connection with an offering of its Securities to the
general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Holder to sell any such
securities without registration.
SECTION 13. NOTICES. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at 15260 Ventura Blvd., Suite 124O, Sherman Oaks,
California 91403, with a copy to Holder at Riverway II, West Of Office Tower,
9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department or
to such other address as shall have been furnished to the Company in writing by
the Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the Company at 2 Rector Street, New York, NY 10006, with a
copy to Alexander D. Lynch, Esq., Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York or to such other address as shall have
been furnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 14. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
14
<PAGE>
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 15. LOCK-UP AGREEMENTS. Holder hereby agrees to be bound by such lock-up
agreements (not to exceed a period of 180 days following the date of the
prospectus relating to the Company's initial public offering) as the managing
underwriter of any such initial public offering shall specify as a requirement
to any such underwriting, provided that the entry of such Holder into such
agreements shall be conditioned upon all directors of the Company also agreeing
to execute the same form of lock-up agreement.
SECTION 16. HOLDER REPRESENTATION. Holder represents and warrants to the Company
that (a) Holder is an "accredited investor" within the meaning of Rule 501 under
the Securities Act and was not organized for the specific purpose of acquiring
the Warrant or the Warrant Shares; (b) Holder has sufficient knowledge and
experience in investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the risks and merits
of its investment in the Company and it is able financially to bear the risks
thereof; (c) Holder has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management; (d) the Warrant
is being acquired, and the Warrant Shares upon exercise will be acquired, for
Holder's own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof; and (e) Holder understands
that (i) the Warrant and the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
or Rule 505 or 506 promulgated under the Securities Act, (ii) the Warrant and,
upon exercise thereof, the Warrant Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Warrant and the Warrant Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect.
SECTION 17. LAW GOVERNING. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 18. MISCELLANEOUS.
(a) This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by both
parties (or any respective predecessor in interest thereof). The headings in
this Warrant are for purposes of reference only and shall not affect the meaning
or construction of any of the provisions hereof.
(b) All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Loan Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer on October 15, 1999.
[CORPORATE SEAL] AVESTA TECHNOLOGIES, INC.
15
<PAGE>
By: /s/ CAMERON SAIFI
-----------------------------------
Title: SENIOR VICE PRESIDENT AND COO
-----------------------------------
16
<PAGE>
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _____ shares of
Common Stock which the undersigned is entitled to purchase by the terms of the
within Warrant according to the conditions thereof, and herewith
[check one]
- makes payment of $__________ therefor; or
- directs the Company to issue _____ shares,
and to withhold _____shares in lieu of
payment of the Warrant Price, as described
in Section 2.1 of the Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following
denomination:
-----------------------------------------------
[Type Name of Holder]
By:
----------------------------------------
Title:
----------------------------------------
Dated:
--------------------
<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[TO BE SIGNED ONLY UPON TRANSFER OF ENTIRE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ______________________________ hereby sells, assigns
and transfers unto ________________________ all rights of the undersigned under
and pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint ______________________ Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
----------------------------------------------
[Type Name of Holder]
By:
----------------------------------------
Title:
----------------------------------------
Dated:
--------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
Exhibit 4.5
COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SHARES OF COMMON WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER,
PLEDGE OR HYPOTEHCATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS UNLESS SOLD
PURSUANT TO RULE 144 OF THE ACT.
No. ___ Void after December 19, 2001
AVESTA TECHNOLOGIES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
--------------------
THIS CERTIFIES THAT, for value received, (the "Holder") is entitled to
subscribe for and purchase shares (as adjusted pursuant to Section 3
hereof) of the fully paid and nonassessable Common Stock, par value $0.01 per
share, (the "Shares"), of Avesta Technologies, Inc., a California corporation
(the "Company"), at the price of $0.23 per share (the "Exercise Price") (as
adjusted pursuant to Section 3 hereof), subject to the provisions and upon
the terms and conditions hereinafter set forth.
1. Method of Exercise; Payment.
(a) Cash Exercise. The purchase rights represented by this Warrant
may be exercised by the Holder, in whole or in part, by the surrender of this
Warrant (with the notice of exercise form attached hereto as Exhibit A duly
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Exercise Price of the shares being purchased.
(b) Net Issue Exercise.
(i) In lieu of exercising this Warrant, the Holder may elect
to receive shares equal to the value of this Warrant (or the portion thereof
being cancelled) by surrender of this Warrant at the principal office of the
Company together with notice of such election, in which event the Company shall
issue to the Holder a number of shares of the Company's Common Stock computed
using the following formula:
<PAGE>
X = Y (A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock purchasable under this
Warrant.
A = the fair market value of one share of the Company's Common
Stock.
B = the Exercise Price (as adjusted to the date of such
calculation).
(ii) This Warrant shall automatically be exercised pursuant to
Section l(b) hereof immediately before its expiration pursuant to Section 11
hereof unless Holder notifies the Company in writing to the contrary before such
termination.
(c) Fair Market Value. For purposes of this Section 1, the fair
market value of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the
Company's Common Stock quoted in the Over-The-Counter Market Summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the ten trading days prior to the date of determination of fair
market value;
(ii) If the Company's Common Stock is not traded
Over-The-Counter or on an exchange, fair market value of the Common Stock per
share shall be the price per share which the Company could obtain from a willing
buyer for shares sold by the Company from authorized but unissued shares of
Common Stock as such price shall be determined in good faith by the Board of
Directors of the Company.
(d) Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant representing
the shares with respect to which this Warrant shall not have been exercised
shall also be issued to the Holder within such time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable, and
free from all taxes, liens and charges with respect to the issue thereof. During
the period within which the rights represented by this Warrant may be exercised,
the Company shall at all times have authorized and reserved for issuance
sufficient shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
3. Adjustment of Exercise Price and Number of Shares. Subject to the
provisions of Section 11 hereof, the number and kind of securities purchasable
upon the exercise of this
2
<PAGE>
Warrant and the Exercise Price therefor shall be subject to adjustment from time
to time upon the occurrence of certain events, as follows:
(a) Reclassification, Consolidation or Merger. In case of any
reclassification or change of the Common Stock (other than a change in par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation as the case may be, shall execute a
new Warrant, providing that the holder of this Warrant shall have the right to
exercise such new Warrant, and procure upon such exercise and payment of the
same aggregate Exercise Price, in lieu of the shares of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change, consolidation, sale of all or substantially all of the Company's assets
or merger by a holder of an equivalent number of shares of Common Stock. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3. The
provisions of this subsection (a), subject to Section 11 hereof, shall similarly
apply to successive reclassifications, changes, consolidations, mergers,
transfers and the sale of all or substantially all of the Company's assets.
(b) Stock Splits, Dividends and Combinations. In the event that the
Company shall at any time subdivide the outstanding shares of Common Stock or
shall issue a stock dividend on its outstanding shares of Common Stock the
number of Shares issuable upon exercise of this Warrant immediately prior to
such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Shares issuable upon exercise
of this Warrant immediately prior to such combination shall be proportionately
decreased, and the Exercise Price shall be proportionately increased, effective
at the close of business on the date of such subdivision, stock dividend or
combination, as the case may be.
4. Notice of Adjustments. Whenever the number of Shares purchasable
hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3
hereof, the Company shall provide notice by first class mail to the holder of
this Warrant setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the number of Shares which may be purchased and the Exercise
Price therefor after giving effect to such adjustment.
5. Fractional Shares. No fractional shares of Common Stock will be issued
in connection with any exercise hereunder. In lieu of such fractional shares the
Company shall make a cash payment therefor based upon the Exercise Price then in
effect.
6. Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale
3
<PAGE>
and issuance of the Shares pursuant hereto and the performance of the Company's
obligations hereunder were taken prior to and are effective as of the effective
date of this Warrant.
7. Representations and Warranties by the Holder. The Holder represents and
warrants to the Company as follows:
(a) This Warrant and the Shares issuable upon exercise thereof are
being acquired for its own account, for investment and not with a view to, or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended (the "Act"). Upon
exercise of this Warrant, the Holder shall, if so requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the securities
issuable upon exercise of this Warrant are being acquired for investment and not
with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have not
been registered under the Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the Act
pursuant to Section 4(2) thereof, and that they must be held by the Holder
indefinitely, and that the Holder must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Act or is exempted from such registration. The Holder further
understands that the Shares have not been qualified under the California
Securities Law of 1968 (the "California Law") by reason of their issuance in a
transaction exempt from the qualification requirements of the California Law
pursuant to Section 25102(f) thereof, which exemption depends upon, among other
things, the bona fide nature of the Holder's investment intent expressed above.
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Shares purchasable pursuant to the terms of
this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of
the Shares pursuant to the terms of this Warrant.
8. Restrictive Legend.
The Shares issuable upon exercise of this Warrant (unless registered
under the Act) shall be stamped or imprinted with a legend in substantially the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
ACT. COPIES OF THE AGREEMENT
4
<PAGE>
COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
9. Restrictions Upon Transfer and Removal of Legend.
(a) The Company need not register a transfer of Shares bearing the
restrictive legend set forth in Section 8 hereof, unless the conditions
specified in such legend are satisfied. The Company may also instruct its
transfer agent not to register the transfer of the Shares, unless one of the
conditions specified in the legend referred to in Section 8 hereof is satisfied.
(b) Notwithstanding the provisions of paragraph (a) above, no
opinion of counsel or "no-action" letter shall be necessary for a transfer
without consideration by any holder (i) to an affiliate of the holder, (ii) if
such holder is a partnership, to a partner or retired partner of such
partnership who retires after the date hereof or to the estate of any such
partner or retired partner, (iii) if such holder is a corporation, to a
shareholder of such corporation, or to any other corporation under common
control, direct or indirect, with such holder, or (iv) by gift, will or
intestate succession of any individual holder to his spouse or siblings, or to
the lineal descendants or ancestors of such holder or his spouse, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were the original holder hereunder.
10. Rights of Shareholders. No holder of this Warrant shall be entitled,
as a Warrant holder, to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value, consolidation, merger, conveyance, or otherwise) or to receive notice
of meetings, or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
11. Expiration of Warrant. This Warrant shall expire and shall no longer
be exercisable at 8:00 p.m., New York local time, on December 19, 2001.
12. Notices, Etc. All notices and other communications from the Company to
the Holder shall be mailed by first class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder.
13. Governing Law, Headings. This Warrant is being delivered in the State
of New York and shall be construed and enforced in accordance with and governed
by the laws of such State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
5
<PAGE>
Issued on December 19, 1996.
AVESTA TECHNOLOGIES, INC.
By: /s/ Kam Saifi
----------------------------------
Title: President/CEO
-------------------------------
6
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: AVESTA TECHNOLOGIES, INC.
New York
Attention: President
1. The undersigned hereby elects to purchase __________ shares of Common
Stock of AVESTA TECHNOLOGIES, INC. pursuant to the terms of the attached
Warrant.
2. Method of Exercise (Please initial the applicable blank):
___ The undersigned elects to exercise the attached Warrant by
means of a cash payment, and tenders herewith payment in full
for the purchase price of the shares being purchased, together
with all applicable transfer taxes, if any.
___ The undersigned elects to exercise the attached Warrant by
means of the net exercise provisions of Section 1 (b) of the
Warrant.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------------
(Name)
----------------------------------------------
----------------------------------------------
(Address)
4. The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale, in connection with the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares and all representations and warranties of
the undersigned set forth in Section 7 of the attached Warrant are true and
correct as of the date hereof. In support thereof, the undersigned hereby
delivers an Investment Representation Statement in a form substantially similar
to the form attached to the Warrant as Exhibit B.
----------------------------------------
(Signature)
Title:
- ------------------------------ ---------------------------------
(Date)
7
<PAGE>
Exhibit 10.1
AVESTA TECHNOLOGIES, INC.
1996 STOCK PLAN
amended 1/4/99
1. Purpose. The purpose of the Avesta Technologies, Inc. 1996 Stock
Plan (the "Plan") is to encourage employees and directors of and consultants to
Avesta Technologies, Inc. (the "Company") and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations") and other
individuals who render services to the Company or a Related Corporation, by
providing opportunities to participate in the ownership of the Company and its
future growth through (a) the grant of options which qualify as "incentive stock
options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) the grant of options which do not qualify as ISOs
("Non-Qualified Options"); (c) awards of stock in the Company ("Awards"); and
(d) opportunities to make direct purchases of stock in the Company
("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options." Options, Awards and
authorizations to make Purchases are referred to hereafter collectively as
"Stock Rights." As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation," respectively, as those terms are
defined in Section 424 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall (be administered by the
Board of Directors of the Company (the "Board") or, subject to paragraph 2(D)
(relating to compliance with Section 162(m) of the Code), by a committee
appointed by the Board (the "Committee"). Hereinafter, all references in this
Plan to the "Committee" shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each Stock Right by the
Board (if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine to whom (from
among the class of employees eligible under paragraph 3 to receive ISOs) ISOs
shall be granted, and to whom (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options or
Awards shall be granted or Purchases made; (iii) determine the purchase price of
shares subject to each Option or Purchase, which prices shall not be less than
the minimum price specified in paragraph 6; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become exercisable and the
duration of the exercise period; (vi) extend the period during which outstanding
Options may be exercised; (vii) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, Awards and
Purchases and the nature of such restrictions, if any, and (viii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines
<PAGE>
to issue a Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem advisable. No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine. A
majority of the Committee shall constitute a quorum and acts of a majority of
the members of the Committee at a meeting at which a quorum is present, or acts
reduced to or approved in writing by all the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the Committee.
From time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may be granted to
members of the Board. All grants of Stock Rights to members of the Board shall
in all respects be made in accordance with the provisions of this Plan
applicable to other eligible persons. Members of the Board who either (i) are
eligible to receive grants of Stock Rights pursuant to the Plan or (ii) have
been granted Stock Rights may vote on any matters affecting the administration
of the Plan or the grant of any Stock Rights pursuant to the Plan, except that
no such member shall act upon the granting to himself or herself of Stock
Rights, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to such member of Stock Rights.
D. Performance-Based Compensation. The Board, in its discretion, may take such
action as may be necessary to ensure that Stock Rights granted under the Plan
qualify as "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code and applicable regulations promulgated thereunder
("Performance-Based Compensation"). Such action may include, in the Board's
discretion, some or all of the following (i) if the Board determines that Stock
Rights granted under the Plan generally shall constitute Performance-Based
Compensation, the Plan shall be administered, to the extent required for such
Stock Rights to constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as defined in applicable
regulations promulgated under Section 162(m) of the Code), (ii) if any
Non-Qualified Options with an exercise price less than the fair market value per
share of Common Stock are granted under the Plan and the Board determines that
such Options should constitute Performance-Based Compensation, such options
shall be made exercisable only upon the attainment of a pre-established,
objective performance goal established by the Committee, and such grant shall be
submitted for, and shall be contingent upon shareholder approval and (iii) Stock
Rights granted
<PAGE>
under the Plan may be subject to such other terms and conditions as are
necessary for compensation recognized in connection with the exercise or
disposition of such Stock Right or the disposition of Common Stock acquired
pursuant to such Stock Right, to constitute Performance-Based Compensation.
3. Eligible Employees and Others. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not also an employee) or consultant of the
Company or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify such individual or entity
from, participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 3,700,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 750,000 of shares of Common
Stock under the Plan during any fiscal year of the Company. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the shares subject to such
Option shall be included in the determination of the aggregate number of shares
of Common Stock deemed to have been granted to such employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the
Plan at any time on or after December 16, 1996 and prior to December 16, 2006.
The date of grant of a Stock Right under the Plan will be the date specified by
the Committee at the time it grants the Stock Right; provided, however, that
such date shall not be prior to the date on which the Committee acts to approve
the grant.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options, Awards and Purchases. Subject to paragraph
2(D) (relating to compliance with Section 162(m) of the Code), the exercise
price per share specified in the agreement relating to each Non-Qualified Option
granted, and the purchase price per share of stock granted in any Award or
authorized as a Purchase, under the Plan may not be less than the fair market
value of the Common Stock of the Company on the
<PAGE>
date of grant; provided that, in no event shall such exercise price or such
purchase price be less than the minimum legal consideration required therefor
under the laws of any jurisdiction in which the Company or its successors in
interest may be organized.
B. Price for ISOs. The exercise price per share specified in the agreement
relating to each ISO granted under the Plan shall not be less than the fair
market value per share of Common Stock on the date of such grant. In the case of
an ISO to be granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
For purposes of determining stock ownership under this paragraph, the rules of
Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee may be
granted Options treated as ISOs only to the extent that, in the aggregate under
this Plan and all incentive stock option plans of the Company and any Related
Corporation, ISOs do not become exercisable for the first time by such employee
during any calendar year with respect to stock having a fair market value
(determined at the time the ISOs were granted) in excess of $100,000. The
Company intends to designate any Options granted in excess of such limitation as
Non-Qualified Options, and the Company shall issue separate certificates to the
optionee with respect to Options that are Non-Qualified Options and Options that
are ISOs.
D. Determination of Fair Market Value. If, at the time an Option is granted
under the Plan, the Company's Common Stock is publicly traded, "fair market
value" shall be determined as of the date of grant or, if the prices or quotes
discussed in this sentence are unavailable for such date, the last business day
for which such prices or quotes are available prior to the date of grant and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market. If the Common Stock is not publicly traded at the time an
Option is granted under the Plan, "fair market value" shall mean the fair value
of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%)
<PAGE>
of the total combined voting power of all classes of stock of the Company or any
Related Corporation, as determined under paragraph 6(B). Subject to earlier
termination as provided in paragraphs 9 and 10, the term of each ISO shall be
the term set forth in the original instrument granting such ISO, except with
respect to any part of such ISO that is converted into a Non-Qualified Option
pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date of grant or
shall become exercisable thereafter in such installments as the Committee may
specify.
B. Full Vesting of Installments. Once an installment becomes exercisable, it
shall remain exercisable until expiration or termination of the Option, unless
otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at any time or
from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to accelerate the
date that any installment of any Option becomes exercisable; provided that the
Committee shall not, without the consent of an optionee, accelerate the
permitted exercise date of any installment of any Option granted to any employee
as an ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 16) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in paragraph 6(C).
9. Termination of Employment. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related
<PAGE>
Corporation. Nothing in the Plan shall be deemed to give any grantee of any
Stock Right the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, any ISO owned by such
optionee may be exercised, to the extent otherwise exercisable on the date of
death, by the estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, until the earlier of
(i) the specified expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability, such optionee shall
have the right to exercise any ISO held by him or her on the date of termination
of employment, for the number of shares for which he or she could have exercised
it on that date, until the earlier of (i) the specified expiration date of the
ISO or (ii) 180 days from the date of the termination of the optionee's
employment. For the purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code or
any successor statute.
11. Assignability. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events,
an optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of
<PAGE>
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with or
acquired by another entity in a merger or other reorganization in which the
holders of the outstanding voting stock of the Company immediately preceding the
consummation of such event, shall, immediately following such event, hold, as a
group, less than a majority of the voting securities of the surviving or
successor entity, or in the event of a sale of all or substantially all of the
Company's assets (each, an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options either (a) the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of the surviving or
successor corporation or (c) such other securities as the Successor Board deems
appropriate, the fair market value of which shall not materially exceed the fair
market value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable or to be
exercisable as a result of the Acquisition, within a specified number of days of
the date of such notice, at the end of which period the Options shall terminate;
or (iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options (to the
extent then exercisable or to be exercisable as a result of the Acquisition)
over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization or
reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
an optionee upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he or she would have
received if he or she had exercised such Option prior to such recapitalization
or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made
pursuant to subparagraphs A, B or C with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs or would cause adverse tax consequences to the holders, it may refrain from
making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
<PAGE>
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares subject to Options.
No adjustments shall be made for dividends paid in cash or in property other
than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the Plan and
the optionee shall receive from the Company cash in lieu of such fractional
shares.
H. Adjustments. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. Means of Exercising Options. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date
<PAGE>
such stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board
on December 10, 1996, subject, with respect to the validation of ISOs granted
under the Plan, to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to December 9, 1997, any grants
of ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire at the end of the day on December 15, 2006 (except as to Options
outstanding on that date). Subject to the provisions of paragraph 5 above,
Options may be granted under the Plan prior to the date of stockholder approval
of the Plan. The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to paragraph 13); (b)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (c) the provisions of paragraph 6(B) regarding the exercise price
at which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without such grantee's consent, under any Stock Right previously
granted to such grantee.
16. Modifications of ISOs; Conversion of ISOs into Non-Qualified
Options. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs.
17. Application Of Funds. The proceeds received by the Company from
the sale of shares pursuant to Options granted and Purchases authorized under
the Plan shall be used for general corporate
<PAGE>
purposes.
18. Notice to Company of Disqualifying Disposition. By accepting an
ISO granted under the Plan, each optionee agrees to notify the Company in
writing immediately after such optionee makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified
Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of
Common Stock for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
20. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on
the Company with respect to the Plan. For example, the Company may be required
to send tax information statements to employees and former employees that
exercise ISOs under the Plan, and the Company may be required to file tax
information returns reporting the income received by grantees of Options in
connection with the Plan.
21. Governing Law. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the State
of New York, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
<PAGE>
AVESTA TECHNOLOGIES, INC.
Incentive Stock Option Agreement
[Note: Form for Officers and Key Employees]
Avesta Technologies, Inc., a Delaware corporation (the "Company"), hereby
grants as of _______________, 1996 to ___ (the "Employee"), an option to
purchase a maximum of ___ shares (the "Option Shares") of its Common Stock, $.01
par value ("Common Stock"), at the price of $.___ per share, on the following
terms and conditions:
1. Grant Under 1996 Stock Plan. This option is granted pursuant to and is
governed by the Company's 1996 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. This option shall be
void if the Plan is not approved by the Company's stockholders on or before
December ____, 1997.
2. Grant as Incentive Stock Option; Other Options. This option is intended
to qualify as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). This option is in addition to any
other options heretofore or hereafter granted to the Employee by the Company or
any Related Corporation (as defined in the Plan), but a duplicate original of
this instrument shall not effect the grant of another option.
3. Vesting of Option if Employment Continues. If the Employee has
continued to be employed by the Company or any Related Corporation on the
following dates, the Employee may exercise this option for the number of shares
of Common Stock set opposite the applicable date:
Less than one year from the date of hire - 0 shares
One year from the date of hire - ___ shares
The first day of each month thereafter
for thirty five (35) months - an additional ___ shares
The first day of the month thereafter - an additional ___ shares
The foregoing to the contrary notwithstanding, if the Board of Directors of the
Company approves a proposed Acquisition of the Company (as defined in the Plan),
if such transaction is thereafter consummated and if the Employee has continued
to be employed by the Company on the date of consummation, the Employee may
exercise this option as if he had been employed by the Company for an additional
twelve (12) months under the foregoing schedule. In addition, notwithstanding
the foregoing, in accordance with and subject to the provisions of the Plan, the
Committee may, in its discretion, accelerate the date that any installment of
this Option becomes
<PAGE>
exercisable. The foregoing rights are cumulative and (subject to Sections 4 or 5
hereof if the Employee ceases to be employed by the Company and all Related
Corporations) may be exercised on or before the date which is ten years from the
date this option is granted.
4. Termination of Employment.
(a) Termination Other Than for Cause. If the Employee ceases to be
employed by the Company and all Related Corporations, other than by reason
of death or disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), this option shall become exercisable pursuant to
the schedule set forth in Section 3 hereof as if the Employee had been
employed for an additional twelve (12) months after such termination of
employment, and this option shall terminate (and may no longer be
exercised) after the passage of three months from the Employee's last day
of employment, but in no event later than the scheduled expiration date.
In such a case, the Employee's only rights hereunder shall be those which
are properly exercised before the termination of this option.
(b) Termination for Cause. If the employment of the Employee is
terminated for Cause (as defined in Section 4(c)), this option shall
terminate upon the Employee's receipt of written notice of such
termination and shall thereafter not be exercisable to any extent
whatsoever.
(c) Definition of Cause. "Cause" shall mean conduct involving one or
more of the following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the Company or
Related Corporation in accordance with the terms or requirements of his or
her employment; (ii) disloyalty, gross negligence, willful misconduct,
dishonesty or breach of fiduciary duty to the Company or Related
Corporation; (iii) the commission of an act of embezzlement or fraud; (iv)
deliberate disregard of the rules or policies of the Company or Related
Corporation which results in direct or indirect loss, damage or injury to
the Company or Related Corporation; (v) the unauthorized disclosure of any
trade secret or confidential information of the Company or Related
Corporation; (vi) the commission of an act which constitutes unfair
competition with the Company or Related Corporation or which induces any
customer or supplier to breach a contract with the Company or Related
Corporation; or (vii) a material breach of any agreement between the
Company and the Employee.
5. Death; Disability.
(a) Death. If the Employee dies while in the employ of the Company
or any Related Corporation, this option may be exercised, to the extent
otherwise exercisable on the date of his or her death, by the Employee's
estate, personal representative or beneficiary to whom this option has
been assigned pursuant to Section 10, at any time within 180 days after
the date of death, but not later than the scheduled expiration date.
(b) Disability. If the Employee ceases to be employed by the Company
and all Related Corporations by reason of his or her disability (as
defined in the Plan), this option may be exercised, to the extent
otherwise exercisable on the date of the
<PAGE>
termination of his or her employment, at any time within 180 days after
such termination, but not later than the scheduled expiration date.
(c) Effect of Termination. At the expiration of the 180-day period
provided in paragraphs (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall terminate
(and shall no longer be exercisable) and the only rights hereunder shall
be those as to which the option was properly exercised before such
termination.
6. Partial Exercise. This option may be exercised in part at any time and
from time to time within the above limits, except that this option may not be
exercised for a fraction of a share unless such exercise is with respect to the
final installment of stock subject to this option and cash in lieu of a
fractional share must be paid, in accordance with [Paragraph 13 (G)] of the
Plan, to permit the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.
7. Payment of Price. (a) The option price shall be paid in the following
manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares of the
Company's Common Stock having a fair market value (as
determined by the Committee) equal as of the date of exercise
to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the
proceeds from the sale of the Option Shares and an instruction
to the broker or selling agent to pay that amount to the
Company; or
(iv) by any combination of the foregoing.
(b) Limitations on Payment by Delivery of Common Stock. If the
Employee delivers Common Stock held by the Employee ("Old Stock") to the
Company in full or partial payment of the option price, and the Old Stock
so delivered is subject to restrictions or limitations imposed by
agreement between the Employee and the Company, an equivalent number of
Option Shares shall be subject to all restrictions and limitations
applicable to the Old Stock to the extent that the Employee paid for the
Option Shares by delivery of Old Stock, in addition to any restrictions or
limitations imposed by this Agreement. Notwithstanding the foregoing, the
Employee may not pay any part of the exercise price hereof by transferring
Common Stock to the Company unless such Common Stock has been owned by the
Employee free of any substantial risk of forfeiture for at least six
months.
(c) Permitted Payment by Recourse Note. In addition, if this
paragraph is initialed below by the person signing this Agreement on
behalf of the Company, the option price may be paid by delivery of the
Employee's three-year personal recourse
<PAGE>
promissory note bearing interest payable not less than annually at the
applicable Federal rate, as defined in Section 1274(d) of the Code.
___________________
(initials)
8. Restrictions on Resale; Legend. Option Shares may not be transferred
without the Company's written consent except by will, by the laws of descent and
distribution and in accordance with the provisions of Section 17, if applicable.
Option Shares will be of an illiquid nature and will be deemed to be "restricted
securities" for purposes of the Securities Act of 1933, as amended (the
"Securities Act"). Accordingly, such shares must be sold in compliance with the
registration requirements of the Securities Act or an exemption therefrom. Each
certificate evidencing any of the Option Shares shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to restrictions on
transfer and may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with and
subject to all the terms and conditions of a certain Incentive Stock
Option Agreement dated as of [date], a copy of which the Company will
furnish to the holder of this certificate upon request and without
charge."
9. Method of Exercising Option. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option and the
number of Option Shares for which it is being exercised and shall be signed by
the person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and the
Company shall deliver a certificate or certificates representing such shares as
soon as practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the Employee
and if the Employee shall so request in the notice exercising this option, shall
be registered in the name of the Employee and another person jointly, with right
of survivorship). In the event this option shall be exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such notice
shall be accompanied by appropriate proof of the right of such person or persons
to exercise this option.
10. Option Not Transferable. This option is not transferable or assignable
except by will or by the laws of descent and distribution. During the Employee's
lifetime only the Employee can exercise this option.
11. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Employee to exercise it.
12. No Obligation to Continue Employment. Neither the Plan, this
Agreement, nor the grant of this option imposes any obligation on the Company or
any Related Corporation to continue the Employee in employment.
<PAGE>
13. No Rights as Stockholder until Exercise. The Employee shall have no
rights as a stockholder with respect to the Option Shares until such time as the
Employee has exercised this option by delivering a notice of exercise and has
paid in full the purchase price for the shares so exercised in accordance with
Section 9. Except as is expressly provided in the Plan with respect to certain
changes in the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to such date of
exercise.
14. Capital Changes and Business Successions. The Plan contains provisions
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.
15. Early Disposition. The Employee agrees to notify the Company in
writing immediately after the Employee transfers any Option Shares, if such
transfer occurs on or before the later of (a) the date two years after the date
of this Agreement or (b) the date one year after the date the Employee acquired
such Option Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for tax
purposes.
16. Withholding Taxes. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, or in connection with the transfer of, or the
lapse of restrictions on, any Common Stock or other property acquired pursuant
to this option, the Employee hereby agrees that the Company or any Related
Corporation may withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash from
such wages or other remuneration or in kind from the Common Stock or other
property otherwise deliverable to the Employee on exercise of this option. The
Employee further agrees that, if the Company or any Related Corporation does not
withhold an amount from the Employee's wages or other remuneration sufficient to
satisfy the withholding obligation of the Company or Related Corporation, the
Employee will make reimbursement on demand, in cash, for the amount
underwithheld.
17. Company's Right of First Refusal.
(a) Exercise of Right. If the Employee desires to transfer all or
any part of the Option Shares to any person other than the Company (an
"Offeror"), the Employee shall: (i) obtain in writing an irrevocable and
unconditional bona fide offer (the "Offer") for the purchase thereof from
the Offeror; and (ii) give written notice (the "Option Notice") to the
Company setting forth the Employee's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of the Offer and shall
set forth at least the name and address of the Offeror and the price and
terms of the Offer. Upon receipt of the Option Notice, the Company shall
have an assignable option to purchase any or all of such Option Shares
(the "Company Option Shares") specified in the Option Notice, such option
to be exercisable by giving, within 30 days after receipt of the Option
Notice, a written counter-notice to the Employee. If the Company elects to
purchase any or all of such Company Option Shares, it shall be obligated
to purchase, and the Employee shall be obligated to sell to the Company,
such Company Option Shares at
<PAGE>
the price and terms indicated in the Offer within 30 days from the date of
delivery by the Company of such counter-notice.
(b) Sale of Option Shares to Offeror. The Employee may, for 60 days
after the expiration of the 30-day option period as set forth in Section
17(a), sell to the Offeror, pursuant to the terms of the Offer, any or all
of such Company Option Shares not purchased or agreed to be purchased by
the Company or its assignee; provided, however, that the Employee shall
not sell such Company Option Shares to such Offeror if such Offeror is a
competitor of the Company and the Company gives written notice to the
Employee, within 30 days of its receipt of the Option Notice, stating that
the Employee shall not sell his or her Company Option Shares to such
Offeror; and provided, further, that prior to the sale of such Option
Shares to an Offeror, such Offeror shall execute an agreement with the
Company pursuant to which such Offeror agrees to be subject to the
restrictions set forth in this Section 17. If any or all of such Company
Option Shares are not sold pursuant to an Offer within the time permitted
above, the unsold Company Option Shares shall remain subject to the terms
of this Section 17.
(c) Adjustments for Changes in Capital Structure. If there shall be
any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock
split, combination or exchange of shares, or the like, the restrictions
contained in Section 8 and this Section 17 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares,
except as otherwise determined by the Board of Directors of the Company.
(d) Failure to Deliver Option Shares. If the Employee fails or
refuses to deliver on a timely basis duly endorsed certificates
representing Company Option Shares to be sold to the Company or its
assignee pursuant to this Section 17, the Company shall have the right to
deposit the purchase price for such Company Option Shares in a special
account with any bank or trust company in the State of New York, giving
notice of such deposit to the Employee, whereupon such Company Option
Shares shall be deemed to have been purchased by the Company. All such
monies shall be held by the bank or trust company for the benefit of the
Employee. All monies deposited with the bank or trust company but
remaining unclaimed for two years after the date of deposit shall be
repaid by the bank or trust company to the Company on demand, and the
Employee shall thereafter look only to the Company for payment.
(e) Expiration of Company's Right of First Refusal and Transfer
Restrictions. The first refusal rights of the Company and the transfer
restrictions set forth above shall remain in effect until such time, if
ever, as a distribution to the public is made of shares of the Company's
Common Stock pursuant to a registration statement filed under the
Securities Act, at which time the refusal rights of the Company and the
transfer restrictions set forth herein will automatically expire.
18. Lock-up Agreement. The Employee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company or
the principal underwriter managing such public offering, this Option and the
Option Shares may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the
<PAGE>
Company or such underwriter, as the case may be, for at least 180 days after the
effectiveness of the registration statement filed in connection with such
offering, or such longer period of time as the Board of Directors may determine
if all of the Company's directors and officers agree to be similarly bound. The
lock-up agreement established pursuant to this Section 18 shall remain effective
until the Option and/or the Option Shares are sold to the public pursuant to an
effective registration statement or an exemption from the registration
requirements of the Securities Act.
19. Arbitration. Any dispute, controversy, or claim arising out of, in
connection with, or relating to the performance of this Agreement or its
termination shall be settled by arbitration in the State of New York, pursuant
to the rules then obtaining of the American Arbitration Association. Any award
shall be final, binding and conclusive upon the parties and a judgment rendered
thereon may be entered in any court having jurisdiction thereof.
20. Provision of Documentation to Employee. By signing this Agreement the
Employee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
21. Miscellaneous.
(a) Notices. All notices hereunder shall be in writing and shall be
deemed given when sent by certified or registered mail, postage prepaid,
return receipt requested, to the address set forth below. The addresses
for such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) Entire Agreement; Modification. This Agreement constitutes the
entire agreement between the parties relative to the subject matter
hereof, and supersedes all proposals, written or oral, and all other
communications between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or rescinded only by a
written agreement executed by both parties.
(c) Severability. The invalidity, illegality or unenforceability of
any provision of this Agreement shall in no way affect the validity,
legality or enforceability of any other provision.
(d) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns, subject to the limitations set forth in Section 10 hereof.
(e) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York, without
giving effect to the principles of the conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
AVESTA TECHNOLOGIES INC.
___________________________
Employee
___________________________ By:___________________________
Print Name of Employee [Name of Officer]
___________________________ ______________________________
Street Address Title
___________________________
City State Zip Code
<PAGE>
AVESTA TECHNOLOGIES INC.
Incentive Stock Option Agreement
[Note: Form for Employees]
Avesta Technologies, Inc., a Delaware corporation (the "Company"), hereby
grants as of _____________, 1996 to ___ (the "Employee"), an option to purchase
a maximum of 194,728 shares (the "Option Shares") of its Common Stock, $.01 par
value ("Common Stock"), at the price of $.___ per share, on the following terms
and conditions:
1. Grant Under 1996 Stock Plan. This option is granted pursuant to and is
governed by the Company's 1996 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. This option shall be
void if the Plan is not approved by the Company's stockholders on or before
December ___, 1997.
2. Grant as Incentive Stock Option; Other Options. This option is intended
to qualify as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). This option is in addition to any
other options heretofore or hereafter granted to the Employee by the Company or
any Related Corporation (as defined in the Plan), but a duplicate original of
this instrument shall not effect the grant of another option.
3. Vesting of Option if Employment Continues. If the Employee has
continued to be employed by the Company or any Related Corporation on the
following dates, the Employee may exercise this option for the number of shares
of Common Stock set opposite the applicable date:
Less than one year from the date of hire - 0 shares
One year from the date of hire - ___ shares
The first day of each month thereafter
for thirty five (35) months - an additional ___ shares
The first day of the month thereafter - an additional ___ shares
In addition, notwithstanding the foregoing, in accordance with and subject to
the provisions of the Plan, the Committee may, in its discretion, accelerate the
date that any installment of this Option becomes exercisable. The foregoing
rights are cumulative and (subject to Sections 4 or 5 hereof if the Employee
ceases to be employed by the Company and all Related Corporations) may be
exercised on or before the date which is ten years from the date this option is
granted.
<PAGE>
4. Termination of Employment.
(a) Termination Other Than for Cause. If the Employee ceases to be
employed by the Company and all Related Corporations, other than by reason
of death or disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), no further installments of this option shall
become exercisable, and this option shall terminate (and may no longer be
exercised) after the passage of three months from the Employee's last day
of employment, but in no event later than the scheduled expiration date.
In such a case, the Employee's only rights hereunder shall be those which
are properly exercised before the termination of this option.
(b) Termination for Cause. If the employment of the Employee is
terminated for Cause (as defined in Section 4(c)), this option shall
terminate upon the Employee's receipt of written notice of such
termination and shall thereafter not be exercisable to any extent
whatsoever.
(c) Definition of Cause. "Cause" shall mean conduct involving one or
more of the following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the Company or
Related Corporation in accordance with the terms or requirements of his or
her employment; (ii) disloyalty, gross negligence, willful misconduct,
dishonesty or breach of fiduciary duty to the Company or Related
Corporation; (iii) the commission of an act of embezzlement or fraud; (iv)
deliberate disregard of the rules or policies of the Company or Related
Corporation which results in direct or indirect loss, damage or injury to
the Company or Related Corporation; (v) the unauthorized disclosure of any
trade secret or confidential information of the Company or Related
Corporation; (vi) the commission of an act which constitutes unfair
competition with the Company or Related Corporation or which induces any
customer or supplier to breach a contract with the Company or Related
Corporation; or (vii) a material breach of any agreement between the
Company and the Employee.
5. Death; Disability.
(a) Death. If the Employee dies while in the employ of the Company
or any Related Corporation, this option may be exercised, to the extent
otherwise exercisable on the date of his or her death, by the Employee's
estate, personal representative or beneficiary to whom this option has
been assigned pursuant to Section 10, at any time within 180 days after
the date of death, but not later than the scheduled expiration date.
(b) Disability. If the Employee ceases to be employed by the Company
and all Related Corporations by reason of his or her disability (as
defined in the Plan), this option may be exercised, to the extent
otherwise exercisable on the date of the termination of his or her
employment, at any time within 180 days after such termination, but not
later than the scheduled expiration date.
(c) Effect of Termination. At the expiration of the 180-day period
provided in paragraphs (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall terminate
(and shall no longer be exercisable) and the only
<PAGE>
rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. Partial Exercise. This option may be exercised in part at any time and
from time to time within the above limits, except that this option may not be
exercised for a fraction of a share unless such exercise is with respect to the
final installment of stock subject to this option and cash in lieu of a
fractional share must be paid, in accordance with [Paragraph 13(G)] of the Plan,
to permit the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.
7. Payment of Price. (a) The option price shall be paid in the following
manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares of the
Company's Common Stock having a fair market value (as
determined by the Committee) equal as of the date of exercise
to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the
proceeds from the sale of the Option Shares and an instruction
to the broker or selling agent to pay that amount to the
Company; or
(iv) by any combination of the foregoing.
(b) Limitations on Payment by Delivery of Common Stock. If the
Employee delivers Common Stock held by the Employee ("Old Stock") to the
Company in full or partial payment of the option price, and the Old Stock
so delivered is subject to restrictions or limitations imposed by
agreement between the Employee and the Company, an equivalent number of
Option Shares shall be subject to all restrictions and limitations
applicable to the Old Stock to the extent that the Employee paid for the
Option Shares by delivery of Old Stock, in addition to any restrictions or
limitations imposed by this Agreement. Notwithstanding the foregoing, the
Employee may not pay any part of the exercise price hereof by transferring
Common Stock to the Company unless such Common Stock has been owned by the
Employee free of any substantial risk of forfeiture for at least six
months.
(c) Permitted Payment by Recourse Note. In addition, if this
paragraph is initialed below by the person signing this Agreement on
behalf of the Company, the option price may be paid by delivery of the
Employee's three-year personal recourse promissory note bearing interest
payable not less than annually at the applicable Federal rate, as defined
in Section 1274(d) of the Code.
___________________________
(initials)
<PAGE>
8. Restrictions on Resale; Legend. Option Shares may not be transferred
without the Company's written consent except by will, by the laws of descent and
distribution and in accordance with the provisions of Section 17, if applicable.
Option Shares will be of an illiquid nature and will be deemed to be "restricted
securities" for purposes of the Securities Act of 1933, as amended (the
"Securities Act"). Accordingly, such shares must be sold in compliance with the
registration requirements of the Securities Act or an exemption therefrom. Each
certificate evidencing any of the Option Shares shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to restrictions on
transfer and may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with and
subject to all the terms and conditions of a certain Incentive Stock
Option Agreement dated as of [date], a copy of which the Company will
furnish to the holder of this certificate upon request and without
charge."
9. Method of Exercising Option. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option and the
number of Option Shares for which it is being exercised and shall be signed by
the person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and the
Company shall deliver a certificate or certificates representing such shares as
soon as practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the Employee
and if the Employee shall so request in the notice exercising this option, shall
be registered in the name of the Employee and another person jointly, with right
of survivorship). In the event this option shall be exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such notice
shall be accompanied by appropriate proof of the right of such person or persons
to exercise this option.
10. Option Not Transferable. This option is not transferable or assignable
except by will or by the laws of descent and distribution. During the Employee's
lifetime only the Employee can exercise this option.
11. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Employee to exercise it.
12. No Obligation to Continue Employment. Neither the Plan, this
Agreement, nor the grant of this option imposes any obligation on the Company or
any Related Corporation to continue the Employee in employment.
13. No Rights as Stockholder until Exercise. The Employee shall have no
rights as a stockholder with respect to the Option Shares until such time as the
Employee has exercised this option by delivering a notice of exercise and has
paid in full the purchase price for the shares so exercised in accordance with
Section 9. Except as is expressly provided in the Plan with respect to certain
changes in the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to such date of
exercise.
<PAGE>
14. Capital Changes and Business Successions. The Plan contains provisions
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.
15. Early Disposition. The Employee agrees to notify the Company in
writing immediately after the Employee transfers any Option Shares, if such
transfer occurs on or before the later of (a) the date two years after the date
of this Agreement or (b) the date one year after the date the Employee acquired
such Option Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for tax
purposes.
16. Withholding Taxes. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, or in connection with the transfer of, or the
lapse of restrictions on, any Common Stock or other property acquired pursuant
to this option, the Employee hereby agrees that the Company or any Related
Corporation may withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash from
such wages or other remuneration or in kind from the Common Stock or other
property otherwise deliverable to the Employee on exercise of this option. The
Employee further agrees that, if the Company or any Related Corporation does not
withhold an amount from the Employee's wages or other remuneration sufficient to
satisfy the withholding obligation of the Company or Related Corporation, the
Employee will make reimbursement on demand, in cash, for the amount
underwithheld.
17. Company's Right of First Refusal.
(a) Exercise of Right. If the Employee desires to transfer all or
any part of the Option Shares to any person other than the Company (an
"Offeror"), the Employee shall: (i) obtain in writing an irrevocable and
unconditional bona fide offer (the "Offer") for the purchase thereof from
the Offeror; and (ii) give written notice (the "Option Notice") to the
Company setting forth the Employee's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of the Offer and shall
set forth at least the name and address of the Offeror and the price and
terms of the Offer. Upon receipt of the Option Notice, the Company shall
have an assignable option to purchase any or all of such Option Shares
(the "Company Option Shares") specified in the Option Notice, such option
to be exercisable by giving, within 30 days after receipt of the Option
Notice, a written counter-notice to the Employee. If the Company elects to
purchase any or all of such Company Option Shares, it shall be obligated
to purchase, and the Employee shall be obligated to sell to the Company,
such Company Option Shares at the price and terms indicated in the Offer
within 30 days from the date of delivery by the Company of such
counter-notice.
(b) Sale of Option Shares to Offeror. The Employee may, for 60 days
after the expiration of the 30-day option period as set forth in Section
17(a), sell to the Offeror, pursuant to the terms of the Offer, any or all
of such Company Option Shares not purchased or agreed to be purchased by
the Company or its assignee; provided, however,
<PAGE>
that the Employee shall not sell such Company Option Shares to such
Offeror if such Offeror is a competitor of the Company and the Company
gives written notice to the Employee, within 30 days of its receipt of the
Option Notice, stating that the Employee shall not sell his or her Company
Option Shares to such Offeror; and provided, further, that prior to the
sale of such Option Shares to an Offeror, such Offeror shall execute an
agreement with the Company pursuant to which such Offeror agrees to be
subject to the restrictions set forth in this Section 17. If any or all of
such Company Option Shares are not sold pursuant to an Offer within the
time permitted above, the unsold Company Option Shares shall remain
subject to the terms of this Section 17.
(c) Adjustments for Changes in Capital Structure. If there shall be
any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock
split, combination or exchange of shares, or the like, the restrictions
contained in Section 8 and this Section 17 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares,
except as otherwise determined by the Board of Directors of the Company.
(d) Failure to Deliver Option Shares. If the Employee fails or
refuses to deliver on a timely basis duly endorsed certificates
representing Company Option Shares to be sold to the Company or its
assignee pursuant to this Section 17, the Company shall have the right to
deposit the purchase price for such Company Option Shares in a special
account with any bank or trust company in the State of New York, giving
notice of such deposit to the Employee, whereupon such Company Option
Shares shall be deemed to have been purchased by the Company. All such
monies shall be held by the bank or trust company for the benefit of the
Employee. All monies deposited with the bank or trust company but
remaining unclaimed for two years after the date of deposit shall be
repaid by the bank or trust company to the Company on demand, and the
Employee shall thereafter look only to the Company for payment.
(e) Expiration Company's Right of First Refusal and Transfer
Restrictions. The first refusal rights of the Company and the transfer
restrictions set forth above shall remain in effect until such time, if
ever, as a distribution to the public is made of shares of the Company's
Common Stock pursuant to a registration statement filed under the
Securities Act, at which time the refusal rights of the Company and the
transfer restrictions set forth herein will automatically expire.
18. Lock-up Agreement. The Employee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company or
the principal underwriter managing such public offering, this Option and the
Option Shares may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the Company or such underwriter, as the case may
be, for at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and officers
agree to be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall remain effective until the Option and/or the Option Shares are
sold to the public pursuant to an effective registration statement or an
exemption from the registration requirements of the Securities Act.
<PAGE>
19. Arbitration. Any dispute, controversy, or claim arising out of, in
connection with, or relating to the performance of this Agreement or its
termination shall be settled by arbitration in the State of New York, pursuant
to the rules then obtaining of the American Arbitration Association. Any award
shall be final, binding and conclusive upon the parties and a judgment rendered
thereon may be entered in any court having jurisdiction thereof.
20. Provision of Documentation to Employee. By signing this Agreement the
Employee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
21. Miscellaneous.
(a) Notices. All notices hereunder shall be in writing and shall be
deemed given when sent by certified or registered mail, postage prepaid,
return receipt requested, to the address set forth below. The addresses
for such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) Entire Agreement; Modification. This Agreement constitutes the
entire agreement between the parties relative to the subject matter
hereof, and supersedes all proposals, written or oral, and all other
communications between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or rescinded only by a
written agreement executed by both parties.
(c) Severability. The invalidity, illegality or unenforceability of
any provision of this Agreement shall in no way affect the validity,
legality or enforceability of any other provision.
(d) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns, subject to the limitations set forth in Section 10 hereof.
(e) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York, without
giving effect to the principles of the conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
AVESTA TECHNOLOGIES INC.
___________________________
Employee
___________________________ By:___________________________
Print Name of Employee [Name of Officer]
___________________________ ______________________________
Street Address Title
___________________________
City State Zip Code
<PAGE>
Exhibit 10.4
AVESTA TECHNOLOGIES, INC.
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Third Amended and Restated Investor Rights Agreement (this
"Agreement") is made as of July 13, 1999 by and among Avesta Technologies, Inc.,
a Delaware corporation (the "Company"), and the individuals and entities named
as Investors on the signature page(s) hereof (the "Investors").
WHEREAS, certain of the Investors (collectively, the "Series A Investors")
entered into that certain Series A Preferred Stock and Warrant Purchase
Agreement, dated December 10, 1996 (as amended, the "Series A Purchase
Agreement"), pursuant to which the Company issued and sold to the Series A
Investors shares of the Company's Series A Preferred Stock, par value $0.01 per
share;
WHEREAS, concurrently with the execution and delivery of the Series A
Purchase Agreement, the Company and the Series A Investors entered into that
certain Investor Rights Agreement, dated as of December 10, 1996 (the "Investor
Rights Agreement");
WHEREAS, certain of the Investors (collectively, the "Series B Investors,"
entered into that certain Series B Preferred Stock Purchase Agreement, dated
March 19, 1998 (the "Series B Purchase Agreement"), pursuant to which the
Company issued and sold to the Series B Investors shares of the Company's Series
B Preferred Stock, par value $0.01 per share;
WHEREAS, concurrently with the execution and delivery of the Series B
Purchase Agreement, the Company, the Series A Investors and the Series B
Investors entered into that certain Amended and Restated Investor Rights
Agreement, dated as of March 19, 1998 (the "Amended and Restated Investor Rights
Agreement");
WHEREAS, certain of the Investors (collectively, the "Series C Investors"
and together with the Series A Investors and the Series B Investors, the
"Existing Investors") entered into that certain Series C Preferred Stock
Purchase Agreement (the "Series C Purchase Agreement"), dated January 4, 1999,
pursuant to which the Company issued and sold to the Series C Investors
2,688,951 shares of the Company's Series C Preferred Stock, $0.01 par value per
share (the "Series C Stock") and warrants to purchase 407,384 shares of Series C
Stock (the "Series C Warrants");
WHEREAS, on the date hereof, the Company and certain of the Investors
(collectively, the "Series D Investors") are entering into that certain Series D
Preferred Stock Purchase Agreement (the "Series D Purchase Agreement"), pursuant
to which the Company is authorized to issue and sell to the Series D Investors
(i) an aggregate of up to 1,800,000 shares of the Company's Series D Preferred
Stock, $0.01 par value per share (the "Series D Stock", and together with the
Series A Preferred Stock, the Series B Preferred Stock, and the Series C
Preferred Stock, the "Preferred Stock"), at one of more closings to be held on
or prior to thirty (30) days from the date hereof (the "Closings").
1
<PAGE>
EXHIBIT 10.4
WHEREAS, it is a condition to the closing of the transactions contemplated
by the Series D Purchase Agreement that the Company and the Investors enter into
this Agreement to, among other things, amend and restate the rights granted to
the Existing Investors pursuant to the Second Amended and Restated Investors'
Rights Agreement in order to provide the Series D Investors with certain
registration rights, information rights and other rights in connection with the
Investors' ownership of shares of the Company's Preferred Stock (and the
Conversion Shares (as hereinafter defined) into which such shares of Preferred
Stock are convertible);
WHEREAS, pursuant to Section 4.4 of the Second Amended and Restated
Investor Rights Agreement, the Second Amended and Restated Investor Rights
Agreement may be amended, waived, discharged or terminated by the holders of a
majority of the Shares (as such term was defined in the Second Amended and
Restated Investor Rights Agreement) (as adjusted for stock splits, stock
dividends and similar events), with the prior written consent of the Company;
and
WHEREAS, by entering into this Agreement, the Company, and the holders of
a majority of the Shares (as such term was defined in the Second Amended and
Restated Investor Rights Agreement) (as adjusted for stock splits, stock
dividends and similar events), hereby consent to amending the Second Amended and
Restated Investor Rights Agreement in the manner set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein, the Company and the Investors agree as follows:
SECTION 1
Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
a. "Acquisition" shall mean (i) a transaction in which the Company
is consolidated with or acquired by another entity in a merger or other
reorganization in which the holders of the outstanding voting stock of the
Company immediately preceding the consummation of such transaction, shall,
immediately following such transaction, hold, as a group, less than a majority
of the voting securities of the surviving or successor entity or (ii) the sale
of all or substantially all of the Company's assets.
b. "Conversion Shares" shall mean the shares of Common Stock issued
or issuable upon conversion of the Preferred Stock.
c. "Holder" shall mean any Investor holding Registrable Securities
and any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.14 hereof.
d. "Initiating Holders" shall mean any Holder or Holders holding, in
the aggregate, not less than thirty-five percent (35%) of the Shares (as
appropriately adjusted for
2
<PAGE>
EXHIBIT 10.4
stock splits, stock dividends, recapitalizations, consolidations, merger and
similar events) purchased by all of the Investors.
e. "Registrable Securities" shall mean (i) the Shares and (ii) the
Common Stock issued in respect to the Shares upon any stock split, stock
dividend, recapitalization, substitution or similar event.
f. "Register" The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
g. "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with Sections 1.5,
1.6 and 1.7 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding (i) the compensation of regular employees of the Company which
shall be paid in any event by the Company, (ii) fees and disbursements of
Counsel to the Holders, (iii) Selling Expenses and (iv) the expense of any
special audits incident to or required by a registration pursuant to Section 1.5
or 1.7 hereof).
h. "Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 hereof.
i. "Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor thereto, including the rules and regulations
promulgated thereunder or pursuant thereto.
j. "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
k. "Series A Preferred" shall mean the Company's Series A Preferred
Stock, par value $0.01 per share.
l. "Series B Preferred" shall mean the Company's Series B Preferred
Stock, par value $0.01 per share.
m. "Series C Preferred" shall mean the Company's Series C Preferred
Stock, par value $0.01 per share.
n. "Series D Preferred" shall mean the Company's Series D Preferred
Stock, par value $0.01 per shares.
o. "Shares" shall mean shares held by any Investor including (i)
shares of Common Stock, (ii) shares of Common Stock issuable upon the exercise
of any options or warrants for Common Stock, (iii) shares of Common Stock
issuable upon the conversion of Preferred Shares, (iv) shares of Common Stock
issued or issuable upon exercise of any
3
<PAGE>
EXHIBIT 10.4
warrants for shares of Series A Preferred, (v) shares of Common Stock issued or
issuable upon conversion of any shares of Series B Preferred or issued or
issuable upon exercise of any warrants for shares of Series B Preferred, or (vi)
shares of Common Stock issued or issuable upon conversion of any shares of
Series C Preferred issued or issuable upon exercise of any warrants for shares
of Series C Preferred; provided, however, that solely for purposes of Section
1.6 hereunder, the shares of Common Stock issuable upon the exercise of a
warrant previously issued to Transamerica Corporation shall be deemed "Shares".
The term "Shares" shall not include (a) any shares of Common Stock which have
been previously registered, (b) shares of Common Stock which have been
previously sold to the public, or sold pursuant to an exemption from
registration under the Securities Act, (c) securities which would otherwise be
Registrable Securities held by an Investor who is then permitted to sell all of
such securities pursuant to Rule 144(k) under the Securities Act (provided, that
with respect to Section 1.6 (Company Registration), until December 31, 2002, the
term Registrable Securities shall include securities held by an Investor who is
then permitted to sell all of such shares pursuant to Rule 144(k) under the
Securities Act), or (d) shares of Common Stock which may be sold pursuant to an
effective Registration Statement on Form S-8, or any successor form.
1.2 Restrictions on Transferability. The Restricted Securities shall
not be sold, assigned, transferred or pledged (other than (i) under
circumstances pursuant to Sections 1.5, 1.6 and 1.7 of this Agreement, (ii) a
transfer not involving a change in beneficial ownership, (iii) in transactions
involving the distribution without consideration of Restricted Securities by any
of the Investors to any of its partners or stockholders, or retired partners or
stockholders, or to the estate of any of its partners or stockholders or retired
partners or stockholders, so long as each such transferee agrees in writing to
be bound by the terms of this Agreement or (iv) a transfer made pursuant to Rule
144 or Rule 145 promulgated pursuant to the Securities Act) except upon the
conditions specified in this Agreement, which conditions are intended to ensure
compliance with the provisions of the Securities Act. Each Investor will cause
any proposed Investor, assignee, transferee, or pledgee of the Restricted
Securities held by such Investor to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Agreement.
1.3 Restrictive Legend. Each certificate representing (i) the Shares
and the Preferred Shares and (ii) any other securities issued in respect of the
Shares or the Preferred Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event shall (unless otherwise
permitted by the provisions of Section 1.4 below) be stamped or otherwise
imprinted with the following legend or legends to the following effect (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENTS COVERING THE PURCHASE
4
<PAGE>
EXHIBIT 10.4
OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
CLERK OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
Each Investor consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities to
implement the restrictions on transfer established in this Agreement.
1.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 1.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i)
under circumstances pursuant to Sections 1.5, 1.6 and 1.7 of this Agreement,
(ii) a transfer not involving a change in beneficial ownership, (iii) in
transactions involving the distribution without consideration of Restricted
Securities by any of the Investors to any of its partners or stockholders, or
retired partners or stockholders, or to the estate of any of its partners or
stockholders or retired partners or stockholders, so long as each such
transferee agrees in writing to be bound by the terms of this Agreement or (iv)
a transfer made pursuant to Rule 144 or Rule 145 promulgated pursuant to the
Securities Act), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense, by either
(x) an unqualified written opinion of legal counsel who shall be, and whose
legal opinion shall be, reasonably satisfactory to the Company and addressed to
the Company, to the effect that the proposed transfer of the Restricted
Securities may be effected without registration under the Securities Act, or (y)
a "no action" letter from the Securities and Exchange Commission (the "SEC") to
the effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the SEC that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear, unless such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 1.3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the Company
such legend is not required in order to establish compliance with any provision
of the Securities Act.
1.5 Requested Registration.
a. Notice of Registration; Registration. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration, qualification or compliance (other than a registration on Form S-3
or any successor form) with respect to, at least thirty percent (30%) of the
Registrable Securities or at least the number of shares of Registrable
Securities that would reasonably be expected to provide aggregate proceeds, net
of underwriting discounts and commissions, to the Initiating Holders of more
than $10,000,000, the Company will:
5
<PAGE>
EXHIBIT 10.4
i promptly give written notice of the proposed registration to all
other Holders; and
ii as soon as practicable, use its reasonable efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request given within fifteen (15) days after receipt of such written
notice from the Company; provided that the Company shall use reasonable
commercial efforts to effect such registration within ninety (90) days of the
receipt of such request; and provided, further, that the Company shall NOT be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 1.5:
(1) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(2) Prior to the earlier of December 31, 2001, or the date six
months following the effective date of the registration statement pertaining to
the first underwritten firm commitment public offering of securities of the
Company for its own account (other than a registration relating solely to a SEC
Rule 145 transaction or a registration relating solely to employee benefit
plans) at a public offering price of at least $8.25 per share (as adjusted for
stock splits, stock dividends, reclassifications, and like events) and in which
the gross aggregate proceeds received by the Company in such offering equal or
exceed $15,000,000;
(3) After the Company has effected two (2) registrations
pursuant to this Section 1.5 and such registrations have been declared or
ordered effective and the securities offered pursuant to such registration have
been sold; or
(4) If at the time of the request to register Registrable
Securities the Company gives notice within thirty (30) days of such request that
it is engaged or has fixed plans to engage within sixty (60) days of the time of
the request in a firmly underwritten registered public offering as to which the
Holders may include Registrable Securities pursuant to Section 1.5, 1.6 or 1.7
hereof.
Subject to the foregoing clauses (1) through (4) and to Section 1.5(c),
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Initiating Holders.
b. Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so
6
<PAGE>
EXHIBIT 10.4
advise the Company as a part of their request made pursuant to Section 1.5 and
the Company shall include such information in the written notice referred to in
Section 1.5(a). The right of any Holder to registration pursuant to Section 1.5
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein.
The Company shall (together with all Initiating Holders and such other
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section 1.5, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten and so advises the
Initiating Holders in writing, then the Initiating Holders shall so advise all
Holders (except those Holders who have indicated to the Company their decision
not to distribute any of their Registrable Securities through such underwriting)
and the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities owned by such Holders at the time of filing the registration
statement. All shares of Common Stock held by stockholders other than the
Holders shall be excluded from registration prior to exclusion of any
Registrable Securities. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration.
If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportions used above in determining the
underwriter limitation.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account or the
account of others in such registration if the underwriter so agrees and if the
number of Registrable Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited.
c. Delay of Registration. If the Company shall furnish to the
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 not be in the best interests of the Company and its stockholders for such
registration statement to be filed on or before the date filing would be
required and it is therefore appropriate to defer the filing of such
registration statement, then the Company may direct that such request for
registration be delayed for a period not in excess of ninety (90) days, such
right to delay a request to be exercised by the Company not more than twice in
any twelve (12) month period.
7
<PAGE>
EXHIBIT 10.4
1.6. Company Registration.
a. Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its equity securities, either for its
own account or the account of a security holder or holders, other than (x) a
registration relating solely to employee benefit plans, or (y) a registration
relating solely to a Rule 145 transaction, the Company will:
i promptly give to each Holder written notice thereof; and
ii include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder.
b. Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.6, if in the
Company's initial registered public offering the managing underwriter determines
that marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration. The managing underwriter may apply the same
limitation for subsequent registered public offerings; PROVIDED, that, such
limitation shall not reduce the number of shares of Registrable Securities to
less than twenty-five percent (25%) of all shares registered in the second
registered public offering of the Company's or subsequent registered public
offerings of the Company's securities. All shares of Common Stock held by
stockholders other than the Holders shall be excluded from registration prior to
exclusion of any Registrable Securities. The Company shall so advise all Holders
and other holders distributing their securities through such underwriting and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders and such
other holders in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by such Holders and such other holders at the
time of filing the registration statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any Holder or holder to the nearest one hundred (100)
shares. If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter.
c. Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 1.6
prior to the
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EXHIBIT 10.4
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration.
1.7. Registration on Form S-3.
a. If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, gross of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its reasonable commercial efforts to
cause such Registrable Securities to be registered for the offering on such form
and to cause such Registrable Securities to be qualified in such jurisdictions
as the Holder or Holders may reasonably request; provided, however, that the
Company shall not be required to effect more than two registrations pursuant to
this Section 1.7 in any twelve (12) month period; provided that the Company
shall use reasonable commercial efforts to file such registration statement
within forty-five (45) days after such request and shall use reasonable
commercial efforts to obtain effectiveness of such registration statement within
ninety (90) days of the filing of such registration statement. The substantive
provisions of Section 1.6(b) shall be applicable to each underwritten
registration initiated under this Section 1.7.
b. Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) if the Company, within
ten (10) days of the receipt of the request of the initiating Holders, gives
notice of its bona fide intention to effect the filing of a registration
statement with the SEC within ninety (90) days of receipt of such request in
which such Holders can exercise their rights pursuant to Section 1.6 hereof; or
(iii) during the period starting with the date sixty (60) days prior to the
Company's estimated date of filing of, and ending on the date one hundred twenty
(120) days immediately following, the effective date of any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective.
1.8. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement the Company shall not, without the consent of Holders of
a majority of the Registrable Securities, enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities on parity with or superior to those
granted under this Agreement.
1.9. Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.5, 1.6 and 1.7 shall be
borne by the Company. Unless otherwise agreed, all Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders of
such securities pro rata on the basis of the number of shares so registered.
Notwithstanding anything in this Section to the contrary, if the Company
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<PAGE>
EXHIBIT 10.4
and/or others include securities for their own account pursuant to Section
1.6(b), then the Company and such others shall bear their pro rata share of the
Registration Expenses and Selling Expenses. In connection with any registration
pursuant to Sections 1.5 and 1.6, the Company will pay fees and disbursements of
one counsel on behalf of the participating Holders incurred in so representing
such participating Holders; PROVIDED that the Company shall not be obligated to
pay such counsel's fees and disbursements exceeding $50,000 in the case of an
underwritten offering or $15,000 in the case of any other offering. All fees and
disbursements of any other counsel to any Holder in connection with any
registration pursuant to Sections 1.5, 1.6 and 1.7 shall be paid by such Holder.
1.10. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
a. Prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least one hundred twenty (120)
days or until the distribution described in the registration statement has been
completed; and
b. Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities and such other information
necessary to allow the Holders participating in such registration to remain
reasonably informed about the public offering.
c. Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than 120 days or such shorter period in which the disposition of all
securities in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement shall be completed,
and to comply with the provisions of the Securities Act (to the extent
applicable to the Company) with respect to such dispositions;
d. Use its reasonable commercial efforts to register or qualify such
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as any Holder participating in
such registration reasonable requests, and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such Holder, except that the Company will not for any purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not, but for the requirements of this Section
1.10(d) be obligated to be qualified, to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
10
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EXHIBIT 10.4
e. Provide a transfer agent and registrar for all such Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement;
f. Notify each Holder participating in such registration, 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 contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact required to be
stated therein or necessary to make the statements therein not misleading;
g. Use its reasonable commercial efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed;
h. Use its reasonable commercial efforts to obtain a cold comfort
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by cold comfort letters in
such transactions;
i. Enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
1.11. Indemnification.
a. The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such under-writer and each person who controls any such underwriter, for
any legal and any other expenses reasonably incurred as such expenses are
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action,
11
<PAGE>
EXHIBIT 10.4
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder, controlling person or underwriter and
stated to be specifically for use therein.
b. Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred as such
expenses are incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Holder. Notwithstanding the foregoing, the liability of each Holder under
this Section 1.11(b) shall be limited to an amount equal to the aggregate
proceeds received by such Holder from the sale of Registrable Securities
hereunder.
c. Each party entitled to indemnification under this Section 1.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved in writing by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the written consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term the release of the Indemnified
Party by the claimant or plaintiff from all liability in respect to such claim
or litigation.
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EXHIBIT 10.4
1.12. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
1.13. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Restricted Securities to the public without registration, after such time
as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts 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 on which the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time (the
"Exchange Act");
b. Use its reasonable commercial efforts to 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 (at any time after it has become subject to
such reporting requirements);
c. So long as an Investor owns any Restricted Securities to furnish
to the Investor forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as an Investor may reasonably request in availing
itself of any rule or regulation of the SEC allowing an Investor to sell any
such securities without registration.
1.14. No Action Letter or Opinion of Counsel in Lieu of Registration.
Notwithstanding anything in this Agreement to the contrary, if at any time after
the date of the Company's initial public offering of its securities under the
Securities Act, the Company shall have obtained from the SEC a "no action"
letter in which the SEC has indicated that it will take no action if, without
registration under the Securities Act, any Investor disposes of Registrable
Securities covered by any request for registration made under this Agreement in
the manner in which such Investor proposes to dispose of the Registrable
Securities included in such request, or if in the opinion of counsel to the
Company concurred in by counsel for such Investor no registration under the
Securities Act is required in connection with such disposition, the Registrable
Securities included in such request shall not be eligible for registration under
this Agreement; provided, however, with respect to any Investor who may be
deemed to be an "affiliate," as that term is defined under Rule 144, if,
notwithstanding the opinion of such counsel, the Holder is unable to dispose of
all of the Registrable Securities included in his request in the manner in which
such Investor proposes without registration, the
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<PAGE>
EXHIBIT 10.4
Registrable Securities included in such request shall be eligible for
registration under this Agreement.
SECTION II
Participation Rights
2.1. Right of Participation. The Company hereby grants to each Investor
the right to purchase, pro rata, all or any part of New Securities (as defined
in Section 2.2) which the Company may, from time to time, propose to sell and
issue. A "pro rata share" for purposes of this participation right is the
quotient obtained by dividing (a) the sum of (i) the total number of shares of
Common Stock or options or warrants to purchase Common Stock then held by such
Investor prior to the sale and issue of the New Securities, plus (ii) the total
number of shares of Common Stock issuable upon conversion or exercise of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or any option or warrant to purchase Preferred Stock then held by such Investor
by (b) the sum of (i) the total number of shares of Common Stock then
outstanding plus (ii) the total number of shares of Common Stock issuable upon
conversion or exercise of all then outstanding Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and (iii) options or warrants
to purchase Common Stock and Preferred Stock.
2.2. New Securities. Except as set forth below, "New Securities" shall
mean any shares of capital stock of the Company, including Common Stock and
Preferred Stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of capital stock, and securities of any type whatsoever
that are, or may become, convertible into said shares of capital stock.
Notwithstanding the foregoing, "New Securities" does not include:
(i) securities offered to the public generally pursuant to an
underwritten registration statement under the Securities Act,
(ii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or other reorganization whereby the Company or its stockholders own
at least fifty percent (50%) of the voting power of the surviving or
successor corporation,
(iii) (a) shares of the Company's Common Stock or outstanding
options exercisable for the purchase of Common Stock issued to employees,
officers and directors of, and consultants and franchisees to, the
Company, pursuant to the Company's 1996 Stock Plan (as hereinafter
defined) as in effect on the date hereof or any incentive program approved
by the Board of Directors of the Company, including at least one director
elected by the holders of Preferred Shares, and (b) shares of the
Company's Common Stock reserved for issuance under the Company's 1996
Stock Plan as in effect on the date hereof or any incentive program
approved by the Board of Directors of the Company, including at least one
director elected by the holders of Preferred Shares;
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<PAGE>
EXHIBIT 10.4
(iv) stock issued pursuant to the exercise of any rights or
agreements including, without limitation, convertible securities, options
and warrants, provided that the rights of participation established by
Section 2.1 shall apply with respect to the initial sale or grant by the
Company of such rights or agreements,
(v) stock issued in connection with any stock split, stock dividend
or recapitalization by the Company.
2.3. Notice. In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Investor written notice of its
intention, describing the type of New Securities, and the price and terms upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) days from the date of receipt of any such notice to agree to purchase up to
its respective pro rata share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
2.4. Exercise of Right. In the event that an Investor fails to exercise
the participation right within said fifteen (15) day period, the Company shall
have thirty (30) days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within thirty (30) days from the date of said agreement) to sell the New
Securities not elected to be purchased by such Investors at the price and upon
terms no more favorable to the purchasers of such securities than specified in
the Company's notice. In the event that the Company has not sold the New
Securities or entered into an agreement to sell the New Securities within said
thirty (30) day period (or sold and issued New Securities in accordance with the
foregoing within thirty (30) days from the date of said agreement); the Company
shall not thereafter issue or sell any New Securities without first offering
such securities in the manner provided above.
SECTION III
Additional Covenants
The Company and each Investor hereby covenant and agree as follows:
3.1. Financial Information.
a. The Company will deliver to each Investor that owns (together
with any partner, member, fund or other affiliates of such Investor) at least
100,000 shares (as adjusted for stock splits, stock dividends and similar
events), as soon as practicable after the end of each fiscal year, and in any
event within 120 days thereafter, audited consolidated balance sheets of the
Company and any subsidiaries as of the end of such fiscal year, and consolidated
statements of income and stockholders equity and consolidated statements of cash
flows of the Company and any subsidiaries for such year, prepared in accordance
with generally accepted accounting principles and accompanied by a report of an
independent certified public accountant of national standing selected by the
Company.
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<PAGE>
EXHIBIT 10.4
b. The Company will deliver to each Investor that owns (together
with any partner, member, fund or other affiliates of such Investor) at least
100,000 (as adjusted for stock splits, stock dividends, and similar events) the
following reports:
i As soon as practicable after the end of each quarter within
each fiscal year of the Company, and in any event within 45 days thereafter, a
consolidated balance sheet of the Company and any subsidiaries as of the end of
each such quarter, and consolidated statements of income of the Company and any
subsidiaries for such period and for the then current fiscal year to date,
prepared in accordance with generally accepted accounting principles (other than
for accompanying notes), subject to changes resulting from year-end audit
adjustments, and signed by the principal financial or accounting officer of the
Company; and
ii As soon as it is available, but in no event later than
thirty (30) days prior to the beginning of the Company's fiscal year, the annual
operating plans, including monthly projected financials for that fiscal year, of
the Company for the succeeding fiscal year, as approved by the Company's Board
of Directors; and
iii As soon as practicable after the end of each month, and in
any event within three weeks after the end of each month, updates to the monthly
projected financials for the current fiscal year; monthly projected backlog
schedules; monthly updates of significant contracts or accounts; a consolidated
balance sheet of the Company and any subsidiaries as of the end of each such
month; and consolidated statements of income of the Company and any subsidiaries
for such period and for the then current fiscal year to date, all prepared in
accordance with generally accepted accounting principles (other than for
accompanying notes), subject to changes resulting from year-end audit
adjustments, and signed by the principal financial or accounting officer of the
Company.
c. As long as Investor (together with any partner, member, fund or
other affiliates of such Investor) holds not less than 100,000 Shares (as
adjusted for any stock dividends, stock splits or similar events), the Company
shall permit each such Investor, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
(including Board of Directors and stockholder meeting minutes) and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Investor; provided, however, that
the Company shall not be obligated pursuant to this Section 3.1(c) to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information.
3.2. Confidential Information. Each Investor agrees that any information
obtained by such Investor pursuant to this Agreement which is, or would
reasonably be perceived to be, proprietary to the Company or otherwise
confidential will not be disclosed without the prior written consent of the
Company. Notwithstanding the foregoing, each Investor may disclose such
information, on a need to know basis, to its employees, accountants or
attorneys, or to the employees, accountants or attorneys of its general partner
or investment manager (so long as each such person to whom confidential
information is disclosed agrees to keep such information confidential), in
compliance with a court order or when otherwise necessary to enforce any of
Investor's rights hereunder. Such information may also be disclosed to an
16
<PAGE>
EXHIBIT 10.4
Investor's limited partners or stockholders (so long as each such person to whom
confidential information is disclosed agrees to keep such information
confidential). Each Investor further acknowledges and understands that any
information will not be utilized by such Investor in connection with purchases
and/or sales of the Company's securities except in compliance with applicable
state and federal antifraud statutes.
3.3. Board of Directors. The Company agrees that it will pay the
reasonable expenses incurred by the directors designated by the holders of the
Series A Preferred, the Series B Preferred and the Series D Preferred (the
"Preferred Directors") while traveling on the Company's behalf, including
without limitation those expenses incurred while attending meetings of the Board
of Directors or committees thereof. The Company agrees that it will pay the
reasonable expenses incurred by the observer appointed by Pilgrim Baxter Hybrid
Partners I, L.P. on behalf of the Series C Preferred (the "Series C Observer")
while traveling on the Company's behalf, including without limitation those
expenses incurred while attending meetings of the Board of Directors or
committees thereof. The Investors agree that, where appropriate, each Preferred
Director and the Series C Observer will allocate travel expenses among the
Company and the other portfolio companies of the Investor affiliated with such
Preferred Director and Series C Observer.
3.4. Key-Man Life Insurance. The Company shall acquire and maintain a
key-man life insurance policy in the face amount of not less than $2,000,000
with respect to Kam Saifi, with the Company as the beneficiary of such policy.
3.5. Nondisclosure and Development Agreement; Noncompetition and
Nonsolicitation Agreement. The Company has caused each of its current employees
and will cause each of its future employees and consultants to enter into a
Nondisclosure and Development Agreement with the Company in substance as set
forth in an exhibit to the Series C Purchase Agreement. The Company has caused
each of its current key employees and will cause each of its future key
employees (as determined in good faith by the Board of Directors of the Company
or senior members of the Company's management designated by the Board of
Directors of the Company) to enter into Noncompetition and Nonsolicitation
Agreement with the Company in substance as set forth in an exhibit to the Series
C Purchase Agreement.
3.6. Stock Options.
a. The Company will maintain a stock option plan in the form of
Exhibit A hereto ( the "1996 Stock Plan").
b. The Company agrees that stock options granted to employees and
consultants of the Company will be subject to vesting, conditioned upon the
employee's continued employment or consulting relationship with the Company, at
the rate of 25% of the shares subject to each option on the first anniversary
date of employment or consulting and 1/48 of the shares subject to such option
at the end of each month thereafter.
c. The Company agrees that it shall not accelerate the vesting of
stock options granted by the Company or restricted stock issued by the Company
upon any event unless the Board of Directors, including at least one director
elected by the holders of
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<PAGE>
EXHIBIT 10.4
Preferred Stock, affirmatively resolve at the time of such acceleration that
such acceleration shall occur, provided, however, that stock option agreements
and restricted stock agreements for officers of the Company and key employees of
the Company as determined by the Board of Directors, including at least one
director elected by the holders of Preferred Shares, may provide for automatic
partial acceleration of the option or the lapsing of restrictions on disposition
as if such officer or employee had been employed by the Company for an
additional twelve months upon the following events: (1) a termination of the
employee by the Company that is not For Cause (as defined in EXHIBIT J to the
Series C Purchase Agreement) or is without Cause (as defined any of the forms of
Stock Option Agreements attached as exhibits to EXHIBIT A hereto) or (2) an
Acquisition of the Company.
3.7. Termination; Assignment of Rights to Financial Information.
The covenants set forth in Sections II and III shall terminate and be of no
further force or effect at such time as the Company is required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act.
3.8. Standoff Agreement. Each Investor agrees, in connection with the
initial underwritten public offering of the Company's securities pursuant to an
effective registration statement under the Securities Act and in connection with
the first underwritten public offering of the Company's securities which may
occur thereafter, upon request of the Company or the underwriters managing such
underwritten offerings, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any securities of the
Company (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as may be requested by the underwriters;
PROVIDED that each officer and director of the Company (and affiliates of each
such officer and director) is similarly bound and the Company uses reasonable
efforts to obtain a similar covenant from holders of at least one percent (1%)
of the Company's outstanding securities.
3.9. Maintain Rights. The Company will, at all times, maintain and
preserve its corporate existence and all permits, rights and franchises material
to the conduct of its business in full force and effect and adequate for its
business as presently conducted. The Company will qualify, and will cause any
subsidiary of the Company to qualify to do business as a foreign corporation in
any jurisdiction where the failure to do so would have a material adverse effect
on the business, condition (financial or otherwise), assets, properties or
operations of the Company and its subsidiaries taken as a whole.
3.10. Books and Records. The Company shall make and keep books, records
and accounts, which, in reasonable detail, accurately and fairly reflect its
transactions, and shall devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that: (a) transactions are
executed in accordance with management's general or specific authorization; and
(b) transactions are recorded as necessary to permit preparation of the
financial statements required herein and to maintain accountability for assets.
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EXHIBIT 10.4
3.11. Compliance with Laws, Charter and Agreements. The Company shall
comply with all laws, rules and regulations of all governmental authorities and
agencies applicable to the Company, its business or its properties, the failure
to comply with which might have a material adverse effect on the Company. The
Company shall perform and observe all the obligations and provisions set forth
in its Certificate of Incorporation (including any amendments) and By-laws. The
Company shall comply in all material respects with the provisions of all
contracts, indentures, instruments and agreements to which it is a party or by
which the company or its properties are bound.
3.12. Agreements. The Company shall not enter into any contract,
agreement, lease or other instrument which, by its terms, restricts, in any
material respect, the Company's ability to perform its obligations under this
Agreement, the Series D Purchase Agreement, the Second Amended and Restated
Voting Agreement, the Third Amended and Restated Co-Sale and Right of First
Refusal Agreement or the Certificate, or any transaction contemplated herein or
therein.
SECTION IV
Miscellaneous
4.1. Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of New York without regard to conflicts of laws
principles. The parties expressly stipulate that any litigation under this
Agreement shall be brought in the state courts of the County of New York, New
York or in the United States District Court for the Southern District of New
York. The parties agree to submit to the jurisdiction and venue of those courts.
4.2. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.3. Transfer or Assignment Rights. The rights granted to Investors by the
Company under this Agreement may only be transferred or assigned by Investors to
a transferee or assignee of any of the Restricted Securities, if the Company is
given notice by Investors prior to the time of said transfer or assignment,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such rights are being transferred or assigned;
the transferee or assignee of such rights assumes the obligations of Investors
under this Agreement, and PROVIDED THAT (i) the transfer is in connection with a
transfer of all securities of the Company held by the transferor, (ii) the
transferee after the transfer has an aggregate of at least 100,000 shares of the
Shares (in either case, as adjusted for stock splits, stock dividends and events
of a similar nature), (iii) the transfer is from one Investor to another
Investor, or (iv) the transfer or assignment is to constituent partners or
stockholders who agree to act through a single representative.
4.4. Entire Agreement; Amendment. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any
19
<PAGE>
EXHIBIT 10.4
warranties, representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; provided, however, that
holders of a majority of the Series A Preferred (as adjusted for stock splits,
stock dividends and similar events), holders of a majority of the Series B
Preferred (as adjusted for stock splits, stock dividends and similar events),
the holders of a majority of the Series C Preferred (as adjusted for stock
splits, stock dividends and similar events), and the holders of a majority of
the Series D Preferred Stock (as adjusted for stock splits, stock dividends and
similar events) (each voting as a single class) may, with the prior written
consent of the Company, waive, modify or amend on behalf of all holders, any
provisions hereof.
4.5. Notices, etc. All notices and other communications required or
permitted in this Agreement shall be in writing, shall be effective when given,
and shall in any event be deemed to be given upon receipt or, if earlier, (a)
five (5) days after deposit with the U.S. Postal Service or other applicable
postal service, if delivered by first class mail, postage prepaid, (b) upon
delivery, if delivered by hand, (c) one business day after the business day of
deposit with Federal Express or similar overnight courier, freight prepaid or
(d) one business day after the business day of facsimile transmission, if
delivered by facsimile transmission with copy by first class mail, postage
prepaid, and shall be addressed if to an Investor, at the Investor's address as
set forth on EXHIBIT A to the Series A Purchase Agreement, the Series B Purchase
Agreement, the Series C Purchase Agreement, or the Series D Purchase Agreement,
if to the Company, to its address set forth in the Purchase Agreement
(attention: Chief Executive Officer), or at such other address as a party may
designate by ten days' advance written notice to the other party pursuant to the
provisions above.
4.6. Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
20
<PAGE>
EXHIBIT 10.4
4.7. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
4.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
4.9. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
4.10. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
4.11. Termination of Earlier Agreement. By execution and delivery of this
Agreement by the parties to the Second Amended and Restated Investor Rights
Agreement, dated as of January 4, 1999, as amended, between the Company and the
Investors which are parties thereto (the "Prior Agreement"), the Prior Agreement
is terminated and superseded by this Agreement.
21
<PAGE>
The foregoing agreement is hereby executed by each party as of the date
set forth below his, her or its name.
AVESTA TECHNOLOGIES, INC.
By /s/ Kam M. Saifi
-----------------------------------------
Name: Kam M. Saifi
Title: President and Chief Executive Officer
By /s/ the Investors
-----------------------------------------
23
<PAGE>
Exhibit 10.5
LEASE AGREEMENT
BETWEEN
OTR, an Ohio general partnership, as Landlord,
acting as the duly authorized
nominee of the Board of the State
Teachers Retirement System of Ohio
AND
AVESTA TECHNOLOGIES, INC.,
a Delaware Corporation,
as Tenant
Premises: Part of Fifteenth Floor
2 Rector Street
New York, New York
Dated: As of February 15, 1997
<PAGE>
TABLE OF CONTENTS
1. Premises................................................................1
2:. Term....................................................................1
2.1 Lease Term .......................................................1
2.2 Definitions ......................................................1
2.2.1 "Commencement Date".......................................1
2.2.2 "Term"....................................................1
2.3 Waiver............................................................1
3. Rental..................................................................2
3.1 Base Rent ........................................................2
3.2 Additional Rent ..................................................2
3.2.1...Porter's Wage Escalation .................................3
3.2.1.1 "Rate" ............................................3
3.2.1.2 "Base Rate" .......................................3
3.2.1.3 "Multiplication Factor"............................3
3.2.1.4 "Porters"..........................................3
3.2.2."Real Estate Taxes".........................................4
3.3 Payment of Estimated Proportionate Share .........................5
3.4 Dispute of Operating Expenses ....................................8
3.5 Adjustments to Operating Expenses ................................8
3.6 No Decrease in Base Rent .........................................8
3.7 Other Charges ....................................................8
3.8 Place of Payment .................................................8
3.9 Legal Rent. Restrictions ........................................8
4. Delivery ...............................................................9
4.1 Condition of Premises ............................................9
4.2 Occupancy by Tenant; Availability Prior to........................9
Commencement .....................................................9
4.3 Removal of Tenant's Property .....................................9
4.4 Overload .........................................................10
5. Use of the Premises ....................................................10
5.1 Use ..............................................................10
5.2 Permits ..........................................................11
5.3 Advertisement ....................................................11
5.4 Solicitation .....................................................11
5.5 Care .............................................................11
5.6 Noise; Odors .....................................................11
5.7 Labor ............................................................12
6. Alterations ............................................................12
6.1 Prohibition ......................................................12
<PAGE>
6.2 Indemnification ..................................................12
6.3 Compliance and Supervision or Alterations ........................13
6.4 Landlord's Property ..............................................13
6.5 Wiring ...........................................................14
7. Mechanics' Liens .......................................................14
7.1 Discharge ........................................................14
7.2 No Consent .......................................................14
8. Maintenance and Repair; Access .........................................14
8.1 Tenant's Maintenance .............................................14
8.2 Landlord's Maintenance ...........................................15
8.3 Access ...........................................................15
9. Common Areas............................................................16
9.1 Grant.............................................................16
9.2 Right to Change Property..........................................16
10. Building Services.......................................................16
10.1 Electric..........................................................16
10.2 Water.............................................................16
10.3 Air-conditioning and Heat.........................................17
10.4 Janitor Service...................................................17
10.5 Elevator Service..................................................17
10.6 Interruption of Services..........................................17
10.7 Energy Curtailment................................................17
10.8 Normal Business Hours.............................................18
10.9 Holidays..........................................................18
11. Estoppel Certificates...................................................18
12. Indemnification; Waiver of Claims.......................................18
12.1 Indemnification...................................................18
12.2 Waiver............................................................19
12.3 Survival..........................................................19
13. Insurance...............................................................19
13.1 Tenant's Insurance................................................19
13.2 Landlord as Additional insured....................................20
13.3 Landlord's Insurance .............................................20
13.4 Increase in Premiums .............................................20
14. Waiver of Subrogation ..................................................20
<PAGE>
15. Surrender...............................................................21
15.1 Tenant's Obligations .............................................21
15.2 Adjustment .......................................................21
15.3 Waiver ...........................................................21
15.4 Holdover .........................................................22
15.5 Acceptance of Surrender ..........................................22
15.6 Tenant's Obligations .............................................22
16. Assignment, Mortgaging, Subletting......................................22
16.1 Prohibitions .....................................................22
16.2 Exempt Transactions ..............................................23
16.3 Assumption of Liability...........................................23
16.4 Landlord's Consent ...............................................23
16.5 Additional Rent ..................................................24
16.6 Commissions ......................................................25
17. Quiet Enjoyment ........................................................25
18. Compliance with Laws and with Rules and Regulations.....................25
18.1 Compliance with Laws by Tenant....................................25
18.2 Right to Contest .................................................26
18.3 Compliance With Laws by Landlord .................................26
18.4 Rules and Regulations ............................................26
19. Fire and Casualty.......................................................26
19.1 Damage to Building or Premises ...................................26
19.2 Damage to Common Areas ...........................................27
19.3 Landlord's Repair Obligations ....................................27
19.4 Agreement to the Contrary ........................................27
20. Eminent Domain..........................................................27
20.1 Premises .........................................................27
20.2 Building .........................................................27
20.3 Rent Abatement ...................................................28
21. Conditions of Limitation ...............................................28
21.1 Conditions .......................................................28
21.2 Notice ...........................................................30
21.3 Termination of Services . .......................................30
21.4 Definition of Tenant .............................................30
22. Re-Entry by Landlord; Remedies..........................................31
22.1 Re-Entry..........................................................31
22.2 Waiver............................................................31
22.3 Injunctive........................................................32
22.4 Termination ......................................................32
22.5 Termination/Re-Entry .............................................33
<PAGE>
22.6 Independent Covenants.............................................34
22.7 Damages ..........................................................34
22.8 Landlord's Right to Cure .........................................34
22.9 Cumulative Rights ................................................34
23. Insolvency..............................................................34
23.1 Assignment in Bankruptcy . ......................................34
23.2 Assumption by Assignee ...........................................34
23.3 Additional Assurance .............................................34
24. Waiver of Default or Remedy ............................................35
25. Landlord's Lien ........................................................35
26. Uniform Commercial Code ................................................36
27. Force Majeure ..........................................................36
28. Subordination of Lease..................................................36
28.1 Lease is Subordinate .............................................36
28.2 Consent required .................................................37
28.3 Attornment .......................................................37
28.4 Right to Cure ....................................................38
29. Notices.................................................................38
30. Security Deposit .......................................................38
31. Miscellaneous Taxes ....................................................39
32. Substitute Premises.....................................................39
32.1 Landlord's Right .................................................39
32.2 Exercise Prior to Construction ...................................39
32.3 Exercise Subsequent to Construction...............................40
33. Brokerage Commission ...................................................41
34 . Hazardous Devices and Contaminants .....................................41
34.1 Prohibition ......................................................41
34.2 Indemnification ..................................................42
34.3 Definitions ......................................................42
34.3.1.."Contaminant" ............................................42
34.3.2.."Environmental Requirements" .............................42
34.3.3.."Release".................................................42
35. Exculpation.............................................................42
36. Signs...................................................................43
<PAGE>
37. Locks...................................................................43
38. Employment..............................................................43
39. Plumbing ...............................................................43
40. Certain Rights Reserved to Landlord ....................................43
41. Waivers.................................................................44
41.1 General ..........................................................44
41.2 Designation of Payments ..........................................44
41.3 Specific Provisions ..............................................44
42. Consents................................................................44
42.1 Reasonableness ...................................................45
42.2 Remedy ...........................................................45
42.3 Lender ...........................................................45
43. Miscellaneous ..........................................................45
43.1 No Continuation ..................................................45
43.2 Landlord .........................................................45
43.3 Tenant ...........................................................46
43.4 Third Party Rights ...............................................46
43.5 Landlord as Occupant .............................................46
43.6 Covenants as CONDITIONS ..........................................46
43.7 Landlord's Original ..............................................46
43.8 Binding Effect ...................................................46
43.9 Counterclaims ....................................................46
43.10 Waiver of Trial by Jury ..........................................47
43.11 No Sovereign Tatmunity ...........................................47
43.12 Not Binding Until Full Execution .................................47
43.13 Relationship of Parties ..........................................47
43.14 Gender and Number ................................................47
43.15 Topic Headings ...................................................47
43.16 Counterparts .....................................................47
43.17 Entire Agreement; Changes in Writing .............................47
43.18 No Recording .....................................................48
43.19 Governing Law; Invalidity of any Provisions.......................48
44. Electricity ............................................................48
45. Guaranty ...............................................................51
46. Shoring; No Dedication; Hoists; Zoning Lot Mergers .....................51
46.1 Access ...........................................................51
46.2 Prevention of Dedications ........................................51
46.3 Hoists ...........................................................51
46.4 Zoning ...........................................................51
<PAGE>
47. Tax Abatement Provisions ...............................................52
TABLE OF EXHIBITS
EXHIBIT A - Floor Plan
EXHIBIT B - Property
EXHIBIT C - Commencement Date Agreement
EXHIBIT D - Work Letter
EXHIBIT E - Tenant Estoppel Certificate
EXHIBIT F - Rules and Regulations
EXHIBIT G - Alternate Electricity
EXHIBIT H - Cleaning Specifications
EXHIBIT I - Intentionally Deleted
EXHIBIT J - Letter of Credit
EXHIBIT K - Sundry Costs
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), dated February 15. 1997, is between OTR,
an Ohio general partnership ("Landlord"), acting as the duly authorized nominee
of the Board of the State Teachers Retirement System of Ohio ("STRSO"), and
AVESTA TECHNOLOGIES, INC., a Delaware corporation ("Tenant").
1. Premises. In consideration of the rents, terms, provisions and
covenants of this Lease, Landlord hereby leases to Tenant and Tenant hereby
rents and accepts from Landlord those certain premises containing approximately
16,311 rentable square feet, located on the fifteenth floor (the "Premises") and
substantially as shown on the floor plan annexed hereto as EXHIBIT A. The
Premises are contained in that certain building, located at 2 Rector Street, New
York, New York (the "Building"). The land on which the Building is situated (the
"Land") is more particularly described on the annexed EXHIBIT B. The Land, the
Building, and all other improvements located on the Land shall be collectively
referred to herein as the "Property". Landlord represents that there are no
mortgages of record presently outstanding against the Property.
2. Term.
2.1 Lease Term. Subject to and upon the terms and conditions set forth
below, the initial term of this Lease shall be for a period of one hundred
thirty (130) months (and one partial month if the Commencement Date is on a day
other than the first day of a calendar month) commencing on the Commencement
Date (as defined in Section 2.2.1) and ending on the last day of the one hundred
thirtieth (130th) calendar month following the month in which the Commencement
Date occurs (the "Expiration Date").
2.2 Definitions. For purposes of this Lease, the following terms
shall have the following meanings:
2.2.1 "Commencement Date" shall mean the earlier of (i) the
date that the Tenant Improvement Work (as such term is defined in Exhibit D
annexed hereto and made a part hereof) is Substantially Complete (as such term
is defined in Exhibit D) or (ii) the date Tenant or anyone claiming under or
through Tenant shall first occupy any part of the Premises for any purpose other
than preparing the same for Tenant's initial occupancy. When the Commencement
Date has been determined by Landlord, Landlord and Tenant shall execute a
memorandum setting forth the Commencement Date and the Expiration Date of this
Lease, in substantially the form attached hereto as EXHIBIT C and incorporated
by reference. Neither Landlord's failure to request nor Tenant's failure to
execute such agreement shall affect Landlord's determination of the Commencement
Date.
2.2.2 "Term" shall mean the initial term of this Lease and any
renewals or extensions thereof.
2.3 Waiver. Tenant expressly waives any right to rescind this Lease
under Section 223-a of the New York Real Property Law or under any present or
future statute of similar import then in force and Tenant further expressly
waives the right to recover any damages
1
<PAGE>
which may result from Landlord's failure to deliver possession of the Premises
on the Commencement Date. Tenant agrees that the provisions of this Article and
Article 4 are intended to constitute "an express provision to the contrary"
within the meaning of such Section 223-a.
3. Rental. The "rent" shall consist of (i) Base Rent as defined and
described in Section 3.1, and (ii) Additional Rent as defined and described in
Section 3.2 and (iii) Other Charges as defined and described in Section 3.5. If
Tenant shall fail to pay any item of Additional Rent or Other Charges, Landlord
shall have the same rights and remedies as for the non-payment of Base Rent.
There shall be no abatement of, deduction from, or counterclaim or setoff
against, rent except as otherwise specifically provided in this Lease.
3.1 Base Rent. Tenant shall pay to Landlord base rent (the "Base
Rent") during the Term in monthly installments in accordance with the schedule
set forth below. Monthly installments shall be prorated for any partial month.
Each such monthly installment shall be due and payable in advance, on or before
the first day of each and every month during the Term, without notice, demand or
set-off, provided, however, that Tenant shall pay $23,107.25 on account of Base
Rent upon the execution of this Lease, which shall be credited on a per diem
basis toward the payment of the installment(s) of Base Rent first due and
payable hereunder. The schedule of Base Rent shall be:
BASE RENT SCHEDULE
Period of Term Annual Base Rent* Monthly
-------------- ----------------- Installment of
Base Rent*
---------
Commencement Date - through the twelfth $0.00 $0.00
monthly anniversary of the Commencement
Date (i.e., so that Tenant receives a
twelve-month "free rent period", i.e.
months 1 through 12)
Month 13 - End of Month 24 $277,287.00 $23,107.25
Month 25 - End of Month 42 $293,548.00 $24,466.50
Month 43 - End of Month 60 $309,909.00 $25,825.75
Month 61 - End of Month 84 $326,220.00 $27,185.00
Month 85 - End of Month 130 $342,531.00 $28,544.25
* The month in which the "free rent period" terminates shall be prorated to
reflect that it shall be a partial month (unless the Commencement Date
shall have occurred on the first day of a calendar month).
3.2 Additional Rent. In addition to the Base Rent Tenant shall pay
to Landlord, as "Additional Rent," Tenant's Proportionate Share (as hereinbelow
defined) of increases in Real Estate Taxes (as defined in Section 3.2.2) and the
Rate (as defined in Section
2
<PAGE>
3.2.1). The "Base Real Estate Taxes Amount" as such term is used herein shall
mean the actual Real Estate Taxes payable with respect to calendar year 1997
(i.e., one-half the sum of the Real Estate Taxes payable with respect to the
1996/1997 fiscal year plus the Real Estate Taxes payable with respect to the
1997/1998 fiscal year). If Real Estate Taxes in any calendar year (all or part
of which is included in the Term) exceed the Base Real Estate Taxes Amount, such
excess amount being hereinafter referred to as the "Real Estate Taxes
Increase"), Tenant shall pay to Landlord, as Additional Rent. Tenant's
Proportionate Share of the Real Estate Taxes Increase (such share being
hereinafter referred to as the "Real Estate Taxes Pass-through Amount") as set
forth below. If this Lease commences or terminates on a date other than January
1, the annual Real Estate Taxes and the Base Real Estate Taxes Amount shall be
prorated by multiplying one-twelfth (1/12) of the annual Real Estate Taxes and
one-twelfth (1/12) of the Base Real Estate Taxes Amount each by the number of
full or partial months between the Commencement Date and December 31 of the year
of commencement or between January 1 of the year of termination and the
termination date, as the case may be. As used in this Lease, "Tenant's
Proportionate Share" shall mean four and 00/100ths (4.0%) percent.
3.2.1 Porter's Wage Escalation. For purposes of this Lease:
3.2.1.1 "Rate" shall mean: (i) the minimum regular
hourly wage rate, excluding so-called "fringe benefits", such as pensions,
welfare funds, vacations, personal days, bonuses, social security, sick pay,
insurance, etc., prescribed for Porters (as hereinafter defined) in Class A
office buildings, pursuant to any agreement between the Realty Advisory Board on
Labor Relations, Incorporated (or any successor thereto) and Local 32B-32J of
the Building Service Employees International Union. AFL-CIO (or any Successor
thereto) covering the wage rate for Porters in such buildings ("Wage
Agreement"); or (ii) if, at any time during the Term. regular employment of
Porters occurs on days or during hours when overtime or other premium pay rates
are in effect pursuant to the Wage Agreement, the average hourly wage rate,
excluding all SUMS paid for so-called "fringe benefits", for the hours in a
calendar week during which Porters are regularly employed (e.g., if, pursuant to
the Wage Agreement the regular weekly employment of Porters is for forty hours ,
at a regular hourly wage rate of $9.00 for the first thirty hours and an
overtime hourly wage rate of $12.00 for the remaining ten hours, the regular
wage rate for the applicable period shall be the weekly wage rate of $390.00
divided by the number of regular hours of employment, to wit, forty, or $9.75),
or (iii) if, at any time during the Term, no Wage Agreement exists, the minimum
regular hourly wage rate, excluding all sums paid for so-called "fringe
benefits", actually payable to Porters by Landlord or the contractor performing
cleaning services in the Building, or, if no Porters are employed at the
Building. such rate for Porters employed at Class A office buildings having a
gross area comparable to the Building. If length of service is applicable in
determining the Rate, then such determination shall be made on the basis of a
minimum of five years of service.
3.2.1.2 "Base Rate" shall mean the Rate in effect on
December 31, 1997.
3.2.1.3 "Multiplication Factor" shall mean 16,311.
3
<PAGE>
3.2.1.4 "Porters" shall mean those employees engaged in
the general maintenance and operation of office buildings. classified as
"Experienced Employee"' in the "Other" category in the current Wage Agreement
or, failing such classification in any subsequent Wage Agreement, the most
nearly comparable classification in such Wage Agreement.
3.2.1.5 If, in any period during the Term, the Rate
exceeds the Base Rate, Tenant shall pay Landlord, as Additional Rent, an annual
amount equal to the product of the Multiplication Factor multiplied by 100% of
the number of cents (including any fraction of a cent) by which the Rate exceeds
the Base Rate ("Wage Adjustment"), appropriately adjusted for any such period
which is only partially within the Term. The Wage Adjustment is intended to be
an index in the nature of a cost of living, index, and is not intended to
reflect the actual costs of wages or other expenses for the Building. The Wage
Adjustment shall be payable in equal monthly installments, commencing with the
first installment of Base Rent due on or after the effective date of any
increase in the Rate and continuing thereafter until the effective date of any
subsequent increase, whereupon such installments shall be appropriately
adjusted. Landlord shall furnish Tenant with a statement ("Landlord's
Statement") itemizing Tenant's liability pursuant to this subdivision whenever
such liability arises or changes. Tenant's obligation to make such payments
shall survive the expiration or any sooner termination of this Lease.
Notwithstanding the foregoing. if.. by reason of any law, or, any rule, order,
regulation or requirement of any governmental or quasi-governmental authority
having or asserting jurisdiction (collectively "Law"), an increase in the Rate
is reduced or does not take effect .. or increases in the Rate are limited or
prohibited, then, for the period covered by the Law ("Law Period"), the
applicable increase ("Increase") in the Rate for purposes of this Article, shall
be the increase in the Rate ("Prior Increase") immediately preceding the
effective date of the Law. The Increase shall take effect on the date following
the expiration of the period for the Prior Increase and an equivalent Increase
shall take effect on each anniversary of such effective date during the Law
Period.
3.2.1.6 Landlord's failure to render Landlord's
Statement with respect to any period shall not prejudice Landlord's right to
thereafter render a Landlord's Statement, with respect to such period or with
respect to any subsequent period, nor shall the rendering of a Landlord's
Statement prejudice Landlord's right to thereafter render a corrected Landlord's
Statement for any period.
3.2.1.7 The computation under this Article is intended
to constitute a formula for an agreed rental escalation and such computation may
or may not constitute an actual reimbursement to Landlord for expenses in the
nature of wages or other costs paid by Landlord with respect to the Building.
3.2.1.8 Each Landlord's Statement shall be conclusive
and binding upon Tenant unless, within sixty (60) days after Tenant's receipt of
such Landlord's Statement, Tenant shall notify Landlord that it disputes the
correctness of Landlord's Statement, specifying the particular respects in which
Landlord's Statement is claimed to be incorrect. If any such dispute is not
settled within thirty (30) days of Tenant's receipt of such notice, Tenant
shall, without prejudice to its rights, pay all amounts determined by Landlord
to be due, subject
4
<PAGE>
to prompt refund by Landlord (without interest) upon any contrary determination.
Any dispute hereunder shall be settled by arbitration before, and in accordance
with the rules of, the American Arbitration Association in New York, New York.
3.2.2 "Real Estate Faxes" shall mean (i) all real estate taxes
and assessments (special or otherwise), sewer and water rents, rates and charges
and any other governmental levies, impositions or charges of a similar or
dissimilar nature, whether general, special, ordinary, extraordinary, foreseen
or unforeseen, which may be assessed, levied or imposed upon all or any part of
the Property, whether or not the same constitute one or more tax lots, and (ii)
any reasonable expenses (including attorneys' fees and disbursements and
experts' and other witness' fees) incurred by or on behalf of Landlord in
protesting or contesting any of the foregoing or the assessed Valuation of all
or any part of the Real Property: but "Real Estate Taxes" shall not include any
interest or penalties incurred by Landlord as a result of Landlord's late
payment of Taxes, except for interest payable in connection with the installment
payments of assessments pursuant to the next sentence. If by law, any assessment
may be divided and paid in annual installments, then, provided the same is not
prohibited under the terms of the Superior Lease or the Superior Mortgage, for
the purposes of this Article. (x) such assessment shall be deemed to have been
so divided and to be payable in the maximum number of annual installments
permitted by law and (y) there shall be deemed included in Real Estate Taxes for
each Tax Year (as such term is hereinafter defined) the annual installment of
such assessment becoming payable during such Tax Year, together with interest
payable during such Tax Year on such annual installment and on all installments
thereafter becoming due as provided by law, all as if such assessment had been
so divided. If at any time after the date hereof the methods of taxation
prevailing at the date hereof shall be altered so that in lieu of or as an
addition to or as a substitute for the whole or any part of the taxes and
assessments now assessed, levied or imposed upon all or any part of the
Property, there shall be assessed, levied or imposed (a) a tax, assessment,
levy, imposition or charge based on the income or rents received therefrom
whether or not wholly or partially as a capital levy or otherwise, or (b) a tax,
assessment. levy, imposition or charge measured by or based in whole or in part
upon all or any part of the Property or the value thereof and imposed upon
Landlord, or (c) a license fee measured by the rents, or (d) a net income,
franchise, "value added," inheritance. estate or other tax, assessment, levy,
charge or license fee however described or imposed, then all such taxes,
assessments, levies, impositions, charges or license fees, or the part thereof
so measured or based, shall be deemed to be Real Estate Taxes; provided that any
tax, assessment, levy, imposition or charge imposed on income from the Property
shall be calculated on the basis that the Property is the only asset of
Landlord. The term "Tax Year" shall mean the 12 month period commencing July 1
of each year, or such other period of 12 months as maybe duly adopted as the
fiscal year for real estate tax purposes in The City of New York.
Notwithstanding any other provision of this Lease, the Base Real Estate Taxes
Amount and the Real Estate Taxes for any other Tax Year shall be determined
without applying any reduction received under any tax abatement, exemption or
deferral program, other than the Lower Manhattan Plan (as such term is defined
in Article 47).
3.2.2.1 Landlord shall retain the sole right to
participate in any proceedings to establish or contest the amount of Real Estate
Taxes. If a complaint against valuation protest of tax rates or other action
increases or decreases the Real Estate Taxes for any Tax Year, resulting in an
increase or decrease in rent hereunder, the Real Estate Taxes for the
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affected Tax Year shall be recalculated accordingly and the resulting increased
rent plus the expenses incurred in connection with such contest, or decreased
rent, less the expenses incurred in connection with such contest, shall be paid
simultaneously with or applied as a credit against, as the case may be, the rent
next becoming due.
3.3 Payment of Estimated Proportionate Share To provide for Current
payments of Real Estate Taxes and Wage Adjustments, Tenant shall pay the Real
Estate Tax Pass-through Amount and Wage Adjustments, as estimated by Landlord
from time to time, in twelve (12) monthly installments, commencing on the first
day of the month following the month in which Landlord notifies Tenant of the
amount of Landlord's estimate. Landlord shall estimate the amount of Real Estate
Taxes and Wage Adjustments for each year and then reconcile such estimated
expenses in the following year based on actual Real Estate Taxes and Wage
Adjustments for such year paid by Landlord. If the actual Real Estate Taxes
Pass-through Amount and Wage Adjustments shall be greater than or less than the
aggregate of all installments so paid on account to Landlord for such twelve
(12) month period. then within ten (10) days of Tenant's receipt of Landlord's
statement of reconciled Real Estate Taxes and Wage Adjustments, Tenant shall pay
to Landlord the amount of such underpayment. or Landlord shall credit Tenant for
the amount of such overpayment against the next monthly installment(s) of rent.
as the case may be. The obligation of Tenant with respect to the payment of the
Real Estate Taxes Pass-through Amount and Wage Adjustments shall survive the
expiration or any sooner termination of this Lease. Any payment, refund, or
credit made pursuant to this subparagraph shall be made without prejudice to any
right of Landlord to correct any item(s) as billed pursuant to the provisions
hereof. Landlord's failure to give such statement shall not constitute a waiver
by Landlord of its right to recover rent that is due and payable pursuant to
this subparagraph.
3.4 No Decrease in Base Rent If the actual Real Estate Taxes are
less than the Base Real Estate Taxes Amount, or if the Rate is less than the
Base Rate, the Base Rent set forth in this Lease shall not be reduced.
3.5 Other Charges All costs, expenses and other sums that Tenant
assumes or agrees to pay to Landlord pursuant to this Lease ("Other Charges"),
other than Base Rent and Additional Rent, shall be deemed rent and, in the event
of nonpayment thereof, Landlord shall have all the rights and remedies herein
provided for in case of nonpayment of Base Rent. If any rent is not received on
or before the fifteenth (15th) day after the date on which It is due, other
remedies for nonpayment of rent notwithstanding, Tenant shall pay to Landlord,
(i) a late charge of four percent (4%) of such past due rent for the purpose of
defraying Landlord's administrative expenses incident to the handling of such
overdue payment and (ii) interest on such past due rent shall bear interest at
the Default Rate from time to time in effect during such period, calculated on
the basis of actual days elapsed, based on a 360-day year, for the period from
the date such payment was due until the date payment in immediately available
funds is received by Landlord, and such late charge and interest shall be
immediately due and payable and shall constitute Additional Rent. The provisions
herein for such late charge and interest shall not be construed to extend the
date for payment of any sums required to be paid by Tenant hereunder or to
relieve Tenant of its obligation to pay all such sums at the time or times
herein stipulated. Notwithstanding the imposition of such late charge and
interest., Tenant shall be in default under this Lease if any or all payments
required to be made by Tenant are not made at the time herein
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Stipulated, and neither demand for, nor collection by Landlord of, such late
charge and interest shall be construed as a curing of such default on the part
of Tenant. The "Default Rate" shall mean an interest rate equal to the prime
rate as announced from time to time by Bank One, Columbus, N.A. plus 2%, in no
event to exceed the maximum interest rate permitted by law.
3.8 Place of Payment Tenant shall pay all rent due under this Lease
to Landlord at the following address: c/o Koll Management Services, Inc., 140
East 45th Street, New York, New York 10017, Attention: Real Estate Manager (2
Rector Street Accounting), or at such other place as Landlord may designate from
time to time hereafter by written notice to Tenant.
3.9 Legal Rent Restrictions If any of the rent payable under the
terms of this Leas-, shall be or become uncollectible, reduced or required to be
refunded because of any legal requirement, Tenant shall enter into such
agreement(s) and take such other steps (without additional expense to Tenant) as
Landlord may reasonably request and as may be legally permissible to permit
Landlord to collect the maximum rents which from time to time during the
continuance of such legal rent restriction may be legally permissible (and not
in excess of the amounts reserved therefore under this Lease). Upon the
termination of such legal rent restriction, (i) the rents shall become and
thereafter be payable in accordance with the amounts reserved herein for the
periods following such termination and (ii) Tenant shall pay to Landlord. to the
maximum extent legally permissible., an amount equal to (x) the rents which
would have been paid Pursuant to this Lease but for such legal rent restriction
less (y) the rents and payments in lieu of rents paid by Tenant with respect to
the period such legal restriction was in effect.
4. Delivery
4.1 Condition of Premises The work necessary to prepare the Premises
for Tenant's initial occupancy shall be performed in accordance with EXHIBIT D
(the "Work Letter") attached hereto. All of the terms of EXHIBIT D are
incorporated herein as if fully set forth at length.
4.2 Occupancy by Tenant: Availability Prior to Commencement The
taking of occupancy of the whole or any part of the Premises by Tenant shall be
conclusive evidence, as against Tenant, that (i) such Premises were available
for occupancy, (ii) Tenant accepts possession of the same and (iii) the Premises
so occupied the work therein and the Building of which the same form a part were
in good and satisfactory condition at the time such occupancy was so taken. If
Landlord, at Tenant's request, permits tenant to enter the Premises to decorate,
furnish, and equip the Premises before the Commencement Date, Tenant shall not
interfere with any work being performed by Landlord. In addition to, and without
limitation, any other conditions Landlord may impose with respect to such entry,
Tenant's entry into, or use of. the Premises for such preparatory work shall not
create a landlord-tenant relationship between the parties, or constitute
occupancy of the Premises and the obligations of Tenant set forth in the
provisions of Articles 6, 7, 12, 13 and 18 of this Lease shall apply thereto.
Landlord has made no representation respecting the condition of the Premises,
the Building or the Property, except as is expressly set forth in EXHIBIT D.
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4.3 Removal of Tenant's Property At the expiration or any sooner
termination of this Lease, by lapse of time or otherwise, Tenant shall remove
from the Premises all of Tenant's property, including but not limited to,
Tenant's Property (as defined hereinafter), except for any of Tenant's property
required to remain in the Premises in accordance with Article 15, and shall rent
the Premises broom-clean and in as good a condition as when Tenant took
possession or as same may thereafter have been put by or at the expense of
Landlord, except for ordinary wear, loss by fire or other casualty, and repairs
that Landlord is required to make under this Lease. If Tenant fails to remove
any or all of its property upon the expiration or any sooner termination of this
Lease. such property shall be deemed to be abandoned and shall become the
property of Landlord. "Tenant's Property" shall mean all business and trade
fixtures, machinery and equipment, communications equipment, office equipment
and movable partitions, which are (a) installed in the Premises by or at the
expense of Tenant .without expense to Landlord and (b) can be removed without
material damage to the Building and all furniture, furnishings, decorations
(other than floor and all coverings affixed to the floor or wall, as the case
may be) and other articles of movable personal property owned by Tenant and
located in the Premises. It is understood and agreed that any installations
which are part of the Tenant Improvement Work (as defined in Exhibit D) shall
not be deemed to be Tenant's Property or be required to be removed as provided
above.
4.4 Overload. To coordinate orderly move-ins and move-outs, no
furniture. freight or equipment of any kind exceeding three hundred (300) Pounds
shall be brought into the BUILDING without prior notice to Landlord and Landlord
shall designate the time and manner of moving, of the same. Landlord shall have
the right to prescribe the weight, size and position of all safes and other
heavy equipment brought into the Building and also the times and -manner 01
moving the same in and out of the Building. Safes or other heavy objects shall,
if considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss or damage to any such safe or property from any cause, and all damage
done to the Building by moving or maintaining any such safe or other property
shall be repaired at Tenant's expense.
5. Use of the Premises.
5.1 Use The Premises shall be used and occupied by Tenant (and its
permitted assignees and subtenants) solely as general, administrative and
executive offices including such ancillary uses in connection therewith as shall
be reasonable, required in the operation of such offices and as are consistent
with the character of the Building and for no other purpose; without limiting
the generality of the foregoing restriction, in no event shall any of the
following be permitted in the Premises: (i) sale of wine, ale, beer or other
alcoholic beverages; sale at wholesale or retail of any other products or
materials by vending machines (except to Tenant's employees and business guests)
or otherwise, or demonstrations to the public, or as a restaurant or bar, or for
the sale of candy, food, cigarettes, cigars, tobacco, newspapers, magazines,
beverages or similar items, or for the preparation, dispensing or consumption of
food or beverages in any manner whatsoever; (iii) manufacturing. printing or
electronic data processing, except for the operation of normal business office
equipment and machines for Tenant's own requirements. as distinguished from
operation for commercial hire or for the sale of the products or services to
others; (iv) rendition of medical, dental or other diagnostic or
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therapeutic services, except that Tenant shall have the right to employ a
resident nurse for Tenant's employees normally working at the Premises; (v)
conduct or maintenance of any gambling or gaming activities or any political
activities or any club activities whether private or public; (vi) the offices or
business of a governmental or quasi-governmental bureau, department or agency,
foreign or domestic, including an autonomous governmental corporation or
diplomatic or trade mission, or any other person or entity entitled to
diplomatic or sovereign immunity, (vii) a retail banking, trust company,
depository, guarantee or safe deposit business; (viii) a retail savings bank,
savings and loan association or loan company; (ix) sale to the public of
travelers checks. money orders, drafts, foreign exchange or letters of credit or
the receipt of money for transmission; (x) a stockbroker's or dealer's office or
the underwriting or sale of executive search firm or sale of enterprise, or sale
of securities, (xi) an employment agency, executive search firm which Landlord
determines, in its sole discretion is consistent with the character of the
Building,; (xii) a labor union, school or vocational training, center (except
for the training of employees of Tenant intended to be employed at the
Premises); (xiii) a barber shop or beauty salon; or (xiv) a travel agency. The
Premises shall not be used for any purpose which is inconsistent with the
character of the Building creates excessive elevator use, exceeds the floor
loads for which the Building, was designed, impairs or interferes with any of
the Building operations or the proper and economic operation of the Building
Systems or the proper and ECONOMIC cleaning or other servicing of the Building
(other than to a DE MINIMIS extent), interferes with the use of the other areas
of the Building, by any other tenants, or impairs the appearance of the
Building.
5.2 Permits. If any governmental license or any permit, other than a
certificate of occupancy for the entire Building and Premises, shall be required
for the proper and lawful conduct of Tenant's business in the Premises and if
failure to Secure such license or permit would in any way adversely affect
Landlord or the Property, then Tenant, at its expense, shall duly procure and
thereafter maintain such license or permit and submit the same to Landlord for
inspection. Tenant shall at all times comply with the terms and conditions of
each such license or permit. In no event shall Tenant's failure to procure or
maintain such license or permit relieve Tenant from its obligations under this
Lease.
5.3 Advertisement Tenant shall not advertise the business.
profession or activities of Tenant conducted in the Building in any manner which
violates the letter or spirit of any code of ethics adopted by any recognized
association or organization pertaining to such business of Tenant, and shall
never use any Picture or likeness of the Building in any circulars, notices,
advertisements or correspondence without Landlord's prior written consent.
5.4 Solicitation Tenant shall not disturb, solicit, or canvass any
occupant of the Building and shall cooperate with Landlord to prevent same.
5.5 Care Tenant shall use and occupy the Premises so that no other
occupant of any adjoining premises will be unreasonably disturbed and shall
create no nuisance in, upon or about the Premises. Tenant will not make or
permit to be made any use of the Premises or any part thereof, and will not
bring into or keep in the Premises or any part thereof anything, that (i)
violates any of the covenants, agreements, terms, provisions and conditions of
this Lease; (ii) directly or indirectly is forbidden by public law, ordinance or
regulation of any governmental or
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public authority (including zoning ordinances); (iii) is dangerous to life, limb
or property; (iv) increases the risk to Landlord or any other tenant under, or
invalidates or increases the premium cost of any policy of, insurance carried on
the Building or covering its operation; or (v)in the sole judgment of Landlord,
in any way impairs or tends to impair the character, reputation or appearance of
the Property as a first-class office building, or impairs or interferes with any
of the services performed by Landlord for the Property.
5.6 Noise: Odors Tenant shall not use, keep or permit to be used or
kept any foul or noxious gas or Substance in the Premises; permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations: interfere in any way with other tenants or those having business
therein; or bring in or keep any animals, fish or birds in the Premises. (except
that the FOREGOING shall not be deemed to prohibit handicapped employees or
customers of Tenant from being accompanied in the Premises by a seeing-eye or
hearing-aid dog). Tenant shall not use the premises for housing accommodations
or lodging or sleeping purposes, or do any cooking therein, or use any
illumination other than electric light.
5.7 Labor Tenant shall not at any time (whether prior to or during
the Term). either directly or indirectly, use any contractors or labor or
materials in the Premises if the use of such contractors or labor or materials
would create any work stoppage, picketing, labor disruption or any other
difficulty with other contractors or labor enacted by Tenant or Landlord or
others in the construction, maintenance or operation of the Building or any part
thereof. Tenant shall immediately stop any work or other activity if Landlord
shall notify Tenant that continuing such work or activity would violate the
provisions of the immediately preceding sentence.
6. Alterations
6.1 Prohibition Tenant shall not make any changes, alterations,
additions or improvements (collectively, "Alterations") in or to the Premises or
in or to the Building without the express prior written consent of Landlord;
provided, however, that Landlord shall not unreasonably withhold consent to the
performance by Tenant of non-structural Alterations in the Premises. For the
purposes hereof, the term "non-structural Alteration" shall mean an Alteration
that does not involve or affect: (a) the exterior, roof or foundation of the
Building; (b) any floor or ceiling slabs, any exterior walls of the Building
(other than the interior surface of such exterior walls), any load-bearing
columns or any other supporting members or structural elements of the Building:
(c) any Building system located outside of the Premises or any Building system
serving any other tenants at the Building, or any part of the Building outside
of the Premises; (d) any common areas of the Building; (e) any exterior glass,
exterior windows, window; frames or storefronts in the Premises; or (f) any
portion of the Premises visible from the sidewalk abutting the Premises. Before
commencing any work in connection with the Alterations, Tenant shall furnish to
Landlord and obtain Landlord's approval of the following: (i) detailed plans and
specifications therefor, (ii) names and addresses of each of the contractors and
subcontractors, (iii) copies of all contracts, Subcontracts and necessary
permits, (iv) a payment and performance bond, or other indemnification, in form
and amount satisfactory to Landlord, protecting Landlord against any and all
claims, costs, damages, liabilities and expenses that may arise in connection
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with the Alterations, (v) such documentation as is necessary to comply fully
with the mechanics' lien law of the state in which the Premises is located or to
protect Landlord from the filing or enforcement of such liens, and (vi)
certificates of insurance, in form and amount satisfactory to Landlord., from
all contractors and subcontractors who will perform labor or furnish materials,
insuring Landlord and Landlord's managing agent against any and all liability
for personal injury, including workers' compensation claims and for property
damage that may arise out of or be in any manner connected with the Alterations.
All property Tenant installed in the Premises shall be owned by Tenant and shall
be free of liens and security interests, other than as set forth in this Lease;
provided however, it is understood and agreed that Tenant shall be entitled to
grant to third parties a security interest in Tenant's readily removable
furniture and equipment located within the Premises.
6.2 Indemnification In addition to the indemnity set forth in
Article 12, Tenant hereby specifically agrees to indemnify and hold harmless
Landlord from and against any and all liabilities, costs and expenses of every
kind and description, including, without limitation, reasonable attorneys' and
other professionals' fees, that may arise out of occur in any manner be
connected with any Alterations made by Tenant. Tenant shall pay the cost of all
such Alterations and all costs associated with decorating the Premises that may
be occasioned thereby. Upon completion of any such Alterations, Tenant shall
furnish Landlord with (i) receipted bills covering all labor and materials used.
together ,with such documentation as is necessary to comply fully with the New
York State mechanics' lien law and to protect Landlord from the filling or
enforcement of such liens: (ii) a true and correct copy of the certificate of
Occupancy, if one is issued; and (iii) a certificate of Tenant's architect or
ENGINEER stating that such Alterations were made in accordance with the plans
and specifications. Notice is hereby given that Landlord shall not be liable for
any labor or materials furnished or to be furnished to Tenant upon credit, and
that no mechanic's or other lien for such labor or material shall attach to or
affect the reversion or other estate or interest of Landlord in and to the
Premises.
6.3 Compliance and Supervision of Alterations All Alterations made
by Tenant shall be installed in a good and ,workmanlike manner. using only
materials of the same or higher quality as those installed in the Building. All
Alterations shall comply with all Insurance Requirements and with all Legal
Requirements (as such terms are hereinafter defined). Tenant shall permit
Landlord to supervise construction operations in connection with any such
Alterations.. at Tenant's sole cost and expense, if Landlord requests the right
to do so (but Landlord shall have no obligation to make such request, or having
done so to supervise construction). Landlord's supervision of construction shall
be done solely for the benefit of Landlord and shall not alter tenants liability
and responsibility under this Article 6 "Insurance Requirements" shall mean all
requirements of any insurance policy covering or applicable to all or any part
of the Property or the Premises or the use thereof. all requirements of the
issuer of any such policy and all orders, rules, regulations, recommendations
land other requirements of the New York Board of Fire Underwriters or the
Insurance Service Organization or any other body exercising the same or similar
functions and having jurisdiction or cognizance of all or any part of the
Property or the Premises. "Legal Requirements" shall mean laws, statutes and
ordinances (including building codes and zoning regulations and ordinances) and
the orders, rules, regulations, directives and requirements of all federal,
state, county, city and borough departments, bureaus, boards, agencies, offices,
commissions and other subdivisions thereof, or
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of any official thereof, or of any other governmental, public or quasi-public
authority, whether now or hereafter in force, and all requirements, obligations
and conditions of all instruments of record which may be applicable to the
Property or the Premises or any part thereof or the sidewalks, curbs, or areas
adjacent thereto.
6.4 Landlord's Property All Alterations, whether temporary or
permanent, including hardware, non-trade fixtures and wall and floor coverings,
whether placed in or upon the Premises by Landlord or Tenant, shall become
Landlord's property, and shall remain with the Premises, at the expiration or
any sooner termination of this Lease, whether by lapse of time or otherwise,
without compensation, allowance or credit to Tenant; provided, however, that
notwithstanding, the foregoing, Landlord may request that any or all of said
Alterations in or upon the Premises made by Tenant be removed by Tenant at the
expiration or any sooner termination of this Lease, If Landlord requests such
removal, and, in any case, with respect to Tenant's Property, Tenant shall, at
Tenant's own cost and expense, remove the same prior to the end of the Term and
shall repair all damage to the Premises, the Building or the Property caused by
such removal (or the original installation thereof), Tenant shall not, however,
be required to remove pipes and wires concealed in floors, walls or ceilings for
the Installation of which Landlord's consent has been property obtained,
provided that Tenant properly Cuts and caps the same. and seals them off in a
safe. lawful and workmanlike manner, in accordance with Landlord's reasonable
requirements and all applicable Legal Requirements. If Tenant does not remove
any Alterations when requested by Landlord to do so, Landlord may remove the
same and repair all damage caused thereby, and Tenant shall pay to Landlord the
cost of such removal and repair immediately upon demand therefor by Landlord,
plus fifteen percent (15%) of the cost of such removal to reimburse Landlord for
its administrative expense. Tenant's obligation to observe or perform this
covenant shall survive the expiration or any sooner termination of this Lease.
6.5 Wiring Landlord will direct electricians as to where and how
telephone and computer wires are to be introduced. No boring or cutting for
wires will be allowed without Landlord's consent. The location of telephones
call boxes and other office equipment affixed to the Premises shall be subject
to Landlord's approval.
7. Mechanics' Liens
7.1 Discharge If, because of any act or omission of Tenant, any
mechanic's lien or other lien, charge or order for the payment of money shall be
filed against any portion of the Premises, Tenant, at its own cost and expense,
shall cause the same to be discharged of record within thirty (30) days of the
filing thereof, and Tenant shall indemnify and save harmless Landlord against
any from all costs, liabilities, suits, penalties, claims and demands, including
reasonable attorneys' fees and expenses, on account thereof. If Tenant shall
fall to cause such liens to be discharged of record within the aforesaid thirty
(30) day period, then Landlord shall have the right to cause the same to be
discharged. All amounts paid by Landlord to cause such liens to be discharged,
plus interest on such amounts at the Default Rate shall constitute Other Charges
payable by Tenant to Landlord.
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7.2 No Consent Except as specifically provided in this Lease,
nothing in this Lease shall be deemed or construed in any way as constituting
the consent or request of Landlord, express or implied, by inference or
otherwise, to any contractor, subcontractor, laborer or materialman for the
performance of any labor or the furnishing of any materials for any specific
improvement or alteration to, or repair of, the Premises, the Building or any
part thereof, nor as giving Tenant any right, power or authority to contract for
or permit the rendering of any services or the furnishing of any materials that
would give rise to the filing of any mechanic's lien against Landlord's interest
in the Premises or the Property. Notice is hereby given that neither Landlord
nor Landlord's agents, nor any Superior Lessor or Superior Mortgagee shall be
liable for any labor or materials furnished or to be furnished to Tenant upon
credit, and that no mechanic's or other lien for such labor or materials shall
attach to or affect any estate or interest of Landlord or any Superior Lessor or
Superior Mortgagee in and to the Premises or the Property.
8. Maintenance and Repair; Access
8.1 Tenant's Maintenance Tenant, at its sole cost and expense, shall
maintain and repair during the Term the Premise's and every part thereof and any
and all appurtenances thereto, including but not limited to, the doors any
interior walls of the Premises; 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 and rugs, carpeting, wall coverings, and
drapes within the Premises, whether installed by Tenant or by Landlord on behalf
of Tenant, and whether or not such items will become Landlord's property upon
the expiration or any sooner termination of this Lease. 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 such
items at Tenant's expense. which shall constitute Other Charges payable by
Tenant to Landlord. Within ten (10) days after Landlord renders a bill for the
cost of said repairs, Tenant shall reimburse Landlord for the cost of said
repairs.
8.2 Landlord's Maintenance. Subject to Section 8.1 above. Landlord
shall keep, repair and maintain the Building (including the roof and Structural
members, the Common Areas, mechanical and electrical equipment, the exterior and
architectural finish, and all items except those excepted elsewhere in this
Lease) of which the Premises are a part, all in good and tenantable condition
during(y the Term. Landlord shall, in addition. suply reasonable snow removal
for the walkways of the Property during Normal Business Hours (as hereinafter
defined). Tenant shall notify Landlord immediately when any repair to be made by
Landlord is necessary. If any portion of the Building or the Premises is damaged
through the fault or negligence of Tenant, its agents, employees, invitees or
customers, then Tenant shall promptly and properly repair the same at no cost to
Landlord; provided, however, that Landlord may, at its option, make such repairs
and Tenant shall, on demand, pay the cost thereof (including a supervisory
charge in addition to charges for general conditions, equal to ten percent (10%)
of the trade cost of such repairs), together with interest at the Default Rate
to Landlord as Other Charges. Tenant shall immediately give Landlord written
notice of any defect or need for repairs, after which notice Landlord shall have
reasonable opportunity to repair same or cure
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such defect. For the purposes of making any repairs or performance, any
maintenance, Landlord may block, close or change any entrances, doors,
corridors, elevators, or other facilities in the Building or in the Premise's,
and may close. block or change sidewalks, driveways or parking areas (if any) of
the Property. Landlord shall not be liable to Tenant, except as expressly
provided in this Lease, for any damage or inconvenience and Tenant shall not be
entitled to any abatement of rent by reason of any repairs, alterations or
additions made by Landlord under this Lease.
8.3 Access. Tenant shall permit Landlord, and Landlord's agents,
employees and contractors to enter the Premises, without incurring any liability
to Tenant therefor, at all reasonable times whether or not DURING Normal
Business Hours but upon reasonable advance notice to Tenant, except in an
emergency in which case no notice shall be required, to take any and all
measures, including inspections, repairs, alterations, additions and
improvements to the Premises or to the Building, as may be necessary or
desirable to safeguard, protect or preserve the Premises, the Building or
Landlord's interests; to operate or improve the Building', to comply on behalf
of Tenant with all Legal Requirements and Insurance Requirements (if Tenant
falls promptly to do so); to examine the Premises in order to verify Tenant's
compliance with all of the terms, covenants, obligations and conditions of this
Lease or to exercise any rights with respect to the Premises that Landlord may
exercise in the event of default by Tenant; or to exhibit the Premises to
prospective purchasers.mortgagees or during the last twelve (12) months of the
Term, tenants, or for any other purpose as Landlord may deem necessary or
desirable. Landlord shall Use reasonable efforts to minimize the adverse effect
on Tenant of any entry by Landlord on the Premises for any reason. Tenant shall
not be entitled to any abatement or reduction of rent by reason of such entry.
9. Common Areas.
9.1 Grant. During the Term, Landlord grants to Tenant, its
employees, customers and invitees, a nonexclusive license to use, in common with
all others to whom Landlord has granted or may hereafter grant a license to use,
the common areas of the Property, including but not limited to, the sidewalks,
lobbies, halls, passages, exits, entrances, elevators, stairways, restrooms, and
landscaped areas (collectively, the "Common Areas"), subject to reasonable rules
and regulations respecting the Common Areas as Landlord may from time to time
Promulgate. The Common Areas shall not be obstructed by Tenant or used for any
purpose other than for ingress to and egress from the Premises. The Common Areas
are not for the use of the General public and Landlord shall in all cases retain
the right to control and prevent access thereto by all persons whose presence,
in the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
Tenant normally deals in the ordinary course of Tenant's business unless such
persons are engaged in illegal activities. Neither Tenant nor its employees,
customers or invitees shall go upon the roof or mechanical floors or into
mechanical areas of the Building.
9.2 Right to Change Property. Landlord reserves the right, at any
time and from time to time, without the same constituting an eviction and
without any liability to Tenant, to make changes in or additions to the
Property, including, without limitation, any changes to the
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arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairways, toilets, storefronts, signs, and other Common
Areas, as Landlord may deem necessary or desirable provided that (i) such change
does not deprive Tenant of access to the Premises, 60 such change does not
materially interfere ,with the us,- of the Premises and does not materially
adversely affect the nature of the Premises, and (iii) Landlord uses reasonable
efforts to minimize the extent and duration of any interruption with Tenant's
use of the Premises. Landlord may install, use and maintain pipes, fans, ducts,
shafts, wires and conduits in and through the Premises, provided the same are
installed adjacent to or boxed in a manner consistent with Tenant's decor or
concealed behind walls and ceilings of the Premises or in such manner as shall
not materially adversely impair Tenant's use of the Premises. Landlord may use
any air conditioning rooms, telephone equipment rooms, heating, ventilating, air
conditioning, electrical and mechanical facilities and service closets in the
Premises.
10. Building Services.
10.1 Electric Provided that Tenant shall timely pay all amounts
required pursuant to Article 44 below, Landlord shall provide electric power to
the Premises. Electric power furnished by Landlord is intended to be that
consumed in normal office use during Normal Business hours for lighting,
heating, ventilating, air conditioning and operating Tenant's business
equipment. Tenant shall use strict care and caution to ensure that all
electricity is carefully shut off to prevent waste or damage.
10.2 Water Landlord shall provide water for drinking. lavatory and
toilet purposes from the regular Building supply (at the prevailing temperature)
through fixtures installed by Landlord (or by Tenant with Landlord's prior
written consent); provided that Tenant shall reimburse Landlord, at rates fixed
by Landlord, for water used by Tenant for supplementary air conditioning or
refrigeration installed by or for Tenant and for any other water used by Tenant
(except for public drinking water and public lavatory use).
10.3 Air-conditioning and Heat. Landlord shall provide air
conditioning ventilation or heat to the Premises, it being intended that Tenant
shall utilize the existing equipment in the Premises to obtain all
air-conditioning, ventilation and heat that Tenant shall require in order to
operate its business athte Premises. Tenant acknolwedges that Tenant has
inspected such air-conditioning, ventilation and heating equipment and found the
same to be in good working order. Landlord shall, at Landlord's own cost and
expense, maintain, repair and (if necessary) replace all (or any portion) of
such equipment. Anything herein to the contrary notwithstanding, Landlord and
Tenant specifically acknolwedge that the air-conditioning equipment cannot be
inspected until the outside temperature exceeds 80 degrees ("Summer
Conditions"). Lnadlord agrees that the air-conditioning equipment serving the
Premises shall be in working order during Summer Conditions.
If Tenant shall request air conditioning services to be supplied to
it at times other than Normal Business Hours, then Tenant shall pay such charges
as Landlord shall fix from time to time for each hour, or fraction thereof of
such additional time. Landlord's current charges for such air conditioning
services (at times other than Normal Business Hours) are set forth on Exhibit K
annexed hereto and made a part hereof. Morever, in the event that other tenants
of the
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Building, if any, utilizing the same air-conditioning units as service the
Premises, shall utilize such air conditioning services at the same time(s) and
date(s), Tenant shall only be obligated to pay its pro rata share of such costs.
Any requests for such extra service shall be in writing and on reasonable
advance notice.
10.4 Janitor Service. Landlord shall provide janitor service in and
about the Premises and the building at the end of each Monday, Tuesday,
Wednesday and Thursday, and at Landlord's option, at the end of either Sunday or
Friday, except for Holidays (as herein after defined) in accordance with the
cleaning specifications attached hereto as EXHIBIT H. Tenant shall not provide
any janitor service without Landlord's prior written consent. If Landlord
consents to janitor service provided by Tenant, the same shall be subject to
Landlord's rules and regulations and to Landlord's supervision, but at Tenant's
sole cost and expense (without reduction in Base Rent or Additional Rent).
Landlord shall further provide carpet cleaning in the Common Areas and window
cleaning at such times as Landlord, in it sole opinion, considers that such
cleaning is necessary. Landlord shall be in no way responsible to Tenant, its
agents, employees or invitees, for any loss of property from the Premises or for
any damage to property thereon, from any cause.
10.5 Elevator Service. Landlord shall provide passenger elevator
service at all times. Freight elevator service shall be available, on a
non-exclusive basis, during Normal Business Hours.
10.6 Interruption of Services. Tenant hereby acknolwedges that any
one or more of the utlities or building services specified in this Article 10
may be interrupted or diminished temporarily by Landlord or other person until
certain repairs, alterations or other improvements to the Premises or other
parts of the Property can be made or by any event or cause which is beyond
Landlord's reasonable control, including, without limitation, any ration or
curtailment of utility services; that Landlord does not represent, warrant or
guarantee to Tenant the continuous availability of such utilities or building
services; and that any such interruption shall not be deemed or construed to be
an intereference with Tenant's right of possession, occupancy and use of the
Premises, shall not render Landlord liable to Tenant for damages or entitle
Tenant to any reduction of Base Rent, and shalln ot relieve Tenant from its
obligation to pay Base rent and to perform its other obligations under this
Lease.
10.7 Energy Curtilament. Landlord and Tenant specifically
acknowledge that energy shortages in the region in which the Property is located
may from time to time necessitate reduced or curtailed energy consumption on the
Property. Tenant shall comply with all such rules and regulations as may be
promulgated from time to time by any governmental authority with respecto to
energy consumption, and during such period of time as such governmental
authority may so require, Tenant shall reduce or curtail operations in the
Premises as shall be directed by Landlord or such governmental authority.
Compliance with such rules and regulations and/or such reduction or curtailment
of operation shall not constitute a breach of Landlord's covenant of quiet
enjoyment or otherwise invalidate or affect this Lease, and Tenant shall not be
entitled to any diminution or abatement in Base Rent during the periods of
reduction or curtailment of operations.
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10.8 Normal Business Hours. For purposes of this Lease, "Normal
Business Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday through Friday, and
8:00 a.m. to 1:00 p.m. on Saturday and not including Sunday and Holidays.
Anything herein to the contrary notwithstanding, Tenant shall have access to the
demised premises twenty-four (24) hours every day, seven (7) days a week, 365
days a year.
10.9 Holidays. For purposes of this Lease, "Holidays" shall mean New
Year's Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas
and any other days observed by the Federal or the New York State or City
governments as legal holidays and such other days as shall be designated as
holidays by the applicable operating engineers union contract or building
service employees union contract.
10.10 Sundry Costs. Landlord's sundry costs (subject to change after
the date hereof) for certain building services are set forth on Exhibit K
annexed hereto and made a part hereof.
10. Estoppel Certificates. (i) Within ten (10) days after written request
by Landlord, Tenant shall execute, acknowledge and deliver to Landlord or to
Landlord's mortgagee, prospective mortgagee, land lessor or prospective
purchaser of the Property or any part thereof, an estoppel certificate, in form
and substance substantially similar to that attached as EXHIBIT E and
incorporated herein by reference. Tenant shall make such modifications to such
estoppel certificate as may be necessary to make such certificate true and
accurate, it being intended that any such statement delivered pursuant to this
Article may be relied upon by any such mortgagee, prospective mortgagee,
prospective purchaser, or land lessor of the Property. If Tenant fails to
provide such estoppel certificate within ten (10) days after Landlord's request,
Tenant shall be deemed to have approved the contents of any such certificate
submitted to Tenant by Landlord and Landlord is hereby authorized to so certify.
(ii) Landlord will furnish an estoppel certificates (based upon
information then known to Landlord to the best of its knowledge) comparable to
those which Tenant is required to furnish to Landlord under this Article 11,
provided however, that Tenant makes a prior written request therefor for a
legitimate business purpose. Tenant agrees that Tenant shall not request that
Landlord furnish an estoppel certificate to Tenant as a pre-condition to
Tenant's compliance with Article 11(i).
12. Indemnification: Waiver of Claims.
12.1 Indemnification. Tenant shall protect, indemnify, and hold
harmless Landlord, its agents, servants, employees, officers, directors and
partners forever against and from (i) any penalty, damages, charges or costs
imposed or resulting from any violation of any Legal Requirement, or by the use
or occupancy or manner of use or occupancy of the Premises by Tenant or any
person claiming through or under Tenant in violation of any provision of this
Lease; (ii) all claims, losses, costs, damages and expenses, including
reasonable professionals' and attorneys' fees, arising out of or from any
accident or other occurrence on or about the Premises or the Property causing
injury to any person or property; (iii) all claims, losses, costs, damages and
expenses, including reasonable professionals' and attorneys' fees, arising out
of any
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failure of Tenant in any respect to comply with or perform all the requirements
and provisions of this Lease or arising out of any use of the Premises or the
Property by Tenant or any one claiming by, through or under Tenant; (iv) any
liability resulting from or incurred in connection with a contest of, and
non-compliance with, any Legal Requirement or Insurance Requirement or (v) any
acts, omissions or negligence of Tenant (or of Tenant and Landlord) or any
person claiming through or under Tenant, or the contractors, agents, emmployees,
invitees or licensees of Tenant or of any such person, in or about the Premises
or the Property by Tenant or any one claiming by, through or under Tenant; (iv)
any liability resulting from or incurred in connection with a contest of, and
non-compliance with, any Legal Requirement or Insurance Requirement or (v) any
acts, omissions or neglience of Tenant (or of Tenant and Landlord) or any person
claiming through or under Tenant, or the contractors, agents, employees,
invitees or licensees of Tenant or of any such person, in or about the Premises
or the Property either prior to,during or after the expiraton of, the Term. If
any action or proceeding shall be brought against Landlord, Landlord's agents,
Superior Lessor or Superior Mortgagee for attorneys' fees and disbursements in
connection with such action or proceeding. Any of the foregoing fees and
disbursements in connection with such action or proceeding. Any of the foregoing
indemnitees may, without derogating from its right to indemnification, retain
its own attorneys to assist in defending any claim, action or proceeding
involving potential liability in an amount greater than $50,000 (unless such
action or proceeding is being defended by counsel to Tenant's insurer and such
insurer does not so permit) but in such event so long as Tenant is resisting or
defending such action by reasonably satisfactory counsel as aforesaid. Tenant
shall not be required to pay the fees and disbursements of such indemnitee's
attorneys.
12.2 Waiver. Landlord shall not be liabile for, and Tenant hereby
waives all claims against Landlord, (i) for any and all damage or loss to
fixtures, equipment or other property of Tenant and its servants, agents,
employees, contractors, suppliers, invitees, patrons and guests, occuring in,
upon or about the Premises or the Property, or (ii) for injury or death to any
person, occuring in, upon or about the Premises or the Property, resulting from
any cause whatever (except if caused solely by the negligent or tortious act or
omission of Landlord or Landlord's servants, agents or employes), including, but
not limited to water, snow, frost, ice, explosion, falling plaster, fire or gas,
smoke or other fumes, nor by reason of the leaking, breaking, backing up or
other malfunction of any lines, wires, pipes, tanks, boilers, lifts or any other
appurtenances, regardless by whom installed or maintained (Tenant hereby
expressly assuming all responsibility for the safety and security of the person
and property of Tenant, and its servants, agents, employees, contractors,
suppliers, invitees, patrons and guests, while in, upon or about the Premises).
The occurrence of any event described in this Article 12 shall not constitute a
breach of Landlord's covenant of quiet enjoyment set forth in Article 17.
12.3 Survival. The provisions of this Article 12 shall survive the
expiration or any sooner termination of this Lease.
13. Insurance.
13.1 Tenant's Insurance. Tenant, at its sole cost and expense, shall
carry during the entire Term, the following types of insurance:
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13.1.1 Commerical general liability insurance against injuries
to persons occurring in, upon or about the Premises, with minimum coverage of
Three Million Dollars ($3,000,000) per occurrence, Three Million Dollars
($3,000,000) aggregate coverage per one (1) accident or disaster, and One
Million Dollars ($1,000,000) for property damage;
13.1.2 Fire, extended coverage, vandalism and malicious
mischief, and sprinkler damage and all-risk insurance coverage on all personal
property, trade fixtures, floor coverings, wall coverings furnishings,
furniture, and contents for their full insurance value on a replacement cost
basis;
13.1.3 Business interruption insurance, against loss or damage
resulting from the same risks as are covered by the insurance mentioned in
subparagraph (i) above in an amount equal to the aggregate of one (1) year's
requirement of (x) Base Rent, (y) the amounts payable by Tenant for Additional
Rent as provided in Section 3.2, and (ii) insurance premiums necessary to comply
with this Article 13; and
13.1.4 Workers' Compensation or similar insurance, if and to
the extent required by law and in form and amounts required by law.
13.2 Landlord as Additional Insured. All such insurance required to
be maintained by Tenant shall name Landlord and the managing agent for the
Building as additional insureds and shall be written with a company or companies
reasonably satisfactory to Landlord, having 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 Key Rating Guide" for insurance companies, and
authorized to engage in the business of insurance in the State of New York.
Tenant shall deliver to Landlord copies of such policies and customary insurance
certificates evidencing such paid-up insurance. Such insurance shall further
provide that the same may not be canceled, terminated or modified unless the
insurer gives Landlord and Landlord's mortgagee(s) at least sixty (60) days'
prior written notice hereof.
13.3 Landlord's Insurance. Landlord shall maintain in force, at all
times during the Term, a policy or policies of fire insurance to the extent of
at least eighty percent (80%) of the insurable value of the Building.
13.4 Increase in Premiums. If insurance premiums payable by Landlord
or any other tenant are increased as a result of any breach of Tenant's
obligations under this Lease or as a result of Tenant's use and occupancy of the
Premises, Tenant shall pay to Landlord an amount equal to any increase in such
insurance premiums.
14. Waiver of Subrogation. Neither Landlord nor Tenant shall be liable to
the other for any business interruption or any loss or damage to property or in
any manner growing out of connected with Tenant's use and occupation of the
Premises, the Building or the Property or the condition thereof, or of the
adjoining property, whether or not caused by the negligence or other fault of
Landlord or Tenant or of their respective agents, employees, subtenants,
licensees or assignees; provided, however, that this release shall apply only to
the extent that such business interruption or loss or damage is covered by
insurance, regardless of whether such insurance is
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payable to or protects Landlord or Tenant or both. Nothing in this Article 14
shall be construed to impose any other or greater liability upon either Landlord
or Tenant than would have existed in the absence hereof. Because this Article 14
will preclude the assignment of any claim mentioned in it by way of subrogation
(or otherwise) to an insurance company (or any other person), each party to this
Lease agrees immediately to give to each insurance company that has issued to it
policies of fire and extended coverage insurance, written notice of the terms of
the mutual waivers contained in this Article , and to have the insurance
policies properly endorsed, if necessary, to prevent the invalidation of the
insurance coverage because of the mutual waivers contained in this Article 14.
15. Surrender.
15.1 Tenant's Obligations. On the Expiration Date or upon the sooner
termination of this Lease or upon any re-entry by Landlord upon the Premises.
Tenant shall, at Tenant's expense, quit, surrender, vacate and deliver the
entire Premises to Landlord "broom clean" and in good order condition and
repair, except for ordinary wear and tear and damage by fire or other insured
casualty which Tenant is not otherwise required to restore pursuant to Article
19, together with all fixtures, except that with respect to fixtures installed
by or at the expense of Tenant, Landlord may elect, by notice given a reasonable
period of time prior to the expiration or sooner termination of the Lease
(except that if this Lease shallt erminate pursuant to Article 21 hereof, such
notice may be given within a reasonable time after such termination), to have
them removed by Tenant, in which event Tenant shall, at Tenant's expense,
promptly remove the same and restore the Premises to the condition thehy were in
prior to the installation of such fixtures by Tenant,subject to reasonable wear
and tear and damage as aforesaid, Tenant shall pay the cost of such removal and
restoration to Landlord within fifteen (15) business days after demand. Tenant
shall pay to Landlord any insurance proceeds received by Tenant attributable to
damage to fixtures which Tenant is required to surrender to Landlord under this
Lease to the extent such proceeds have not been expended for restoration of such
fixtures in accordance with this Lease, and Tenant hereby assigns to landlord
the right to receive any unpaid insurance proceeds payable in connection with
damage to any such fixtures. Tenant shall remove from the Property all Tenant's
Property and all personal property and personal effects of all persons claiming
through or under Tenant and shall pay the cost of repairing all damage to the
Premises and the Property occasioned by such removal. Any property of Tenant or
other personal property which shall remain in the Premises after the Expiration
Date, or for more than thirty (30) days after any earlier termination of this
Lease, may, at Landlord's option, be deemed to have been abandoned and in such
ase may be retained or otherwise treated by Landlord as Landlord's property or
may be disposed of, without accountability, in such manner as Landlord may
determine, at Tenant's expense, which expense shall be reimbursed to Landlord by
Tenant within fifteen (15) business days after demand.
15.2 Adjustment. If the Expiration Date or the date of sooner
termination of this Lease shall fall on a day which is not a business day, then
Tenant's obligations under Section 15.1 shall be performed on or prior to the
immediately preceding business day.
15.3 Waiver. Tenant expressly waives, for itself and for any person
claiming through or under Tenant, any rights which Tenant or any such person may
have under the
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provisions of Section 2201 of the New York Civil Practice Law and Rules and of
any similar or successor law of same import then in force, in connection with
any holdover proceedings which Landlord may institute to enforce the provisions
of this Article.
15.4 Holdover. If Tenant remains in possession of any portion of the
Premises after the termnation of this Lease without the execution of a new
lease, the parties recognize and agree that the damage to Landlord will be
substantial, will exceed the amount of monthly Base Rent, Additional Rent and
Other Charges theretofore payable hereunder and will be impossible to measure
accurately. Tenant, at the option of Landlord, shall be deemed to be occupying
the entire Premises as a tenant from month to month, at a monthly rental equal
to one hundred fifty (150%) percent of the Base Rent, Additional Rent and Other
Charges payable during the last month of the Term, subject to all of the other
terms of this Lease insofar as the same are applicable to a month-to-month
tenancy. Further, Tenant hereby indemnifies landlord against liability resulting
from delay by Tenant in so surrendering the Premises, including (a) any claims
made by any succeeding tenant or prospective tenant founded upon such delay, (b)
any payment or rent concesson which Landlord may be required to make to any
succeeding or prospective tenant for all or any part of the Premises in orde to
induce such tenant not to terminate its lease or its negotation therfor by
reason of Tenant's delay in so surrendering the Premises and (c) any loss
suffered if a succeeding or prospective tenant shall terminate its lease or not
proceed to execute and deliver its lease by reason of Tenant's delay in so
surrendering the Premises. Nothing herein contained shall be deemed to permit
Tenant to remain in possession of the Premises after the expiration or sooner
termination of the term of this Lease.
15.5 Acceptance of Surrender. No agreement to accept a surrender of
all or any part of Premises or this Lease shall be valid unless in writing and
signed by Landlord. No delivery of keys shall operate as termination of this
Lease or a surrender of the Premises or this Lease.
15.6 Tenant's Obligations. Tenant's obligations under this Article
shall survive the termination of this Lease.
16. Assignment, Mortgaging, Subletting, Etc.
16.1 Prohibitions. Tenant shall not by operation of law or therwise
(i) assign or otherwise transfer this Lease or the term and estate hereby
granted, (ii) sublet the Premises or any part thereof or allow the same to be
used or occupied by others, (iii) mortgage, pledge or encumber this Lease or the
Premises or anypart thereof in any manner by reason of any act or omission on
the part of Tenant, or (iv) advertise, or authorize a broker to advertise, for a
subtenant or an assignee, without in each instance, obtaining the prior written
consent of Landlord, except as otherwise expressly provided in this Article 16.
For purposes of this Article 16, (a) the transfer of a majority of the issued
and outstanding capital stock of any corporate tenant or of a corporate
subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, or the transfer of control in any limited
partnership teant or subtenant, however accomplished, whether in a single
transaction or in a series of related or unrelated transactions, shall be deemed
an assignment of this Lease, or of such sublease, as the case may be,except that
the transfer of the outstanding capital stock of any corporate tenant, or
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subtenant, shall be deemed not to include the sale of suchs tock by persons or
parties, other than those defined "affiliates" of Tenant within the meaning of
Rule 144 promulgated under the Securities Act of 1933, as amended, through the
"over-the-counter market" or through any recognized stock exchange, (b) any
increase in the amount of issued and/or outstanding capital stock of any
corporate tenant, or of a corporate subtenant, and/or the creation of one or
more additional classes of capital stock of any corporate tenant or any
corporate subtenant, in a single transaction or a series of related or unrelated
transactions, resulting in a change in the legal or beneficial ownership of such
tenant or subtenants such that the shareholders of such tenant or subtenant
existing immediately prior to such transaction or series of transactions shall
no longer own a majority of the issued and oustanding capital stock of such
tenant or subtenant, shall be deemed an assignment of this Lease, (c) an
agreement by any other person or entity, directly or indirectly, to assume
Tenant's obligations under this Lease shall be deemed an assignment, (d) any
peson or legal representative of Tenant, to whom Tenant's interest under this
Lease passes by operation of law, or otherwise, shall be bound by the provisions
of this Article 16, and (e) a modification, amendment or extension of a sublease
shall be deemed a sublease. Tenant agrees to furnish to Landlord upon demand at
any time such information and assurances as Landlord may reasonably request that
neither Tenant, nor any previously subtenant, has violated the provisions of
this Section 16.1.
16.2 Exempt Transactions. Subject to the following sentence, the
provisions of Section 16.1 hereof shall not apply to transactions with a
corporation into or with which Tenant transferred (provided such merger or
trasnfer of assets is for a good business purpose and not principally for the
purpose of transferring the leasehold estate created hereby, and provided
further, that the assignee has a net worth at least equal to or in excess of the
net worth of Tenant immediatelyp rior to such merger or transfer) or, if Tenant
is a partnership, with a successor patnership, nor shall the provisions, of
clauses (i) and (ii) of Section 16.1 apply to transactions with an entity that
controls or is controlle by Tenant or is under common control with Tenant.
Nothing in this Section shall permit Tenant or any successor to use or occupy
the Premises for a purpose other than the purpsoes stated in Article 5 of this
Lease.
16.3 Assumption of Liablity. Each assignee of trasnferee shall be
required to expressly assume the obligations and performance of this Lease and
shall agree to be bound by and upon all of the covenants, terms, and conditions
hereof on the part of Tenant to be performed or observed. Tenant covenants that,
notwithstanding any assignment or transfer, whether or not in violation of the
provisions of this Lease and notwithstanding the acceptance of rent by Landlord
from an assignee or transferee or any othe rparty, Tenant shall remain fully and
primarily liable for the payment of rent due and to become due under this Lease
and for the performance of all of the covenants, agreements, terms, provisions
and conditions of this Lease on the part of Tenant to be performed or observe.
16.4.1 Tenant shall furnish Landlord with the name and
business address of the proposed subtenant or assignee, informaiton with respect
to the nature and character of the proposed subtenant or assignee, information
with respect to the nature and character of the proposed subtenant's or
assignee's business or activities, such references and current financial
information with respect to net worth, credit and financial responsibility as
are
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reasonably satisfactory to Landlord and an executed counterpart of the sublease
or assignment agreement;
16.4.2 The proposed subtenant or assignee is a reputable party
whose financial net wroth, credit and financial responsibility is, considering
the responsibilities involved, reasonably satisfactory to Landlord;
16.4.3 The nature and character of the proposed subtenant or
assignee, its business or activities and intended use of the Premises is, in
Landlord's reasonable judgment, in keeping with the standards of the Building;
16.4.4 The proposed subtenant or assignee is not then an
occupant of any part of the Building or a praty who has dealt with Landlord or
Landlord's agent (directly or through a broker) with respect to space in the
Building during the 12 months immediately preceding Tenant's request for
Landlord's consent;
16.4.5 Each sublease shall state specifically that (i) it is
subject to all of the terms, covenants, agreements, provisions and conditions of
this Lease, (ii) the subtenant or assignee, as the case may be, will not have
the right to another assignment thereof or sublease or assignment thereunder or
to allow the Premises to be used by others, without the consent of Landlord in
each instance, (iii) a consent by Landlord thereto shall not be deemed or
construed to modify, amend or affect the terms and provisions of this Lease, or
Tenant obligations hereunder, which shall continue to apply to the premises
involved, and the occupants thereof, as if the sublease or assignemnts had not
been made, (iv) if Tenant defaults in the payment of any rent, Landlord is
authorized to collect any rents due or accruing from any assignee or subtenant
or ther occpant of the Premises and to apply the net amounts collected to the
Base Rent, Additional Rent and Other Charges reserved herein, (v) the receipt by
Landlord of any amounts from an assignee or subtenant, or other occupantof any
part of the Premises shall not be deemed or construed as releasing Tenant from
Tenant's obligations hereunder or the acceptance of that party as a direct
tenant;
16.4.6 Tenant, together with requesting Landlord's consent
hereunder, shall have paid Landlord any costs incurred by Landlord to review the
requested consent and assignment or sublease documents including any attorney's
fees and costs incurred by Landlord;
16.4.7 The proposed subtenant or assignee is not engaged in
any use prohibited by the provisions of Article 5; and
16.4.8 Tenant shall have granted to Landlord or its agent, at
Landlord's election, the exclusive agency to sublease the Premises or such
portion thereof as Tenant proposes to sublet, o to assign this Lease as the case
may be.
16.5 Additional Rent. If Landlord shall give its consent to any
assignment of this Lease or to any sublease, Tenant, in consideration therefor,
shall pay the following to Landlord, as Additional Rent:
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16.5.1 In the case of an assignemtn an amount equal to 50% of
all sums and other consideration paid to Tenant by the assignee for or by reason
of such assignment (including, bu tnot limited to, sums paid for the sale of
Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or
toher personal property, less, in the case of a sale thereof, the then net
unamotized or underpreciate cost thereof to Tenant determined on the basis of
Tenant's federal income tax returns); and
16.5.2 In the case of a sublease, 50% of any rents, additional
charges an other consideration payable under the sublease to Tenant by the
subtenant in excess of the Base Rent, Additional Rent and Othe Charges accruing
during the term of the sublease in respect of the subleased space (at the rate
per square foot payble by Tenant hereunder) pursuant to the terms hereof
(including, but not limited to, sums paid for the sale or rental of Tenant's
fixtures, leasehold improvements, equipment, furniture or other personal
property, less, in the case of the sale thereof, an amount equal to the then net
unamortized or undepreciated cost thereof to Tenant determined on the basis of
Tenant's federal income tax returns, which amount shall be amortized on a
straight line basis over the term of such sublease).
16.5.3 The sums payable under Section 16.5 shall be paid to
Landlord as and when paid by the assignee or subtenant to Tenant.
16.5.4 Anything in this Article 16 to the contrary
notwithstanding but provided Tenant shall have obtained from Landlord any
consent which Tenant is obligated to obtain pursuant to this Article 16, Tenant
shall have the righ to sublease 25% of the demised premises or any lessor amount
to a sole sublessee, and in connection with such subletting Tenant shall not be
obligated to pay Additional Rent to Landlord as outlined in this Section 16.5.
16.6 Commissions. Landlord shall have no liability for brokerage
commissions incurred with respect to any assignment of this Lease or any
subletting of the Premises by or on behalf of Tenant. Tenant shall pay, and
shall indemnify and hold Landlord harmless from and against, any and all cost,
expense (including reasonable attorneys' fees) and liability in connection with
any compensation, commissions or charges claimed by any broker or agent with
repsect to any such assignment or subletting.
17. Quiet Enjoyment. If, and so long as, Tenant pays the rent and keeps,
observes and performs each and every term of this Lease on the part of Tenant to
be kept, observed and performed, Tenant shall peaceably and quietly enjoy the
Premises throughout the Term without hindrance by Landlord or any person
lawfully claiming through or under Landlord, subject to the terms of this Lease
and of any lease, mortgage and other instrument to which this Lease is
subordinate.
18. Compliance with Laws and with Rules and Regulations.
18.1 Compliance with Laws by Tenant. Tenant, at its expense, shall
comply with all Legal Requirements and Insurance Requirements, at any time duly
issued and in force, affecting or related to the Premises or any part thereof;
PROVIDED, HOWEVER, that nothing contained in this Section 18.1 shall require
Tenant to make any structural changes unless the
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same (i) are necessitated by a condition which has been created by, or at the
instance of, Tenant, (ii) are attributable to the manner of use of the Premises,
(iii) are necessitated by reason of breach of any of Tenant's obligations under
this Lease, or (iv) are occasioned, in whole or in part, by any negligence of
Tenant or any person claiming by, through or under Tenant, including Tenant's
employees, agents, contractors, licensees and invitiees.
18.3 ComplianceWith Laws by Landlord. If and to the extent that
Tenant would be adversely affected by Landlord's failure to do so, Landlord, at
its expense, shall comply with all Legal Requirements applicable to the Building
or the Premises which are not the obligation of Tenant pursuant to Section 18.1,
but may defer compliance so long as Landlord shall be contesting in good faith
by appropriate proceedings the validity or applicability thereof. Landlord may
also contest Legal Requirements with which Tenant is required to comply pursuant
to this Lease.
18.4 Rules and Regulations. Tenant shall comply with all rules and
regulations for the Building, which current rules and regulations are attached
hereto as EXHIBIT F and with such reasonable modifications thereof and additions
thereto as Landloard may make hereafter, from time to time. Notwithstanding
anything contained in this Lease, Landlord shall not be responsible nor liable
to Tenant, or to Tenant's agents, representatives, employees, invitees or
licensees, for the nonobservance by any other tenant of any rules and
regulations.
19. Fire and Casualty.
19.1 Damage to Building or Premises. If the Premises or the Building
or any substantial part of either is damaged or destroyed by fire or other
casualty, cause or condition whatsoever, and such damage or destruction, in the
opinion of Landlord, cannot be repaired within one hundred twenty days (120)
days, Landlord may terminate this Lease, by written notice to Tenant givin
within sixity (60) days after such damage. If the Premises or a substantial part
thereof are made untenantable, then Landlord's termination shall be effective as
of the date of such damage; otherwise said termination shall be effective thirty
(30 days) after such notice.
19.2 Damage to Common Areas. If the Common Areas in the Building are
damaged or destroyed by fire or other casualty, cause or condition whatsoever,
to such an extent as to substantially interefere with Tenant's use of the
Premises or to render the Premises or a substantial part thereof untenatable,
and such damage or destruction, in the opinion of Landlord, cannot be repaired
withint one hundred twenty (120) days, then Tenant may terminate this Lease
giving written notice to landlord within sixty (60)days after such damage, said
termination to be effective as of the date of such damage.
19.3 Landlord's Repair Obligations. Unelss this Lease is temrinated
as herein above provided, Landlord shall proceed with due diligence to restore,
repair and replace the Premises and the Building to the same condition as they
were in as of the Commencment Date. Provided such damage or destruction was not
caused or contributed to by a tortious act or negligence of Tenant, its agents,
employees, inivitees or those for whom Tenant is responsible, from and after the
date of such damage to date of completion of said repairs replacements and
restorations, a just proportion of the rent shall abate accoprding to the extent
the full use and
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enjoyment of the Premises are rendered impossible by reason of such damage;
provided, further, Landlord shall provide notice to Tenant thirty (30) days
prior to the date Landlord anticipates the Premises and the Building shall be
repaired so as to be in the same condition as they were in as of the Commencment
Date, and said rent abatement shall continue in effect until thirty (30) days
afer the date of such notice (unless Tenant shall re-occupy the Premises, for
purposes other than preparing the Premises for Tenant's use as contemplated by
Article 5 hereof, in which event the rent abatement described herein shall
terminate). Landlord shall be under no duty to restore any alterations,
improvements or additions made by or required to be insured by Tenant. In all
cases, due allowance shall be given to Landlord for any delays caused by
adjustment of insurance loss, strikes, labor difficulties or any cause beyond
Landlord's control.
19.4 Agreement to the Contrary. The provisions of this Article 19
shall be considered an express agreement governing any cause of damage or
destruction of the Premises by fire or other casualty, and Section 227 of the
New York Real Property Law, providing for such a contingency in the absence of a
express agreement, and any other law of like import, now or hereafter in force,
shall have no application in such case.
19.5 Notwithstanding anything to the contrary herein, within sixty
(60) days after the occurrence of any casualty referred to in this Article 19,
Landlord shall furnish Tenant with a statement, prepared by a reputable
contractor, stating such contractor's estimate of the time required for the
Premises, and/or the Building, to be substantially repaired and/or restored to
the condition existing prior to such casualty. If the time to repair and/or
restore as so estimated shall exceed one hundred eighty (180) days, then Tenant
may terminate this Lease by notice to Landlord within twenty (20) days after
receipt of such estimate. If Tenant does not elect to so terminate this Lease,
Landlord shall promptly commence and diligently prosecute such repairs and
restoration to completion, and if the repairs and/or restoriation shall not be
substantially completed within two hundred seventy (270) days after the date of
such casualty (as extended by Force Majeure), then Tenant may terminate this
Lease by notice to Landlord within twenty (20) days after the expiration of such
two hundred seventy (270) day period (as so extended). If such casualty shall
occur during the last two (2) calendar years of the Term, Tenant may temrinate
this Lease if the estimated time to repair and/or restore shall exceed ninety
(90) days.
20. Eminent Domain.
20.1 Premises. If all the Premises or a substantial part thereof
shall be taken for any public or quasi-public use under any statute or by rights
of eminent domain or by priviate purchaser in lieu thereof, this Lease shall
terminate as of the date of vesting of title. Landlord shall be entitled to
receive the entire award paid for such taking or condemnation. Tenant hereby
assigning to Landlord all Tenant's right, title and interest therein, if any.
Nothing contained herein shall be deemed to give Landlord any interest in or to
require Tenant to assign to Landlord any award made to Tenant for the taking of
personal property or fixtures belonging to Tenant for, the the interruption of
or damage to Tenant's business or for Tenant's moving expenses but only if such
award shall be in addition
20.2 Building. If fifty percent (50%) or more of the Building other
than the Premises shall be condemned, taken or purchased in lieu thereof, then
Landlord may terminate
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this Lease by notifying Tenant of such termination within sixty (60) days after
the date of vesting of title. This Lease shall expire on the date specifiedin
such notice of termination, which date shall be not less than sixty (60) days
after the giving of such notice. The rent hereunder shall be apportioned as of
such termination date.
20.3 Rent Abatement. Any such taking, condemnation or temporary
requisition which does not result in a termination of this Lease, as
hereinbefore provided in this Article 20, sahll not be cause for any reduction
or diminution of the rental payment hereunder.
21. Conditions of Limitation.
21.1 Conditions. This Lease and the Term and estate hereby granted
are subject to the limitations that:
21.1.1 If Tenant shall file a voluntary petition seeking an
order for relief under Title 11 of the United States Code, or Tenant shall be
adjudicated a debtor, bankrupt or insolvent, or shall file any petition or
answer seeking, consenting to or acquiescing in any order for relief,
reorganization, arrangement, composition, adjustment, winding-up, liquidation,
dissolution or similar relief with respect to Tenant or its debts under the
present or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law (foreign or domestic), or
shall filean answer admitting or failing to deny the material allegations of a
petition against it for any such relief or shall generally not, or shall be
unable to, pay its debts as they become due or shall admit its insolvency or its
inability to pay its debts as they become due, or shall make a general
assignment for the benefit of creditors or shall seek or consent or acquiesce in
the appointment of any trustee, receiver, exainer, assignee, sequestrator,
custodian or liquidator or similar official of Tenant or of all or any part of
Tenant's property or if Tenant hsall take any action in furtherance of or
authorizing any of the foregoing; or if Tenant shall call a meeting of, or
propose any form of arranagement, composition, extension or adjustment with, its
creditors holding a majority in amount of Tenant's outstanding indebtedness; or
21.1.2 If any case, proceeding or other action shall be
commenced or instituted against Tenant, seeking to adjudicate Tenant a bankrupt
or insolvent, or seeking an order for relief against Tenant as debtor, or
reorganization, arrangement, composition, adjustment, winding-up, liquidation,
dissolution or similar relief with respect to Tenant or its debts under any
present or future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law (foreign or domestic), or
seeking appointment of any trustee, receiver, examiner, assignee, sequestrator,
custodian or liquidator or similar offical of Tenant or of all or any part of
Tenant's property, which either (i) results in the entry of an order for relief,
adjudication of bankruptcy or insolvency or such an appointment or the issuance
or entry of any other order having a similar effect or (ii) remains undismissed
for a period of 60 days; or if any case, proceeding or other action shall be
commenced or instituted against Tenant seeking issuance of a warrant of
execution, attachment, distraint or similar process against Tenant or any of
Tenant's prperty which results in either (x) the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within ninety (90) days
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afte the entry thereof or (y) the taking or occupancy of the Premises or an
attempt to take or occupy the Premises; or
21.1.3 Intentionally deleted.
21.1.4 If Tenant shall default in the payment when due of any
installment of Base Rent or in the payment when due of any Additional Rent or
Other Charges, and any such defualt shall continue for a period of fifteen (15)
days after notice by Landlord to Tenant that such rent is due; or
21.1.5 If Tenant shall default in the peformance of any term
of this Lease on Tenant's part to be performed (other than the payment of Base
Rent, Additional Rent or Other Charges) and Tenant shall fail to remedy such
default as soon as practicable and in any event within twenty (20) business days
after notice by Landlord to Tenant of such default, or if such default is of
such a nature that it can be remedied, but cannot be completely remedied within
said period of twenty (20) business days, if Tenant shall not (i) promptly upon
the giving by Landlord of such notice, advise Landlord of Tenant's intention to
institute all steps necessary to remedy such situation, (ii) promptly institute
and thereafter diligently prsoecute to completion all steps necessary to remedy
the same, and (iii) complete such remedy within a reasonable time after the date
of the giving of said notice by Landlord and in any event prior to such time as
would either (x) subject Landlord, Landlord's agents, Superior Lessor or
Superior Mortgagee to prosecution for a crime, or (y) cause a default under the
Superior Lease or the Superior Mortgage; or
21.1.6 If any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
Term would, by operation of law or otherwise, devolve upon or pass to any person
other than Tenant except as is expressly permitted under Article 16; or
21.1.7 If the Premises shall become vacant or deserted for a
period of ten (10) consecutive days or abandoned (and the fact that any of
Tenant's property remains in the Premises shall not constitute evidence that
tenant has not vacated, deserted or abandoned the Premises) or if Tenant shall
fail to take occupancy of the Premises, or a floor thereof, as the case may be,
within thirty (30) days after delivery of possession thereof; or
21.1.8 If Tenant shall default in the performance of any term,
covenant, agreement or condition on Tenant's part to be observed or performed
under any other lease with Landlord of space in the Building and such default
shall continue beyond the grade period, if any, set forth in such other lease
for the remedying of such default.
then in any of said events (wiuth any of said events sometimes being refered to
in this Lease as an "Event of Default") Landlord may give to Tenant notice of
intention to terminate this Lease and to end the Term and the estate hereby
granted at the expiration of seven (7) days from the date of the giving of such
notice, and, in the event such notice is given, this Lease and the Term and
estate hereby granted (whether or not the Term shall have commenced) shall
termiante upon the expiration of such seven (7) day period with the same effect
as if that day were the Expiration
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Date, but Tenant shall remain liable as provided in Article 22. However, if
Tenant shal default (i) in the timely payment of Base Rent or Additional Rent
and any such default shall occur in two (2) consecutive months or for a total of
four (4) months in any period of twelve (12) months or (ii) in the performance
of any other term of this Lease to be performed by Tenant more than three (3)
times in any period of six (6) months, then, notwithstanding that such defaults
shall have each been cured within the applicable period, if any, as above
provided, any further similar default shall be deemed to be deliberate and
Landlord thereafter may serve such seven (7) days' notice of termination upon
Tenant without affording to Tenant an opportunity to cure such further default.
21.2 Notice. Nothing in Section 21.1 shall be deemed to require
Landlord to give the notices therein provided for prior to the commencement of a
summary proceeding for non-payment of rent or a plenary action for the recovery
of rent on account of any default in the payment of the same, it being intended
that such notices are for the sole purpose of creating a conditional limitation
hereunder pursuant to which this Lease shall termiante and if Tenant thereafter
remains in possession or occupany, it shall become a holdover tenant.
21.3 Termination of Services. If the Premises shall at any time be
or become vacant, deserted or abandoned or if Tenant shall be in default beyond
any applicable grace period provided in Section 21.1, then, in any such event,
Landlord may without notice, terminate all service required to be furnished by
Landlord pursuant to this Lease.
21.4 Definition of Tenant. If, at any time, (i) Tenant shall be
comprised of two or more persons, or (ii) there is a guarantor of any of
Tenant's obligations under this Lease, or (iii) Tenant's interest in this Lease
shall have been assigned, the word "Tenant", as used in Sections 21.1.1 and
21.1.2, shall mean any one or more of the persons primarily or secondarily
liable for Tenant's oblgiations under this Lease. Any sums received by Landlord
from or on behalf of Tenant during the pendency of any proceeding of the types
referred to in Sections 21.1.1 and 21.1.2 shall be deemed paid as compensation
for the use and occupation of the Premises and the acceptance of any such
compensation by Landlord shall not be deemed an acceptance of rent or a waiver
on thepart of Landlord of any rights under this Article or Article 22.
22. Re-Entry by Landlord; Remedies.
22.1 Re-Entry. If Tenant shall default in the payment whend ue of
any installment of Base Rent or in the payment whend ue of any Additional Rent
and such default shall continue for a period of fifteen (15) days after notice
from Landlord to Tenant of such default or if this Lease and the Term shall
terminate as provided in Article 21;
22.1.1 Landlord and Landlord's agents may immediately, or at
any time after such default or after the date upon which this Lease and the Term
shall terminate, re-enter the Premises or any part thereof, without notice,
either by summary proceedings or by any other applicable action or proceeding,
or by force or otherwise (without being liable to indictment, prosecution or
damages therefor),and may repossess thePremises and dispossess Tenant and any
other persons from the Premises and remove any or all of its or their property
and effects from
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the Premises, without liability for damage thereto, to the end that Landlord may
have, hold and enjoy the Premises; and
22.1.2 Landlord, at the Landlord's option, may relet the whole
or any part or parts of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord in its sole discretion may determine. Landlord shall have no obligation
to relet the Premises or any part thereof and shall in no event be liable for
refusal or failure to relet the Premises or any part thereof, or, in the event
of any such reletting, for refusal or failure to collect any rent upon any such
reletting, and no such refusal or failure shall operate to relieve Tenant of any
liability under this Lease or otherwise to affect any such liability. Landlord,
at Landlord's option, amy make such repairs, improvements, alterations,
additions, decorations and other physical changes in and to the Premises as
Landlord, in its sole discretion, considers advisable or necessary in connection
with any such reletting or proposed reletting, without relieving Tenant of any
liability under this Lease or otherwise affecting any such liability.
22.1.3 No such re-entry or taking possession of the Premises
by Landlord shall be construed as an acceptance of surrender or an election by
Landlord to termiante this Lease, unless Landlord gives written notice to Tenant
of such election. In the event Landlord relets the whole or any part or parts of
the Premises pursuant to this Article 22 without terminating this Lease,
Landlord may at any time thereafter elect to terminate this Lease for such
previous default.
22.2 Waiver. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby expressly
waive any and all rights, so far as is permitted by law, which Tenant and all
such persons might otherwise have to (i) the service of any notice of intention
to re-enter or to institute legal proceedings to that end, (ii) redeem the
Premises or any interest hterein, (iii) re-enter or repossess the Premises, or
(iv) restore the operation of this Lease after Tenant shall have been
dispossessed by a judgment or by a warrant of any court or judge, or after any
re-entry by Landlord, or after any termination of this Lease, whether such
dispossess, re-entry by Landlord or termination shall be by operation of law or
pursuant to the provisions of this Lease. The words "re-enter," "re-entry" and
"re-entered" as used in this Lease shall not be deemed to be restricted to their
technical legal meanings.
22.3 Injunctive Relief. In the event of any breach or threatened
breach by Tenant or any person claiming through or under Tenant of any of the
terms of this Lease, Landlord shall be entitled to enjoin such breach or
threatened breach and shall have the right to invoke any right allowed at law or
in equity, by statute or otherwise, as if re-entry, summary proceedings or other
specific remedies were not provided for in this Lease.
22.4 Termination. If this Lease shall terminate as provided in
Article 21, or by or under any summary proceeding or any other action or
proceeding, or if Landlord shall re-enter the Premises as provided in this
Article, or by or under any summary proceeding or any other action or
proceeding, then, in any of said events:
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22.4.1 Tenant shall pay to Landlord all rent to the date upon
which this Lease shall have been termianted or to the date of re-entry upon the
Premises by Landlord, as the case may be;
22.4.2 Landlord shall be entitled to retain all money, if any,
paid by Tenant to Landlord, whether as advance rent, security or otherwise, but
such money shall be credited by Landlord against any rent due at the time of
such termiantion or re-entry or, at Landlord" option, against any damages
payable by Tenant;
22.4.3 Tenant shall be liable for and shall pay to Landlord,
as damages, any deficiency between the rent payable hereunder for the period
whichotherwise would have constituted the unexpired portion of the Term
(conclusively presuming the Additional Rent for each year thereof to be the same
as was payable for the year immediately preceding such termination or re-entry)
and the net amount, if any, of rents ("Net Rent") collected under any reletting
effected pursuant to the provisions of Section 22.1 for any part of such period
(first deducting from the rents collected under any such reletting all of
Landlord's expenses in connection with the termination of this Lease or
Landlord's re-entry upon the Premises and in connection with such reletting,
including all repossession costs, brokerage commissions, legal expenses
(including attorneys' fees and disbursements), alteration costs and other
expenses of preparing the Premises for such reletting);
22.4.4 Any deficiency in accordance with Section 22.4.3 above
shall be paid in monthly installments by Tenant on the days specified in this
Lease for the payment of installments of Base Rent. Landlord shall be entitled
to recover from Tenant each monthly deficiency as the same shall arise and no
suit to collect the amount of the deificency for any month shall prejudice
Landlord's right to collect the deficiency for any prior or subsequent month by
a similar proceeding. Suit or suits for the recovery of such deficiencies may be
brought by Landlord from time to time at its election;
22.4.5 Whether or not Landlord shall have collected any
monthly deficiencies as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay Landlord, on demand, as and for liquidated and
agreed final damages and not as a penalty, a sum equal to the amount by which
the Base Rent and Additional Rent payable hereunder for the perido from the
latest of (i) the date of termination of this Lease, (ii) the date of re-entry,
or (iii) th date through which monthly deficiencies shall have been paid in
full, to the Expiraton Date (conclusively presuming the Additional Rent for each
year thereof to be the same as was payble for the year immediately preceding
such termiantion or re-entry) exceeds the then fair and reasonable rental value
of the Premises for the same period, both discounted at the rate of 4% per annum
to present worth. If, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the Premises, or any part thereof, shall have
been relet by Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent upon such
reletting shall be deemed, prima facie, to be the fair and reasonable rental
value for the part or the whole of the Premises (as the case may be) so relet
during the term of the reletting; and
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22.4.6 In no event shall Tenant be entitled (i) to receive any
excess of any Net Rent under Section 22.4.3 over the sums payable by Tenant to
Landlord hereunder or (ii) in any suit for the collection of damages pursuant to
this Section, to a credit in respect of any Net Rent from a reletting except to
the extent that such Net Rent is actually received by Landlord prior to the
commencement of such suit. If the Premises or any part thereof should be relet
in combination with other space, then proper aportionment on a square foot area
basis shall be made of the rent received from such reletting and the expenses of
reletting.
22.5 Termination/Re-Entry. If this Lease be terminated as provided
in Article 21 or by or under any summary proceeding or any other action or
proceeding, or if Landlord shall re-enter the Premises, Tenant covenants and
agrees that Landlord shall be deemed to have timely given any notice or request
to in Section 15.1;
22.5.1 The Premises shall be, upon such earlier termination or
re-entry, in the same condition as that in which Tenant has agreed to surrender
them to Landord on the Expiration Date;
22.5.2 Tenant, on or before the occurrence of any default
hereunder, shall have performed every covenant contained in this Lease for the
making of any Alteration to the Premises or for repairing any part thereof; and
22.5.3 For the breach of either Section 22.5.1 or 22.5.2, or
both, Landlord shall be entitled immediately, without notice or other action by
Landlord, to recover, and Tenant shall pay, as and for agreed damages therefor,
the then cost of performing such covenants, plus interest thereon at the
Interest Rate from time to time in effect for the period from the date of the
occurrence of any default to the date of payment.
22.6 Independent Covenants. Each and every covenant contained in
this Article shall be deemed separate and independent, and not dependent on any
other term of this Lease for the use and occupancy of the Premises by Tenant,
and the performance of any such term shall not be considered to be rent or other
payment for use of the Premises. It is understood tha the consideration for the
covenants in this Article is the making of this Lease, and the damages for
failure to perform the same shall be in addition to and separate and independent
of the damages accruing by reason of default in observing any other term of this
Lease.
22.7 Damages. Nothing herein contained shall be construed as
limiting or precluding the recovery by Landlord against Tenant of any sums or
damages to which, in addition to the damages particularly provided above,
Landlord may lawfully be entitled by reason of any default hereunder on the part
of Tenant.
22.8 Landlord's Right to Cure. If Tenant shall default in the
performance of any term of this Lease on Tenant's part to be performed,
Landlord, without thereby waiving such default and without liability to Tenant
in connection therewith, may, but shall not be obligated to, perform the same
for the account and at the expense of Tenant, without notice in case of
emergency or the failure by Tenant to procure and maintain insurance as required
by Article 13 hereof or to pay all preimiums or charges therefor, and after five
(5) business days' prior notice
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in all other cases. Landlord may enter the Premises at any time to cure any
default without any liability to Tenant. Bills for any expenses incurred by
Landlord in connection with any such performance or involved in collecting or
endeavoring to collect rent or enforcing or endeavoring to enforce any rights
against Tenant under or in connection with this Lease or pursuant to law,
including any cost, expense and disbursement involved in instituting and
prosecuting summary proceedings, as well as bills for any property, material,
labor or services provided, furnished or rendered, including reasonable
attorneys' fees and disbursements, plus interest at the Interest Rate from time
to time in effect on any amounts expended by Landlord from the date of outlay to
the date of reimbursement by Tenant, shall be paid by Tenant to Landlord as
Additional Rent within five (5) business days after demand therefor.
22.9 Cumulative Rights. Each right of Landlord provided for in this
Lease shall be cumulative and shall be in addition to every other right provided
for in this Lease or now or hereafter existing at law or in equity, by statute
or otherwise, and the exercise or beginning of the exercise by Landlord of any
one or more of such rights shall not preclude the simultaneous or later exercise
by Landlord or any or all other rights provided for in this Lease or now or
hereafter existing at law, in equity, by statute or otherwise.
23. Insolvency.
23.1 Assignment in Bankruptcy. If Tenant or a trustee apppointed
pursuant to the provisions of Title 11 of the United States Code (the
"Bankruptcy Code") shall propose to assume and assign this Lease, pursuant to
the provisions of the Bankruptcy Code, to any person who shall have made a bona
fide offer to accept an assignemnt of this Lease on terms acceptable to Tenant
or such trustee, then otice of such proposed assignment, setting forth (i) the
ifnormaiton required to be given pursuant to Section 16.5.1, (ii) all of the
terms and conditions of such offer, and (iii) the adequate assurance to be
provided to Landlord to assure such person's future performance under this
Lease, shall be given to Landlord by Tenant or such trustee no later than twenty
(20) days after receipt by Tenant or such trustee of such offer, but in any
event no later than ten (10) days prior to the date that Tenant or such trustee
shall make application to a court of competent jurisdiction for authority and
approval to assume this Lease and enter into such assignment, and landlord shall
thereupon have the option, to be exercised by notice to Tenant or such trustee
given at any time prior to the date of such application, to accept an assignment
of this Lease upon the same terms and conditions and for the same consideration,
if any, as the bona fide offer made by such person, less any brokerage
commissions which may be payable out of the consideration to be paid by such
person for the assignment of this Lease. If Landlord does not exercise its
option to accept an assignment of this Lease, Tenant or such trustee may proceed
with such application, provided that the proposed assignee is of a character and
financial worth such as is in keeping with the standards of Landlord for the
Building, the nature of the proposed assignee's business and its reputation are
in keeping with the character of the Building and its tenancies, and the
purposes for which the proposed assignee itnends to use the Premises are uses
expressly permitted by and not prohibited by this Lease or prohibited by any
other lease in the Building and provided futher that the provisions of Section
16.6 shall be fully aplicable to any such assignment.
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23.2 Assumption by Assignee. Any person to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations of Tenant to
be performed under this Lease from and after the date of such assignment. Any
such assignee shall, upon demand, execute and deliver to Landlord an instrument
confirming such assumption.
23.3 Additional Assurance. In any instance in which this Lease is to
be assumed or assigned pursuant to the Bankruptcy Code, and such assumption or
assignment is conditioned in the Bankruptcy Code on the provision of adequate
assurance of future performance under the unexpired lease, any such adequate
assurance shall include a security deposit in an amount at least equal to the
Base Rent then payable under this Lease.
24. Waiver of Default or Remedy. No waiver of any covenant or condition or
of the breach of any covenant or condition nor to justify or authorize the
nonobservance on any other occasion of the same or of any other covenant or
condition hereof, nor shall the acceptance of rent by Landlord at any time when
Tenant is in default under any covenant or condition hereof be construed as a
waiver of such default or of Landlord's right to terminate this Lease on account
of such default, nor shall any waiver or indulgence granted by Landlord to
Tenant be taken as an estoppel against Landlord, it being expressly understood
that if at any time Tenant shall be in default in any of its covenants or
conditions hereunder an acceptance by Landlord of rental during the continuance
of such default or the failure on the part of Landlord promptly to avail itself
of such rights or remedies as Landlord may have, shall not be construed as a
waiver of such default, but Landlord may at any time thereafter, if such default
continues, terminate this Lease or assert any other rights or remedies available
to it on account of such default in the manner hereinbefore provided.
25. Landlord's Lien. As security for Tenant's payment of rent, damages and
all other payments required to be made by Tenant pursuant to this Lease, Tenant
hereby grants to Landlord a lien upon all property of Tenant now or subsequently
located upon the Premises. If Tenant abandons or vacates any substantial portion
of the Premises or is in default in the payment of any rental, damage or other
payments required to be made pursuant to this Lease, Landlord may enter upon the
Premises, by force if necessary, and take possession of all or any part of the
personal property, and may sell all or part of the personal property at a public
or private sale, in one or successive sales, with or without notice, to the
highest bidder for cash, and, on behalf of Tenant, sell and convey all or part
of the personal property delivering to the highest bidder all of Tenant's title
and interest in the personal property sold. The proceeds of the sale of the
personal property shall be applied by Landlord toward the cost of the sale and
then toward the payment of all sums then due by Tenant to Landlord pursuant to
the terms of this Lease.
26. Uniform Commercial Code. To the extent, if any, this Lease grants
Landlord any lien or lien rights greater than provided by the laws pertaining to
"Landlord's Liens," this Lease is intended as and constitutes a security
agreement within the meaning of the Uniform Commercial Code of the state in
which the Premises are located. In addition to the rights prescribed in this
Lease, Landlord shall have all of the rights, titles, liens and interests in and
to Tenant's property now or hereafter located upon the Premises that are granted
a secured party, as that term is defined under the Uniform Commercial Code of
the state in which the Premises are
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located, to secure payment to Landlord of the various amounts required to be
paid by Landlord pursuant to the terms of this Lease. Tenant will on request
execute and deliver to Landlord a financing statement for the purpose of
perfecting Landlord's security interest under this Lease or Landlord may file
this Lease or a memorandum of lease as a financing statement.
27. Force Majeure. If Landlord shall be delayed, hindered in or prevented
from the performance of any act required hereunder by reason of strikes,
lockouts, labor troubles, inability to procure materials, failure of power,
riots, insurrection, war or any other reason beyond the reasonable control of
Landlord, then performance of such act shall be excused for the period of the
delay and the period for the performance of any such act shall be extended for a
reasonable period, as necessitated such delay ("Force Majeure"). No such
interruption of any service to be provided by Landlord shall ever be deemed to
be an eviction, actual or constructive, or disturbance of Tenant's use and
possession of the Premises, the Building or the Property.
28. Subordination of Lease.
28.1 Lease is Subordinate. This Lease and all rights of Tenant
hereunde are and shall be subject and subordinate in all respects to (i) all
present and future ground leases, operating leases, superior leases, overriding
leases and underlying leases and grants of term of the Land and the Building or
any portion of either thereof (collectively, including the applicable items set
forth in clause (iv) of this Section 28.1, the "Superior Lease"), (ii) all
mortgages and building loan agreements, including leasehold mortgages and
spreader and consolidation agreements, which may now or hereafter affect the
Land, the Building or the Superior Lease (collectively, including the aplicable
items set forth in clauses (iii) and (iv) of this Section 28.1, the "Superior
Mortgage") whether or not the Superior Mortgage shall also cover other lands or
buildings or leases (iii) each advance made or to be made under the Superior
Mortgage, and (iv) all renewals, modificaitons, replacements, supplements,
substitutions and extensions of the Superior Lease and the Superior Mortgage and
all spreaders and consolidations of the Superior Mortgage. The provisions of
this Section shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination, Tenant shall, however,
promptly execute and deliver, at its own cost and expense, any instrument in
recordable form if requested, that Landlord, Superior Lessor or Superior
Mortgagee may reasonably request to evidence such subordination. If, in
connection with the obtaining, continuing or renewing of financing, a Superior
Lessor or Superior Mortgagee or a prospective Superior Lessor or prospective
Superior Mortgagee shall request reasonable modifications of this Lease as a
condition of such financing, Tenant will not unreasonably withhold its consent
thereto, provided that such modifications do not materially and adversely either
increase the obligations of Tenant hereunder or impair the rights of Tenant
under this Lease. When used in this Lease, "Superior Mortgagee" shall mean,
collectively, all holders at the time of a Superior Mortgage; and "Superior
Lessor" shall mean, collectively, all lessors at the the time of a Superior
Lease.
28.2 Consent Required. Landlord hereby notifies Tenant that this
Lease may not be cancelled or surrendered, or modified or amended in any
material respect and that Landlord may not accept prepayments of any
installments of rent except for prepayments in the nature of security for the
performance of Tenant's obligations hereunder without the consent of Superior
Lessor and Superior Mortgagee in each instance, except that said consent shall
not be
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required to the institution or prosecution of any action or proceedings against
Tenant by reason of a default on the part of Tenant under the terms of this
Lease.
28.3 Attornment. If at any time prior to the expiration or
termination of this Lease, Superior Lessor or Superior Mortgagee or any person,
or Superior Lessor's or Superior Mortgagee's or such person's successors or
assigns (Superior Lessor, Superior Mortgagee and any such peson or successor or
assign succeeding to the rights of Landlord under this Lease by reason of
Landlord's default under a Superior Lease or Superior Mortgage being herein
collectively referred to as "Successor Landlord") shall succeed, through
possession, surrender, assignment, subletting, foreclosure or delivery of a new
lease or deed or otherwise, to the rights of Landlord under this Lease by reason
of Landlord's default under a Superior Lease or Superior Mortgage. Tenant
agrees, at the election and upon request of any such Successor Landlord, as
Tenant's Landlord under this Lease upon the then executory terms of this Lease;
provided such Successor Landlord shall agree in writing to accept Tenant's
attornment. The foregoing provisions of this Section shall inure to the benefit
of any such Successor Landlord, shall apply notwithstanding that, as a matter of
law, this Lease may terminate upon the terminationof the Superior Lease or the
foreclosure of the Superior Mortgage, shall be self-operative upon any such
demand, an no further instrument shall be required to give effort to said
provisions. Tenant, however, upon demand of any such Successor Landlord, shall
execute, from time to time, instruments to evidence and confirm the foregoing
provisions of this Section, satisfactory to any such Successor Landlord,
acknowledging such attornment and setting forth the terms and conditions of its
tenancy and Tenant hereby constitutes and appoints Landlord attorney-in-fact for
Tenant to execute any such instrument for and on behalf of Tenant, such
appointment being coupled with an interest. Upon such attornment this Lease
shall continue in full force and effect as a direct lease between such Successor
Landlord and Tenant upon all of the then executory terms of this Lease except
that such Successor Landlord shall not be (i) liable for any previous act,
omission or negligence of Landlord under this Lease; (ii) subject to any
counterclaim, defense or offset which theretofore shall have accrued to Tenant
against Landlord; (iii) bound by any previous modification or amendment of this
Lease or by any previous prepayment of more than one month's rent, unless such
modifiation or prepayment shall have been approved in writing by Superior Lessor
or Superior Mortgagee through or by reason of which the Successor Landlord shall
have succeeded to the rights of such Landlord under this Lease; (iv) liable for
any security deposited pursuant to this Leaseunless such security has actually
been delivered to Successor Landlord; (v) obligated to repair the Premises or
the Building or any part thereof in the event of total or substantial damage,
beyond such repair as can reasonably be accomplished from the net proceeds of
insurance actually made available to Successor Landlord; (vi) obligated to
repair the Premises or the Building or any part thereof in the event of partial
condemnation, beyond such repair as can reasonably be accomplished from the net
proceeds of any award actually made available to Successor Landlord, as
consequential damages allocable to the part of the Premises or the Building not
taken; or (vii) obligated toperform any work in order to prepare the Premises
for Tenant's occupancy thereof. Nothing contained in this Section shall be
construed to impair any right otherwise exercisable by any such owner, holder or
lessee.
28.4 Right to Cure. If any act or omission by Landlord would give
Tenant te right, immeidately or after lapse of time, to cancel or terminate this
Lease or to claim a partial or total eviction, abatement of rent, setoff or
counterclaim, Tenant will not exercise any such right
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until (i) it has given written notice of such act or omission to each Superior
Mortgagee and each Superior Lessor, whose name and address shall have previously
been furnished to Tenant, by delivering notice of such act or omission addressed
to each such party at its last address so furnished, and (ii) a reasonable
period for remedying such act or omission shall have elapsed following such
giving of notice and following the time when such Superior Mortgagee or Superior
Lessor shall have become entitled under such Superior Mortgage or Superior
Lease, as the case may be, to remedy the same (which shall in no event be less
than the period to which Landlord would be entitled under this Lease to effect
such remedy) provided that such Superior Mortgagee or Superior Lessor shall,
with reasonable diligence, give Tenant notice of intention to, and commence and
continue to, remedy such act or omission o to cause the same to be remedied.
29. Notices. All notices, demands, requests, consents and approvals (each
a "notice") that may or are required to be given by either party to the other
shall be in writing and shall be deemed given when sent by United States
certified or registered mail, postage prepaid, or by overnight courier (i) if to
Tenant , addressed to Tenant at the Building, with a copy to Weiss, Buell &
Bell, 350 fifth Avenue, Suite 1210, New York, New York 10118, Attention: Carol
L. Buell, Esq., or at such other place as Tenant may from time to time designate
by notice to Landlord, or (ii) if for Landlord, addressed to Landlord c/o Koll
Management Services Inc., 140 East 45th Street, New York, New York 10017,
Attention: Real Estate Manager (2 Rector Street), with a copy to Landlord at 275
East Broad Street, Columbus, Ohio 43215, Attention: Real Estate Manager, and a
copy to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038, Attention: David A. Rahm, Esq., or at such other place as Landlord may
from time to time designate by notice to Tenant. All consents and approvals
provided for herein must be in writing to be valid. Notice shall be deemed to
have been given if addressed and mailed as above provided on the date two (2)
business days after deposit in the United States mail or one (1) business day
after deposit with an overnight courier.
30. Security Deposit. (a) Tenant has deposited with Landlord the sum of
THREE HUNDRED THOUSAND AND 00/100THS DOLLARS ($300,000.00) as security for the
full and faithful performance of every provision of this Lease, including, but
not limited to, the provisions relating to the payment of rent, Landlord may
use, apply or retain all or any part of this security deposit for the payment of
any rent or any other sum in default or for the payment of any other amount that
Landlord for any other loss, cost or damage that Landlord may suffer by reason
of Tenant's default. If any portion of said deposit is so used or applied,
Tenant shall, within five (5) days after written demand therefor, deposit cash
with Landlord in an amount sufficient to restore the security deposit to its
original amount and Tenant's failure to do so shall be a default under this
Lease. Landlord shall not, unless otherwise required by law, be required to keep
this security deposit separate from Landlord's general funds, nor pay interest
to Tenant. If Landlord is required by law to maintain said deposit in an
interest bearing account, Landlord will retain the maximum amount permitted
under applicable law as a bookkeeping and administrative charge. If Tenant shall
fully and faithfully perform every provision of this Lease to be performed by
it, the security deposit or any balance thereof shall be returned to Tenant (or,
at Landlord's option, to the last transferee of Tenant's interest hereunder) at
the expiration of the Lease Term and upon Tenant's vacation of the Premises. In
the event of bankruptcy or other debtor-creditor proceedings against Tenant,
such security deposit shall be deemed to applied first to the payment of rent
and other charges due Landlord for all periods prior to filing of such
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proceedings. Landlord may deliver the security deposit to the purchaser of
Landlord's interest in the Premises in the event that such interest be sold and
thereupon Landlord shall be discharged from any further liability with respect
to the such deposit, and this provision shall also apply to any subsequent
transferees of Landlord.
(b) A. Notwithstanding anything to the contrary contained in Section
30 (a) above, in lieu of a cash security deposit, Tenant may deliver to Landlord
a clean, irrevocable, transferable and unconditional letter of credit (the
"Letter of Credit") issued by and drawn upon a commercial bank (hereinafter
referred to as the "Issuing Bank") which shall be a member bank of the New York
Clearinghouse Association, which Letter of Credit shall: (i) have a term of not
less than one year, (ii) be in the form annexed hereto as Exhibit J, (iii) be
for the benefit of Landlord, (iv) be in the amount of $300,000, (v) except as
otherwise provided in this Section, conform and be subject to Uniform Customs
and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500 (or
any revision thereof or successor thereto), (vi) be fully transferable by
Landlord without any fees or charges therefor (or, if the Letter of Credit shall
provide for the payment of any transfer fees or charges, the same shall be paid
by Tenant as and when such payment shall be requested by the Issuing Bank),
(vii) provide that Landlord hsall be entitled to draw upon the Letter of Credit
upon presentation to the Issuing Bank of a sight draft accompanied by Landlord's
statement that Landlord is then entitled to draw upon the Letter of Credit
pursuant to the terms of this Lease, and (viii) provide that the Letter of
Credit shall be deemed automatically renewed, without amendment, for consecutive
periods of one year each year thereafter during the enture Lease Term and for a
period of thirty (30) days thereafter, unless the Issuing Bank shall send notice
(the "Non-Renewal Notice") to Landlord by registered mail, return receipt
requested, not less than sixty (60) days next proeceding the then expiration
date of the Letter of Credit that the Issuing Bank elects tnot to renew such
Letter of Credit, in which case Landlord shall have the right, by sight draft on
the Issuing Bank, to receive the monies represented by the then existing Letter
of Credit, and to hold and/or disbuse such proceeds pursuant to the terms of
Section 30(a) above as cash security. If Landlord shall fail, for any reason
whatsoever, to draw upon the Letter of Credit within said sixty (60) day period,
and the Letter of Credit shall expire prior to the thirtieth (30th) day
following the Expiration Date of the Lease Term, then Tenant shall, upon demand,
immediately deposit with Landlord the Security Deposit amount in cash or furnish
Landlord with a replacement Letter of Credit (which shall comply with all of the
conditions set forth in the immediately preceding setnence), so that Landlord
shall have the entire Security Deposit on hand at all times during the Term and
for a period of thirty (30) days thereafter. Tenant acknowledges and agrees that
the Letter of Credit shall be delivered to Landlord as security for the faithful
performance and observance by Tenant of all of the covenants, agreements, terms,
provisions and conditions of this Lease, and that Landlord shall have the right
to draw upon the entire Letter of Credit in any instance in which Landlord would
hav the right to use, apply or retain the whole or any part of any cash security
deposited with Landlord pursuant to Section 30(a) above.
Upon the occurrence of the Commencement Date, and provided that Tenant has fully
performed under the terms and conditions of that certain Short Term Lease
Agreement by and between Landlord and tenant dated as of February 11, 1997, the
security deposit shall be utilized as the "security deposit" under this Article
30.
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B. In the event that Tenant shall elect to furnish the Letter of
Credit, (i) all references to "security," "security deposit" or the like in
Section 30(a) or elsewhere in this Lease shall be deemed to refer to the Letter
of Credit, or any proceeds thereof as may be drawn upon by Landlord, and (ii)
the provisions of Section 30(a) above shall apply only to such Letter of Credit
proceeds (if any) as may be drawn and held yb Landlord.
C. Landlord agrees that, providedthat Tenant shall not then be in
default with respect to any of the terms, provisions, covenants, agreements and
conditions of this Lease, Tenant shall be permitted to reduce the amount of said
Letter of Credit as follows: (i) on the first day of the thrity-seventh (37th)
month of the Term of this Lease, by a sum equal to $150,000.00 (such that after
said reduction the security deposit shall be equal to $150,000.00); and (ii) on
the first day of the forty-ninth (49th) months of the Term of this Lease, by a
sum equal to $110,000.00 (such that after said redution the security deposit
shall be equalt to $40,000.00).
31. Miscellaneous Taxes. Tenant shall pay, prior to delinquency, all taxes
assessed against or levied upon its occupancy of the Premises, or upon the
fixtures, furnishings, equipment and all other personal property of Tenant
located in the Premises, if nonpayment thereof shall give rise to a lien on the
Premises, and when possible Tenant shall cause said fixtures, furnishings,
equipment and other personal property to be assessed and billed separately from
the property of Landlord. In the event that any or all of Tenant's fixtures,
furnishings, equipment and other personal property, or upon Tenant's occupancy
of the Premises, shall be assessed and taxed with the property of Landlord,
Tenant shall pay to Landlord Tenant's share of such taxes within ten (10) days
after delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's fixtures, furnishings, equipment or
personal property, or to Tenant's occupancy of the Premises.
32. Intentionally deleted.
33. Brokerage Commission. Other than Koll Management Services, Inc.
("Agent") and Prime Manhattan Realty, Inc. ("Broker"), Landlord and Tenant
represent and warrant each to the other that each has dealt with no broker,
agent or other person (other than Agent and Broker) in connection with this
transaction and that no broker, agent or other person (other than Agent and
Broker) brought about this transaction. Landlord hereby agrees to pay to Agent a
leasing commission as set forth in that certain Property Management Agreement
between Landlord and Agent from which leasing commission Agent shall be
responsible for fully compensating Broker in connection with this Lease. Tenant
agrees to indemnify and hold Landlord harmless from and against any claims by
any other broker, agent or other person, including, without limitation, Broker,
claiming a commission or other form of compensation by virtue of having dealt
with Tenant with regard to this leasing transaction. The provisions of this
Article 33 shall survive the expiration or any sooner termination of this Lease.
34. Hazardous Devices and Contaminants.
34.1 Prohibition. Except with the prior written consent of Landlord,
Tenant shall not install or operat eany steam or internal combustion engine,
boiler, machinery, refrigerating or heating device or air-conditioning apparatus
in or about the Premises, or carry on
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any mechanical business therein. Except for Contaminants (as hereinafter
defined) used in the ordinary course of business and in compliance with all
Environmental Requirements (as such term is hereinafter defined), Tenant and its
agents, employees, contractors and invitees shall not use, store, release,
generate or depose of or permit to be used, stored, released, generated or
disposed of any Contaminants on or in the Premises.
34.2 Indemnification. Tenant shall indemnify and hold harmless
Landlord, its agents, servants, employees, officers and directors forever from
and against any and all liability, claims, demands and causes of action,
including, but not limited to, any and all liability, claims, demands and causes
of action by any governmental authority, property owner or any other third
person and any and all expenses, including reasonable attorneys' fees
(including, but not limited to, attorneys' fees to enforce Tenant's obligaiton
of indemnification under this Section 34.2), relating to any environmental
liability resulting from (i) any Release (as hereinafter defined) of any
Contaminant at the Premises or emanating from the Premises to adjacent
properties or the surrounding environment during the Term; (ii) during the Term,
any generation, transport, storage, disposal, treatment or other hanlding of any
Contaminant at the Premises, including, but not limited to, any and all off-site
transport, storage, disposal, treatment or other handling of any Contaminant
generated, produced, used and/or originating in whole or in part from the
Premises; and (iii) any activities at the Premises during the Term that in any
way might be alleged to fail to comply with any Environmental Requirement.
34.3 Definitions.
34.3.1 "Contaminant" shall man any substance or waste
containing hazaroud substances, pollutants, and contaminants as those terms are
defined in the federal Comprehensive Enviornmental Response Compenation and
Liability Act., 42 U.S.C. Section 9601 et seq. and any substance similarly
defined or identified in any other federal, state or local laws, rules or
regulations governing the manufacture, import, use, handling, storage,
processing, release or disposal of substances or wastes deemed hazardous, toxic,
dangerous or injurious to public health or to the environment. This definition
includes friable asbestos and petroleum or petroleum-based products.
34.3.2 "Environmental Requirements" shall man any
federal,state or local law, rule, regulation, permit, agreement, order or other
Legal Requirement or biding determination of any governmental authority relating
to the environment, health or safety.
34.3.3 "Release" shall have the same meaning as the Federal
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601, ET SEQ.
35. Exculpation. This Lease is executed by certain general partners of
Landlord, not individually, but solely on behalf of, and as the authorized
nominee and agent for STRSO, and in consideration for entering into this Lease,
Tenant hereby waives any rights to bring a cause of action against the
individuals executing this Lease on behalf of Landlord (except for any cause of
action based upon lack of authority or fraud), and all persons dealing with
Landlord must look solely to STRSO's assets (to the extent permitted below) for
the enforcement of any claim
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against Landlord, and the obligations hereunder are not binding upon, nor shall
resort be to the private property of any of, the trustees, officers, directors,
employees or agents of STRSO Tenant shall look solely to Landlord's estate and
interest in the Building (or the proceeds thereof) for the satisfaction of any
right of Tenant for the collection of a judgment or other judicial process or
arbitration award requiring the payment of money by Landlord and no other
property or assets of Landlord or STRSO, or their respective agents,
incorporators, subscribers to the capital stock, shareholders, officers,
directors, partners, jointer venturers, principals (disclosed or undisclosed) or
affiliates, shall be subject to levy, lien, execution, attachment, or other
enforcement procedure for the satisfaction of Tenant's rights and remedies under
or with respect to this Lease, the relationship of Landlord and Tenant hereunder
or under law, or Tenant's use and occupancy of the Premises or any other
liability of Landlord to Tenant.
36. Signs. Tenant shall not display, inscribe, print, paint, maintain or
affix on any place in or about the Building any sign, notice, legend, direction,
figure or advertisement, except on the doors of the Premises, and then only such
name(s) and matter, and in such color, size, place and materials, as shall first
have been approved by Landlord in writing. Landlord reserves the right to
install and maintain a sign or signs on the exterior or interior of the
Building. If Tenant desires, Landlord shall list Tenant (or any permitted
assignee or subleases hereunder) on the Building directory board, at Tenant's
sole cost and expense.
37. Locks. No additional locks or similar devices shall be attached to any
door or window without Landlord's prior written consent. Except for those keys
provided by Landlord, no keys for any door shall be made. If more than two keys
for one lock are desired, Landlord will provide the same upon payment by Tenant.
All keys must be returned to Landlord at the expiration or termination of this
Lease. Tenant shall see that the doors and windows, if operable, of the Premises
are closed and securely locked before leaving the Building.
38. Employment. Tenant shall not contract for any work or service that
might involve the employment of labor incompatible with the Building employees
or employees of contractors doing work or performing services by or on behalf of
Landlord.
39. Plumbing. Tenant must observe strict care and caution that all water
faucets and water apparatus are shut off before Tenant or its employees leave
the Building to prevent waste or damage. Plumbing fixtures and appliances shall
be used only for purposes for which constructed, and no sweeping, rubbish, rags
or other unsuitable material shall be thrown or placed therein. Damage resulting
to any such fixtures or appliances for misuse by Tenant shall be paid by Tenant
and Landlord shall not in any case be responsible therefor.
40. Certain Rights Reserved to Landlord. Landlord reserves the following
rights:
(i) to name the Building and to change the name or street
address of the Building;
(ii) to designate all sources furnishing sigh painting and
lettering, ice, drinking water, towels, toilet supplies, shoe shining, vending
machines, mobile vending service, catering, and like services used on the
Premises or in the Building.
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(iii) on reasonable prior notice to Tenant, to exhibit the
Premises to prospective tnenats during the last twelve (12) months of the Term,
and to exhibit the Premises to any prospective purchaser, mortgagee, or assignee
of any mortgage, or assignee of any mortgage on the Property and to others
having a legitimate interest at any time during the Term; and
(iv) to install vending machines of all kinds in the Property,
including, without limitation, the Premises, and to provide mobile vending
service therefor, and to receive all of the revenue derived therefrom; provided,
however, that no vending machines shall be installed by Landlord in ther
Premises nor shall any mobile vending service be provided therefor, unless
Tenant so requests.
41. Waivers.
41.1 General. The fauilure of Landlord to insist in any instance
upon the strict performance of any term of this Lease, or the failure to
exercise or the waiver of any right herein contained, shall not be construed as
a waiver or relinquishment for the future of the performance of such obligations
of this Lease or of the right to exercise any such right, but the same shall
continue and remain in full force and effect with respect to any subsequent
breach, act or omission.
41.2 Designation of Payments. In the event that Tenant is in arrears
in payment of rent, Tenant waives Tenant's right, if any, to designate the items
against which any payments made by or refunds payable to Tenant are to be
credited and Landlord may apply any payments made by Tenant to any items
Landlord sees fit, irrespective of and notwithstanding any designation or
requests by Tenant as to the items against which any such payments shall be
credited.
41.3 Specific Provisions. The following specific provisons of this
Section shall not limit the Generality of the provisions of this Article:
41.3.1 The receipt or acceptance by Landlord of rent with
knowledge of breach by Tenant of any term of this Lease shall not be deemed a
waiver of such breach.
41.3.2 No payment by Tenant or receipt or acceptance by
Landlord of a lesser amount than the correct rent shall be deemed to be other
than a payment on account, nor shall any endorsement or statement on any check
or any accompanying letter be deemed to effect or evidence an accord and
satisfaction, and Landlord may accept such check or payment without rejudice to
Landlord's right to recover the balance or pursue any other remedy provided in
this Lease or at law or in equity.
41.3.3 No waiver by Landlord in favor of any other tenant or
occupant of the Building shall constitute a waiver in favor or Tenant.
41.3.4 The consent by either party to any particular action
shall not in any way be considered as relieving the other party from obtaining
the express consent to any subsequent or further action.
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42. Consents.
42.1 Reasonableness. Wherever it is specifically provided in this
Leae that a party's consent is not to be unreasonably withheld, a reaponse to a
request for such consent shall also not be unreasonably delayed. If either
Landlord or Tenant considers that the other has unreasonably withheld or delayed
a consent, it shall so notify the other party within ten (10) days after receipt
of notice of denial of the requested consent in the case of an alleged
unreasonable withholding or within twinty (20) days after making its request for
the consent in the case of an alleged unreasonable delay. Failure to so notify
the other party within the time periods set forth in the preceding sentence
shall constitute a waiver of any right such first party might otherwise have to
bring an action or procedding to enforce any such provision or for specific
performance, in junction or declaratory judgement.
42.2 Remedy. Tenant hereby waives any claim against Landlord which
it may have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any such consent, and Tenant agrees that its sole remedy
shall be an action or proceeding to enforce any such provision or for specific
performance, injunction or declaratory judgement. In the event of a
determination that Landlord has unreasonably withheld its consent, the requested
consent shall be deemed to have geen granted; however, Landlord shall have no
liability to Tenant for its refusal or failure to give such consent. The sole
remedy for Landlord's unreasonably withholding or delaying of consent shall be
as provided in this Section.
42.3 Lender. Notwithstanding anything to the contrary provided in
this Lease, in any instance where the consent of Superior Lessor or Superior
Mortgagee or both is required, Landlord shall not be required to give its
consent until and unless Superior Lessor or Superior Mortgagee or both, as the
case may be, has given its consent. Landlord agrees to reasonably diligently
seek such consent if Landlord would otherwise consent in such instance.
43. Miscellaneous.
43.1 No Continuation. No receipt of money by Landlord from Tenant
after the expiration or any sooner termiation of this Lease or after the service
of any notice or after the commencement of any suit, or after final judgement
for possession of the Premises shall reinstate, continue or extend the Term or
affect any such notice, demand or suit or imply consent for any action for which
Landlord's consent is required.
43.2 Landlord. The term "Landlord" shall mean only the owner at the
time in question of the present Landlord's interest in the Building and in the
event of a transfer or transerfers (by operation of law or otherwise) of the
Building or a lease of all or substantially all of the Building, or a transfer
or transfers (by operation of law or otherwise) of the leasehold estate under
any such lease, the transferor or lessor, as the case may be, shall be and
hereby is (to the extent of the interest or portion of the Building or leasehold
estate transferred or leased) automatically and entirely released and
discharged, from and after the date of such transfer or leasing, of all
liability in respect of the performance of any of the terms of this Lease on the
part of Landlord thereafter to be performed (including Article 17); and the
transferee or lessee shall be deemed to have assumed and agreed to perform,
subject to the limitations of this Section and
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Section 28.4 (and without further agreement), all of the terms of this Lease on
the part of Landlord to be performed during such period of owernship, which
terms shall be deemed to "Run with the land", it being intended that Landlord's
obligations hereunder shall be binding on Landlord, its successors and assigns,
only during and in respect of their respective successive periods of ownership.
43.3 Tenant. The term "Tenant" shall mean the Tenant herein named or
any assignee or other successor in interest (immediate or remote0 of the Tenant
herein named, which at the time in question is the owner of the Tenant's estate
and interest granted by this Lease; but the foregoing provisions of this Section
shall not be construed to permit any assignment of this Lease or subletting of
the Premises or to relieve the Tenant herein named or any assignee or other
successor in interest (whether immediate or remote) of the Tenant herein named
from the full and prompt performance of Tenant's obligations hereunder and
except as provided in Article 16, each Tenant shall at all times remain fully
liable therefor.
43.4 Third Party Rights. Nothing contained in this Lease shall be
deemed to confer upon any person other than the parties hereto and their
respective successors and assigns (to the extent assignment is permitted
pursuant to Article 16) any right or benefit, including any right to insist
upon, or to enforce against Landlord or Tenant, the performance of such party's
obligations hereunder.
43.5 Landlord as Occupant. It is understood that Landlord may occupy
portions of the Building in the conduct of Landlord" business. In such event,
all references herein to other tenants of the Buildling shall be deemed to
include Landlord as occupant.
43.6 Covenants as Conditions. All of the covenants of Tenant
hereunder shall be deemed and construed to be "conditions" as well as
"covenants" as though the words specifically expressing or implying covenants
and conditions were used in each separate instance.
43.7 Landlord's Original. In the event of variation or discrepancy
amoung counterparts, Landlord's original copy of this Lease shall control.
43.8 Binding Effect. This Lease shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns, provided that this provision shall in no manner enlarge Tenant's rights
of assignment, which right of assignment has been restricted under the foregoing
provisions of this Lease.
43.9 Counterclaims. If Landlord commences any summary proceeding or
action for non-payment of rent, Tenant covenants that it will not interpose, by
consolidation of actions or otherwise, any counterclaim or other claim seeking
affirmative relierf of whatsoever nature or description in any such proceeding,
provided, however, that nothing contained in this Section 43.9 shall be deemed
to prevent Tenant from bringing a separate proceeding with respect to such
counterclaim, and Landlord shall not, in any such separate proceeding, assert
that such claim should have been interposed in the summary proceeding, assert
that such claim should
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have been interposed in the summary proceeding or action for non-payment of
rent. The provisions of this Section shall survive the expiration or any sooner
termiation of this Lease.
43.10 Waiver of Trail by Jury. To the extent permitted by applicable
law, Landlord and Tenant hereby waive trail by jury in any action or proceeding,
and with respect to any claim asserted in any such action or proceeding, brought
by either of the parties against the other on any matter whatsoever arising out
of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, any claim of injury or
damage, or any emergency or other statutory remedy with respect thereto. The
provisions of this Section shall survive the expiration or any sooner
termination of this Lease.
43.11 No Sovereign Immunity. Tenant hereby represents to Landlord
that it is not entitled, directly or indirectly, to diplomatic or sovereign
immunity and Tenant agrees that in all disputes arising, directly or indirectly,
out of this Lease, Tenant shall be subject to service of process in, and the
jurisdiction of the courts of, the State of New York. The provisions of this
Section shall survive the expiration or any sooner termiation of this Lease.
43.12 Not Binding Until Full Execution. The submission by Landlord
to Tenant of this Lease in draft form shall be deemed submission solely for
Tenant's consideration and not for acceptance and execution. Such submission
shall have no binding force and effect, shall not sonstitute an option for the
leasing of the Premises, and shall not confer any rights or impose any
obligations upon either party. The submission by Landlord of this Lease for
execution by Tenant and the actual execution and delivery thereof by Tenant to
Landlord shall similarly have no binding force and effect on Landlord unless and
until Landlord shall have executed this lease and a counterpart thereof shall
have been delivered to Tenant and all consents required pursuant to any Superior
Mortage or Supoerior Lease have been received.
43.13 Relationship of Parties. Any intention to create a joint
venture, partnership or principal and agent realtionship between the parties
hereto is hereby expressly disclaimed. This Lease shall create the realtionship
of landlord and tenant between Landlord and Tenant.
43.14 Gender and Number. Whenever words are used herein in any
gender, they shall be construed as though they were used in the gender
appropriate to the context and the circumstances, and whenever words are used
herein in the simgular or plural form, they shall be construed as though they
were used in the form appropriate to the context and the circumstances.
43.15 Topic Headings. Headings and captions in this Lease are
inserted for convenience and reference only and in no way define, limit or
described the scope or intent of this Lease nor constitute any part of this
Lease and are not to be considered in the constuction.
43.16 Counterparts. Several counterparts of this lease may be
executed by all of the parties. All executed counterparts constitute one and the
same Lease, binding upon all parties.
43.17 Entire Agreement: Changes in Writing. This Lease contains the
entire understanding between the parties and supersedes any prior understanding
or agreements
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between them respecting the subject matter. No representations, arrangement, or
understandings except those fully expressed herein, are or shall be binding upon
the parties. Thise Lease may not be changed, modified, abandoned or discharged,
in whole or in part, nor any of its provisions waived except by a written
instrument which (i) expressly refers to this Lease, (ii) is executed by the
party against whom enforcement of the change, modification, abandonment,
discharge or waiver is sought, and (iii) is permissible under the Superior Lease
and the Superior Mortage. Text deleted from a prior draft of this Lease shall
not be admissible in an action or proceeding relating to this Lease for the
purpose of altering or limiting the meaning or effect of the Lease.
43.18 No Recording. This lease shall not be recorded.
43.19 Governing Law: Invalidity of any Provisions. This Lease shall
be subject to and governed by the laws of the State of New York. If any term or
provision of this Lease or the application thereof to any person or circumstance
shall to any extent be invalid or unenforceable, the other terms of this Lease,
or the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
be enforced to the fullest extent permitted by law.
44. Electricity.
44.1 Tenant agrees to purchase from Landlord or from a meter company
designated by Landlord, all electric current consumed (and all bulbs, lamps or
electric fixtures, and to pay for the cost of installation thereof) used or to
be used in the Premises or by Tenant's signs or by "air conditioning equipment"
(as such term is hereinafter defined) servicing the Premises. The term "air
conditioning equipment" as used herein shall be deemed to include, without
limitation, all components and auxiliary equipment used in connection with air
conditioning equipment servicing the Premises. Tenant shall pay Landlord for any
given bill period for such electric current at the prevailing rate Sercie
Classification 4-Rate I (or successor service classification rate), and not the
time-of-day rate schedule (if any), and if they increase or increase in such
rate becomes effective during the term of this Lease, for similar service by any
public service company servicing the part of the city where the Building is
located (provided such incresae, if any, results in a higher yield to Landlord)
all such increase or increases shall be paid by Tenant to Landlord or the meter
company designated by Landlord at the same percentage increase as is shown by
the first month's increased charges paid by Landlord, when billed. The amount to
be paid by Tenant for current consumed shall be determined by a meter or meters
on the Premises or installed by Landlord and billed separately according to each
meter. Bills for current consumed by Tenant (and/or bulbs, lamps or electric
fixtures, renewed or replaced) shall be rendered by Landlord, or the meter
company, to Tenant at such time as Landlord may elect, and shall be deemed to
be, and be paid as additional rent within ten (10) days after rendition of any
such bill. Notwithstanding any other provision hereof, any such bills rendered
by Landlord shall initially (and until adjusted as herein provied) include an
administrative fee of ten (10%) percent of the electric charge, which amount
shall be deemed additional rent under the Lease, and which such administrative
fee shall, at any time that the Building qualifies under Article 2-I of the
General City Law of the City of New York for reduced charges for electricty, be
increased so as to equal twelve (12%) percent. Landlord shall have the right, in
the event of any nonpayment
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by Tenant of any such bills within said ten (10) day period after rendition of
any such bill to discontinue and cut off the use of electric current to Tenant
without further notice, without releasing Tenant from any liability under thise
Lease, and without Landlord or the said meter company incurring any liability
under this Lease, and without Landlord or the said meter company incurring any
liability for any damage cause by such discontinuance of service. Tenant further
agrees, on demand by Landlord, or the meter company, to deposit with Landlord or
with the meter company designated by Landlord cash deposit sufficient, in
Landlord's reasonable opinion, to secure payment of the eolectric consumed by
Tenant in the Premises. No current shall be furnished until the equipment of
Tenant has been approved by the proper public authorities, the New York Board of
Fire Underwriters and the New York Fire Insurance Exchange or similar
organization having jurisdiction, and no changes shall be made in such equipment
without the written consent of Landlord. Tenant shall make no changes and/or
additions to the electrical equipment, wiring and/or appliances in the Premises,
without the prior written consent of Landlord. Rigid conduit only will be
allowed by Landlord for exposed work. If, in Lanldord's sole opinion, Tenant's
installation overloads any riser or risers, and/or switch or switches in the
Building, Tenant, at Tenant's sole cost and expense, promply will provide and
install, in conformity with all applicable Legal Requirements and all applicable
provisions of this Lease, any additional riser or risers and/or any or all
switches, that may be necessary; but no risers and/or switches may be installed
without Tenant first obtaining the prior written consent or Landlord. Any tax
now in effect or hereafter imposed upon Landlord's receipts from the sale or
resale of electrical energy to Tenant by any municipal, state of federal agency
shall be passed on to Tenant and included in the Bill of, and paid by Tenant to,
Landlord or the meter company designated by Landlord. In the event that
permission is granted by the meter company for alternationg current
installations, Tenant, at its sole cost and expsne, will furnish and install all
risers, sercie wiring, switches and meters that may be necessar for such
installation, and, at its own cost and expense, will maintain and keep in good
repair all such risers, wiring and/or switches and/or meters, such installation
to be subject to all applicable provisions of this Lease.
44.2 In the event that the "submetering" of electric current in the
Building is hereafter prohibited by any law hereinafter enacted, or by any order
or ruling of the Public Service Commission of the State of New York, or by any
judicial decision of any appropriate court, or if for any other reason,
Landlord, in its sole and arbitrary discretion, elects to terminate the practice
of submetering the Premises, Tenant shall purchase electricity from the Landlord
on a rent inclusion basis or directly from the public utility serving the
Building, as designated by Landlord in its sole discretion, and the provisions
of Exhibit G annexed hereto and made a part hereof shall govern the method by
which electricity is furnished to Tenant (including the manner in which such
method shall be changed) and the charges to be paid by Tenant for and in
connection with the furnishing of electricity.
44.3 In the event any legislature, or the Public Service Commission
or any judicial body enacts or makes any law, ruling, order or regulation
modifying and/or changing ther service classification, rate or charge under
which Tenant is purchasing electric current from Landlord, pursuant to Section
44.1 hereof, then and in such event. Tenant will pay as additional rent to
Landlord or Landlord's designated agent (in addition to the sums payable
pursuant to said Section 44.1), for the use and maintenance of the Building
electric distribution system, an amount equal to the difference, if positive,
obtained by subtracting (i) the sums payable by
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Tenant by reason of such order, law, ruling or regulation of any legislature,
the Public Service Commission or any judicial body made or enacted after date of
the Lease from (ii) the sums that otherwise would have been payable by Tenant
pursuant to Section 44.1 hereof.
44.4 Wherever reference is made in this Article to rate(s) or
charge(s) of the public utility supplying electricity to the Building or to
increases in such rates or charges, the words "rates or charges" shall be deemed
to include, without limitation, any and all (including any new or additional):
(i) kilowatt hours or energy charge; (ii) kilowatts of demand charge; (iii) fuel
adjustment charge; (iv) transfer adjustment charge; (v) utility tax; (vi) sales
tax; and (vii) any and all other charges and taxes required to be paid by
Landlord to the utility company.
44.5 In no event shall the additoinal rent charge made to Tenant
pursuant to this Article for electricity supplied to the Premises be less than
Landlord's actual cost therefor.
44.6 If Tenant desires to use natural gas in the Premises, Tenant,
at its sole cost and expense, shall make all applications necessary to obtain
natural gas service at the Premises from the public utility serving the
Building. If, Tenant obtains approval from the public utility for natural gas
service at the Premises, Tenant shall give Landlord written notice accompained
by a copy of such approval and Landlord, at Tenant's sole cost and expense,
shall perform all alterations and installations needed to bring natual gas to
the Premises from the point at which the gas line enters the Building from the
street. Tenant shall purchase and receive natural gas directly from the public
utility serving the Building in accordance with all rules and regulations of the
public utility applicable to the supplying of gas. Tenant, at its sole cost and
expense, (i) shall furnish and install at a location selected by Landlord and
maintain and keep in repair all metering equipment needed to measure the
consumption of gas supplied to Tenant by the public utility and (ii) shall
furnish, install, maintain and keep in repair all pipes and equipment for the
distribution and use of natural gas in the Premises. Tenant shall not permit its
consumption of gas in the Premises to exceed the capacity of the gas
distribution system serving the Building or to interfere with its use by other
tenants. To insure that the capacity of the gas distribution system is not
exceeded, Tenant shall not install any gas operated equipment without Landlord's
prior written consent in each instance. Landlord makes no representation or
warranty that gas service is available at the Premises or the Building and shall
not be liable for (and Tenant shall have no abatement or reduction in rent for)
Tenant's inability to obatin natural gas service at the Premises. Landlord shall
have no liability for any defect or inadequacy in the character or quantity of
natural gas purchased by Tenant from the public utility.
44.7 The failure of Tenant to pay any charge incurred in connection
with Tenant's purchase of gas or, if Landlord shall require Tenant to purchase
electricity directly from the public utility pursuant to Section 44.2, of
electricity directly from the public utility within ten (10) days after it
becomes due shall constitute a default under this Lease.
44.8 Landlord and Tenant acknowledge that prior to the date of this
Lease, Landlord has filed an application to qualify the Building under the
Industrial and Commercial Incentive Program, CITY OF NEW YORK ADMINISTRATIVE
CODE, Title 11, Chapter 2, Part 4 (the "ICIP Program"). Landlord and Tenant
further acknowledge that in the event the Buildiing qualifies under the ICIP
Program, then due to such qualification, the Building may also qualify
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under the Lower Manhattan Energy Plan, Article 2-I of the General City Law of
the City of New York (the "LMEP") and, if Landlord has applied for, and
successfully qualifies the Building under the LMEP, then Landlord shall credit
against Tenant's obligation to pay electricity costs due under this Lease
(whether the same are due through a rent inclusion charge for electricity, or
otherwise ( as the case may be)). The reduction in electricity cost realized by
the Building under the LMEP to the extent attributable to the Premises. In
accordance with Article 2-I of the General City Law of the City of New York,
subsection 25-bb(c)(5). Landlord shall set forth on all invoices for Tenant's
bills form Landlord for electricity (for which reductions thereof are by reason
of the applicability of the LMEP), substantially the following language:
"Tenant may be entitled to share a rebate which your Landlord has
received for charges for energy pursuant to the revitalization area energy
rebate program. The amount is separately stated and identified in this bill."
45. Intentionally deleted.
46. Shoring: No Dedication: Hoists: Zoning Lot Mergers.
46.1 Access. If an excavation or other substructure work shall be
undertaken upon land adjacent to the Building or in the Vaults beneath the
Building or in subsurface space adjacent to said vaults, Tenant, without
liability of Landlord to Tenant therefor, shall afford Landlord or the person
causing such excavation or other substructure work, license to enter upon the
Premises for the purpose of doing such work as Landlord or such person shall
deem necessary to protect the Building and its contents and surrounding land
from damage and to support the same by proper foundations, pinning and/or
underpinning. Except in case of emergency, Landlord shall endeavor to have such
entry accomplished during reasonable hours in the presence of a representative
of Tenant, who shall be designated by Tenant promptly upon Landlord's request.
46.2 Prevention of Dedications. Landlord shall have the right to
erect any gate, chain or other obstuction or to close off any portion of the
Property to the public at any time to the extent necessary to prevent a
dedication thereof for public use.
46.3 Hoists. During any construction being performed at the
Building, Tenant agrees that Landlord may leave functioning a construction hoist
or hoists on the outside of the Building for an indefinite period of time which
may continue beyond the Commencement Date, that the existence of such hoist(s)
shall not affect the Commencement Date, and that certain windows on floors
adjacent to the hoist towers(s) may be temporairly closed off. Landlord shall
have no liability to Tenant because of the continuted presence of the hoist(s)
and hoist towers(s) herein referred to. No deliveries shall be made from the
hoist tower(s) through the Premises after the Commencement Date.
46.4 Zoning. Tenant hereby irrevocably waives any and all rights it
may have in connection with any zoning lot merger or transfer of development
rights with respect to the Property including any rights it may have to be a
party to, to contest, or to execute, any Declaration of Restriction (as such
term is defined in Section 12-10 of the zoming Resolution of
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the City of New York effective December 15, 1961, as amended) with respect to
the Property, which would cause the Property to be merged with or unmerged from
any other zoming lot pursuant to such Zoning Resolution or any document of a
similar nature and purpose, and Tenant agrees that this Lease shall be subject
and subordinate to any Declaration of Restrictions or any other document of
similar nature and purpose now or hereafter affecting the Property. In
confirmation of such subordination and waiver, Tenant shall execute and deliver
promptly any certificate or instrument that Landlord reasonably may request and,
in connection therewith, Tenant hereby irrevocably constitutes and appoints
Landlord as Tenant's attorney-in-fact to execute any such dertificate or
instrument for and on behalf of Tenant, such power of attorney being coupled
with an interest.
47. Tax Abatement Provisions.
47.1 Notwithstanding anyting to the contrary contained in this
Lease, in the event that Landlord receives any refund or abatement of Real
Estate Taxes pursuant to the Lower Manhattan Plan (as such term is defined in
Section 47.2 hereof), Tenant shall be entitled to receive, as a credit against
the rent due hereunder, the benefit of such refund or abatement only to the
extent required to be provided under the Lower Manhattan Plan.
47.2 (a) For purposes of this Article 47, unless otherwise defined
in this Lease, all terms used herein shall have the meanings ascribed to them in
Title 4 of Article 4 of the New York Real Property Tax Law (herein called the
"Lower Manhattan Plan"). The term "LMP Abatement Benefits" shall mean the real
estate tax abatement benefits of the Lower Manhattan Plan. The term "Department"
shall mean New York City Department of Finance.
(b) For purposes of the Lower Manhattan Plan, Tenant's
Proportionate Share shall mean four and 00/100ths percent (4.00%) as determined
pursuant to Section 3.2 hereof by dividing the net rentable square footage
contained in the Premises by the net rentable square footage contained in the
Building.
(c) Tenant represents that there shall be fewer than 125
employees/125 or more employees located at the Premises throughout the term of
this Lease.
47.3 (a) In accordance with the Lower Manhattan Plan and
notwithstanding anything to the contrary contained in this Lease, Landlord
agrees to allow Tenant a credit against the Base Rent and the recurring
Additional Rent (including the Real Estate Taxes Pass0through Amount) payable by
Tenant hereunder in an amount that, in the aggregate, equals the full amount of
any abatement of real estate taxes granted for the Premises pursuant to the
Lower Manhattan Plan and actually received by Landlord (herein called the
"Actual LMP Benefits"). Landlord shall, within thirty (30) days after its
receipt of the Actual LMP Benefits, credit the full amount thereof against the
next installment(s) of Base Rent and/or Additional Rent charges becoming due
hereunder.
(b) Tenant shall promptly pay to Landlord, as Additional
Rent hereunder, the amount of all or any portion of the Actual LMP Benefits that
have been credited against Base Rent and/or Additional Rent becoming due
hereunder, and which may
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thereafter actually be revoked (including, without limitation, if such Actual
LMP Benefits are revoked due to the exercise by Tenant of its right to assign or
sublease pursuant to Article 16 of this Lease), together with any interest
and/or penalties imposed against Landlord in connection with such Acutal LMP
Benefits.
47.4 In accordance with Section 499-c(5) of the Lower Manhattan
Plan, Landlord agrees and informs Tenant that:
(1) an application for abatement of real property taxes
pursuant to Title 4 of Article 4 of the New York Real Property Tax Law will be
made for the Premises pursuant to Section 47.6 hereof;
(2) the rent, including amounts payable by Tenant for
Real Estate Taxes, will accurately reflect any abatement of Real Estate Taxes
granted pursuant to Title 4 of Article 4 of the New York Property Tax Law for
the Premises in accordance with Section 47.3 hereof;
(3) at least ten dollars per square foot must be spent
on improvements to the Premises and the common areas of the Building; and
(4) all abatements granted with respect to the Building
pursuant to Title 4 of Article 4 of the New York Real Property Law will be
revoked if, during the Benefit Period, real estate taxes or water or sewer
charges or other lienable charges are unpaid for more than one year, unless such
delinquent amounts are paid as provided in subdivision four of section four
hundred ninety-nine-f of Title 4 of the New York Real Property Law.
47.5 Landlord covenants and agrees that (i) Landlord shall timely
pay all Real Estate Taxes, water and sewer charges and other lienable charges
that become due and payable during the period for which Tenant is entitled to
receive the Actual LMP Benefits and (ii) there shall be no Real Estate Taxes,
water and sewer charges or other lienable charges due and owing with respect to
the Building on the date the Abatement Application (as hereinafter defined) is
filed with the Department, unless such Real Estate Taxes or charges are being
paid in timely installments pursuant to a written agreement with the Department
or other appropriate agency.
47.6 (a) Landlord, upon not less than thirty (30) days advance
written notice from Tenant, agrees to cooperate with Tenant to execute, deliver
and file, together with the Abatement Application, the affidavit required gby
Section 499-c(7) of the Lower Manhattan Plan, and thereafter to diligently
pursue the processing of such application.
(b) Landlord, upon not less than thirty (30) days
advance written notice from Tenant, agrees to cooperate with Tenant to execute,
deliver and file, within sixty (60) days after the Commencement Date, an
application (the "Abatement Application") for a certificate of abatement in
accordance with Section 499-d of the Lower Manhattan Plan. Landlord and Tenant
each further agree to provide all other information required by the Department
of Finance pursuant to Section 499-d of the Lower Manhattan Plan and to
otherwise comply with the provisions of said Section 499-d and the Lower
Manhattan Plan.
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(c) Tenant shall promptly pay to Landlord, as Additional
Rent hereunder, the amount of any out-of-pocket costs incurred by Landlord in
connection with the performance of Landlord's obligations pursuant to this
Article 47, including, without limitations, the amount of any administrative
charges or fees imposed by the Department in connection with such comnpliance,
including, without limitation, the $500.00 fee due in connection with the
Abatement Application. Tenant shall indemnify and hold harmless Landlord and its
respective partners, directors, officers, principals, shareholders, agents and
employees from and against any and all losses, costs, damages and expenses
(including attorney's fees) arising from or in connection with Tenant's failure
to pay such charges or fees or from Tenant's failure to comply with the
provisions and requirements of the Lower Manhattan Plan or this Article 47.
(d) Tenant shall have no right to make any separate
application under the Lower Manhattan Plan without Landlord's participation.
47.7 Tenant shall notify Landlord of any vacation or subletting of
the Premises or any portion thereof, or any assignment of Tenant's interest in
this Lease, which would result in the revocation of any abatement or other
benefits, or any portion thereof, granted pursuant to the Lower Manhattan Plan.
Within thirty (30) days following demand therefor, Tenant shall reimburse
Landlord for any interest or penalties imposed by any governmental authority in
connection with the revocation of the abatement or other benefits resulting
directly from Tenant's failure to so notify Landlord of any such vacation,
subletting or assignment.
47.8 Landlord does not warrant or represent that any abatement,
reduction or other benefit described in this Article 47 or the Lower Manhattan
Plan is available or will be obtained for the Building, or by Landlord and/or
Tenant. Landlord shall have no liability to Tenant, and the Base Rent and
Additional Rent set forth in this Lease will not be abated or reduced, if and to
the extent that such abatement or reduction under the Lower Manhattan Plan is
denied, reduced, suspended, revoked or terminated for any reason.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Witness: LANDLORD
/s/ Sandra O. Mullain OTR, an Ohio general partnership,
- -------------------------------------- acting as the duly authorized
/s/ Jennifer L. Smith nominee of the BOARD OF THE STATE
- -------------------------------------- TEACHERS RETIREMENT SYSTEM OF OHIO
By: /s/ Stephen A. Mitchell
-----------------------------
Name:
its General Partner
Witness TENANT: AVESTA TECHNOLOGIES, INC., a
Delaware corporation
/s/ Cameron Saifi
- --------------------------------------
By: /s/ Kam M. Saifi
--------------------
Name: Kam M. Saifi
its President/ CEO
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STATE OF OHIO )
)ss:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this 11th day of April, 19__, before
me, the subscribers, a Notary Public, personally appeared the above-named OTR,
an Ohio general partnership, by Stephen A. Mitchell, a general partner, known to
me and known to me to be their person who signed the foregoing instrument as
such partner, who acknowledged to me that he signed said instrument as such
partner, duly authorized by the partnership so to do, and that the signing of
the same was his free act and deed, as such partner, for and on behalf of said
partnership, for the uses and purposes herein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name and
affixed the official seal of my office at Columbus, Ohio, on the day and year
last above written.
/s/ Jennifer L. Smith
-----------------------
Notary Public
54
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STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 21st day of March, 1997, before me personally came Kam
M. Saifi to me known, who, being by me duly sworn did depose and say that he
resides at 2 Rector Street, NYC; that he is the President of Avesta*, the
corporation described in and which executed the above instrument; and that he
signed his name thereto by authority of the Board of Directors of said
corporation.
* Technologies Inc.
/s/ Carol O. Buell
-----------------------
Notary Public
STATE OF )
)ss.:
COUNTY OF )
On this ___ day of _________, 1997, before me personally came
__________ to me known, who, being by me duly sworn, did depose and say that
(s)he resides at _______________; that (s)he is the ________________ of
_______________, the corporation described in and which executed the foregoing
instrument; which corporation is the general partner of ________________, the
partnership which executed the foregoing instrument; that the execution of the
instrument by _______________ was duly authorized according to the Articles of
Partnership; that _______________, the general partner, executed the instrument
on behalf of the said partnership pursuant to said authorization and that (s)he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that (s)he signed his/her name thereto by like order.
________________
Notary Public
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EXHIBIT B
Property
ALL that certain plot, piece or parcel of land, situate, lying and being
in the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northerly side
of Rector Street with the westerly side of Trinity Place;
RUNNING THENCE westerly along the northerly side of Rector Street, 118
feet 8-1/4 inches to its intersection with the easterly side of Greenwich
Street;
THENCE northerly along the easterly side of Greenwich Street, 133 feet 9
inches to the northerly line of Lot No. 27 on a Map or Chart of the Lands of the
Rector and Inhabitants of the City of New York in Communion with the
Protestant-Episcopal Church of the State of New York;
THENCE easterly along the northerly line of said lot and along the line
which on its southerly side forms an angle of 87 degrees 26 minutes with the
easterly side of Greenwich Street, 100 feet 10-1/2 inches to the westerly line
of Lot No. 3 on said map;
THENCE Northerly along a line which on its westerly side forms an angle of
90 degrees 28 minutes 10 seconds with the last course, 4 feet 5-1/2 inches;
THENCE easterly along a line which on its southerly side forms an angle of
89 degrees 15 minutes 20 seconds with the last mentioned course 39 feet 1/2 of
an inch to the westerly side of Trinity Place at a point thereon distant 142
feet northerly from the point or place of beginning; and
THENCE southerly along the westerly side of Trinity Place, 142 feet to the
point or place of BEGINNING.
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EXHIBIT C
Commencement Date Agreement
THIS COMMENCEMENT DATE AGREEMENT ("Agreement") dated ______________, 1997
is between OTR, an Ohio general partnership, whose address is 275 East Broad
Street, Columbus, Ohio 43215, acting as the duly authorized nominee of the State
Teachers Retirement System of Ohio ("Landlord"), whose address is 275 East Broad
Street, Columbus, Ohio 43215, and _________________, a ("Tenant"), whose address
is _________________.
W I T N E S S E T H:
A. Landlord and Tenant executed a certain Lease dated ________________,
1997 (the "Lease").
B. The Lease provides that the Lease will commence on a date to be
determined in accordance with Section 2.2.1 thereof.
C. Landlord and Tenant now desire to set forth in writing the actual date
of delivery of the Premises and the actual commencement date of the Lease.
NOW THEREFORE in consideration of the mutual covenants and promises
contained herein and other valuable consideration, the parties agree that the
Lease Commencement Date (as defined therein) is __________, 1997, and the
Expiration Date (as also defined therein) is _______________, ____.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on the day and year first above written.
Witness LANDLORD:
OTR, an Ohio general partnership, acting
____________________ as the duly authorized nominee of
the BOARD OF THE STATE TEACHERS
____________________ RETIREMENT SYSTEM OF OHIO
By____________________
Name:
its General Partner
[SIGNATURE CONTINUED ON NEXT PAGE]
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Witness (as to each): TENANT
________________________ _____________________, a
_____________
________________________ By:__________________
Name:
Its:
By:
Name:
Its:
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STATE OF OHIO )
) ss:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this day of , 1997 before me,
the subscriber, a Notary Public, personally appeared the above-named OTR, an
Ohio general partnership, by , a general partner, known to me
and known to me to be the person who signed the foregoing instrument as such
partner, who acknowledged to me that he signed said instrument as such partner,
duly authorized by the partnership so to do, and that the signing of the same
was his free act and deed, as such partner, for and on behalf of said
partnership, for the uses and purposes herein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the
official seal of my office at , , on the day and year last
above written.
____________________________
Notary Public
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STATE OF )
) ss.:
COUNTY OF )
On the day of , 1997, before me personally came
, to me known, who, being by me duly sworn did depose and say
that she/he resides at ; that she/he is the
of , the corporation described in and
which executed the above instrument; and that she/he signed her/his name thereto
by authority of the Board of Directors of said corporation.
____________________________
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this day of , 1997, before me personally came
, to me known, who being by me duly sworn, did depose and say
that (s)he resides at ; that (s)he is the
of , the corporation described in and
which executed the foregoing instrument; which corporation is the general
partner of , the partnership which executed the foregoing
instrument; that the execution of the instrument by
was duly authorized according to the Articles of Partnership; that ,
the general partner, executed the instrument on behalf of the said partnership
pursuant to said authorization and that (s)he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that (s)he signed his/her name hereto by like order.
____________________________
Notary Public
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Work Letter
This Work Letter Agreement is entered into as of the ________ day of
February 15, 1997 by and between OTR, acting as the duly authorized nominee of
the BOARD OF THE STATE TEACHERS RETIREMENT SYSTEM OF OHIO ("Landlord") and
AVESTA TECHNOLOGIES, INC. ("Tenant").
RECITAL:
Concurrently with the execution of this Work Letter Agreement, Landlord
and Tenant have entered into a lease (the "Lease") covering certain premises
(the "Premises") more particularly described in EXHIBIT A attached to the Lease.
In consideration of the mutual covenants hereinafter contained. Landlord
and Tenant hereby agree as follows:
1. COMPLETION SCHEDULE
Simultaneously with or prior to the execution of the Lease, Landlord
shall have delivered to Tenant a preliminary floor plan (hereinafter called the
"Preliminary Plan") prepared by ___________________________________________ and
dated ______________________. Immediately after execution of this Lease, and
Tenant shall in good faith utilize best reasonable efforts to expeditiously
produce a complete set of working drawings and specifications (hereinafter
called the "Plans and Specifications") based on the Preliminary Plan such that
Tenant shall be able to operate within the Premises as soon as possible after
the date hereof. Upon Landlord delivering to Tenant the Plans and
Specifications, Tenant shall provide any comments thereto in writing within
seven (7) days of the date Landlord delivers said Plans and Specifications
Landlord shall deliver to Tenant a schedule (the "Work Schedule") setting forth
a timetable for the installation of the Tenant Improvement Work (as defined in
Section 2 below) to be constructed in the Premises. The Work Schedule shall
become the basis for completing the Tenant Improvement Work. It is further
agreed that the provisions of Section 6 of the Lease (regarding Alterations, as
such term is defined in the Lease) shall not be applicable to the Tenant
Improvement Work..
2. TENANT IMPROVEMENT WORK
Reference herein and in the Lease to the "Tenant Improvement Work"
shall include all work to be done in the Premises pursuant to the Plans and
Specifications, including but not limited to, any partitioning, doors, ceilings,
floor coverings, finishes (including paint and wallcovering), electrical
(including, but not limited to, lighting, switching, telephones, outlets and
installation of a submeter or submeters), plumbing, heating, ventilating and air
conditioning, fire protection, cabinets and other mill work required thereby;
provided, however, (i) Landlord shall incur a maximum of $407,775.00 (which sum
may be comprised of in part of up to fifteen (15%) percent [i.e., $61,166.25] of
"soft costs" [which "soft costs" shall include architectural, engineering and
other consulting and related soft costs] and the balance as hard costs) in
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connection with the Tenant Improvement Work ("Landlord's Contribution") and (ii)
the balance of the costs incurred in order to complete said Tenant Improvement
Work as reasonably determined by Landlord shall be deposited with Landlord by
Tenant prior to Landlord's commencement of the Tenant Improvement Work and any
remaining balance shall be paid to Landlord by Tenant in advance of Landlord"
prosecution of any work for which sufficient funds are not then on hand and
available to Landlord.
3. PLANS
Tenant shall agree to any changes in the Plan in the Plan and
Specifications which may be necessary to obtain any required building permits.
After Landlord has approved the Plans and Specifications, no changes may be made
in the Plans and Specifications without the prior written approval of Landlord.
4. CONSTRUCTION OF THE TENANT IMPROVEMENT WORK
After the Plan and Specifications have been prepared and a building
permit for the Tenant Improvement Work has been issued (if required by law),
Landlord shall in accordance with all applicable provisions of the Lease, but
subject to the provisions of paragraph 2 hereof, cause the Tenant Improvement
Work to be constructed.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the
date first above written.
Witness: LANDLORD:
OTR, an Ohio general partnership, acting
as the duly authorized nominee of the
BOARD OF THE STATE TEACHERS RETIREMENT
SYSTEM OF OHIO
By ____________________________________
Name:_______________________________
General Partner
Witness: TENANT:
AVESTA TECHNOLOGIES, INC.
By ____________________________________
Name: _____________________________
Title: _____________________________
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EXHIBIT A
[FLOOR PLAN HERE]
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EXHIBIT E
Tenant Estoppel Certificate
RE: Premises:___________________________
Lease Dated:________________________
Amendment(s) Dated:_______________________
Between:__________________________________ ("Landlord")
and_______________________________________ ("Tenant")
Square Footage Leased:____________________
Floor(s)/Suite #(s):______________________
The undersigned, Tenant under the above-referenced lease ("Lease"), certifies to
the following:
1. Tenant has taken possession of and accepted the Premises described above,
except as follows:
2. The Lease terms as described below are true and accurate, and the Lease is
in full force and effect:
Base Rent:________________________________ per year
Expense Stop:_____________________________ per square foot
Escalations:______________________________
Free Rent:________________________________
Commencement Date:________________________
Expiration Date:__________________________
Renewals:_________________________________
3. NO part of the Premises has been subleased or assigned except as follows:
__________________________________________
__________________________________________
4. The rent has been paid through:___________
5. The security deposit is __________________
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6. Tenant is not in default to of its obligations under the Lease. Landlord,
to the best of Tenant's knowledge, is not in default of its obligations
under the Lease. There exists no defense or counterclaim to rent or other
sums required to be paid by Tenant under or pursuant to the Lease. If
Tenant is a corporation, the undersigned is a duly appointed officers of
the corporation signing this certificate and is the incumbent in the
office indicated under his/her name. In any event, the undersigned
individual is duly authorized to execute this certificate.
Date: _________________________, 1997
Signed:_________________________________________
(Signature)
__________________________________________
(Print Name & Title)
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EXHIBIT F
Rules and Regulations
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite on the
tenant's premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
arcades, entrances, corridors, escalators, elevators and other facilities of the
Building by other tenants. Fire exits and stairways are for emergency use-only,
and they shall not be used for any other purposes by the tenants, their
employees, licensees or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas, arcades,
entrances, corridors, escalators, elevators, fire exits or stairways of the
Building. Landlord reserves the right to control and operate the public portion
of the Building and the public facilities, as well as facilities furnished for
the common use of the tenants, in such manner as it deems best for the benefit
of the tenants generally.
2. The cost of repairing any damage to the public portions of the Building
or the public facilities or to any facilities used in common with other tenants'
caused by tenant or the employees, licensees or invitees of the tenant, shall be
paid by such Tenant.
3. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by Landlord or not properly identified, and may require all persons
admitted to or leaving the Building outside of ordinary business hours to
register. Tenant's employees, agents and visitors shall be permitted to enter
and leave the building outside of ordinary business hours whenever appropriate
arrangements have been previously made between Landlord and Tenant with respect
thereto. Each tenant shall be responsible for all persons for whom he requests
such permission and shall be liable to Landlord for all acts of such persons.
Any person whose presence in the Building at any time shall, in the judgment of
Landlord, be prejudicial to the safety of the Building or its tenants may be
denied access to the Building or may be ejected therefrom. In case of invasion,
riot, public excitement or other commotion Landlord may prevent all access to
the Building during the continuance of the same, by closing the doors or
otherwise, for the safety of the tenants and protection of property in the
Building. Landlord may require any person leaving the Building with any package
or other object to exhibit a pass from the tenant from whose premises the
package or object is being removed, but the only establishment and enforcement
of such requirements shall not impose any responsibility on Landlord for the
protection of any tenant against the removal of property from the premises of
the tenant. Landlord shall, in no way, be liable to any tenant for damages or
loss arising from the admission, exclusion or ejection of any person to or from
the tenant's premises or the Building under the provisions of this rule.
4. No tenant shall obtain or accept or use its premises towel, barbering,
boot blacking, floor polishing, lighting maintenance, cleaning or other similar
services from any persons not authorized by Landlord in writing to furnish such
services, provided always that the
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charges for such services by persons authorized by Landlord are not excessive.
Such services shall be furnished only at such hours or in such places within the
tenant" premises and under such regulations as may be fixed by Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant and only such window blinds as are supplied or permitted
by Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by Tenant or by jobbers or others, in the delivery or receipt
of merchandise or mail any hand trucks, except those equipped with rubber tires
and side guards.
7. All entrance doors in each tenant's premises shall be left locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time. Blinds, which shall conform to Building Standard, shall be installed
and maintained on all windows in each tenant's premises and all windows shall be
kept closed at all times and all blinds or drapes there) above the ground floor
shall be lowered or closed when and as reasonably required because of the
position of the sun during the operation of the Building air conditioning system
to cool or ventilate the tenants' premises.
8. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of Landlord, might disturb other tenants in
the Building shall be made or permitted by any tenant and no cooking shall be
done in Tenant's premises except in any kitchen or Dryer units installed in the
Premises with Landlord's approval. Nothing shall be done or permitted in any
tenant's premises, and nothing shall be brought into or kept in any tenant's
premises, which would impair or interfere with any of the Building services or
the proper and economic heating, cleaning or other servicing of the Building or
the premises, or the use or enjoyment by any other tenant of any other premises,
nor shall there be installed by any tenant any ventilating, air conditioning,
electrical or other equipment of any kind which, in the judgment of Landlord,
might cause any such impairment or interference. No dangerous, inflammable,
combustible or explosive object or material shall be brought into the Building
by any tenant other with the permission of any tenant, other than as may be used
as an incident to normal office use in connection with photocopying equipment.
9. Tenant shall not permit any cooking or food odors emanating within the
demised premises to seep into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or hues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purpose for which they were designed or constructed and no sweepings, rubbish,
rags, acids or other foreign substances shall be deposited therein. All damages
resulting from any violation of this rule shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
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11. No signs, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside of the
Building or inside the demised premises if visible from outside of the demised
premises without the prior written consent of Landlord. Landlord shall not
unreasonably withhold consent to the installation of an appropriate sign
identifying Tenant in the entrance to the demised premises. In the event of the
violation of the foregoing by any tenant, Landlord may remove the same without
any liability, and may charge the expense incurred by such removal to the tenant
or tenants violating this rule. Interior signs and lettering on doors and
elevators shall be inscribed, painted, or affixed for each by Landlord at the
expense of such tenant, and shall be of a size, color and style acceptable to
Landlord. Landlord shall have the right to prohibit any advertising by any
tenant which impairs the desirability of the Building as a building for offices,
and upon written notice from Landlord, Tenant shall refrain from or discontinue
such advertising.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Duplicate keys for a tenant,
premises and toilet rooms shall be procured only from Landlord, which may make a
reasonable charge therefor. Upon the termination of a Tenant's lease, all keys
of the tenant's premises and toilet rooms shall be delivered to Landlord.
13. No tenant shall mark, paint, drill into, or in any way deface any part
of the Building or (except for Tenant's installation and normal decorating and
the installation of ordinary business office equipment) the premises demised to
such tenant. No boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of Landlord and as Landlord may direct. No tenant
shall install any resilient tile or similar floor covering in the premises
demised to such tenant in a manner approved by Landlord.
14. No tenant shall use or occupy, or permit any portion of the premises
demised to such tenant to be used or occupied, as an office for a public
stenographer or typist, or as a barber or manicure shop, or as an employment
bureau. No tenant or occupant shall engage or pay any employees in the Building,
except those actually working for such tenant or occupant in the Building or
advertise for laborers giving an address at the Building.
15. The requirements of tenants will be attended to only upon application
at the office of the management agent of the Building. Employees of Landlord
shall not perform any work or do anything outside of the regular duties, unless
under special instructions from the office of Landlord.
16. The requirements of tenants will be attended to only upon application
at the office of the management agent of the Building. Employees of Landlord
shall not perform any work or do anything outside of the regular duties, unless
under special instructions from the office of Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
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18. Tenant's employees shall not loiter around the hallways, stairways,
elevators, front, arcade, roof or any other part of the Building used in common
by the occupants thereof.
19. Tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such extermination therefor as shall be approved by Landlord.
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EXHIBIT G
Alternate Electricity
A. Base Charge. Landlord shall supply Tenant with such electric
current as Tenant reasonably shall require (consistent with the existing
electrical capacity contained in the Premises) for Tenant's wiring facilities
and equipment within the Premises as of the commencement of occupancy thereof by
Tenant, and in consideration therefor the annual Base Rent for each square foot
of the Premises set forth in Section 3.1 hereof shall be increased by $2.75 per
square foot per year (the "Base Charge"). The Base Charge included in the Base
Rent in no event shall be subject to reduction but shall be subject to being
increased as, hereinafter provided. Landlord shall not be liable in any way to
Tenant for any failure or defect in the supply or character of electric energy
furnished to the Premises by reason of any requirement, act or omission of the
public utility serving the Building or for any other reason not attributable to
Landlord. Tenant shall furnish and install all lighting tubes, lamps, bulbs and
ballasts required in Premises, at Tenant's expense, or shall pay Landlord's
reasonable charges therefor on demand. Tenant shall pay for the cost of
electricity consumed by (i) Tenant's signs located in the Premises or otherwise
in or on the Building, and (ii) air conditioning equipment" located in the
Premises as well as any other air conditioning equipment furnishing conditioned
air to the Premises irrespective of whether any such equipment is located in the
Premises or in any other portion of the Building. The term "air conditioning
equipment" as used herein shall be deemed to include, without limitation, all
components and auxiliary equipment used in connection with air conditioning
equipment servicing the Premises.
B. Surveys. After Tenant shall have entered into possession of the
Premises, or any portion thereof, Landlord, at any time and from time to time
during the term of this Lease, shall have the right, to have surveys made by
Landlord's electrical consultant of the electrical consumption within the
Premises and by Tenant's signs and the air conditioning equipment servicing the
Premises. One the basis of such surveys, said electrical consultant shall
determine the then Electrical Consumption Charge (as such term is defined in
Section C). If the Base Charge (as the same may have been increased as a result
of previous surveys) shall be less than the Electrical Consumption Charge
determined by Landlord's consultant, then effective as of the Commencement Date,
in the case of the first such survey, and effective as of the date of the making
of such survey, in the case of subsequent survey the Base Charge increase to
fixed annual rent (as same may have been increased previously pursuant to the
provisions hereof) shall be further increased by an amount equal to the
difference between (i) the Base Charge increase (plus any previous increases to
the Base Charge increase in accordance with the provisions hereof), and (ii) the
then Electrical Consumption Charge determined to be applicable by Landlord's
consultant. Surveys made by Landlord's electrical consultant shall be based upon
the use of such electric current between the hours of 8:00 A.M. to 6:00 P.M. on
Mondays through Fridays, and 8:00 A.M. to 1:00 P.M. on Saturdays and such other
days and hours when Tenant uses electricity for lighting and for the operation
of the machinery, appliances, signs, and equipment used by Tenant in the
Premises or elsewhere in the Building. In addition, such survey shall include
normal cleaning hours of up to five hours per day for lighting within the
Premises and for electrical equipment normally used in such cleaning. The cost
of the first survey made by Landlord's electrical consultant shall be borne by
Landlord. With respect to subsequent surveys,
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if Landlord's consultant shall determine that there has been an increase in
Tenant's use of electrical current than, in addition to the other requirements
and obligations imposed on Tenant in this Section. Tenant shall pay the fees of
the electrical consultant mailing such survey. The findings of such electrical
consultant shall be binding and conclusive on Landlord and Tenant.
C. Electrical Consumption Charge. The Electrical Consumption Charge
to be made to Tenant for electricity consumed within the Premises and by
Tenant's signs and the air conditioning equipment servicing the Premises shall
be computed by Landlord's consultant by applying to Tenant's consumption of
electricity, as determined by Landlord's consultant. The prevailing rate Service
Classification 4-Rate I (or successor service classification rate), and not the
time-of-day rate schedule (if any). The following shall be included in such
computation:
(i) kilowatt hours of energy charge;
(ii) kilowatts of demand charge;
(iii) fuel adjustment charge;
(iv) transfer adjustment charge;
(v) utility tax; and
(vi) any and all other charges and taxes required to be paid
by Landlord to the utility company.
In no event, however, shall the Electrical Consumption Charge be less than
Landlord's actual cost therefor and in no event shall the original Base Charge
be subject to reduction.
D. Capacity. Tenant's use of electric energy in the Premises shall
not at any time exceed the capacity of any of the electrical conductors,
machinery and equipment in or otherwise serving the Premises. In order to insure
that such capacity is not exceeded and to avert possible adverse effect upon the
building electric service, Tenant shall not connect any additional fixtures,
machinery, appliances or equipment to the Building electric distribution system
or make any alteration or addition to Tenant's machinery appliances or
equipment, or the electric system of the Premises existing on the Commencement
Date of the term hereof, without Landlord's prior written consent in each
instance. Should Landlord grant such consent, all additional risers or other
equipment required therefor shall be provided by Landlord and the cost thereof
shall be paid by Tenant upon Landlord's demand. As a condition to granting such
consent, Landlord may require Tenant to agree to an increase in the Base Rent by
an amount that will reflect the value of the additional service to be furnished
by Landlord, that is, the potential additional electrical current to me made
available to Tenant based upon the estimated additional capacity of such
additional risers or other requirement. If Landlord and Tenant cannot agree
thereon, such amount shall be determined by an electrical engineer or consultant
to be selected by Landlord and paid by Tenant. When the amount of such increase
is so determined, the parties will execute an agreement supplementary hereto to
reflect such increase in the amount of Base Rent stated in this Lease effective
from the date such additional service is made available to
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Tenant; but such increase shall be effective from such date even if such
supplementary agreement is not executed.
E. Changes in Base Charge. If the public utility rate schedule for
the supply of electric current to the Building or the utility company fuel
adjustment charge or demand charge shall be increased or decreased at any time
after the date hereof, or if there shall be a change in taxes or if additional
taxes shall be imposed upon the sale or furnishing of such electric current, or
if there shall be a change in the space constituting the Premises, or if
Tenant's failure to maintain its machinery and equipment in good order and
repair causes greater consumption of electrical current, or if Tenant uses
electricity on days or hours other than those specified in Section B above, or
if Tenant adds any machinery, appliances or equipment, the Base Rent herein
reserved shall be equitably adjusted to reflect any or all of the foregoing, as
may be applicable. If Landlord and Tenant cannot agree thereon, the amounts of
such adjustments shall be determined, based on standard practices, by any
electrical engineer or consultant, to be selected by Landlord and paid by Tenant
and the findings of said electrical engineer or consultant shall be binding and
conclusive upon the parties. When the amounts of such adjustment are so
determined, the parties shall execute an agreement supplementary hereto to
reflect such adjustment in the amount of the Base Rent stated in this Lease
effective from the date of the increase or decrease of such usage as determined
by such electrical engineer, or consultant, or as the case may be, from the
effective date of such increase or decrease in the public utility rate schedule;
but such adjustment shall be effective from such date whether or not such a
supplementary agreement is executed. In no event, however, shall the original
Base Charge be subject to reduction.
F. Direct Metering. Landlord reserves the right to discontinue
furnishing electric current to Tenant in the Premises at any time upon not less
than thirty (30) days' prior written notice to Tenant. If Landlord exercises
such right of termination, this Lease shall continue in full force and effect
and shall be unaffected thereby, except only that, from and after the effective
date of such termination, Landlord shall not be obligated to furnish electric
energy to Tenant and the Base Rent payable under the Lease shall be reduced by
the amount of any previous increases thereto on account of electricity supplied
pursuant to the provisions of this Section. Landlord, upon the expiration of the
aforesaid notice to Tenant, may discontinue furnishing the electric current; but
if, for any reason, the supply of electric current by Landlord to Tenant shall
thereafter continue for any period of time, it shall be without waiver of the
right of Landlord thereafter to terminate the same without further notice, and
Tenant shall continue to pay the fixed annual rent as increased pursuant to this
Article as herein provided until such time as the supply of current shall in
fact be discontinued. If Landlord so discontinues furnishing electric energy to
Tenant, Tenant shall arrange to obtain electric energy directly from the public
utility company furnishing electric service to the Building. Such electric
energy may be furnished to Tenant by means of the then existing Building system
feeders, risers and wiring to the extent that the same are, in Landlord's sole
judgment, available, suitable and safe for such purposes. All meters and
additional pane boards, feeders, risers, wiring and other conductors and
equipment that may be required to obtain electric energy directly from such
public utility company shall be installed and maintained by Tenant at its
expense. In addition and notwithstanding anything to the contrary contained in
this Article, if necessary to comply with a legal requirement, Landlord at any
time during the terms of this Lease on not less than thirty (30)
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days' prior written notice to Tenant may require Tenant to purchase electricity
from Landlord or from a meter company designated by Landlord upon the terms of
the submetering provisions set forth in Article 44 of the Lease to which this
Exhibit G is attached. If Landlord shall elect to have Tenant purchase
electricity directly from Landlord or Landlord's designated meter company under
the submetering method as aforesaid, then Landlord, at Tenant's sold cost and
expense (but with Tenant's reasonable cooperation) shall perform all wiring as
may be necessary to have Tenant electrical consumption measured by submeters
installed by Landlord at Tenant's sole cost and expense. Further, if necessary
to comply with a Legal Requirement, Landlord may elect, at any time and from
time to time, to have electric current supplied to the Premises in accordance
with a method under which it originally or previously was supplied provided that
Landlord shall again give Tenant not less the thirty (30) days' prior written
notice of such change.
G. Taxes. If any tax is imposed upon Landlord with respect to
electrical energy furnished to Tenant by any federal, state, municipal or other
authority, Tenant shall reimburse Landlord for Tenant's pro rata share of such
taxes within ten days after being billed therefor, where permitted by applicable
Legal Requirements.
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EXHIBIT H
Cleaning Specifications
As used herein, "nightly" means five (5) nights each week, Monday through
Friday, provided such days are business days (as designated by Landlord).
General Cleaning
Mop and sweep floor nightly as needed to maintain in clean condition
including Tenant's space.
Vacuum all carpeted areas and rugs nightly.
Empty and clean all wastepaper baskets and disposal receptacles, ash
trays, sanitary cans, wastepaper tower cans and other receptacles (damp dust as
necessary) nightly. Install wastepaper basket liners.
Move and dust under all desk equipment, ashtrays, telephones and similar
equipment, replacing and dusting said equipment nightly, with the exception that
files, documents, papers etc. shall not be moved.
Dust and wipe clean all furniture, fixtures, cabinets, window sills, and
door casings nightly, and clean all glass tables and desk tops with impregnated
cloths as needed.
Remove nightly all finger marks, smudges, scuff marks, gum or foreign
matter as necessary from all glass surfaces, excluding exterior windows, but
including all sidelights interior glass walls and glass surfaces, glass doors,
glass light switches, glass desk tops, glass table cabinets and other similar
surfaces.
Wash clean nightly all water fountains and coolers, emptying waste water
as needed.
Mop up and wash floors for spills, smears and foot tracks, as needed.
Dust nightly, if necessary, all closet and coat room shelving, coat racks
and flooring.
Building Lavatories and Rest Rooms.
Sweep and wash nightly all flooring with proper disinfectant.
Wash and polish nightly all mirrors, powder shelves, bright work, enamel
surfaces, including flushometers, piping, toilet seat hinges and all metal.
Scour, wash and disinfect nightly all basins, bowls and urinals.
Wash both sides of all toilet seats nightly with proper disinfectant.
Empty and clean paper towel disposal receptacles nightly.
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Check and fill, as necessary, toilet tissues, soap dispensers, towel
dispensers and sanitary napkin vending dispensers.
Remove nightly wastepaper and refuse, including soiled sanitary napkins.
All wastepaper receptacles to be thoroughly cleaned and washed nightly. Remove
stains, as necessary, clean underside of rims and bowls.
Wash down washable tile walls in washrooms, from ceiling to floor as often
as necessary.
Wash all lighting fixtures as necessary, but not less than twice per year.
Do all high dusting approximately once a month.
High Dusting - Office Areas
Dust all pictures, frames and similar wall hangings not reached in nightly
cleaning every three months.
Vacuum and dust all vertical surfaces such as walls, partitions, doors,
bucks and ventilating louvres, grills, high moldings, and other surfaces not
reached in nightly cleaning every three months.
Dust all light fixtures, vacuum and dust ceiling tiles around ventilators
every three months.
Wash and clean all venetian blinds throughout the building at least once
every year.
Pest Control
Render pest control services when required.
Public Areas
Landlord shall keep entrance ways, elevator cabs, lobbies and all other
public areas properly maintained, clean and presentable at all times,
commensurate with first-class office buildings.
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EXHIBIT I
Intentionally deleted.
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EXHIBIT J
Letter of Credit Form
NO. Date_________________________ Irrevocable Letter of Credit
#__________
BENEFICIARY
OTR
Board of the State Teachers Retirement
Systems of Ohio
c/o Koll Management Services, Inc.
140 East 45th Street
New York, New York 10017
Dear Sir(s),
We hereby authorize you to draw on ________________________ New York, N.Y.
For the account of Avesta Technologies, Inc. up to the aggregate amount of
$300,000.00.
Available by your drafts at sight, accompanied by your statement, purportedly
signed by one of your authorized officers, partners or agents, that the amount
of your drawing represents funds due and payable under either (i) a certain
lease dated as of February 11, 1997 or (ii) a certain lease dated as of February
15, 1997, both executed by and between OTR, and Ohio general partnership, as
Landlord, acting as the duly authorized nominee of the Board of the State
Teachers Retirement System of Ohio, and Avesta Technologies, Inc., a New York
Corporation, as Tenant (said agreements being individually and collectively
referred to as the "Lease").
This Letter of Credit may be transferred to any transferee of the interest of
the landlord under the Lease.
It is a condition of this Letter of Credit that it shall be deemed to be
automatically extended for a period of one year from the present or any future
expiration date, unless we shall notify you by written notice given by
registered mail at least 60 days prior to such expiration date that we elect not
to renew it for such additional period, in which case you shall have the right
to draw on us the full amount of this Letter of Credit by your sight draft,
accompanied by your signed written statement that you are drawing under Letter
of Credit #_______________ because you have received notice of non-renewal from
us, and the accountee is still obligated to you under the above-referenced
Lease.
Partial draws are permitted under this Letter of Credit.
All drafts drawn under this Letter of Credit must bear on their face the clause
"Drawn under Letter of Credit/# ______________".
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Except so far as otherwise expressly stated, this Letter of Credit is subject to
the Uniform Customs and Practice for Documentary Credits (1993 Revision)
International Chamber of Commerce, Publication No. 500.]
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EXHIBIT K
Sundry Costs
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Work Letter
This Work Letter Agreement is entered into as of February 15, 1997 by and
between OTR, acting as the duly authorized nominee of the BOARD OF THE STATE
TEACHERS RETIREMENT SYSTEM OF OHIO ("Landlord") and AVESTA TECHNOLOGIES, INC.
("Tenant").
RECITAL:
Concurrently with the execution of this Work Letter Agreement, Landlord
and Tenant have entered into a lease (the "Lease") covering certain premises
(the "Premises") more particularly described in EXHIBIT A attached to the Lease.
In consideration of the mutual covenants hereinafter contained, Landlord
and Tenant hereby agree as follows:
1. COMPLETION SCHEDULE
Simultaneously with or prior to the execution of the Lease, Landlord
shall have delivered to Tenant a preliminary floor plan (hereinafter called the
"Preliminary Plan") prepared by ____________________________ and dated
_______________________. Immediately after execution of this Lease, Landlord and
Tenant shall in good faith utilize best reasonable efforts to expeditiously
product a complete set of working drawings and specifications (hereinafter
called the "Plans and Specifications") based on the Preliminary Plan such that
Tenant shall be able to operate within the Premises as soon as possible after
the date hereof. Upon Landlord delivering to Tenant the Plans and
Specifications, Tenant shall provide any comments thereto in writing within
seven (7) days of the date Landlord delivers and Plans and Specifications
Landlord shall deliver to Tenant a schedule (the "Work Schedule") setting forth
a timetable for the installation of the Tenant Improvement Work (as defined in
Section 2 below) to be constructed in the Premises. The Work Schedule shall
become the basis for completing the Tenant Improvement Work. It is further
agreed that the provisions of Section 6 of the Lease (regarding Alterations, as
such term is defined in the Lease) shall not be applicable to the Tenant
Improvement Work.
2. TENANT IMPROVEMENT WORK
Reference herein and in the Lease to the "Tenant Improvement Work"
shall include all work to be done in the Premises pursuant to the Plans and
Specifications, including, but not limited to, any partitioning, doors,
ceilings, floor coverings, finishes (including paint and wallcovering),
electrical (including, but not limited to, lighting, switching, telephones,
outlets and installation of submeter or submeters), plumbing, heating,
ventilating and air conditioning, fire protection, cabinets and other mill work
required thereby; provided, however, (i) Landlord shall incur a maximum of
$407,775.00 (which sum may be comprised of in part of up to fifteen (15%)
percent [i.e., $61,166.25] of "soft costs" [which "soft costs" shall include
architectural, engineering and other consulting and related soft costs] and the
balance as hard costs) in connection with the Tenant Improvement Work
("Landlord's Contribution") and (ii) the balance of the costs incurred in order
to complete and said Tenant Improvement Work as reasonably determined by
Landlord shall be deposited with Landlord by Tenant prior to Landlord's
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commencement of the Tenant Improvement Work and any remaining balance shall be
paid to Landlord by Tenant in advance of Landlord's prosecution of any work for
which sufficient funds are not then on hand and available to Landlord.
3. PLANS
Tenant shall agree to any changes in the Plan and Specifications
which may be necessary to obtain any required building permits. After Landlord
has approved the Plans and Specifications, no changes may be made in the Plans
and Specifications without prior written approval of Landlord.
4. CONSTRUCTION OF THE TENANT IMPROVEMENT WORK
After the Plan and Specifications have been prepared and a building permit
for the Tenant Improvement Work has been issued (if required by law), Landlord
shall in accordance with all applicable provisions of the Lease, but subject to
the provisions of paragraph 2 hereof, cause the Tenant Improvement Work to be
constructed.
5. COMMENCEMENT DATE
As used herein and in the Lease the term "Substantially Complete"
shall mean that the Tenant Improvement Work has been completed with the
exception of punchlist items. Landlord shall not be liable to Tenant for failure
to complete the Tenant Improvement Work by any fixed date for any reason
whatsoever, and Tenant's obligations under this Lease shall not be affected
thereby.
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Exhibit 10.6
FIRST AMENDMENT OF LEASE
AGREEMENT, made as of the 27th day of August, 1999, by and between
RECTOR TRINITY ASSOCIATES, L.L.C. ("Landlord"), a New York limited liability
company having an office at 156 William Street, New York, New York 10038, and
AVESTA TECHNOLOGIES, INC. ("Tenant"), a Delaware corporation having an office at
2 Rector Street, New York, New York 10006.
Statement of Facts
By lease dated February 15, 1997 (the "Lease") between OTR, an Ohio
general partnership, acting as the duly authorized nominee of the Board of the
State Teachers Retirement System of Ohio ("Prior Landlord"), as landlord, and
Tenant, as tenant, Prior Landlord leased to Tenant and Tenant hired from Prior
Landlord certain space on the fifteenth (l5th) floor of the building (the
"Building") located at 2 Rector Street, New York, New York, upon all of the
terms, covenants, conditions and provisions more particularly contained in the
Lease. The premises demised under the Lease is hereinafter referred to as the
"Original Premises." Landlord has succeeded to the interests of Prior Landlord
under the Lease. Landlord and Tenant now desire to amend the Lease by, among
other things, adding to the Original Premises certain space on the fourteenth
(14th) floor of the Building upon all of the terms, covenants and conditions
contained in this Agreement.
All capitalized terms used in this Agreement but not otherwise
defined in this Agreement shall have the meanings ascribed to such terms in the
Lease.
<PAGE>
NOW, THEREFORE, for ten ($10.00) dollars and other good and valuable
consideration, the receipt and adequacy of which is hereby mutually
acknowledged, Landlord and Tenant hereby agree to the following:
Terms and Conditions
1. Additional Premises:
(a) Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, by adding to the Original Premises, those certain premises (the
"Additional Premises") located on the fourteenth (14th) floor of the Building,
as more particularly shown on Exhibit A attached hereto (which by this reference
is made a part hereof), for the term (the "Additional Premises Term") commencing
on the "Additional Premises Commencement Date" (hereinafter defined) and ending
on June 30, 2008 (the "Expiration Date"), or until such term shall sooner cease
and terminate as hereinafter provided. The "Additional Premises Commencement
Date" shall be the date that is the later of (i) January 1, 2000; and (ii) the
date that The Street.Com Inc. ("The Street"), the existing tenant of the
Additional Premises, delivers to Landlord vacant possession of the Additional
Premises. The Street has expressed its intention to Landlord to vacate the
Additional Premises prior to January 1, 2000, but is not bound to do so.
However, to the extent The Street's move from the Additional Premises requires
the reasonable cooperation of Landlord, Landlord agrees, for the benefit of
Tenant, to reasonably cooperate with The Street to facilitate The Street's move
from the Additional Premises. If The Street has not delivered to Landlord vacant
possession of the Additional Premises on or before January 31, 2000, Landlord
and Tenant shall each have the right, upon written notice given to the other
party no later than February 5, 2000, to terminate this First Amendment of
Lease. If this First Amendment of Lease is terminated pursuant to the previous
sentence, this First Amendment of Lease shall terminate
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and neither party hereto shall have any further rights or obligations hereunder
other than those that are expressly provided to survive the termination hereof,
and, notwithstanding a termination of this First Amendment of Lease pursuant to
the previous sentence, the Lease shall remain in full force and effect.
(b) From and after the Additional Premises Commencement Date, the
terms "this lease" and "this Lease" as used in the Lease, and all references in
the Lease to the Lease shall be deemed to refer to and be references to the
Lease, as amended by this Agreement, and during the Additional Premises Term,
the term "demised premises," as such term is used in the Lease, shall mean the
Original Premises and the Additional Premises, and the floor plan set forth on
EXHIBIT A of the Lease shall be amended to include the floor plan of the
Additional Premises on EXHIBIT A hereto.
2. BASE RENT:
(a) During the Additional Premises Term, the Base Rent payable
pursuant to Section 3.1 of the Lease shall be increased by (the "Additional
Premises Base Rent") $422,400.00 per annum ($35,166.67 per month) for the first
six years of the Additional Premises Term, and the Base Rent payable pursuant to
Section 3.1 of the Lease shall be increased by $475,200.00 per annum ($39,600.00
per month) for the remainder of the Additional Premises Term.
(b) Tenant covenants and agrees to pay such increase in Base Rent in
the manner and in accordance with, and subject to, the terms, covenants and
conditions of the Lease, as amended by this Agreement.
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(c) Notwithstanding anything contained in this Article to the
contrary, but provided Tenant is not then, and continues thereafter not to be,
in default under any of the terms, covenants or conditions in this Agreement or
the Lease on Tenant's part to observe, perform or comply with, Tenant shall not
be obligated to pay the Additional Premises Base Rent for the period commencing
on the Additional Premises Commencement Date through and including the date that
is five (5) months after the Additional Premises Commencement Date.
4. TENANT'S ADDITIONAL PREMISES WORK:
(a) Any installations, materials and work which may be undertaken by
or for the account of Tenant to equip, decorate and furnish the Additional
Premises for Tenant's initial occupancy thereof (hereinafter referred to as
"Tenant's Additional Premises Work") shall be performed by Tenant, at Tenant's
sole cost and expense in accordance with the terms, covenants and conditions set
forth in this Agreement.
(b) Subject to the provisions of this Article (the "Additional
Premises Construction Payment Conditions"), Landlord hereby agrees to make a
single lump-sum payment of One Hundred Seventy Six Thousand and xx/100
($176,000.00) Dollars (the "Additional Premises Construction Payment"), provided
that at the time Landlord is otherwise obligated to make such payment of the
Additional Premises Construction Payment, Tenant is not then in default under
any of the terms, covenants or conditions in this Agreement or the Lease on
Tenant's part to observe, perform or comply with and:
(i) Tenant shall submit to Landlord no earlier than February
10, 1999 a requisition ("Tenant's Request") for payment of the Additional
Premises Construction Payment which Tenant's Request contain the following:
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(x) a certificate from Tenant that (1) Tenant has expended
$176,000.000 for or in connection with the Tenant's Additional Premises Work and
that Tenant's Additional Premises Work has been substantially completed in
accordance with the plans and specifications theretofore approved by Landlord;
and (2) there are no violations or liens pending as a result of Tenant's
Additional Premises work;
(y) lien waivers from each contractor performing all or any
part of Tenant's Additional Premises Work; and
(z) in respect of all Tenant's Additional Premises Work,
as-built drawings, and copies of balancing reports, operating manuals,
maintenance logs, warranties and guaranties, sign-offs and inspection reports.
(c) Provided the Additional Premises Construction Payment Conditions
have been, and remain, satisfied, Landlord shall pay to Tenant the Additional
Premises Construction Payment within five (5) days after Landlord's receipt of
Tenant's Request together with the accompanying documentation.
5. MODIFICATION OF CERTAIN LEASE PROVISIONS:
(a) Notwithstanding anything contained in this Agreement which may
be deemed to the contrary, Sections 2.2.1, 4.1, Article 30, 33 and Exhibits C, D
and J of the Lease (and any references to any of the foregoing) shall not apply
to this Agreement or to the Additional Premises (but without affecting the
applicability of such terms, as originally stated in the Lease, with regard to
the Original Premises).
(b) Notwithstanding anything contained in this Agreement which may
be deemed to the contrary:
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(i) The "Base Real Estate Taxes Amount" with respect to the
Additional Premises only (and without affecting the applicability of such term,
as originally stated in the Lease, with regard to the Original Premises) shall
mean the actual Real Estate Taxes payable with respect to the 1999/2000 tax
year;
(ii) "Tenant's Proportionate Share" with respect to the
Additional Premises only (and without affecting the applicability of such term,
as originally stated in the Lease, with regard to the Original Premises) shall
mean four and 17/100 (4.17%) percent.
(iii) The "Base Rate" with respect to the Additional Premises
only (and without affecting the applicability of such term, as originally stated
in the Lease, with regard to the Original Premises) shall mean the Rate in
effect on December 31, 1999;
(iv) The "Multiplication Factor" with respect to the
Additional Premises only (and without affecting the applicability of such term,
as originally stated in the Lease, with regard to the Original Premises) shall
mean 17,600.
(c) Tenant shall pay all rent due under the Lease to Landlord at the
following address: c/o Stellar Management Ltd., 156 William Street, New York,
New York 10038, or at such other place as Landlord may designate from time to
time hereafter by written notice to Tenant.
(d) Notices to Landlord shall be addressed to Landlord c/o Stellar
Management Ltd., 156 William Street, New York, New York 10038,, with a copy to
Greenberg Traurig, 200 Park Avenue, New York, New York 10166, Attention: Stephen
L. Rabinowitz; and
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(e) All references in Article 35 of the Lease to STRBO shall be
deemed a reference to Landlord.
6. BROKER:
(a) Tenant covenants, warrants and represents that there was no
broker or finder except Newmark & Company Real Estate, Inc. (the "Broker")
instrumental in consummating this Agreement and that no conversations or
negotiations were had by Tenant with any broker or finder except the Broker
concerning the renting of the Additional Premises. Tenant agrees to indemnify
and hold Landlord harmless from and against any claims or suits for a brokerage
commission arising out of any conversations or negotiations had by Tenant with
any broker or finder in connection with the leasing of the Additional Premises,
except the Broker, whom Landlord shall pay.
(b) Landlord covenants, warrants and represents that there was no
broker or finder except the Broker instrumental in consummating this Agreement
and that no conversations or negotiations were had by Landlord with any broker
or finder except the Broker concerning the renting of the Additional Premises.
Landlord agrees to indemnify and hold Tenant harmless from and against any
claims or suits for a brokerage commission arising out of any conversations or
negotiations had by Landlord with any broker or finder in connection with the
leasing of the Additional Premises, including the Broker, whom Landlord shall
pay.
7. ELEVATOR SERVICE:
Prior to January 1, 2000, Landlord shall re-program the elevators
presently serving the Original Premises such that such elevators shall,
throughout the Additional Premises
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Term, serve (among the other floors served by such elevators) the Additional
Premises as well as the Original Premises.
8. CROSS-DEFAULT:
Notwithstanding anything to the contrary contained in the Lease or
this Amendment of Lease, in the event Tenant shall default in the observance or
performance of the terms, covenants, provisions or conditions on Tenant's part
to observe or perform under this Amendment of Lease, such default shall be
deemed to be a default by Tenant under the Lease, and shall entitle Landlord to
exercise any and all of its rights and remedies under the Lease, at law or in
equity.
9. MISCELLANEOUS:
(a) Except as otherwise provided herein, all of the terms,
covenants, conditions and provisions of the Lease shall remain and continue
unmodified, in full force and effect.
(b) This Agreement sets forth the entire agreement between the
parties regarding the letting of the Additional Premises to Tenant, superseding
all prior agreements and understandings, written and oral, regarding the letting
of the Additional Premises to Tenant, and may not be altered or modified except
by a writing signed by both parties.
(c) Landlord and Tenant each represent and warrant to the other that
it has not relied upon any representation or warranty, express or implied, in
entering into this Agreement, except those which are set forth herein.
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(d) This Agreement has been executed in the State of New York and
shall be governed by and construed in accordance with the laws of the State of
New York.
(e) The covenants and agreements herein contained shall bind and
inure to the benefit of Landlord, its successors and assigns, and Tenant, its
successors and assigns. If any of the provisions of this Agreement, or its
application to any situation, shall be invalid or unenforceable to any extent,
the remainder of this Agreement, or the application thereof to situations other
than that as to which it is invalid or unenforceable, shall not be affected
thereby, and every provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
(f) The captions of this Agreement are for convenience and reference
only and in no way define, limit or describe the scope or intent of this
Agreement.
(g) Submission by Landlord of the within Agreement for execution by
Tenant shall confer no rights nor impose any obligation on Landlord unless and
until both Landlord and Tenant shall have executed this Agreement and duplicate
originals thereof shall have been delivered by Landlord and Tenant to each
other.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement
as of the date first above written.
LANDLORD: RECTOR TRINITY ASSOCIATES, L.L.C.
By: Stellar Rector Associates, L.L.C.
By: /s/ Laurence Gluck
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Laurence Gluck, Operating Manager
TENANT: AVESTA TECHNOLOGIES, INC.
9
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By: /s/ Cameron Saifi
-----------------------------------
Cameron Saifi, Vice President
Operations and Administration
10
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Exhibit A
Floor Plan of the Additional Premises
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(follows immediately)
11
<PAGE>
Exhibit 10.7
SERVICE AGREEMENT
---------------------------- --------------------------------------
Agreement Date (incl. Year): May 21,
Agreement No.: 05211 1999
---------------------------- --------------------------------------
- ----------------------------------------- --------------------------------------
1a OPERATOR - REGISTERED ADDRESS 1b OPERATOR - LOCATION
- ----------------------------------------- --------------------------------------
REGUS BUSINESS CENTRE CORP. REGUS REDWOOD SHORES
Harrison Executive Park, 3000 Suite 600 o 303 Twin Dolphin Drive
Westchester Ave., Suite 112 REDWOOD CITY, CA 94065
Purchase, NY 10577
- ----------------------------------------- --------------------------------------
- ----------------------------------------- --------------------------------------
2a CLIENT - REGISTERED ADDRESS 2b CLIENT - INVOICING ADDRESS (if
different)
- ----------------------------------------- --------------------------------------
COMPANY NAME: Avesta Technologies, Inc. COMPANY NAME:
- ----------------------------------------- --------------------------------------
CONTACT/TITLE: Cameron Salfi, VP CONTACT/TITLE:
Operations
- ----------------------------------------- --------------------------------------
ADDRESS: Two Rector Street ADDRESS:
- ----------------------------------------- --------------------------------------
- ----------------------------------------- --------------------------------------
ZIP CODE: 10006 CITY: New York City ZIP CODE: CITY:
- ----------------------------------------- --------------------------------------
STATE: NY COUNTRY: USA STATE: COUNTRY:
- ----------------------------------------- --------------------------------------
TELEPHONE: 212-285-1500 TELEPHONE:
- ----------------------------------------- --------------------------------------
FACSIMILE: 212-285-1551 TAX I.D.
- ----------------------------------------- --------------------------------------
3 FOR COMPANY USE ONLY COMMENTS:
- ----------------------------------------- --------------------------------------
Client's Office Additional Fixed Costs (Quantities
No.(s) 54 55 57 to be Determined later):
- ----------------------------------------- --------------------------------------
Phones @ $125 ea. / mo.
or such other room within the --------------------------------------
accommodation as allocated by the FAX / Modem line @ $50 / mo.
Operator in substitution form time to --------------------------------------
time.
- ----------------------------------------- --------------------------------------
Service Retainer $10,800.00 T-1 Internet access @ $150 ea. / mo.
- ----------------------------------------- --------------------------------------
Beverages @ $20 ea. / mo.
In respect to the agreed accommodation --------------------------------------
on behalf of Regus Business Centre Corp. Initial Payment:
- ----------------------------------------- --------------------------------------
Standard Facility Fee Service Retainer $ 10,800
$5,400.00 per calendar month
- ----------------------------------------- --------------------------------------
TAX $ M M D D Y Y June Rent for Office No. 54 $ 1,700
- ----------------------------------------- --------------------------------------
Term Commencement Date 0 6 0 1 9 9 June Rent for Office No. 55 $ 1,850
- ----------------------------------------- --------------------------------------
M M D D Y Y June Rent for Office No. 57 Free
- ----------------------------------------- --------------------------------------
Termination Date 1 1 3 0 9 9 Total Due $ 14,350
- --------------------------------------------------------------------------------
This Service Agreement (hereafter SA) is made between the Client whose name
appears in 2 above (hereafter "Client") and the Operator whose registered name
and address appear in 1a (hereafter "Operator"). The Accommodation is the sixth
floor, 303 Twin Dolphin Drive, Redwood City, CA 94065 (hereafter
"Accommodation").
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Client hereby confirms that The Client has read and understood the terms and
conditions on the reverse side and agrees to be bound thereby and The Operator
agrees to provide the services and facilities as mentioned on the reverse side.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For and on behalf of The Operator For and on behalf of The Client
- --------------------------------------------------------------------------------
Name (printed): Rob Scafe Name (printed): Cameron Salfi
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Title: Corporate Account Manager Title: VP, Operations & Administration
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Date: 5/25/99 Date: 5/25/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature: /s/ Rob Scafe Signature: /s/ Cameron Saifi
- --------------------------------------------------------------------------------
<PAGE>
Terms & Conditions
1. FACILITIES AND SERVICES PROVIDED UNDER THIS AGREEMENT
a) In consideration of the payment by the Client of the standard facility fee
specified in box 3 overleaf each month, the Operator provides the Client with
access to and use of a fully furnished office accommodation (the
"Accommodation") as specified overleaf in box 3 and public areas such as
reception, kitchen, sanitary facilities and photocopying areas during the normal
operating hours of 8:30 a.m. to 6:00 p.m., Monday through Friday. The standard
facility fee includes all rates (except where specifically agreed between Client
and Operator).
In addition, this standard facility fee includes: |_| 4 hours free use of a
conference room for every calendar month of this Agreement, subject to
availability |_| three days free office usage at any Regus centre world-wide,
subject to availability, for every complete calendar month of this Agreement.
|_| all service charges relating to normal use of heating, lighting, cleaning
and servicing of public areas such as reception, kitchen and sanitary
facilities.
|_| personalized telephone answering |_| receptionist to greet visitors
b) The following services and facilities are made available, for an additional
service charge, either directly or through third parties: |_| secretarial
services |_| photocopying |_| messaging |_| courier services |_| facsimile |_|
car parking* |_| travel arrangements |_| office supplies |_| translations |_|
meeting rooms |_| food and beverage services |_| mail handling |_| voicemail*
|_| Videoconferencing* (*subject to availability)
2. DURATION AND TERMINATION OF THIS AGREEMENT
a) This Agreement is concluded for the duration specified in section 3 overleaf.
Unless terminated in writing by either party giving thirty (30) days notice
(forty five (45) days if the Accommodation consists of five or more offices), it
will be automatically extended by further periods of two (2) months until three
months notice of termination is received prior to the end of an extension
period.
b) Extraordinary termination of this Agreement and of the right of access to the
business centre
The Operator may terminate this Agreement or refuse an extension of this
Agreement for just cause, including breach of any part of this Agreement.
Equally, if the Client, being a company, enters into liquidation whether
compulsory or voluntary (save for the purpose of reconstruction or amalgamation)
or, being an individual, has a receiving order made against hire or becomes
bankrupt, the Operator will have the right to terminate all of the Client's
rights under this Agreement or such other rights as the Operator designates with
a without notice to the Client and in addition to and not in lieu of other
remedies available. Upon any such action by the Operator, the Client will remain
liable for all obligations which have previously accrued and will have to pay an
indemnity equal to 3 months standard facility fee or the total facility fee of
the unexpired term whichever is greater, together with all damages it may incur
by reason thereof, including the cost of recovering and relating the
Accommodation and attorneys' fees and expenses. This Agreement may be terminated
at the option of the Operator upon the occurrence of any casualty or
condemnation affecting the Accommodation of the business centre.
In case of termination of the lease (the "Lease") between the Operator and
the building owner ("Landlord"), this Agreement shall immediately terminate,
unless Landlord requests that the Client agree upon the terms and conditions
hereof for the unexpired term of this Agreement.
c) Extension of stay beyond the normal period of this Agreement
Should the Client require the use of the Accommodation once this agreement
period has terminated and has not been renewed under the general provisions
of this Agreement. It is at the Operator's discretion to permit such an
extension and it is subject to a surcharge of 150% on the standard facility
fee, together with the service charges for any services used by the Client
during such period. The Client shall be responsible for any loss, claim or
liability incurred by the Operator pursuant to the terms of the Lease on
account of the Client's failure to timely surrender the Accommodation.
3. PAYMENT OF THE STANDARD FACILITY FEE AND SERVICE CHARGE
a) Standard facility fee
The standard facility fee plus applicable taxes as listed in section 3 overleaf
is payable in advance without any offset or deduction on the first working day
of each month.
b) Service charges
All service charges for services and facilities used plus applicable tax are
invoiced in arrears and are payable within seven days of receipt of invoice. The
Operator reserves the right to change the cost of any or all of the service
charges at any time during the term of this Agreement by giving 30 days notice
to the Client.
c) Service Retainer
Prior to being given access to the Accommodation, the Client will pay a retainer
specified overleaf against all obligations entered into by the Client in this
Agreement, including any damage to the Client's Accommodation and furnishings
and fittings therein. The retainer will be returned to the Client within 60 days
of the Client vacating the Accommodation, subject to the deduction of any
outstanding standard facility fee or service charges or other fees outstanding
and the cost of returning the Accommodation to the condition it was found in at
the commencement of the term, reasonable wear and tear excepted. The Client
shall immediately replenish any portion of the retainer applied or retained by
the Operator on account or any default by the Client hereunder. The Operator
reserves the right to increase the retainer should the Client's outstanding
facility fee and service charges exceed the retainer amount held or if the
Client is repeatedly in arrears with payment of invoices.
d) Penalties upon late payment
The Operator reserves the right to terminate this Agreement and ask the Client
to vacate the Accommodation immediately if the standard facility fee is not paid
or the service charges for the additional services are not paid by the end of
the day they are due. Any invoiced amounts left outstanding after their due date
will be subject to interest at the rate of 4% above the annual rate of interest
from time to time publicly announced by Citibank, N.A. as its prime commercial
lending rate and a late charge of 5%. The Operator may also suspend the delivery
of any services to the Client and/or the Accommodation if the Client is in
default of any of it obligations hereunder.
f) Payment of disputed invoiced items
Should part of an invoice issued by the Operator be in dispute, the Client will
be obliged to pay by the deadlines mentioned above the part of the invoice which
is not in dispute while the disputed amount is being settled between the
Operator and the Client without prejudice to paragraph 3(d) above.
4. THE CLIENT'S RIGHTS AND RESPONSIBILITIES
a) The Client will be entitled to carry on his business in the Accommodation
specified in box 3 overleaf. The Operator reserves the right to relocate the
Client to another office of similar size and equipment within the business
centre should this become necessary for business reasons
b) During the term of this Agreement and subject to timely payment of the
standard facility fee, the Client is entitled to use the address of the business
centre as his business address. Upon termination of this Agreement for whatever
reason, it is the Client's responsibility to notify all parties of the change of
address. Subsequent mail sent to the address will be returned to sender.
c) The Client may only conduct business from the Accommodation in the name of
the Client specified overleaf or such other business name as may be agreed in
writing with the Operator.
d) Upon being given access to the Accommodation and office(s), an inventory list
will be drawn up in which the Client confirms receipt of keys or entry cards,
the condition of the Accommodation and furniture and fittings at the start of
this Agreement.
e) The keys and entry cards remain the property of the Operator and shall not be
duplicated or transferred to third parties without the express written
permission of the Operator. The loss of keys must be reported to the Operator
immediately. The cost of lost keys or cards, as well as the coat of changing
locks will be borne by the Client. Should the Client use the Accommodation
outside normal working hours he is responsible for locking all doors used.
f) The Client may not alter the Accommodation allocated to him in any way or
install any furniture, equipment or telecommunication connections without me
prior written consent of the Operator. The granting of this consent is entirely
at the discretion of the Operator.
g) The Client will conduct business in a way which does not interfere with the
Operator or any other client of the business centre and will comply with (and
pay, as the case may be) all laws, permits, licensing laws, and state, city or
other local taxes (including any rent and occupancy taxes) and any other
requirements regulating the conduct of his business.
h) The Client may not bring animals into the centre or play loud music or use
amplification equipment.
i) The Accommodation is in a non-smoking building.
j) The Client may not mount name signs or any type of advertising boards visible
from outside his immediate Accommodation. Subject to the terms of the Lease and
to availability, the Client will be included in any house directory. Any costs
incurred in doing so will be paid for by the Client.
k) The Client may not use the Accommodation for any activities or actions which
could be damaging to the Operator or Landlord or which could lead to an increase
in insurance premiums paid by the Operator.
l) The Client may not offer employment to or hire any of the employees of the
Operator. This applies to the entire duration of this Agreement and six months
following its termination. If the Client contravenes provision, the Operator
will be entitled to compensation in the sum of the total annual remuneration of
the employee(s) in question.
m) The Client will remain solely responsible for the safety of its property and
personnel and is responsible for actions and the actions of his employees. The
Client shall maintain (a) all-risk property insurance covering property and (b)
comprehensive general liability insurance, with the Operator and Landlord named
as additional insureds, of no less than $2,000,000. The Client shall deliver to
the Operator certificates of Insurance evidencing] such coverage. All such
policies shall contain a provision whereby the same cannot be cancelled or
modified unless the Operator is given at least thirty (30) days' prior written
notice thereof. The Client shall defend and indemnify and hold the Operator
harmless from any and all claims, liability or loss arising out of or incident
to any injury to or death of persons occurring on or about the Accommodation and
(ii) the provision of, or use by the Client of any facilities (including
occupancy of the Accommodation) or services hereunder. The Client hereby
releases the Operator from any liability which the Operator might have to the
Client for any damage caused by casualty. The Client agrees to include in its
casualty insurance a waiver of the insurer's right of subrogation against the
Operator.
n) The Client shall take such steps as are necessary to comply with its health
and safety obligations and shall comply with such reasonable requirements of the
Operator to this regard or in the management of the business centre generally as
are necessary from time to time.
o) The Client will use the Accommodation for general office purposes only and
for no other purposes (i.e. retail or service open to the general public), and
will not use the Accommodation to provide to others services provided by Regus
to Regus Clients and will not in any way whatsoever use or combine the Regus
name whole or in part, for the purpose of trading activities.
p) The Client shall vacate the Accommodation on the day of expiration of this
Agreement leaving Accommodation in the same condition as it was found save for
wear and tear. The Client shall be required to repair any damage to the
building, the business centre or the Accommodation caused by the Client. The
Operator does not accept responsibility for any belongings of the Client left in
the Accommodation and has the right to dispose of such property.
q) Joint and several liability
Should the Client be more than one person or party, all parties to this
Agreement are liable jointly and severally for all obligations arising from this
Agreement.
r) Notwithstanding any other terms of this Agreement, Client shall have ten (10)
business days in which to cure any alleged breach of this Agreement after
receipt of written notice from the Operator.
5. THE OPERATOR'S RIGHTS AND RESPONSIBILITIES
a) The Operator is responsible for: |_| general maintenance of the business
centre and the Client's Accommodation |_| cleaning of the entire business centre
|_| adequate lighting during normal opening hours |_| maintenance checks and
renewals of equipment in the business centre.
b) The Operator has the right to enter the Client's Accommodation, upon giving
reasonable notice, to inspect them, undertake repairs, maintenance work and to
show the Accommodation to prospective clients.
c) The Operator will not be liable for any loss (real or consequential)
sustained as a result of the Operator failing to provide any of the services as
set forth in this Agreement as a result of any mechanical breakdown, strike,
delay or failure of any staff, manager or caretaker to perform their duties
unless acting with negligence and intent.
d) If the Client cannot be given access to the Accommodation or services, the
Operator's liability is limited to forfeiting the standard facility fee
chargeable for that period.
e) If the Operator is unable to deliver possession of any part of the
Accommodation to be provided at the commencement of the term, the Operator will
not be liable for any resulting damage nor will he have any liability except
that the Client will not have to pay the standard facility fee for the period
concerned and may withdraw from this Agreement.
f) The Operator shall be entitled to a reasonable period to cure any default by
the Operator hereunder prior to the exercise of any remedies that the Client may
have on account thereof.
g) Upon any assignment of the Operator's interest in the Lease, the Operator
shall be automatically and entirely discharged from all liability in respect of
the obligations to be performed by the Operator
6. OTHER PROVISIONS
a) This Agreement represents a contractual agreement between the Client and the
Operator for the provision of services by the Operator to the Client. The
Operator and the Client acknowledge by their execution hereof that no tenancy or
lease rights are created in favor of the Client.
b) This Agreement may not be assigned, nor may any portion of the Accommodation
be sublet, by the Client without the express written permission of the Operator,
and any much purported assignment or sublet without such consent shall be void.
c) This Agreement may be transferred to another Regus centre worldwide with 60
day notice.
d) All notices by the Client or the Operator to the other must be in writing and
delivered to an officer or authorized representative of the party concerned or
sent by certified or registered mail, return receipt requested to the respective
address shown overleaf.
e) The invalidity or unenforceability of any provision herein will not affect or
impair the validity of a provision. No waiver of any default of the Client will
be implied from any failure by the Operator to take action with respect to such
default.
f) This Agreement supersedes any prior agreement and embodies all the
contractual stipulations between the Client and the Operator relative to its
subject matter.
g) This Agreement is interpreted and enforced with the laws of the state in
which the centre in question is located.
h) The Client shall pay any costs (including attorneys' fees) incurred by the
Operator in enforcing the terms of this Agreement.
i) This Agreement is subordinate to the Lease and to any agreements to which the
Lease is subordinate
j) The Client shall indemnify the Operator for any loss, claim or liability
incurred by the Operator pursuant to the terms of the Lease on account of any
default by the Client hereunder.
k) The Client and the Operator hereby agree that without the consent of the
other, they will not during the term or at any time thereafter disclose or use
any of the terms this Agreement unless such disclosure is required by law. This
provision shall survive the expiration or sooner termination hereof.
l) The Client waives, to the full extent permitted by law, any claim for
consequential damages against the Operator in connection with this Agreement.
m) To the extent permitted by applicable law, the Client hereby waives trial by
jury in connection with any dispute arising out of this Agreement.
n) The Client represents that it dealt with no broker In connection with this
Agreement other than identified below. The Client shall indemnify the Operator
from any loss or liability that the Operator may incur arising out of any
inaccuracy or alleged inaccuracy of such representation. This provision shall
survive the expiration or sooner termination hereof. Broker used in connection
with this Agreement:
- ----------
Brokers: Clint VanOstrand -- Cornish & Carey Commercial
David Churton -- Insignia / ESG
<PAGE>
Exhibit 10.8
INTEROFFICE(R)
Helping Companies Succeed-Nationwide
Executive Service Agreement
THIS AGREEMENT is made January 27, 1999 between Avesta Technology ("Client")
and InterOffice/Boston ("InterOffice"). In consideration of the performances of
the covenants contained herein and intending to be legally binding, the parties
agree as follows:
1. InterOffice agrees to provide Client the exclusive use of the furnished
office(s) designated as office(s) number _________ on the 4th floor (the
"Premises") of the building located at 6 New England Executive Park, Suite
400, Burlington, MA 01803 (the "Building") for the term of 12 months,
commencing on the 1st day of February , 1999 ("Commencement Date"), and
ending on the 31st day of January , 2000 ("Termination Date"). Client
agrees to pay a monthly office rental in the amount of $ 1020.00 (the
"Monthly Office Rental") payable in advance without offset or deduction,
on or before the first day of each month of the term. This office(s) is
intended for the use of 1 person(s). Additional people occupying the
office(s) shall be charged at $ 90FT / $60PT /month.
2. The Monthly Office Rental shall include at no additional cost to Client
the following services (usage/amounts shall be reasonable if not
specified).
a. Full-Time Receptionist i. Full Kitchen and Lounge Facility
b. Furnished Reception Room j. Building Directory Listing
c. Telephone Answering k. Mail Receiving
d. Telephone Call Screening l. 1 Engraved Door Name Plate(s)
e. Voice Mail* m. Maintenance, Utilities &
f. 2 Conference Rooms & Janitorial Services
Seminar Facility* n. Reciprocal Use of All InterOffice Centers
g. Travel Arrangements * (not available at all locations)
h. Law Library*
3. InterOffice shall provide Client with the following Business Services, on
a non-exclusive basis. Charges for these Services (the "Business Services
Charges") shall be in accordance with the current rate schedule (see
"Schedule A" attached) and are subject to adjustment by InterOffice upon
thirty (30) days written notice to Client. Business Services Charges are
due on or before the first day of each month for the Business Services
rendered during the immediately preceding month.
a. Beverage Service e. Mail Processing i. Telephone Sets &
b. Computer and LAN f. Office Supplies Lines
services* g. Presentation j. Videoconferencing*
c. Desktop Publishing Binding k. Word Processing
d. Facsimile Transmission h. Secretarial Support l. Xerographic Copying
* (not available at all
locations)
4. InterOffice agrees to rent Client furniture in accordance with the
attached "Schedule B". The monthly furniture rental charge shall be
$155.00 , (the "Furniture Rental Charge") payable in advance, without
offset or deduction, on or before the first day of each month of the term.
5. The first payment of Monthly Office Rental and Furniture Rental Charge
shall be due and payable upon execution of this Agreement. If the
Commencement Date begins on a day other than the first day of a month,
these charges shall be prorated at the rate of one-thirtieth (1/30) of the
Monthly Office Rental and Furniture Charges for each day payable in
advance.
1
<PAGE>
6. Simultaneously with the executive of this Agreement, Client shall deposit
with InterOffice a refundable Security Deposit in the amount of $1944.00,
as security for the full performance by the Client of all the terms and
conditions of this Agreement as well as for the cost of any repair or
collection of damages to the premises in excess of normal wear and tear.
Client agrees to restore, upon demand, the full security deposit at any
time during the term of this Agreement if amounts are used to cure any
default, or restore the premises. As long as Client is not in default of
this Agreement, any and all Security Deposits or any balance thereof shall
be returned to Client within sixty (60) days after Client has vacated the
premises and left said premises in an acceptable condition, returned all
keys and security cards and paid all charges.
7. If Client fails to pay the Monthly Office Rental, Furniture Rental Charges
or Business Service Charges or other charges within five (5) business days
of the date due, a late payment penalty may be assessed by InterOffice
equal to five percent (5%) of the total outstanding balance or $5.00 per
day, commencing the 5th business day following the date due, until the
balance is paid, whichever is greater. If Client shall fail to pay any
installment of Monthly Office Rental, Furniture Rental Charge or Business
Services Charge or any other charge, or shall violate or fail to perform
any of the other conditions or agreements herein made by Client, and such
failure shall continue for a period of five (5) days, after written notice
thereof to Client by InterOffice, Client shall be in default. Then at the
option of InterOffice, this Agreement shall cease and terminate, resulting
in the Client immediately vacating the premises and subjecting Client to
liability for damages.
8. If Client shall default on this Agreement, InterOffice may, without
further notice, (a) terminate this Agreement. Upon such termination Client
shall have no further right to avoid the termination by payment of any sum
due or by performance of any condition, term or covenant broken; (b)
accelerate all Monthly office Rental and Furniture Rental Charges due
under this Agreement for the entire unexpired term of the Agreement, and
demand all sums due and payable immediately; (c) take possession of all
property in Client's office or stored by Client on the premises and store
it, at Client's expense, until taken in full or partial satisfaction of
any lien or judgment, all without being liable to prosecution or for
damages; (d) deny access to the premises by Client and deny use of any of
the services, including telecommunications services and; (e) take any
other remedies allowed by law. In the event InterOffice brings legal
action to enforce this Agreement, Client shall pay, in addition to the
amounts listed in the preceding sentence, all of InterOffice's reasonable
attorney's fees and all other payments, costs and expenses incurred in
enforcing this Agreement and collecting sums due hereunder.
9. In the event that either party does not wish to renew this Agreement,
either party may provide sixty (60) days written notice to the other prior
to the Termination Date which will terminate the Agreement upon the
initial Termination Date. If either party does not give such notice, this
Agreement shall renew itself under the same terms and conditions for a
term equal to the Initial Term. In the event that the term is
automatically extended, the Monthly Office Rental shall be increased by
the same percentage amount of the most current Consumer Price Index Factor
(CPI) as issued by the Bureau of Labor Statistics of the United States
Department of Labor.
10. In the event that Client shall not immediately surrender the premises upon
final termination of this Agreement or termination of this Agreement
pursuant to the provisions of paragraph seven (7) hereof, Client shall by
virtue of the provisions hereof, become a Client by the month at the
monthly rental rate of one hundred fifty percent (150%) of the then
current rental amount. InterOffice's acceptance of such holdover rent
shall not in any manner adversely affect InterOffice's other rights or
remedies, including InterOffice's right to require Client to vacate the
premises and to recover damages. A holdover Client shall give to
InterOffice at least thirty (30) days written notice of any intention to
vacate the premises; such notice must be given in writing to InterOffice
on or before the first business day of the month. A holdover Client shall
be entitled to thirty (30) days written notice from InterOffice to
terminate the Executive Service Agreement and vacate the premises, except
in the event of the nonpayment of rent or default under this Agreement by
Client, in which event Client shall not be entitled to any notice to quit.
11. Client shall use the premises for general office purposes only and in
accordance with the use permitted under applicable zoning regulations.
Client shall comply with all present and future laws, ordinances,
regulations and orders of all agencies of the Federal, State, and Local
governments and any other public authority having jurisdiction over the
premises, as well as all building rules and regulations. Client, its
employees, agents and invitees, shall conduct their business in such a
manner as to be compatible with other Clients of InterOffice and will also
conduct its business in such a way as not to interfere with the work of
InterOffice's employees.
2
<PAGE>
12. Client shall not assign or transfer this Agreement without first obtaining
the prior written consent of InterOffice, which consent shall not be
unreasonably withheld.
13. All notices by Client or InterOffice to the other must be in writing and
will be considered given if delivered personally to one of Client's or
InterOffice's officers or mailed by registered mail addressed to Client or
InterOffice at the premises.
14. Client shall make no alterations, installations, additions or improvements
in or to the Premises without InterOffice's prior written consent. Client
will not alter any lock on any door of the Premises without prior written
consent. Client will deliver up the Premises clean and in the same
condition in which they were on the commencement of the term of the
Agreement, ordinary wear and tear and damage by the elements excepted.
InterOffice shall have the right, at it's sole discretion, to modify the
non-exclusive areas of the Premises.
15. Client shall not install or operate in the premises any electrically
operated equipment other than normal and customary equipment found in a
modern office or equipment that in InterOffice's sole discretion, requires
a separate electrical circuit, without the written consent of InterOffice.
Client shall not install or operate in the Premises computers (personal
computers excepted), printers (laser printers and printers with sound
covers excepted), copy machines, telex, and postage machines without the
prior written consent of InterOffice or any equipment or machinery that is
heat producing, causes vibrations, is too heavy, or can be construed as a
fire hazard if not properly monitored. Client shall not offer any service
to other Clients of InterOffice that InterOffice offers to its Clients, in
the normal course of its business.
16. Client shall not indemnify and hold harmless InterOffice from and against
any loss, damage or liability occasioned by or resulting from any default
hereunder or any willful or negligent act on the part of Client, its
agents, employees, or invitees, or persons permitted on the Premises by
Client. InterOffice shall save Client harmless from and against any loss,
damage or liability occasioned by or resulting from the willful acts or
gross negligence of InterOffice, its employees and agents. Client
expressly agrees to waive, and agrees not to make any claim for damages,
direct or consequential, arising out of any failure to furnish any service
or facility, any error or omission with respect thereto, or any delay or
interruption of the same, assuming such service or facility is not
unreasonably withheld.
17. InterOffice shall, at Client's expense, offer to arrange for appropriate
liability insurance for Client with a pre-approved insurance carrier.
Client may elect to arrange for insurance from another carrier. In either
case, Client agrees to provide InterOffice with a certificate of insurance
naming InterOffice as an additional insured evidencing General/Public
Liability coverage with liability limits of not less than $1,000,000 per
occurrence for Bodily Injury and/or Property Damage Liability and $50,000
per occurrence for Fire/Legal Liability. Said insurance coverage shall
remain in force during the term of this agreement and renewals thereof.
18. Client recognizes that InterOffice or InterOffice's agent has expended
considerable time, effort and expense in hiring and training its
employees, and that the hiring of an employee by Client would save
considerable time and expense in training and procurement and would cause
InterOffice or InterOffice's agent to expend additional time and expense.
Therefore, during the term and for six (6) months after its expiration, if
Client hires an employee of InterOffice or InterOffice's agent who was an
employee at any InterOffice Center during any portion of the term or for
six (6) months after its expiration, Client agrees to pay InterOffice a
procurement fee of $10,000.00.
19. Client shall fill out all terms on InterOffice's "New Client Information
Form" and return a signed copy to InterOffice.
20. Client represents and warrants that it has not employed or had any
dealings with a broker, agent or representative relating to this Agreement
and that no fees of any kind are to be paid by InterOfffice.
21. This Agreement is subject and subordinate to an Overlease dated May 17,
1993 between InterOffice and the landlord of the Building. If any conflict
occurs between this Agreement and the Overlease, the Overlease shall
prevail. In the event of the termination or expiration of the Overlease,
this Agreement shall terminate.
3
<PAGE>
22. Upon termination of this Agreement, it is Client's responsibility to
notify all parties of Client's new telephone number and mailing address.
InterOffice will bill Client for any new postage necessary in the event
InterOffice forwards Client's mail after termination. Client may be asked
to pay a retainer against postage charges.
23. If a check is returned for any reason whatsoever, Client will pay an
additional charge of $75.00 per returned check. If a check is returned,
then for the purposes of calculating late charges or events of default,
the payment represented by the check will be deemed to have never been
made.
24. Client will not remove or attempt to remove any of the Client's property
from the premises, other than in the ordinary course of business, without
having first paid any amounts due, or amounts that will become due under
this Agreement.
25. Any provision of this Agreement which proves to be invalid or illegal will
in no way affect any other provisions of this Agreement which will remain
in full force.
26. The undersigned Guarantor(s) jointly and severally, guarantee
unconditionally, and shall be liable for all sums due under this
Agreement, and for any other sums due from Client to InterOffice, no
matter when or how incurred. InterOffice does not have to attempt
collection from Client before proceeding against Guarantor(s). The
undersigned Guarantor(s) promise to remain bound by this guaranty,
notwithstanding any waiver, release, discharge, or extension by
InterOffice.
27. The parties intend that the substantive laws of the Commonwealth of
Virginia apply to the interpretation of this Agreement, without regard to
Virginia's conflict of laws doctrines. The parties agree that the Circuit
Court of Fairfax County, Virginia, or the United States District Court for
the Eastern District of Virginia (Alexandria Division) constitute proper
fora for litigation concerning this Agreement, and hereby waive objection
to jurisdiction, venue, and forum now conveniens in such courts.
28. This Agreement, together with Schedules A and B attached hereto, contains
the entire agreement of the parties hereto.
AGREED TO: INTEROFFICE/BOSTON CLIENT: AVESTA TECHNOLOGY
/s/ L. Jaslud, Agent (SEAL) By: /s/ Cameron Saifi (SEAL)
- -------------------------- --------------------------
Cameron Saifi
----------------------------------
(Print Name)
Title: VP, Operations
----------------------------
GUARANTOR:
----------------------------------
----------------------------------
(Print Name)
----------------------------------
Guarantor's Social Security Number
4
<PAGE>
Schedule 1A
Client agrees to use a minimum of $100/month in secretarial services per office
and understands that they will be billed $100/month per office for secretarial
services even if service is not used.
Client shall have 10 hours per month of conference room usage. Additional
conference room usage shall be billed at $10.00 per hour.
5
<PAGE>
- --------------------------------------------------------------------------------
INTEROFFICE(R)
"Schedule A"
Facilities
Private Office..........................................................Included
A host of affordable options awaits you in
creating a personal professional working environment.
10 Hrs./Mo.
Conference Rooms........................................................Included
Distinctively decorated and equipped with audio-visual equipment.
Seminar Room............................................................Included
Perfect for larger groups and allows for high quality presentations.
Storage Facilities......................................................Included
For storage of stationery and other small promotional materials.
Furnished Reception Room................................................Included
Spacious and elegant reception area provided true corporate image.
Kitchen and Lounge Facility.............................................Included
Refrigerator, microwave & access to full coffee service.
Lobby Listing...........................................................Included
Provided in building directory.
Utilities & Maintenance.................................................Included
Includes HVAC, electric, water and lighting.
Janitorial Service......................................................Included
Provided Monday through Friday.
Services
Dedicated Receptionists.................................................Included
Clients are greeted quickly and professionally without
telephone interruptions.
Dedicated Phone Secretaries.............................................Included
Phone secretaries are dedicated to screening your calls and taking messages.
T-1 Lines.............................................................$99.00/mo.
Telephones............................................................$50.00/mo.
Lines (3 line min.).........................................$25.00/line/mo.
Modem/Fax...................................................$45.00/line/mo.
Telephone Installation...............................................$200.00/set
One-time charge for line and equipment installation
alleviates the need for you to deal with the phone company.
T-1 Installation..........................................................$75.00
Voice Messaging.........................................................Included
24-hour message retrieval.
FAX Transmission
Outgoing..........................................................$1.00/page
(plus line charge)
Incoming..........................................................$0.75/page
Domestic and international transmissions, 24 hours a day.
Discount offered for volume usage.
Daily Mail Processing
Incoming............................................................Included
Outgoing..................................................20% Service Charge
Incoming mail placed in Client's mailbox.
See 1A
Secretarial Services...........................................$6.75/15 minutes*
Highly qualified staff handles all of your word processing needs
with today's most advanced and sophisticated equipment and an extensive
library of software.
Desktop Publishing.............................................$9.00/15 minutes*
A variety of typestyles, colors, and graphics provides you with
a first-class, quality presentation.
Bookeeping/Spreadsheet Services.................................$7.50/15 minutes
Experienced staff available to handle your monthly finances and bookkeeping.
Overnight Services.............................................No Service Charge
FedEx provides service daily with in-house pick-up and delivery.
Courier Services..............................................20% Service Charge
UPS provides service daily. Local messenger service also available.
Dedicated Office Manager................................................Included
Provides dedicated assistance for your administrative matters and assures
efficient scheduling of all your work.
Dedicated Leasing Manager...............................................Included
Always available to discuss change your growing office space needs.
Copying Charges
1-100/mo..................................................$.15/copy
101-500/mo................................................$.12/copy
501-1000/mo...............................................$.10/copy
1001-2000/mo..............................................$.08/copy
2001(+)/mo................................................$.06/copy
High speed copiers with collating and reduction capabilities.
Per Person
Hot Beverage Service ..................................................$20.00/mo
Coffee, gourmet teas and hot chocolate.
Presentation Binding................................................$4.50 + time
GBC Binder allows for a professional presentation.
Travel Arrangement.......................................................Include
Professional in-house staff will handle all your travel accommodations.
Office Supplies.......................................................Discounted
In-house supplies or next day delivery.
Videoconferencing...................................................$100.00/hour
See your manager for pricing details and facilities nearest you.
Reciprocal Use Of All InterOffice Locations.............................Included
Reserve an office or conference room or utilize a service at any
other InterOffice location nationwide. See your manager for details.
* Minimum usage of 1 hr/ week/office required from all clients for either or
both services.
The above is subject to change with 30 days written notice from Owner to Client
Boston 7/98
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Center: Boston
------------------------------------------------------------
BASIC TERMS OF AGREEMENT
Client: Avesta Technology
------------------------------------------------------------------------
Owner: InterOffice Boston
------------------------------------------------------------------------
Term: 12 Months
------------------------------------------------------------------------
Office(s): #429
------------------------------------------------------------------------
Monthly Office Rental: $1,020.00
----------------------------------------------------------
Monthly Furniture Rental: $155.00
----------------------------------------------------------
Monthly Phone Rental: $269 (Set, Lines, VM, Fax & T1)
----------------------------------------------------------
Refundable Deposit: $1,944 (Rent, Furniture, Phones, Serv.Security)
----------------------------------------------------------
Payment Due at Signing
1st Month's Office Rental $ 1020.00
---------------
1st Month's Furniture Rental $ 155.00
---------------
1st Month's Phone Rental $ 269.00
---------------
0
Phone and Modem Installation (Discounted) $ 375.00
---------------
Beverage Service $ 20.00
---------------
Secretarial Service $ 100.00
---------------
Refundable Deposit $ 1944.00
---------------
TOTAL......................... $ 3883.00
---------------
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
"Schedule B"
Quantity Item Rate
1. 1 Executive Desk $
------------- ------------------------ ----------------
2. 1 Executive Chair $
------------- ------------------------ ----------------
3. 2 Guest Chairs $
------------- ------------------------ ----------------
4. 1 Bookcase $
------------- ------------------------ ----------------
5. Kneehole Credenza $
------------- ------------------------ ----------------
6. $
------------- ------------------------ ----------------
7. $
------------- ------------------------ ----------------
8. $
------------- ------------------------ ----------------
9. $
------------- ------------------------ ----------------
10. $
------------- ------------------------ ----------------
11. $
------------- ------------------------ ----------------
12. $
------------- ------------------------ ----------------
13. $
------------- ------------------------ ----------------
14. $
------------- ------------------------ ----------------
15. $
------------- ------------------------ ----------------
16. $
------------- ------------------------ ----------------
17. $
------------- ------------------------ ----------------
18. $
------------- ------------------------ ----------------
19. $
------------- ------------------------ ----------------
20. $
------------- ------------------------ ----------------
21. $
------------- ------------------------ ----------------
22. $
------------- ------------------------ ----------------
TOTAL MONTHLY CHARGE........$ 155.00
----------------
================================================================================
<PAGE>
Exhibit 10.9
LEASE EXTENSION AGREEMENT
- BETWEEN -
AVESTA TECHNOLOGIES CANADA INC.
(formerly CARAVELLE NETWORKS CORPORATION
- AND -
DAVID DEVELOPMENTS
================================================================================
This shall form as a legal and binding agreement between the two parties
mentioned above with respect to the Lease dated January 13, 1995 between DAVID
DEVELOPMENTS and CARAVELLE NETWORKS CORPORATION for the premises known as Suites
301, 303 and 203, 210 Colonnade Road, Nepean, Ontario, containing a total area
of 7004 Square Feet.
Renewal
The Tenant shall renew the Lease for the above-noted premises, for a further
period of three (3) years under the same terms and conditions, save and except
for the net rental rate and additional work to be performed by the Landlord as
set forth on Page 2 hereof. The new three (3) year term shall commence on the
first day of February, 2000, ending on the 31st day of January, 2003.
1. Net Rent
The Net Rent payable by the Tenant shall be the amounts per annum and per month
set out below in the manner provided for in Article 4.00 of the Lease.
- --------------------------------------------------------------------------------
FROM TO: ANNUAL MONTHLY RATE PER
---- --- ------ ------- --------
NET RENT NET RENT SQUARE FOOT
-------- -------- -----------
February 1, 2000 January 31, 2003 $56,032.00 $4,669.33 $8.00
- --------------------------------------------------------------------------------
<PAGE>
2
2. Option to Renew
Provided the Tenant is not, and at no time has been in default during the Term,
the Tenant shall have the option to renew the Lease for a further period of
THREE (3) YEARS at a net rent of $9.00 PER SQUARE FOOT. Said Option to Renew is
to be exercised by the Tenant no later than six (6) months prior to expiration
of the renewal term, failing which this option shall be null and void.
3. Landlord's Work
The following work shall be completed by the Landlord at the Landlord's sole
cost and expense:
(I) The Landlord shall remove the walls highlighted in yellow on Schedule "A"
and "B" attached hereto;
(II) The Landlord shall repair the ceiling grid and match ceiling tiles in the
upper area;
(III) The Landlord shall remove the drywall ceiling in offices 4A, 4B, 5A and 5B
and replace with T-Bar ceiling and (2'X 4') fluorescent lighting.
(IV) The Landlord shall reconfigure existing kitchen and telephone room as
shown on Schedule "A";
(V) The Landlord shall construct a men's washroom with shower and a ladies
washroom as shown on Schedule "A" attached;
(VI) The Landlord shall replace the carpeting in the entire premises;
(VII) The Landlord shall patch and paint all walls throughout the premises;
(VIII) The Landlord shall install vinyl tile in the kitchen and washrooms;
Said work shall commence within (30) days of receipt of executed Agreement;
<PAGE>
3
ALL OTHER TERMS AND CONDITIONS OF THE LEASE BETWEEN DAVID DEVELOPMENTS and
CARAVELLE NETWORKS CORPORATION (now known as AVESTA TECHNOLOGIES CANADA INC.)
dated January 13, 1995, SHALL REMAIN IN FULL FORCE AND EFFECT
PLEASE SIGNIFY YOUR ACCEPTANCE OF THE ADDENDUM TO LEASE BY SIGNING WHERE
INDICATED AT THE BOTTOM OF THIS AGREEMENT AND RETURNING THE DUPLICATE NO LATER
THAN JULY 30th, 1999.
DAVID DEVELOPMENTS
per: /s/ David L. Goldfarb
------------------------------
David L. Goldfarb
ADDENDUM TO LEASE executed by the Tenant this 29th day of July 1999
AVESTA TECHNOLOGIES CANADA INC.
per: /s/ Cameron Saifi (affix corporate seal)
------------------------------
Authorized Signing Officer
<PAGE>
================================================================================
LANDLORD: DAVID DEVELOPMENTS
TENANT: CARAVELLE NETWORKS CORPORATION
PREMISES: Suite 301
210 Colonnade Road, Nepean
Rentable Area: 4100 Square Feet
DATE: January 13, 1995
================================================================================
INDUSTRIAL LEASE
================================================================================
DAVID DEVELOPMENTS
210 Colonnade Road
Unit 1
NEPEAN, Ontario
K2E 7L-5
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I FUNDAMENTAL PROVISIONS 1
Section 1.1 Fundamental Provisions 1
ARTICLE 11 DEFINITIONS 3
Section 2.1 Definitions 3
ARTICLE III TERM AND USE 10
Section 3.1 Grant and Premises 10
Section 3.2 Term 10
Section 3.3 Construction of Premises 10
Section 3.4 Overholding 10
Section 3.5 Compliance with Planning Legislation 11
ARTICLE IV RENT 11
Section 4.1 Covenant to Pay 11
Section 4.2 Net Rent 12
Section 4.3 Additional Rent 12
Section 4.4 Operating Costs 12
Section 4.5 Taxes 12
Section 4.6 Payment of Taxes and Operating Costs 13
Section 4.7 Utilities 14
Section 4.8 Rent Past Due 14
Section 4.9 Adjustment of Areas 15
Section 4.10 Rent Deposit 15
Section 4.11 Security Deposit 15
Section 4.12 Net Lease 15
Section 4.13 Penalty Charge 16
Section 4.14 Place of Payment 16
Section 4.15 Adjustment of Costs 16
ARTICLE V PERMITTED USE 16
Section 5.1 Permitted Use and Conduct of Business 16
Section 5.2 Overloading 17
Section 5.3 Roof 17
Section 5.4 Signage 17
Section 5.5 Heating, Ventilating & Air Conditioning,
System Maintenance Program 17
Section 5.6 Nuisance 18
Section 5.7 Windows 18
Section 5.8 Cleanliness 18
ARTICLE VI ACCESS AND ENTRY 19
Section 6.1 Right of Examination 19
================================================================================
1
<PAGE>
Section 6.2 Right to Show Premises 19
Section 6.3 Entry not Forfeiture 19
ARTICLE VII MAINTENANCE, REPAIRS AND ALTERATIONS 20
Section 7.1 Maintenance by Landlord 20
Section 7.2 Maintenance and Repairs by Tenant;
Compliance with Laws 20
Section 7.3 Approval of Tenant's Alterations 21
Section 7.4 Repair Where Tenant at Fault 22
Section 7.5 Repair Due to Tenant's Use of Premises 22
Section 7.6 Removal of Improvements and Trade Fixtures 22
Section 7.7 Liens 23
Section 7.8 Notice by Tenant 23
Section 7.9 Tenant's Repair 23
Section 7.10 Environmental Matters 24
ARTICLE VIII INSURANCE AND INDEMNITY 25
Section 8.1 Tenant's Insurance 25
Section 8.2 Increase in Insurance Premiums 26
Section 8.3 Cancellation of Insurance 27
Section 8.4 Loss or Damage 27
Section 8.5 Landlord's Insurance 29
Section 8.6 Indemnification of Landlord 29
Section 8.7 Release of Landlord 30
ARTICLE IX DAMAGE AND DESTRUCTION 30
Section 9.1 No Abatement 30
Section 9.2 Damage to Premises 30
Section 9.3 Right of Termination 31
Section 9.4 Destruction of Building 31
Section 9.5 Architect's Certificate 31
ARTICLE X ASSIGNMENT AND SUBLETTING; TRANSFERS 32
Section 10. 1 Assignment and Subletting; Transfers 32
Section 10.2 Landlord's Right to Terminate 32
Section 10.3 Conditions of transfer 33
Section 10.4 Change of Control 34
Section 10.5 No Advertising 34
Section 10.6 Assignment by Landlord 34
ARTICLE XI DEFAULT 34
Section 11.1 Default and Remedies 34
Section 11.2 Distress 35
Section 11.3 Costs 36
Section 11.4 Allocation of Payments 36
Section 11.5 Survival of Obligations 36
================================================================================
2
<PAGE>
ARTICLE XII STATUS STATEMENT, ATTORNMENT
AND SUBORDINATION 36
Section 12.1 Status Statement 36
Section 12.2 Subordination 36
Section 12.3 Attornment 37
Section 12.4 Non-Disturbance Agreement 37
Section 12.5 Execution of Documents 37
Section 12.6 Registration of Lease 37
ARTICLE XIII CONTROL OF DEVELOPMENT 38
Section 13,11 Use and Maintenance of Common Areas 38
Section 13.2 Alterations by Landlord 38
Section 13.3 Relocation of Premises by Landlord 38
Section 13.4 Expropriation 39
Section 13.5' Premises for Sale 39
ARTICLE XIV GENERAL PROVISIONS 39
Section 14.1 Rules and Regulations 39
Section 14.2 Unavoidable Delay 40
Section 14.3 No Waiver 40
Section 14.4 Notices 40
Section 14.5 Successors 40
Section 14.6 Joint and Several Liability 41
Section 14.7 Captions and Section Numbers 41
Section 14.8 Extended Meanings 41
Section 14.9 Partial Invalidity 41
Section 14.10 Entire Agreement 41
Section 14.11 Governing Law 41
Section 14.12 Time of Essence 42
Section 14.13 No Partnership 42
Section 14.14 Quiet Enjoyment 42
Section 14.15 Name of Building or Development 42
Section 14.16 Exercise of Rights 42
Section 14.17 Parking 42
ARTICLE XV SPECIAL PROVISIONS 43
Section 15.1 Leased Premises Taken "As Is" 43
Section 15.2 Option to Renew 43
Section 15.3 Right of First Refusal 45
Section 15.4 Signage 45
Section 15.5 Operating Costs, Taxes and Utilities 45
Section 15.6 Lease Cancellation 45
Section 15.7 Street Front Entrance 45
================================================================================
3
<PAGE>
THIS LEASE dated January 13, 1995, is made
BETWEEN:
DAVID DEVELOPMENTS
OF THE FIRST PART
AND
CARAVELLE NETWORKS CORPORATION
OF THE SECOND PART
AS the Landlord is the owner of the lands described in Schedule "A" attached to
this Lease (referred to throughout as the "Lands") on which a building (referred
to throughout as the "Building"), municipally known as 210 Colonnade Road,
Nepean, Ontario, located in the Development known as COLONNADE BUSINESS CENTRE
(referred throughout as the "Development"), in the City of Nepean, is erected;
AND AS the Landlord has agreed to lease to the Tenant that portion of the
building which is shown outlined in red on the plan attached to this Lease as
Schedule "B", known as Suite 301, 210 Colonnade Road, Nepean, Ontario.
ARTICLE I
FUNDAMENTAL PROVISIONS
1.1 Fundamental Provisions
In addition to the other definitions contained in this Lease, the following
terms where used with the first letter of each word capitalized shall have the
meaning set forth in this Section 1.1.
(a) Premises: That portion of the Building known as Suite 301 shown outlined in
red on the plan attached to this Lease as Schedule "B" comprising approximately
4100 square feet of Rentable Area (the "Premises") and includes Leasehold
Improvements in such premises, and also means the premises after relocation
pursuant to Section 13.3, and includes Leasehold Improvements in such premises
after relocation.
(b) Term: The Term of this Lease is the period of Five (5) years, plus, if the
first day of the Term is not the first day of a calender month, that part of the
month from the first day of the Term to the last day of the calender month in
which the first day of the Term occurs.
(c) Commencement Date: shall be the first day of February, 1995.
================================================================================
<PAGE>
================================================================================
(d) Net Rent: The Net Rent payable by the Tenant shall be the amounts per annum
and per month set out below in the manner provided for in Section 4.2 of this
Lease:
ANNUAL MONTHLY
------ -------
FROM TO NET RENT NET RENT
- ---- -- -------- --------
February 1, 1995 January 31, 1996 $17,015.00 $1,417.92
February 1, 1996 January 31, 1997 $18,040.00 $1,503.34
February 1, 1997 January 31, 2000 $20,500.00 $1,708.34
The Net Rent is based on the following annual rate(s) per square foot of the
Rentable Area of the Premises:
FROM TO RATE PER SQUARE FOOT
- ---- -- --------------------
February 1, 1995 January 31, 1996 $4.15
February 1, 1996 January 31, 1997 $4.40
February 1, 1997 January 31, 2000 $5.00
================================================================================
(e) Rental Deposit: $7,640.70 (first and last month's gross rent including
G.S.T.)
(f) Security Requirement: n/a
(g) Permitted Use: The Leased Premises shall be used for office purposes
(h) Tenant's Address for Notice:
210 Colonnade Road, Suite 301, Nepean, Ontario, K2E 7L-5
(i) Indemnifier's Address for Notice: n/a
(j) Offer to lease: December 20th, 1994
(k) Development Name: COLONNADE BUSINESS CENTRE
================================================================================
2
<PAGE>
ARTICLE II
DEFINITIONS
2.1 Definitions
In this Lease and in the Schedules to this Lease:
(a) "Additional Rent" means all sums of money required to be paid by the
Tenant under this Lease (except Net Rent) whether or not the same are
designated "Additional Rent" or are payable to the Landlord or otherwise:
(b) "Adjusted Proportionate Share" means:
(i) with respect to Taxes, the amount to which the Tenant's
Proportionate Share of Taxes may be increased or decreased by the
Landlord to more accurately reflect the fair and proper share of
taxes which should be payable by the Tenant under this Lease as
determined by the Landlord in its sole discretion. Without limiting
the generality of the foregoing, some of the factors and criteria
which the Landlord may consider in determining an Adjusted
Proportionate Share of Taxes include:
(A) any separate bills for Taxes, or separate assessments
issued by taxing authorities with respect to the Premises and
other portions of the Development for the taxation period for
which the Tenant's share of the Taxes is to be determined;
(B) the assessment of the Premises and other portions of the
Development made by taxing authorities in previous periods;
(C) the value or nature of all construction or installation of
improvements in the Premises;
(D) the use of the Premises and adjoining areas by Tenant, its
employees or customers;
(E) the location of the Premises in the Development; and
(F) any act or election of the Tenant or any other occupant of
the Development which results in an increase or decrease of
Taxes which would otherwise have been charged against the
Development; and
================================================================================
3
<PAGE>
(ii) with respect to Operating Costs, the amount to which the
Tenant's Proportionate Share of Operating Costs may be increased or
decreased by the Landlord to more accurately reflect the fair and
proper share of Operating Costs which should be payable by the
Tenant under this Lease as determined by the Landlord in its sole
discretion. Without limiting the generality of the foregoing, some
of the factors and criteria which the Landlord may consider in
determining an Adjusted Proportionate Share of Operating Costs
include:
(A) the use of the Premises and adjoining areas by Tenant, its
employees or customers;
(B) the location of the Premises in the Development;
(C) Tenant's use of any services or utilities; and
(D) repair, maintenance or cleaning costs or other costs of
services attributable to Tenant, its customers or employees
(c) "Alterations" means all repairs, replacements, improvements or alterations
to the Premises by the Tenant.
(d) "Architect" means the architect from time to time named by the Landlord.
(e) "Building" means the building known by the Building Name, including all
premises rented or intended to be rented therein, whether for office, retail,
warehouse, showroom or other purposes; and the areas, building systems and
facilities serving the Building or having utility in connection therewith, as
determined by the Landlord, whether or not located directly under the building,
which areas and facilities may include, without limitation, lobbies, sidewalks
and plazas, storage and mechanical areas, janitor rooms, mail rooms, telephone,
mechanical and electrical rooms, stairways, elevators, truck and receiving
areas, driveways, parking facilities, loading docks and corridors.
(f) "Business Tax" means all Taxes (whether imposed on the Landlord or Tenant)
attributable to the personal property, trade fixtures, business, income,
occupancy or sales of the Tenant or any other occupant of the Premises and to
the use of the Development by the Tenant.
(g) "Capital Tax" means an amount imputed by the Landlord to the Building in
respect of any taxes. rates, duties, levies, fees, charges and assessments
levied, rated, charged, assessed or imposed from time to time by any
governmental authority on or against the Landlord or payable by the Landlord
based upon or computed by reference to the taxable capital of the Landlord, the
taxable capital employed in Canada by the Landlord, or other similar criteria as
determined for the
================================================================================
4
<PAGE>
purposes of such taxes, rates, duties, levies, fees, charges and assessments, or
any similar taxes, rates, duties, levies, fees, charges and assessments levied,
rated, charged, assessed or imposed in the future in lieu thereof or in addition
thereto by any governmental authority. Capital Tax shall be imputed by the
Landlord to the Building on the basis of the amount of costs, capital,
deductions and credits attributable to or allocated to the Building, the
Landlord, and related corporations, all as determined by the Landlord in its
sole discretion. If any portion of Capital Tax is not deductible for the income
tax purposes of the Landlord, then Capital Tax shall include a grossed up
amount, determined by the Landlord in its sole discretion to satisfy the after
tax cost to the Landlord of the Capital Tax included in Operating Costs.
(h) "Change of Control" means, in the case of any corporation or partnership,
the transfer or issue by sale, assignment, subscription, transmission on death,
mortgage, charge, security interest, operation of law or otherwise, of any
shares, voting right or interest which would result in any change in the
effective control of such corporation or partnership unless such change occurs
as a result of trading in the shares of a corporation listed on a recognized
stock exchange in Canada or the United States, and then only so long as the
Landlord receives assurances reasonably satisfactory to it that there will be a
continuity of management and of the business practices of such corporation
notwithstanding such change of Control.
(i) "Common Areas" means those areas, facilities, utilities, improvements,
equipment and installations in or adjacent to the Development which serve or are
for the benefit of the Tenants of more than one component of the Development and
which are not designated or intended by the Landlord to be leased, from time to
time, and which are provided or designated (and which may be changed from time
to time) by the Landlord for the benefit or use of the Tenants in the
Development, their employees, customers and invitees, in common with others
entitled to the use or benefit of same;
(j) "Development" means all of the building components located on the Lands
which now form part of, or hereinafter become part of the development known by
the Development Name, and without limiting the generality of the foregoing
includes all areas, building systems and facilities serving the Development.
(k) An "Event of Default" shall occur whenever: (i) any Net Rent is in arrears,
whether or not any demand for payment has been made by the Landlord; (ii) any
Additional Rent is in arrears for more than (5) days; (iii) the Tenant has
breached any of its obligations in this Lease (other than the payment of Rent)
and: (A) fails to remedy such breach within fifteen (15) days (or such shorter
period as may be provided in this Lease); or (B) if such breach cannot
reasonably be remedied within fifteen (15) days or such shorter period, the
Tenant fails to commence to remedy such breach within fifteen (15) days or such
shorter period or thereafter fails to proceed diligently to remedy such breach,
in either case after notice in writing from the Landlord; (iv) the Tenant or any
================================================================================
5
<PAGE>
Indemnifier becomes bankrupt or insolvent or takes the benefit of any statute
for bankrupt or insolvent debtors or makes any proposal, assignment or
arrangement with its creditors, or any steps are taken or proceedings commenced
by any Person for the dissolution, winding-up or other termination of the
Tenant's existence or the liquidation of its assets; (v) a trustee, receiver,
receiver/manager or like Person is appointed with respect to the business or
assets of the Tenant or any Indemnifier; (vi) the Tenant makes a sale in bulk of
all or a substantial portion of its assets other than in conjunction with a
Transfer approved by the Landlord, (vii) this Lease or any of the Tenant's
assets are taken under a writ of execution; (viii) the Tenant purports to make a
Transfer other than in compliance with the provisions of this Lease, (ix) the
Tenant abandons or attempts to abandon the Premises or disposes of its goods so
that there would not after such disposal be sufficient goods of the Tenant on
the Premises subject to distress to satisfy Rent for at least three (3) months,
or the Premises become vacant and unoccupied for a period of ten (10)
consecutive days or more without the consent of the Landlord; (x) any insurance
policies covering any part of the Development or any occupant thereof are
actually or threatened to be cancelled or adversely changed as a result of any
use or occupancy of the Premise; or (xi) if an Event of Default as defined in
this paragraph occurs with respect to any lease or agreement under which the
Tenant occupies other premises in the Development.
(l) "Hazardous Materials" shall include, without limitation, flammables,
explosives, radio-active materials, urea formaldehyde foam, asbestos, P.C.B.'s,
chemicals known to cause cancer or reproductive toxicity, pollutants,
contaminants, hazardous wastes, toxic substances or related materials, petroleum
products and substances declared to be hazardous or toxic under any law, by-law,
regulation or ordinance, now or hereinafter enacted or promulgated by any
federal provincial, municipal or other governmental authority.
(m) "Indemnifier" means the Person who has executed or agreed to execute the
Indemnity Agreement (if any) attached as a Schedule to this Lease, or who
otherwise guarantees the Tenant's obligations under this Lease.
(n) "Landlord" means the party of the First Part and includes the Landlord and
its duly authorized representatives and agents.
(o) "Lands" means the lands situated in the Province of Ontario on which the
Building, which forms an integral part of the Development is or will be
constructed, as more particularly hereinbefore described in Schedule "A" or as
such lands may be expanded or reduced from time to time.
(p) "Lease" means this Agreement and all Schedules hereto.
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(q) "Leasehold Improvements" means leasehold improvements in the Premises
determined according to common law, and shall include, without limitation: all
fixtures, improvements, installations, alterations and additions from time to
time made, erected or installed in the Premises by or on behalf of the Tenant or
any previous occupant of the Premises, including signs and lettering,
partitions, doors and hardware however affixed and whether or not movable, all
mechanical, electrical and utility installations and all carpeting and drapes
with exception only of furniture and equipment not in the nature of fixtures.
(r) "Mortgage" means any and all mortgages, charges, debentures, security
agreements, trust deeds, hypothecs or like instruments resulting from any
financing, refinancing or collateral financing (including renewals or extensions
thereof) made or arranged by the Landlord of its interest in all or any part of
the Building or Lands.
(s) "Mortgagee" means the holder of, or secured party under, any Mortgage and
includes any trustee for bondholders.
(t) "Normal Business Hours" means the minimum hours identified by the Landlord
from time to time, unless any such day is a holiday.
(u) "Operating Costs" means (without duplication) any amounts paid or payable
whether by the Landlord or by others on behalf of the Landlord for maintenance,
operation, repair, replacement to and administration of the Development or
allocated by the Landlord to the Building, calculated as if the Building were
100% occupied by Tenants during the Term, including without limitation:
(i) the cost of insurance which the Landlord is obligated or permitted
to obtain under this Lease and any deductible amount applicable to
any claim made by the Landlord under such insurance;
(ii) the cost of security, janitorial, landscaping, window cleaning,
garbage removal and snow removal services;
(iii) the cost of heating, ventilating and air-conditioning, to the
extent incurred with respect to Common Areas or with respect to
any shared systems;
(iv) the cost of all fuel, steam, water, electricity, telephone and
other utilities used in the maintenance, operation or
administration of the Building, including charges and imposts
related to such utilities to the extent such costs, charges and
imposts are not recovered from other Tenants;
(v) salaries, wages and other amounts paid or payable for all
personnel involved in the repair, maintenance, operation, leasing,
security, supervision or cleaning of the Building, including
fringe benefits, unemployment and worker's compensation insurance
premiums, pension plan contributions and other employment costs
and the cost of engaging contractors for the repair, maintenance,
security, supervision or cleaning of the Building;
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(vi) auditing and accounting costs incurred in determining Tenant's
Proportionate Share of Operating Costs or Adjusted Proportionate
Share of Operating Costs and in the preparation of certificates of
operating and other costs, together with legal and consulting fees
and disbursements;
(vii) the cost of repairing, operating, and maintaining the Building and
the equipment serving the Building and the cost of all
replacements, additions and modifications to the Building or such
equipment, except where such costs are attributable to inherent
structural defects in the Building;
(viii) the cost of the rental of any equipment and signs, and the cost of
supplies used by the Landlord in maintaining or operating the
Building;
(ix) all costs incurred by the Landlord in installing energy
conservation equipment or systems and life safety systems:
(x) Capital Tax attributable to the Building;
(xi) depreciation or amortization of the following (unless charged
fully in the period of estimated Additional Rent pursuant to
Section 4.6 (a) in which they are incurred) all as determined by
the Landlord in accordance with sound accounting principles:
(a) the costs referred to in Section 2.1(u)(vii) and (ix) above;
and
(b) the cost of alterations, replacements and additions to the
Building which are intended to reduce operating costs, or
improve the operation of the Building;
(xii) interest calculated at 2 percentage points above the average daily
prime bank commercial lending rate charged during such period of
estimated Additional Rent pursuant to Section 4.6 (a) by any
Canadian chartered bank designated from time to time by the
Landlord upon the undepreciated or unamortized balance of the
costs referred to in Section 2.1 (u)(xi) above; and
(xiii) a management fee equal to fifteen (15%) of the costs referred to
in Sections 2.1 (u)(i) to 2.1 (u)(ix) above inclusive and Section
2.1 (cc).
Operating Costs shall not include:
(i) all amounts which otherwise would be included in Operating Costs
which are recovered by the Landlord from Tenants as a result of
any act, omission, default or negligence of such Tenants;
(ii) such of the Operating Costs as are recovered from insurance
proceeds; and
(iii) interest on debt and capital retirement of debt.
The costs incurred in maintaining and operating the Development may be
attributed by the Landlord to the various components of the Development
including the Building, in accordance with reasonable and current practices
relevant to a multi-use commercial development on a basis consistent with the
nature of the particular costs being attributed, as hereinafter set out in
Section 4.1 2(b) of the Lease.
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(v) "Owners" means the registered owner or owners of the free-hold or leasehold
title of the Building from time to time, in sections that contain a release or
other exculpatory language in favour of an Owner, and includes the officers,
employees and agents of the Owner.
(w) "Person" means any person, firm, partnership or corporation, or any group or
combination of persons, firms, partnerships or corporations.
(x) "Proportionate Share" means a fraction which has as its numerator the
Rentable Area of the Premises and as its denominator the Rentable Area of the
Building.
(y) "Rent" means the aggregate of Net Rent and Additional Rent.
(z) "Rentable Area of the Building" is the sum of the gross area of each floor
level included within the principal outside faces of the exterior walls of the
Building, including, without limitation, electrical and service rooms, exterior
shipping and receiving platforms which are enclosed and all mezzanines and
balconies, but excluding Common Areas.
(aa) "Rentable Area of Premises" is the sum of the gross area of the Premises
computed by measuring from the principal outside faces of permanent outer
Building walls to the outside faces of abutting corridor walls or other
permanent partitions, and to the centre of partitions that separate the Premises
from adjoining rentable areas, and including electrical and service rooms,
exterior shipping and receiving platforms which are enclosed, and all mezzanines
and balconies.
(bb) "Rules and Regulations" means the rules and regulations adopted and
promulgated by the Landlord from time to time pursuant to Section 14.1. The
Rules and Regulations existing as at the Commencement Date are those set out in
Schedule "C".
(cc) "Taxes" means all taxes, levies, rates, duties, fees, charges, local
improvement rates and assessments whatsoever now or in the future imposed,
levied, rated, assessed or charged against the Development or any part thereof
and/or against the Landlord on account of its ownership thereof or interest
therein by any lawful taxing authority or allocated or attributed by the
Landlord to the Building or any part thereof and including, without limitation,
any amounts assessed, imposed, levied, rated or charged in substitution for or
in lieu of or in addition to any of the foregoing whether of the foregoing
character or not or in existence at the Commencement Date or not, but excluding
only such taxes as capital gains taxes, or corporate, income, profit or excess
profit taxes to the extent such taxes are not so levied in lieu of any of the
foregoing and to the extent such taxes are not expressly included in this
Section or in any other Section of this Lease. Notwithstanding the foregoing,
Taxes shall include, without limitation, any commercial concentration, density
or similar levy, tax, rate, duty, charge or assessment (such as, without
limitation, any commercial concentration levy imposed on the Development or on
the Landlord on account of the Landlord's ownership of the Development or
interest in it). whether characterized as such or otherwise. Taxes
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shall in every instance be calculated on the basis of the Building being
entirely completed and operational and entirely occupied by occupants having no
special exemptions with respect to Taxes.
(dd) "Tenant" means the party of the Second Part and is deemed to include the
word "lessee" and includes every Person mentioned as Tenant in this Lease.
(ee) "Trade Fixtures" means trade fixtures as determined at common law, but for
greater certainty, shall not include: (i) heating, ventilating or air
conditioning systems, facilities and equipment in or serving the Premises; (ii)
floor covering affixed to the floor of the Premises; (iii) light fixtures; (iv)
internal stairways and doors; and (v) any fixtures, facilities, equipment or
installations installed by or at the expense of the Landlord pursuant to the
Offer to Lease or otherwise, all of which are deemed to be leasehold
Improvements.
(ff) "Transfer" means an assignment of this lease in whole or in part, a
sublease of all or any part of the Premises; any transaction whereby the rights
of the Tenant under this Lease or to the Premises are transferred to another-,
any transaction by which any right or use or occupancy of all or any part of the
Premises is conferred upon anyone; any mortgage, charge or encumbrance or other
arrangement under which either this Lease or the Premises become security for
any indebtedness or other obligations and includes any transaction or occurrence
whatsoever (including, but not limited to, expropriation, receivership
proceedings, seizure by legal process and transfer by operation of law) which
has changed or might change the identity of the Persons having lawful use or
occupancy of any part of the Premises.
(gg) "Transferee" means the Person or Persons to whom a Transfer is to be made.
(hh) "Unavoidable Delay" means a delay by a party in the performance of an act
or compliance with a covenant or obligation caused by fire, strike, lockout,
inability to procure material, restrictive laws or governmental regulations or
other cause of any kind beyond the reasonable control of the party obliged to
perform or comply, excepting a delay by the Tenant caused by lack of funds or
other financial reason.
ARTICLE III
TERM AND USE
3.1 Grant and Premises
In consideration of the Tenant's covenants contained in this Lease, the Landlord
leases the Premises to the Tenant.
3.2 Term
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The Term of this Lease shall be as set forth in Section I.I(b) of this Lease,
commencing on the commencement date.
3.3 Construction of Premises
The provisions (if any) of the Offer to Lease relating to construction of the
Premises and delay in the availability of the Premises for occupancy by the
Tenant shall remain in effect and shall not merge upon the execution of this
Lease,
3.4 Overholding
Despite any statutory provision or legal presumption to the contrary, if the
Tenant remains in possession of all or any part of the Premises after the expiry
of the Term or any renewal or written extension of it:
(a) with the consent of the Landlord and without any further written
agreement, then it shall be deemed to be a monthly Tenant at will,
or
(b) without the consent of the Landlord, then it shall be deemed to be a
Tenant at will and the Landlord shall be entitled to recover
possession of the Premises immediately at any time without notice to
the Tenant and in such peaceable or forceful manner as the Landlord
deems fit.
In either case, there shall be no tacit renewal or extension of this Lease and
the Tenant shall be deemed conclusively to be occupying the Premises on the same
terms and conditions as set forth in this Lease (including the payment of
Additional Rent) so far as such terms would be applicable to a monthly tenancy
or a tenancy at will (as the case may be), except that the monthly net Rent
shall be the greater of: (i) twice the aggregate of the monthly amount of the
Net Rent payable by the Tenant during the last twelve (12) consecutive months of
the Term or any renewal or written extension of it or (ii) 150% of the monthly
Net Rent prevailing at the date of such overholding for renting of improved
premises in the Building which are either identical or similar to the Premises,
all as determined by the Landlord in its sole discretion. The Tenant shall
promptly indemnify and hold harmless the Landlord from and against any and all
claims, losses, actions, suits, proceedings, causes of action, demands, damages
(direct, indirect, consequential or otherwise), judgements, executions,
liabilities, responsibilities, costs, charges, payments and expenses, including,
without limitation, any professional and legal fees (on a solicitor and his own
client basis) incurred by the Landlord as a result of the Tenant remaining in
possession in all or any part of the Premises after expiry of the Term or any
renewal or written extension of it.
3.5 Compliance With Planning Legislation
It is a condition of this Lease that all applicable planning, zoning or
subdivision control legislation be complied with. If any such legislation
restricts the length of the term of the Lease, and the Term (including any
extensions thereof) would extend beyond such permitted period, then unless and
until any necessary consent to or approval of the Lease is obtained under such
legislation, the Term (including any extensions thereof) of the lease and the
Tenant's rights under the lease shall
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extend only for such permitted period, less one day, from the commencement Date.
The Tenant shall apply for any necessary approval or consent forthwith upon the
execution of this Lease, and shall diligently prosecute such application and
shall be fully responsible for any expenses, taxes or levies imposed or charged
as a result of such application in order to obtain such consent or approval, and
shall keep the Landlord fully advised of its progress with respect to such
application. If required, the Landlord shall at the Tenant's expense co-operate
with the Tenant in such application. The Landlord reserves the right at any time
to apply for such consent in lieu of the Tenant, but at the Tenant's sole
expense.
ARTICLE IV
RENT
4.1 Covenant to Pay
The Tenant shall pay Rent during the Term, in Canadian funds and without prior
demand. If the Commencement Date does not occur on the first day of a calendar
month, then all amounts payable by the Tenant for the partial first month of the
Term shall be pro-rated on a per them basis, based upon a period of 365 days,
and adjusted accordingly. The Tenant agrees that its covenant to pay Rent is an
independent covenant and that all such amounts are payable without counterclaim,
set-off, deduction, abatement or reduction whatsoever, except as expressly
provided for in this lease. The Tenant shall deliver post-dated cheques to the
Landlord prior to such portions of the Term, as the Landlord may designate from
time to time, for net Rent and estimated Additional Rent as required by the
Landlord.
4.2 Net Rent
The Tenant shall pay to the Landlord as Net Rent during the Term the amounts per
annum set out in Section 1.1(d) of this Lease, which shall be payable in equal
monthly instalments in advance on the FIRST day of each calendar month of each
year of the Term in the amounts indicated in Section 1.1(d) of this Lease.
4.3 Additional Rent
Except as otherwise provided in this Lease, all Additional Rent shall be payable
by the Tenant to the Landlord within five (5) business days after demand. If
such amounts are not paid in the manner or at the times required by this Lease,
then in such event all remedies of the Landlord for non-payment of Rent shall be
available in respect of the default. All obligations of the Landlord and Tenant
with respect to the payment of Additional Rent by the Tenant, or with respect to
the adjustment of amounts paid on account of Additional Rent by the Tenant,
shall survive the expiration or termination of this Lease until such amounts
have been paid or properly adjusted in accordance with this Lease, as the case
may be.
4.4 Operating Costs
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The Tenant shall pay to the Landlord as Additional Rent the Tenant's
Proportionate Share of Operating Costs or if the Landlord so elects, the
Adjusted Proportionate Share of Operating Costs, at the times and in the manner
described in Section 4.6 of this Lease.
4.5 Taxes
(a) The Tenant shall pay when due all Business Tax. If the Tenant's
Business Tax is payable by the Landlord to the relevant taxing
authority, the Tenant shall pay the amount thereof on demand to the
Landlord or as it directs. If no separate tax bills for business Tax
are issued with respect to the Tenant or the Premises, the Landlord
may allocate Business Tax charged, assessed or levied against the
Building to the Tenant on the basis of the Tenant's Proportionate
Share.
(b) The Tenant shall promptly pay to the Landlord as Additional Rent,
its Proportionate Share or if the Landlord so elects, its Adjusted
Proportionate Share of Taxes at the times and in the manner
described in Section 4.6 of this Lease. At the Landlord's option,
the Landlord may direct the Tenant to pay its Proportionate Share of
Taxes direct to the relevant taxing authority not later than the due
date thereof.
(c) The Landlord shall pay all Taxes to the taxing authorities, subject
to the payments on account of, or contributions towards, Taxes
required to be made by the Tenant pursuant to this lease.
(d) The Landlord may, in making any estimate of the amount of Taxes
payable by the Tenant pursuant to Section 4.6 of this Lease, base
such estimate upon the Tenant's Adjusted Proportionate Share of such
Taxes.
(e) The Landlord may: Contest any taxes and appeal any assessments with
respect thereto; withdraw any such contest or appeal; and agree with
the taxing authorities on any settlement or compromise with respect
to Taxes. The Tenant will co-operate with the Landlord in respect of
any such contest or appeal and will provide the Landlord with all
relevant information, documents and consents required by the
Landlord in connection with any such contest or appeal. the Tenant
will not contest any Taxes or appeal any assessments related thereto
without the Landlord's prior written consent.
(f) All costs incurred by the Landlord in contesting or appealing Taxes
or related assessments (including legal, appraisal and other
professional fees, administration and overhead costs) and in
determining any Tenant's Adjusted Proportionate Share of Taxes,
shall be included in Operating Costs.
(g) If the Landlord cannot obtain from the taxing authorities separate
allocations of Taxes, business Tax, or tax assessments in order to
determine the Tenant's Proportionate Share of Taxes or Adjusted
Proportionate Share of Taxes, such allocation shall be made by the
Landlord acting reasonably and shall be conclusive.
(h) The Tenant shall promptly deliver to the Landlord on receipt, copies
of assessment notices, tax bills and other documents received by the
Tenant
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relating to Taxes and receipts for payment of Taxes and business Tax
payable by the Tenant.
4.6 Payment of Taxes and Operating Costs
(a) The amount of taxes and Operating Costs payable to the Landlord
pursuant to Sections 4.4 and 4.5 of this Lease may be estimated by
the Landlord for such period (not to exceed 24 months) as the
Landlord determines from time to time, and the Tenant agrees to pay
to the Landlord the amounts so estimated in equal instalments in
advance on the first day of each month during such period.
Notwithstanding the foregoing, when bills for all or any portion of
the said amounts so estimated are received, the Landlord may bill
the Tenant for the Tenant's Proportionate Share thereof, and if the
Landlord so elects, the Tenant's Adjusted Proportionate Share
thereof and the Tenant shall pay the Landlord such amounts so billed
after crediting against such amount any monthly payments of
estimated Taxes and Operating Costs previously made by the Tenant,
and the amount so billed shall be paid within five (5) business days
after demand.
(b) Within a reasonable period of time after the end of the period for
which such estimated payments have been made, the Landlord shall
submit to the Tenant a statement from the Landlord setting forth the
actual amounts payable by the Tenant pursuant to Sections 4.4 and
4.5 of this Lease. If the amount the Tenant has paid is less than
the amount due, the Tenant shall pay such deficiency within five (5)
business days after submission of such statement. If the amount paid
by the Tenant is greater than the amount due, the amount of such
excess may be retained by the Landlord to be credited and applied by
the Landlord to the next succeeding instalments of the Tenant's
Proportionate Share of Taxes and Operating Costs (either actual or
as estimated by the Landlord), but if such excess has been paid with
respect to the last year of the Term, then the Landlord shall pay
such excess to the Tenant within five (5) business days after
submission of such statement.
(c) If the Landlord, acting equitably, determines that the Tenant's
Proportionate Share of Taxes and Operating Costs payable in
accordance with Sections 4,6(a) and (b) of this Lease does not
accurately reflect the Tenant's fair and proper share of Taxes and
Operating Costs, then the Landlord shall determine the Tenant's
Adjusted Proportionate Share of such Taxes and Operating Costs.
(d) If the Landlord so determines the Tenant's Adjusted Proportionate
Share of the Taxes and Operating Costs, which may be an amount
either less or greater than the Tenant's Proportionate Share of
Taxes and Operating Costs, the Tenant shall pay such Adjusted
Proportionate Share of Taxes and Operating Costs rather than its
Proportionate Share thereof, in the same manner as set out in
Sections 4.6(a) and (b) of this Lease.
4.7 Utilities
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The Tenant shall pay when due all charges for public utilities used in the
Premises, including but not limited to, water rates, electrical rates, telephone
rates, and gas rates. The Tenant shall also pay for apparatus, meters, and other
things leased or purchased in connection with public utility services, and for
all work performed by anyone in connection with such public utilities. If
utility charges are not charged specifically to the Premises or to the Tenant
but are charged to the Landlord in connection with the entire Development, the
Landlord shall charge the Tenant with utility charges applicable to the
Premises, calculated if possible on the basis of the Tenant's connected load, or
otherwise as estimated by the Landlord on a reasonable and equitable basis and
the Tenant shall pay to the Landlord all of the utility charges so calculated in
monthly instalments in advance, together with payment of its instalments of
Rent.
4.8 Rent Past Due
All other amounts (other than the fixed Net Rent reserved by this Lease)
required to be paid by the Tenant under this Lease shall be considered to be
Additional Rent. If any Net Rent or Additional Rent is not paid to the Landlord,
or is paid by the Landlord on behalf of the Tenant, the Landlord shall have the
right to recover such amounts as if they were Rent in arrears, together with
interest on such amount from the date on which the same became due until the
date of payment at five percent (5%) per annum in excess of the prime interest
rate for commercial demand loans charged by any Canadian chartered bank
designated by the Landlord.
4.9 Adjustment of Areas
The Landlord may from time to time re-measure or recalculate the Rentable Area
of the Premises and may re-adjust the Net Rent and/or the Tenant's Proportionate
Share of Additional Rent accordingly. The effective date of any such
re-adjustment shall: (a) in the case of an adjustment to the Rentable Area, be
the date on which such change occurred; and (b) in the case of a correction to
any measurement or calculation error, be the date as of which such error was
introduced in the calculation of any Rent.
4.10 Rent Deposit
The Landlord acknowledges receipt from the Tenant of the Rent Deposit, to be
applied as a deposit against Net Rent and Additional Rent accruing in the first
month Net Rent is due under this Lease and the last month of the Term.
4.11 Security Deposit
The Tenant shall deposit with the Landlord prior to the date the Tenant occupies
the Premises a security deposit in the amount of the Security Requirement to be
held by the Landlord, without liability for interest thereon, as security for
the performance by the Tenant of the terms a conditions of this Lease. In the
event of default by the Tenant of any of its covenants or obligations under this
Lease, the Landlord may at its option, but without prejudice to any other rights
which the Landlord may have, apply all or part of the security deposit to
compensate the Landlord for any loss, damage
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or expense sustained by the Landlord as a result of such default. If all or any
part of the security deposit is so applied, the Tenant shall on demand and of
the Landlord restore the security deposit to its original amount. On termination
of this Lease, if the Tenant is not then in default, the security deposit will
be returned by the Landlord to the Tenant. If the Landlord sells its interest in
the Premises, it may deliver the security deposit to the purchaser, and the
Landlord will be released from any further liability with respect to the
security deposit or its return to the Tenant.
4.12 Net Lease
(a) This Lease is a completely carefree net Lease to the Landlord,
except as expressly herein set out. The Landlord is not responsible
for any expenses or outlays of any nature arising from or relating
to the Premises or the use or occupancy thereof, or the contents
therein or the business carried on therein. The Tenant shall pay all
charges, impositions and outlays of every nature and kind relating
to the Premises except as expressly herein set out.
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(b) The Tenant acknowledges that the Building forms an integral part of
the Development and that the Operating Costs to which the Tenant is
to contribute its Proportionate Share or Adjusted Proportionate
Share may be attributed by the Landlord from time to time to the
various components of the Development in accordance with reasonable
and current practices relevant to a multi-use development, and on a
basis consistent with the nature of the particular costs being
incurred, and the Tenant shall pay its Proportionate Share or
Adjusted Proportionate Share of Operating Costs in the manner as is
reasonably so attributed from time to time by the Landlord.
4.13 Penalty Charge
In the event that any cheque tendered by the Tenant to the Landlord is not
honoured in full by the financial institution on which it is drawn, then in
addition to all other rights and remedies of the Landlord, the Tenant shall
forthwith pay to the Landlord, as Additional Rent, liquidated damages in the
amount of FIFTY ($50.00) dollars on account of the Landlord's costs in
presenting such cheque, having it rejected and attempting to obtain a
replacement for it.
4.14 Place of Payment
The Tenant shall make all rental and other payments required by this Lease by
cheque payable to the Landlord. All payments shall be made to the Landlord at
210 Colonnade Road, Unit 1, Nepean, Ontario, K2E 7L5 or such other place as the
Landlord may notify the Tenant.
4.15 Adjustment of Costs
The Landlord and Tenant shall adjust between themselves on the commencement and
termination of this Lease, all realty taxes, water rates, insurance premiums and
other charges relating to the Premises, with the intention that the Landlord
shall bear such charges until commencement Date of this Lease and the Tenant
shall bear such charges thereafter and until it delivers possession of the
Premises to the Landlord in accordance with the provisions of this Lease,
ARTICLE V
PERMITTED USE
5.1 Permitted Use and Conduct of Business
The Tenant shall use the Premises for none other than the Permitted Use.
The use of the Premises by the Tenant shall be subject to the overriding
provision of any applicable laws and regulations of any governmental authority.
In its use of the Premises the Tenant shall not keep or display any merchandise,
equipment or fixtures on, or otherwise obstruct, the Common
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Areas of the Lands and Development; shall not conduct business on or from the
Common Areas; and shall affix no article or thing to the exterior of the
Building or any other portion of the Common Areas. The Tenant shall not use,
either in the Premises or outside of the Premises, any travelling or flashing
lights or signs, or any loudspeakers, television, phonographs, radio or other
audio-visual or mechanical devices in a manner so that they could be heard or
seen outside the Premises.
5.2 Overloading
The Tenant shall not bring into the Premises anything which by reason of its
weight, size or use, might damage the Premises. If any damage is caused to the
Premises by any such thing or by overloading the floors of the Premises or by
any act or omission on the part of the Tenant or those for whom it is in law
responsible, the Tenant will forthwith repair such damage.
5.3 Roof
The Tenant shall not place anything on, nor make any opening in, the roof of the
Premises without the prior written consent of the Landlord, which consent may be
withheld or given on such terms as the Landlord may determine. On the
termination of this Lease, or at such time as the Tenant vacates the Premises or
is declared bankrupt, the Tenant or its trustee in bankruptcy, as the case may
be, shall repair any damage caused to the Premises or any other part of the
Building as a result of having placed anything on or having made openings in or
having attached anything to the roof, and shall restore the roof to its former
condition, all to the satisfaction of the Landlord.
5.4 Signage
The Tenant shall not place any sign on the Premises without the prior written
consent of the Landlord as to the size, content, design, character and location
of such sign. Any sign placed by the Tenant shall serve only as identification
of the Tenant's premises and not as advertising, and any such sign shall be
complimentary with the signs of other Tenants of the Building as to style and
dimensions, and shall conform with any standardized sign policy instituted by
the Landlord for the Building. The Tenant shall not remove any sign or sign
panels without the written consent of the Landlord. Any damage caused to the
Building as a result of the Tenant having attached or removed such signs shall
be repaired by the Tenant to the reasonable satisfaction of the Landlord prior
to the expiration of the Term. Upon expiration or earlier termination of the
Term of this Lease all signs and panels shall become the property of the
Landlord, and shall be removed from the Premises by the Tenant only in the event
that the Landlord requires or permits the Tenant to do so.
5.5 Heating, Ventilating and Air Conditioning; System Maintenance Program
The Tenant shall heat, ventilate and air condition the Premises at its own
expense to such temperature as may be necessary to prevent damage to the
Premises or any other part of the Building; and the Tenant shall operate and
maintain and replace as necessary all heating, ventilating and air conditioning
equipment serving the Premises.
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NOTWITHSTANDING the above,
(a) the Landlord may, at its sole option, elect to place and maintain a
comprehensive preventative maintenance program (utilizing such
persons, firms or corporations as it may see fit) for all heating,
ventilating and air-conditioning equipment in the Premises
notwithstanding the fact that the Tenant has the obligation to
repair same, and if the Landlord so elects, the Tenant shall pay all
costs incurred by the Landlord or its contractor for such service in
accordance with Section 5.5(b).
(b) If the Landlord elects to place and maintain a comprehensive
maintenance program for the heating, ventilating and air
conditioning equipment in the Premises, the Tenant shall participate
in such program, shall retain the Landlord's contractor designated
for such purpose and shall pay to the Landlord or such contractor,
as designated by the Landlord, on demand, and as Additional Rent,
all costs and expenses incurred by the Landlord or charged by such
contractor with respect to such program, it being understood and
agreed that the Landlord may require such payment to be made by the
Tenant in monthly instalments, fixed from time to time by the
Landlord, subject to annual adjustment in accordance with the terms
of this Lease.
5.6 Nuisance
The Tenant shall not, by its act or omission, permit anything to occur in the
Premises which shall be or shall result in a nuisance.
5.7 Windows
The Tenant shall throughout the Term and at its expense, install and maintain
covering over all windows of the Premises from the inside using blinds, curtains
or other coverings acceptable to the Landlord in its sole and absolute
discretion. Without limiting the generality of the foregoing, such window
coverings shall be sufficient to present a uniform exterior appearance of the
Building and such that the Tenant's goods and activities are not visible from
the outside of the Premises.
5.8 Cleanliness
The Tenant shall keep the Premises and the sidewalks and other areas adjacent to
the Premises clean and free of refuse and other obstructions, and shall comply
with any laws governing the condition or cleanliness of the Premises.
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ARTICLE VI
ACCESS AND ENTRY
6.1 Right of Examination
The Landlord shall be entitled at all reasonable times (and at any time in the
case of an emergency) to enter the Premises to examine them; to make such
repairs, alterations or improvements thereto as the Landlord considers necessary
or desirable; to have access to underfloor ducts and access panels to mechanical
shafts and to check, calibrate, adjust and balance controls and other parts of
the heating, air conditioning, ventilating and climate control systems. The
Landlord reserves to itself the right to use the exterior walls and the roof,
and the right to install, maintain use and repair pipes, ducts, conduits, vents,
wires and other installations leading in, through, over, or under the Premises
and for this purpose, the Landlord may take all material into and upon the
Premises which is required therefor. The Tenant shall not unduly obstruct any
pipes, conduits or mechanical or other electrical equipment so as to prevent
reasonable access thereto. The Landlord shall exercise its rights under this
Section 6.1, to the extent possible in the circumstances, in such manner so as
to minimize interference with the Tenant's use and enjoyment of the Premises. If
any excavation is made on the Lands, the person making such excavation may enter
the Premises to do any work considered necessary to preserve and protect the
walls of the Building and to support them by proper foundations. Rent will not
abate or be reduced while the repairs, alterations, or improvements are being
made and the Landlord is not liable for damage, injury or death caused to any
person or to property of the Tenant or others located on the Premises as a
result of the entry regardless of how the damage, injury or death is caused.
6.2 Right to Show Premises
The Landlord and its agents may enter the Premises at all reasonable times to
show them to prospective purchasers or mortgagees. The Landlord may within six
(6) months before the expiration of the Term, unless the Term has been renewed,
or within six (6) months before the expiration of the renewal term (if any)
place on the premises a notice of reasonable dimensions stating that the
Premises are for rent and the Tenant shall not permit such notice to be removed,
and during such period the Landlord and its agents may enter the Premises at all
reasonable times to show them to prospective Tenants.
6.3 Entry not Forfeiture
No entry into the Premises or anything done therein by the Landlord pursuant to
a right granted by this Lease shall constitute a breach of any covenant for
quiet enjoyment, or (except where expressed by the Landlord in writing) shall
constitute a re-entry or forfeiture, or an actual or constructive eviction. The
Tenant shall have no claim for injury, damages or loss suffered as a result of
any such entry or thing and the Landlord shall in no event be responsible for
the acts or negligence of any Persons providing cleaning services in the
Building.
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ARTICLE VII
MAINTENANCE, REPAIRS AND ALTERATIONS
7.1 Maintenance by Landlord
(a) The Landlord covenants to keep the following in good repair as a
prudent owner; (i) the structure of the Building including exterior
walls and roofs; (ii) the mechanical, electrical and other base
building systems; and (iii) the entrance, lobbies, plazas,
stairways, corridors, parking areas and other facilities from time
to time provided for use in common by the Tenant and other Tenants
of the Building. Subject to Sections 7.4 and 7.5 of this Lease, the
cost of such maintenance and repairs (other than the repair of
inherent structural defects) shall be included in Operating Costs.
(b) The Landlord shall not be responsible for any damages caused to the
Tenant by reason of failure of any equipment or facilities serving
the Building or delays in the performance of any work for which the
Landlord is responsible under this Lease. The Landlord shall have
the right to stop, interrupt or reduce any services, systems or
utilities provided to, or serving, the Building or Premises to
perform repairs, alterations or maintenance or to comply with laws
or regulations, or binding requirements of its insurers, or for
causes beyond the Landlord's reasonable control or as a result of
the Landlord exercising its right under Section 13.2 of this Lease.
The Landlord shall not be in breach of its covenant for quiet
enjoyment or liable for any loss, costs or damages, whether direct
or indirect, incurred by the Tenant due to any of the foregoing, but
the Landlord shall make reasonable efforts to restore the services,
utilities or systems so stopped, interrupted or reduced. The Tenant
acknowledges that the Landlord may require one year after the Tenant
has fully occupied the Premises in order to adjust and balance the
climate control systems and the Landlord shall not be responsible
for any inconvenience, discomfort, damages, loss or claims
whatsoever arising out of the process of such adjustment or
balancing.
(c) If the Tenant fails to carry out any maintenance, repairs or work
required to be carried out by it under this Lease and to the
reasonable satisfaction of the Landlord, the Landlord may at its
option carry out such maintenance or repairs without any liability
for any resulting damage to the Tenant's property or business. The
cost of such work, plus a sum equal to fifteen (15%) percent of such
cost representing the Landlord's overhead, shall be paid by the
Tenant to the Landlord.
7.2 Maintenance and Repairs by Tenant; Compliance with Laws
(a) The Tenant shall, at its expense, maintain and repair both the
interior and exterior of the Premises and all utility and mechanical
systems installed therein
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(including plumbing, electrical, heating, ventilating and air
conditioning systems) in good order and condition in the same manner
as a careful and prudent owner would, including the repair of wear
and tear to the extent that such repair is necessary to maintain the
improvements and equipment in or serving the Premises in such manner
so that they shall function properly, having regard to their nature
and the purposes for which they are intended to be used, and is
necessary to keep the appearance of the Premises neat, clean and
presentable, but excluding the repair of damage caused by fire or
other insured casualties to the extent the repair thereof is
provided for in Section 9.2 of this Lease, and excluding such
repairs as may be specifically required to be performed by the
Landlord pursuant to this Lease. The Tenant's obligation to maintain
and repair the exterior of the Premises shall extend only to (i) the
maintenance and repair of those elements of the exterior of the
Premises exclusively utilized in connection with the Premises or
exclusively forming part of the Premises, namely the doors and
entranceways, overhead and loading doors, loading docks, windows and
window frames, exterior Tenant identification signs and exterior
lighting; and (ii) the repair of any damage to the exterior of the
Premises caused by the wilful act or negligence of the Tenant or
those for whom it is in law responsible.
(b) The Tenant shall promptly comply with the requirements of all laws
at any time in force during the Term which affect the condition or
use of the Premises, and with every reasonable recommendation or
requirement of the Insurers Advisory Organization or by any
recognized body having similar functions or any insurance company by
which either the Landlord or the Tenant may be insured during the
Term. If the Tenant defaults under the provisions of this Section
7.2, the Landlord may itself comply with the requirements of this
Section 7.2, and all expenses (including insurance premiums)
incurred by the Landlord in so doing, together with a sum equal to
fifteen (15%) percent of such cost representing the Landlord's
overhead, shall be paid by the Tenant to the Landlord as Additional
Rent on demand.
7.3 Approval of Tenant's Alterations
(a) No Alterations shall be made to the Premises without the Landlord's
written approval. The Tenant shall submit to the Landlord details of
the proposed work including drawings and specifications prepared by
qualified architects or engineers conforming to good engineering
practice. All such Alterations shall be performed: (i) at the sole
cost of the Tenant, (ii) by contractors and workmen approved by the
Landlord; (iii) in a good and workmanlike manner; (iv) in accordance
with drawings and specifications approved by the Landlord, (v) in
accordance with all applicable laws and regulations; (vi) subject to
the reasonable regulations, supervision, control and inspection of
the Landlord, and (vii) subject to such indemnification against
liens and expenses as the Landlord
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reasonably requires. The Landlord's reasonable costs of supervising
all such work shall be paid by the Tenant.
(b) If any Alterations would affect the structure of the Building or any
of the electrical, plumbing, mechanical, heating, ventilating or air
conditioning systems or other base building systems, such work shall
at the option of the Landlord be performed by the Landlord at the
Tenant's cost, On completion of such work, the cost of the work plus
a sum equal to fifteen (15%) percent of said cost representing the
Landlord's overhead shall be paid by the Tenant to the Landlord.
7.4 Repair Where Tenant at Fault
Notwithstanding any other provision of this Lease, if the Building is damaged or
destroyed or requires repair, replacement or alteration as a result of the Act
or omission of the Tenant, its employees, agents, invitees, licensees,
contractors or others for whom it is in law responsible, the cost of the
resulting repairs, replacements or alterations plus a sum equal to fifteen (15%)
percent of such cost representing the Landlord's overhead, shall be paid by the
Tenant to the Landlord.
7.5 Repair Due to Tenant's Use of Premises
If the Landlord, acting reasonably, determines that any repairs, replacements or
improvements to any part of the Building, including, without limitation, to any
of the systems of the Building, are required as a result of the use of the
Premises by the Tenant, then the cost of such repairs, replacements or
improvements shall be borne by the Tenant and shall be payable by the Tenant on
demand together with an amount equal to fifteen (15%) percent thereof
representing the Landlord's administrative and overhead charges. For the
purposes of this Section 7.5, it shall be reasonable for the Landlord to
determine that such repairs, replacements or improvements are the result of the
Tenant's use of the Premises if such repairs, replacements or improvements are
effected to rectify any nuisance, noise or discomfort (including, without
limitation, as a result of noxious or unpleasant odours) caused to other Tenants
as a result of the Tenant's use of the Premises.
7.6 Removal of Improvements and Trade Fixtures
All Leasehold Improvements (other than Trade Fixtures) shall immediately upon
their placement become the Landlord's property without compensation to the
Tenant. Except as otherwise agreed by the Landlord in writing, no Leasehold
Improvements shall be removed from the Premises by the Tenant either during or
at the expiration or sooner termination of the Term except that: (a) the Tenant
may, during the Term, in the usual course of business, remove its Trade
Fixtures, provided that the Tenant is not in default under this Lease; and (b)
the Tenant shall, at the expiration or earlier termination of the Term, at its
sole cost remove such of the Leasehold Improvements and Trade Fixtures in the
Premises as the Landlord shall require to be removed, and restore the Premises
to the Landlord's then current building standard to the extent required by the
Landlord. The Tenant shall at its own expense repair any damage caused to the
Building by such removal. If the Tenant does not remove its Trade Fixtures at
the expiry or earlier termination of the Term, the
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trade Fixtures shall, at the option of the Landlord, become the property of the
Landlord and may be removed from the Premises and sold or disposed of by the
Landlord in such manner as it deems advisable. If the Tenant fails to complete
any work referred to in this Section 7.6 by the expiry or earlier termination of
the Term, the Tenant shall pay compensation to the Landlord for each day
following such expiration or earlier termination of the Term, until the
completion of such work at a rate equal to double the per diem Rent payable
during the last month preceding the expiry or earlier termination of the Term,
which sum is agreed by the parties to be a reasonable estimate of the damages
suffered by the Landlord for loss of use of the Premises. The Tenant shall close
off all electrical wiring which may have previously served any machinery or
equipment installed by the Tenant in the Premises.
7.7 Liens
The Tenant shall promptly pay for all materials supplied and work done in
respect of the Premises so as to ensure that no lien is registered against any
portion of the Lands or the Building or against the Landlord's or Tenant's
interest therein. If a lien is registered or filed, the Tenant shall discharge
it at its expense forthwith, failing which the Landlord may at its option
discharge the same by paying the amount claimed to be due into court or directly
to any such lien claimant and the amount so paid and all expenses of the
Landlord including legal fees (on a solicitor and his client basis) incurred by
the Landlord shall be paid by the Tenant to the Landlord within five (5)
business days after demand.
7.8 Notice by Tenant
The Tenant shall notify the Landlord of any accident, defect, damage or
deficiency in any part of the Premises or the Building, which comes to the
attention of the Tenant, its employees or contractors notwithstanding that the
Landlord may have no obligation in respect thereof.
7.9 Tenant's Repair
The Landlord may enter the Premises to view the state of repair. If the Landlord
notifies the Tenant of the need for repairs, the Tenant will repair in
accordance with such notice, subject to the exceptions set out in Section 7.2.
On the expiration or date of early termination of this Lease, the Tenant shall
surrender the Premises to the Landlord in a good state of repair. No provision
of this Section 7.9 shall require the Tenant on the expiration or other
termination of this Lease to repair reasonable wear and tear, except to the
extent that repair of wear and tear is necessary to maintain the improvements
and equipment of the Premises in such manner so that they shall function
properly, having regard to their nature and the purpose for which they are
intended to be used, and except to the extent that repair of wear and tear is
necessary to keep the appearance of the Premises neat, clean and presentable.
All repairs required to be made pursuant to this Section 7.9 shall be completed
prior to the date upon which this Lease terminates.
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7.10 Environmental Matters
(a) The Tenant will not cause or permit to occur any violation of the
ENVIRONMENTAL PROTECTION ACT (Ontario), CANADA ENVIRONMENT ACT or
any other federal, provincial, municipal, intermunicipal or other
law, by-law, ordinance or regulation now or hereinafter promulgated
which relates to environmental conditions, on, under or about the
Premises, or arising from the Tenant's use or occupancy of the
Premises, including but not limited to, soil and ground water
conditions, to the use, generation, release, manufacturing,
refining, production, processing, storage or disposal of any
Hazardous Materials on, under or about the Premises or
transportation to or from the Premises of any Hazardous Materials;
or any discharge, leak or emission of any material in the
atmosphere, ground, sewer system or any body of water, if that
material, as reasonably determined by any governmental authority,
does or may pollute or contaminate the same or may adversely affect
the health, welfare or safety of persons, if located on the
Premises.
(b) The Tenant will, at its own expense, effect all clean ups as may be
required by governmental authorities and provide all information
regarding the use, generation, storage, transportation of Hazardous
Materials that is requested by the Landlord or any other
governmental authority, insurer or secured lender from time to time.
(c) If the Tenant fails to fulfill all of its obligations under Section
7.10 (a) and (b) of this Lease, the Landlord may do so at the
Tenant's expense, together with an administration fee of fifteen
(15%) percent of the cost thereof, all of which will be payable on
demand as Additional Rent without prejudice to the Landlord's other
rights and recourse in the circumstances.
(d) The Tenant hereby agrees that it shall be fully responsible for the
use, storage and disposal of Hazardous material kept on the Premises
by the Tenant. The Tenant shall defend, indemnify and hold harmless
the Landlord and its employees and agents, from and against any
claims, demands, penalties, fines, liabilities, settlements,
damages, costs of expenses (including, without limitation,
reasonable legal fees, court costs and litigation expenses) of
whatever kind or nature including any loss or reduction in the value
of the Building and any loss of income therefrom, arising out of or
related to (i) the presence, disposal, release or threatened release
by the Tenant of any Hazardous Material that is on, from, or
affecting the soil, water, vegetation, buildings, personal property,
persons, animals or otherwise; (ii) any personal injury (including
wrongful death) or property damage (real or personal) arising out of
or related to that Hazardous material kept or brought on to the
Premises by the Tenant; (iii) any lawsuit
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brought or threatened or government order relating to that hazardous
material kept or brought on the Premises by the Tenant; or (iv) any
violation of any laws applicable to any Hazardous material kept or
brought on to the Premises by the Tenant.
ARTICLE VIII
INSURANCE AND INDEMNITY
8.1 Tenant's Insurance
(a) The Tenant shall, throughout the Term, maintain at its sole cost the
following insurance: -
(i) "All Risks" (including flood and earthquake) property
insurance, naming the Tenant, the Landlord, the owner of the
Building and the Mortgagee as insured parties, containing a
waiver of subrogation rights which the Tenant's insurers may
have against the Landlord and against those for whom the
Landlord is in law responsible including, without limitation,
its directors, officers and employees, and (except with
respect to the Tenant's chattels) incorporating the
Mortgagee's standard mortgage clause. Such insurance shall
insure: (A) property of every kind owned by the Tenant or for
which the Tenant is legally liable located on or in the
Building including, without limitation, plate glass, and
Leasehold Improvements, in an amount not less than the full
replacement cost thereof (new), with such cost to be adjusted
no less than annually; and (B) extra expense insurance in such
amount as will reimburse the Tenant for loss attributed to all
perils referred to in this subsection 8.1 (a) (i) or resulting
from prevention of access to the Premises. Such policy or
policies, except with respect to extra expense insurance,
shall provide that loss thereon shall be adjusted and payable
to the Landlord, with the proceeds to be held in trust to be
used for repair and replacement of the property so insured.
(ii) Comprehensive General Liability insurance which includes the
following coverages: owners protective, bodily injury
(including death); property damage; employers' contingent
liability; blanket contractual liability; and, where
applicable, products liability and malpractice liability. Such
policies shall, contain inclusive limits of not less than
$2,000,000.00; provide for severability of interests, cross
liability; and name the Landlord as an insured.
(iii) Tenant's legal liability insurance for the actual cash value
for the Premises including loss of use thereof.
(iv) Automobile liability insurance on a non-owned form including
contractual liability, and on an owner's form covering all
licensed vehicles operated by or on behalf of the Tenant,
which insurance shall have inclusive limits of not less than
$2,000,000.00.
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(v) Any other form of insurance which the Tenant or the Landlord,
acting reasonably, or the Mortgagee requires from time to time
in form, in amounts and for risks against which a prudent
Tenant would insure.
(b) All policies referred to in this Section 8.1 shall: (i) be taken out
with insurers reasonably acceptable to the Landlord; (ii) be in a
form reasonably satisfactory to the Landlord; (iii) be
non-contributing with, and shall apply only as a primary and not as
excess to any other insurance available to the Landlord; (iv) not be
invalidated as respects the interests of the Landlord or the
Mortgagee by reason of any breach of or violation of any warranty,
representation, declaration or condition of the policies and/or of
the Lease; and (v) contain an undertaking by the insurers to notify
the Landlord by registered mail not less than thirty (30) days prior
to any material change, cancellation or termination. Certificates of
insurance on the Landlord's standard form or, if required by the
Landlord, certified copies of such insurance policies, shall be
delivered to the Landlord forthwith upon request. If the Tenant
fails to take out or to keep in force any insurance referred to in
this Section 8.1 or should any such insurance not be approved by
either the Landlord or the Mortgagee and should the Tenant not
commence to diligently rectify (and thereafter proceed to diligently
rectify) the situation within 48 hours after written notice by the
Landlord to the Tenant (stating, if the Landlord or the Mortgagee,
from time to time, does not approve of such insurance, the reasons
therefor) the Landlord has the right without assuming any obligation
in connection therewith, to effect such insurance at the sole
expense of the Tenant and all costs incurred by the Landlord in
connection therewith, together with a sum equal to fifteen (15%)
percent of such cost representing the Landlord's overhead, shall be
paid by the Tenant to the Landlord as Additional Rent without
prejudice to any other rights or remedies of the Landlord under this
Lease.
8.2 Increase in Insurance Premiums
The Tenant shall not keep or use in the Premises any article which may be
prohibited by any fire insurance policy in force from time to time covering the
Premises or the Development. The Tenant will comply promptly with the
requirements of the Insurer's Advisory Organization and of any insurer,
pertaining to the Premises or the Development. If: (a) the conduct of business
in the Premises; or (b) any acts or omissions of the Tenant in the Development
or any part thereof, cause or result in any increase in premiums for the
insurance carried from time to time by the Landlord with respect to the
Development, the Tenant shall pay any such increase in premium. In determining
whether increased premiums are caused by or result from the use or occupancy of
the Premises, a schedule issued by the organization computing the insurance rate
on the Development showing the various components of such rate, shall be
conclusive evidence of the several items and charges which make up such rate.
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8.3 Cancellation of Insurance
If any insurance policy upon the Development or any part thereof shall be
cancelled or shall be threatened by the insurer to be cancelled or the coverage
thereunder reduced in any way by the insurer by reason of the use of the
Premises by the Tenant or any assignee or subTenant of the Tenant, or by anyone
permitted by the Tenant to be upon the Premises, and if the Tenant fails to
remedy such condition within 48 hours after notice thereof by the Landlord, the
Landlord may, at its option, either; (a) re-enter the Premises forthwith by
leaving upon the Premises a notice in writing of its intention so to do and
thereupon the Landlord shall have the same rights and remedies as are contained
in Article Xl; or (b) enter upon the Premises and remedy the condition giving
rise to such cancellation, threatened cancellation or reduction, including
removal of any offending article, and the Tenant shall pay the cost thereof to
the Landlord and the Landlord shall not be liable for any damage or injury
caused to any property of the Tenant or of others located on the Premises as a
result of any such entry.
8.4 Loss or Damage
The provisions of this Section 8.4 shall govern notwithstanding any other
provision of this Lease.
(a) The Landlord shall not be liable for any death or injury arising
from or out of any occurrence whatsoever in, upon, at, or relating
to the Premises or Development, or any part thereof, or damage to
property of the Tenant or of others located on the Premises or
elsewhere in the Development from any cause whatsoever, nor shall
the Landlord be responsible for any loss of or damage to any
property of the Tenant or others from any cause whatsoever, whether
or not such property is entrusted to the care or control of the
Landlord or any of the Landlord's employees, nor shall the Landlord
be responsible for any direct, indirect or consequential damages
that may be suffered or sustained by the Tenant or any others from
any cause whatsoever, and in each case whether or not any such
death, injury, loss damage or damages results from the negligence or
fault of the Landlord or any of the Landlord's employees.
(b) Without limiting the generality of the foregoing, the Landlord shall
not be liable or responsible in any way for any death, injury
(including without limitation, personal discomfort or illness) loss,
damage or damages of or to Persons or property resulting, directly
or indirectly, from any of the following, whether or not such
results from the negligence or fault of the Landlord or any of the
Landlord's employees: (i) fire, explosion, theft, breakage, falling
plaster, falling ceiling tile, falling fixtures, steam, gas,
electricity, water, rain, flood, ice, snow, or leaks into, in or
from any part of the Premises or Development or from any pipes
(including, without limitation, water, steam, sprinkler and drainage
pipes), sprinklers, appliances, drainage or plumbing works, roof,
windows, or exterior walls or subsurface or any floor or ceiling of
the Premises or Development, or any part thereof, or from the street
or any other source or place whatsoever, or by dampness, or by the
existence, discharge, spillage, or leakage of Hazardous
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Materials or by any other cause whatsoever, (ii) any suspension,
non-operation. failure, reduction, interruption or failure to supply
or perform, for any reason or for any period of time, of or in any
of the services, equipment, facilities, systems (such as, without
limitation, the HVAC System) or Utilities or any public Utilities or
any services serving the Premises, or the Development, or any other
part thereof; (iii) delays in the performance of any repairs,
replacements, maintenance or restoration for which the Landlord is
responsible under this Lease, (iv) by reason of the Landlord or any
of the Landlord's employees entering upon the Premises to undertake
any examination thereof or any work or cleaning or performance of
other services therein; (v) by reason of the supply or performance
of any cleaning, janitorial, pest extermination or fire protection
or security obligations or services in any part of the Premises or
Development, (vi) by reason of inconvenience, annoyance or injury to
business arising from the Landlord, the Tenant or any others making
or failing to diligently make, for whatever reason or cause, any
repairs, alterations, additions, renovations, improvements or
restorations in or to any part of the Development, or (vii) by
reason of the Landlord or any of the Landlord's employees acting,
monitoring or responding, or failing to act, monitor or respond, in
any manner whatsoever, in connection with any fire protection system
or security system, or any alarm or signal therefrom, which system
serves exclusively the Premises or any part thereof and is not a
Building standard system, the parties hereby expressly acknowledging
and agreeing that the Landlord and the Landlord's employees have no
obligation or responsibility whatsoever to so act, monitor or
respond.
(c) The Landlord shall not be liable or responsible in any way for any
such death, injury, loss or damage caused by other Tenants,
occupants or Persons on or in the Development, or any part thereof
or by any occupants of any adjacent property thereto, or by the
public, or caused by construction or by any private, public or
quasi-public work.
(d) All property of the Tenant or of any of the Tenant's employees kept
or stored on the Premises (including, without limitation, all
Leasehold Improvements leased by the Tenant herein) shall be so kept
or stored at the sole risk of the Tenant, and the Tenant releases
and agrees to indemnify the Landlord and save it harmless from and
against any claims arising out of any loss or damage to such
property including without limitation, any subrogation claims by the
Tenant's or any others' insurers, and the Tenant shall make all
claims for loss, damage or destruction of or to any such property
against the policies of insurance required to be maintained by the
Tenant under this Lease. Without limiting the foregoing or any other
provision of Section 8.3 or 8.4 of this Lease, the parties agree
that, whether or not the Landlord installs or requires the Tenant to
install any particular type of demising wall or partition, and even
if such is open at the top and thereby accessible to easy
unauthorized entry, the Landlord shall not be liable for any losses
or damages sustained thereby on or in respect of the Premises or any
Persons or property thereon, howsoever, caused or arising and the
Tenant shall be responsible for its own security and alarm systems
(subject to the Landlord's
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consent, but the giving or withholding of consent shall not impose
any liability whatsoever on the Landlord) and shall indemnify the
Landlord and save it harmless from and against any such losses or
damages.
8.5 Landlord's Insurance
The Landlord shall throughout the Term carry: (a) insurance on the Building
(excluding the foundations and excavations) and the machinery, boilers and
equipment in or servicing the Building and owned by the Landlord or the owners
of the Building (excluding any property which the Tenant and other Tenants are
obliged to insure under Section 8.1 or similar section of their respective
leases) against damage by fire and extended perils coverage; (b) public
liability and property damage insurance with respect to the Landlord's
operations in the Development; and (c) such other form or forms of insurance as
the Landlord or the Mortgagee reasonably considers advisable. Such insurance
shall be in such reasonable amounts and with such reasonable deductibles as
would be carried by a prudent owner of a reasonably similar building, having
regard to size, age and location. The Landlord covenants and agrees that it
shall, if same is obtainable, obtain a waiver of subrogation in favour of the
Tenant in all policies of insurance placed by the Landlord in respect of the
Premises. If as a result of obtaining such waiver of subrogation, insurance
premiums required to be paid by the Landlord are increased, the amount of such
increase attributable to obtaining such waiver of subrogation shall be paid by
the Tenant on demand from the Landlord and upon the Landlord delivering
appropriate evidence of such increased premium to the Tenant. Notwithstanding
the Landlord's covenant in this Section 8.5 and notwithstanding any contribution
by the Tenant to the cost of the Landlord's insurance premiums, the Tenant
acknowledges and agrees that: (i) the Tenant is not relieved of any liability
arising from or contributed to by its negligence or its wilful act or omissions;
(ii) no insurable interest is conferred upon the Tenant under any insurance
policies carried by the Landlord; and (iii) the Tenant has no right to receive
any proceeds of any insurance policies carried by the Landlord.
8.6 Indemnification of Landlord
Notwithstanding any other provision of this Lease, the Tenant shall indemnify
the Landlord and save it harmless from and against any and all loss (including
loss of Net Rent and Additional Rent payable in respect of the Premises),
claims, actions, damages, liability and expense in connection with loss of life,
personal injury, damage to property or any other loss or injury whatsoever
arising from or out of this Lease, or any occurrence in, upon or at the
Premises, or the occupancy or use by the Tenant of the Premises or any part
thereof, or occasioned wholly or in part by any act or omission of the Tenant or
by anyone permitted to be on the Premises by the Tenant. If the Landlord shall,
without fault on its part, be made a party to any litigation commenced by or
against the Tenant, then the Tenant shall protect, indemnify and hold the
Landlord harmless and shall pay all expenses and reasonable legal fees incurred
or paid by the Landlord in connection with such litigation. The Tenant shall
also pay all expenses and legal fees (on a solicitor and his client basis)
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that may be incurred or paid by the Landlord in enforcing the terms of this
Lease, unless a court shall decide otherwise.
8.7 Release of Landlord
The Tenant releases and discharges the Landlord from all claims and demands of
any kind which the Tenant might have or acquire against the Landlord arising out
of damage to or destruction of the Building, or any part of the Building,
occasioned by any reason whatsoever.
ARTICLE IX
DAMAGE AND DESTRUCTION
9.1 No Abatement
If the Premises or Building are damaged or destroyed in whole or in part by fire
or any occurrence, this Lease shall continue in full force and effect and there
shall be no abatement of Rent except as provided in this Article IX.
9.2 Damage to Premises
If the Premises are at any time destroyed or damaged as a result of fire or any
other casualty required to be insured against by the Landlord under this Lease
or otherwise insured against by the Landlord and not caused or contributed to by
the Tenant, then the following provisions shall apply:
(a) if the Premises are rendered unTenantable only in part, the Landlord
shall diligently repair the Premises to the extent only of its
obligations under Section 7.1 of this Lease and Net Rent shall abate
proportionately to the portion of the Premises rendered unTenantable
from the date of destruction or damage until the Landlord's repairs
have been completed;
(b) If the Premises are rendered wholly unTenantable, the Landlord shall
diligently repair the Premises to the extent only of its obligations
pursuant to Section 7.1 of this Lease and Net Rent shall abate
entirely from the date of destruction or damage to such date which
is the earlier of (i) the date useable, or (ii) thirty (30) days
after Landlord's repairs have been completed;
(c) if the Premises are not rendered unTenantable in whole or in part,
the Landlord shall diligently perform such repairs to the Premises
to the extent only of its obligations under Section 7.1 of this
Lease but in such circumstances Net Rent shall not terminate or
abate;
(d) upon being notified by the Landlord that the Landlord's repairs have
been substantially completed, the Tenant shall diligently perform
all repairs to the Premises which are the Tenant's responsibility
under Section 7.2 of this Lease, and all other work required to
fully restore the Premises for use in the Tenant's business, in
every case at the Tenant's cost and without any contribution to such
cost by the Landlord, whether or not the Landlord has at any time
made any contribution to the cost of supply, installation or
construction of Leasehold Improvements in the Premises; and
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(e) nothing in this Section 9.2 shall require the Landlord to rebuild
the Premises in the condition which existed before any such damage
or destruction so long as the Premises as rebuilt will have
reasonably similar facilities to those in the Premises prior to such
damage or destruction, having regard, however, to the age of the
Building at such time.
9.3 Right of Termination
Notwithstanding Section 9.2 of this Lease, if the damage or destruction which
has occurred in the Premises is such that in the reasonable opinion of the
Landlord the Premises cannot be rebuilt or made fit for the purposes of the
Tenant within 180 days of the happening of the damage or destruction, the
Landlord may, at its option, terminate this lease on notice to the Tenant given
within thirty (30) days after such damage or destruction and the Tenant shall
immediately deliver vacant possession of the Premises in accordance with the
terms of this Lease.
9.4 Destruction of Building
(a) Notwithstanding any other provision of this Lease, if:
(i) 20% or more of the Rentable Area of the Building is destroyed
or damaged by any cause; or
(ii) portions of the Building or Lands which affect access or
services essential thereto are damaged or destroyed and, in
the reasonable opinion of the Landlord, cannot reasonably be
repaired within 180 days after the occurrence of the damage or
destruction;
then the Landlord may, by notice to the Tenant given within thirty
(30) days of such damage or destruction, terminate this Lease, in
which event neither the Landlord nor Tenant shall be bound to repair
and the Tenant shall surrender the Premises to the Landlord within
thirty (30) days after delivery of its notice of termination and
Rent shall be apportioned and paid to the date on which the Tenant
delivers vacant possession of the Premises, subject to any abatement
to which the Tenant may be entitled under Section 9.2 of this Lease.
(b) If the Landlord is entitled to, but does not elect to terminate this
Lease pursuant to Section 9.4(a) the Landlord shall, following such
damage or destruction diligently repair if necessary that part of
the Building damaged or destroyed, but only to the extent of the
Landlord's obligations under the terms of the various leases for
premises in the Building and exclusive of any Tenant's
responsibilities with respect to such repair. If the Landlord elects
to repair the Building, the Landlord may do so in accordance with
plans and specifications other than those used in the original
construction of the Building.
9.5 Architect's Certificate
The certificate of the Architect shall bind the parties to: (a) the percentage
of the Rentable Area of the Building damaged or destroyed; (b) whether or not
the Rentable Area of the Premises are rendered unTenantable and the percentage
of the Rentable Area of the Premises rendered unTenantable, (c) the date upon
which either the Landlord's or Tenant's work of reconstruction or
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repair is completed or substantially completed and the date when the Rentable
Area of the Premises are rendered Tenantable, and (d) the state of completion of
any work of the Landlord or the Tenant.
ARTICLE X
ASSIGNMENT AND SUBLETTING: TRANSFERS
10.1 Assignment and Subletting; Transfers
The Tenant shall not enter into, consent to or permit any Transfer without the
prior written consent of the Landlord in each instance, which consent shall not
be unreasonably withheld but shall be subject to the Landlord's rights under
Section 10.2 of this Lease. Notwithstanding any statutory provision to the
contrary, it shall not be considered unreasonable for the Landlord to take into
account the following factors in deciding whether to grant or withhold its
consent: (a) whether such Transfer is in violation or in breach of any covenants
or restrictions made or granted by the Landlord to other Tenants or occupants or
prospective Tenants or occupants of the Building; (b) whether in the Landlord's
opinion, the financial background, business history and capability of the
proposed Transferee is satisfactory; (c) if the Transfer is to an existing
Tenant of the Landlord; and (d) Net Rent is comparable to the net rent sought by
the Landlord on comparable premises. Consent by the Landlord to any Transfer if
granted shall not constitute a waiver of the necessity for such consent to any
subsequent Transfer. This prohibition against Transfer shall include a
prohibition against any Transfer by operation of law and no Transfer shall take
place by reason of the failure of the Landlord to give notice to the Tenant
within thirty (30) days required by Section 10.2 of this Lease.
10.21 Landlord's Right to Terminate
If the Tenant intends to effect a Transfer, the Tenant shall give prior notice
to the Landlord of such intent specifying the identity of the Transferee, the
type of Transfer contemplated, the portion of the Premises affected thereby, and
the financial and other terms of the Transfer, and shall provide such financial,
business or other information relating to the proposed transferee and its
principals as the Landlord or any Mortgagee requires, together with copies of
any documents which record the particulars of the proposed Transfer. The
Landlord shall, within ten (10) days after having received such notice and all
requested information, notify the Tenant either that:
(a) it consents or does not consent to the Transfer in accordance with
the provisions and qualifications of this Article X or
b) it elects to cancel this Lease as to the whole or part. as the case
may be, of the Premises affected by the proposed Transfer, in
preference to giving such consent.
If the Landlord elects to terminate this Lease it shall stipulate in its notice
the termination date of this Lease, which date shall be no less than thirty (30)
days nor more than ninety (90) days
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following the giving of such notice of termination. If the Landlord elects to
terminate this Lease, the Tenant shall notify the Landlord within ten (10) days
thereafter of the Tenant's intention either to refrain from such Transfer or to
accept termination of this Lease or the portion thereof in respect of which the
Landlord has exercised its rights. If the Tenant fails to deliver such notice
within such ten (10) days or notifies the Landlord that it accepts the
Landlord's termination, this Lease will as to the whole or affected part of the
Premises, as the case may be, be terminated on the date of the termination
stipulated by the Landlord in its notice of termination. If the Tenant notifies
the Landlord within such ten (10) days that it intends to refrain from such
Transfer, then the Landlord's election to terminate this Lease shall become void
in such instance.
10.3 Conditions of Transfer
(a) If there is permitted Transfer, the Landlord may collect Rent from
the Transferee and apply the net amount collected to the Rent
payable under this Lease but no acceptance by the Landlord of any
payments by a Transferee shall be deemed a waiver or release of the
Tenant's covenants, or any acceptance of the Transferee as Tenant,
or a release of the Tenant from the further performance by the
Tenant of its obligations under this Lease. Any consent by the
Landlord shall be subject to the Tenant and Transferee executing an
agreement with the Landlord agreeing:
(i) that the Transferee will be bound by all of the terms of this
Lease as if such Transferee had originally executed this Lease
as Tenant; and
(ii) to amend this Lease as to incorporate such terms, covenants
and conditions as are necessary so that this Lease will be in
accordance with the Landlord's standard form of industrial
lease in use for the Development at the time of the Transfer,
and so as to incorporate any conditions imposed by the
Landlord in its consent or required by the provisions of this
Section 10.3
(b) Notwithstanding any Transfer permitted or consented to by the
Landlord, the Tenant shall remain liable under this Lease and shall
not be released from performing any of the terms of this Lease.
(c) The Landlord's consent to any Transfer shall be subject to the
conditions that: (i) the Net Rent and Additional Rent payable by the
Transferee shall not be less than the Net Rent and Additional Rent
payable by the Tenant under this Lease as at the effective date of
the Transfer, (including any increases provided in this Lease), and
(ii) if the Net Rent and Additional Rent to be paid by the
Transferee under such Transfer exceeds the Net Rent and Additional
Rent payable under this Lease, the amount of such excess shall be
paid by the Tenant to the Landlord. If the Tenant receives from any
Transferee, either directly or indirectly, any consideration other
than Net Rent or Additional Rent for such Transfer, either in the
form of cash, goods or services (other than the proceeds of any
financing as a result of a Transfer involving a mortgage, charge or
similar security interest in this Lease) the Tenant shall forthwith
pay to the Landlord an amount
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equivalent to such consideration. The Tenant and the Transferee
shall execute any agreement required by the Landlord to give effect
to the foregoing terms.
(d) Notwithstanding the effective date of any permitted Transfer as
between the Tenant and the Transferee, all Net Rent and Additional
Rent for the month in which such effective date occurs shall be paid
in advance by the Tenant so that the Landlord will not be required
to accept partial payments of Net Rent and Additional Rent for such
month from either the Tenant or Transferee.
(e) Any document evidencing any Transfer permitted by the Landlord, or
setting out any terms applicable to such Transfer or the rights and
obligations of the Tenant or Transferee thereunder, shall be
prepared by the Landlord or its solicitors and all associated costs
shall be paid by the Tenant.
10.4 Change of Control
If the Tenant is at any time a corporation or partnership, any actual or
proposed Change of Control in such corporation or partnership shall be deemed to
be a Transfer and subject to all of the provisions of this Article X. The Tenant
shall make available to the Landlord or its representatives all of its corporate
or partnership records, as the case may be, for inspection at all reasonable
times, in order to ascertain whether any Change of Control has occurred.
10.5 No Advertising
The Tenant shall not erect, post or display on the premises any sign, notice or
advertisement of any kind indicating that the Premises are available for rent or
for sublet or that occupancy of the Premises is available pursuant to any other
arrangement. The Tenant shall not advertise the whole or any part of the
Premises for the purposes of a Transfer and shall not permit any broker or other
person to do so unless the complete text and format of any such advertisement is
first approved in writing by the Landlord. No such advertisement shall contain
any reference to the rental rate of the Premises.
10.6 Assignment by Landlord
The Landlord shall have the unrestricted right to sell, lease, convey or
otherwise dispose of all or any part of the Development or Lands and this Lease
or any interest of the Landlord in this Lease. To the extent that the purchaser
or assignee from the Landlord assumes the obligations of the Landlord under this
Lease, the Landlord shall thereupon and without further agreement be released of
all liability under this Lease.
ARTICLE XI
DEFAULT
11.1 Default and Remedies
If and whenever an Event of Default occurs, then without prejudice to any other
rights which it has pursuant to this Lease or at law, the Landlord shall have
the following rights and remedies, which are cumulative and not alternatives:
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(a) to terminate this Lease;
(b) to enter the Premises as agent of the Tenant and to relet the
Premises for whatever term, and on such terms as the Landlord in its
discretion may determine and to receive the Rent therefor and as
agent of the Tenant to take possession of any property of the Tenant
on the Premises, to store such property at the expense and risk of
the Tenant or to sell or otherwise dispose of such property in such
manner as the Landlord may see fit without notice to the Tenant; to
make alterations to the Premises to facilitate their reletting; and
to apply the proceeds of any such sale or reletting first, to the
payment of any expenses incurred by the Landlord with respect to any
such reletting or sale; second, to the payment of any indebtedness
of the Tenant to the Landlord other than Rent; and third, to the
payment of Rent in arrears; with the residue to be held by the
Landlord and applied in payment of future Rent as it becomes due and
payable. The Tenant shall remain liable for any deficiency to the
Landlord;
(c) to remedy or attempt to remedy any default of the Tenant under this
Lease for the account of the Tenant and to enter upon the Premises
for such purposes. No notice of the Landlord's intention to perform
such covenants need be given the Tenant unless expressly required by
this Lease. The Landlord shall not be liable to the Tenant for any
loss injury or damage caused by acts of the Landlord in remedying or
attempting to remedy such default and the Tenant shall pay to the
Landlord all expenses incurred by the Landlord in connection with
remedying or attempting to remedy such default;
(d) to recover from the Tenant all damages and expenses incurred by the
Landlord as a result of any breach by the Tenant including, if the
Landlord terminates this Lease, any deficiency between those amounts
which would have been payable by the Tenant for the portion of the
Term following such termination and the net amounts actually
received by the Landlord during such period of time with respect to
the Premises;
(e) to recover from the Tenant the full amount of the current month's
Rent together with the next three (3) months' instalments of Rent,
all of which shall accrue on a day-to-day basis and shall
immediately become due and payable as accelerated Rent.
11.2 Distress
Notwithstanding any provision of this Lease or any provision of applicable
legislation, none of the goods and chattels of the Tenant on the Premises at any
time during the Term shall be exempt from levy by distress for Rent in arrears,
and the Tenant waives any such exemption. If the Landlord makes any claim
against the goods and chattels of the Tenant by way of distress, this provision
may be pleaded as an estoppel against the Tenant in any action brought to test
the right of the Landlord to levy such distress.
11.3 Costs
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The Tenant shall pay to the Landlord on demand all damages and costs (including,
without limitation, all legal fees on a solicitor and his client basis) incurred
by the Landlord in enforcing the terms of this Lease, or with respect to any
matter or thing which is the obligation of the Tenant under this Lease, or in
respect of which the Tenant has agreed to insure, or to indemnify the Landlord,
In addition to and notwithstanding any claim made by the Landlord for payment of
such damages and costs, the Tenant shall pay the sum of FIFTY ($50.00) DOLLARS
to the Landlord as Additional Rent on demand upon any default by the Tenant
under the terms of this Lease or any breach of its obligations thereunder in
order solely to re-imburse the Landlord for its administrative costs incurred as
a result of such default or breach, and the Tenant agrees that such charge is
reasonable and appropriate to so re-imburse the Landlord upon any such breach or
default.
11.4 Allocation of Payments
The Landlord may at its option apply sums received from the Tenant against any
amounts due and payable by the Tenant under this Lease in such manner as the
Landlord sees fit.
11.5 Survival of Obligations
If the Tenant has failed to fulfil its obligations under this Lease with respect
to the maintenance, repair and alteration of the Premises and removal of
improvements and fixtures from the Premises during or at the end of the Term,
such obligations and the Landlord's rights in respect thereto shall remain in
full force and effect notwithstanding the expiration or sooner termination of
the Term.
ARTICLE XII
STATUS STATEMENT, ATTORNMENT AND SUBORDINATION
12.1 Status Statement
Within ten (10) days after written request by the Landlord, the Tenant shall
deliver in a form supplied by the Landlord a statement or estoppel certificate
to the Landlord as to the status of this Lease, including as to whether this
Lease is unmodified and in full force and effect (or, if there have been
modifications that this Lease is in full force and effect as modified and
identifying the modification agreements); the amount of Net Rent and Additional
Rent then being paid and the dates to which same have been paid; whether or not
there is any existing or alleged default by either party with respect to which a
notice of default has been served and if there is any such default, specifying
the nature and extent thereof; and any other matters pertaining to this Lease as
to which the Landlord shall request such statement or certificate.
12.2 Subordination
This Lease shall be subordinate to any mortgages or charges created by the
Landlord on the Lands and the Tenant shall promptly at the request of the
Landlord execute such documents as may be required to postpone and subordinate
its rights to the holder of any such mortgage or charge. The
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Tenant irrevocably appoints the Landlord its attorney with power to execute such
documents of postponement and subordination for the Tenant if the Tenant fails
to do so on request. The Tenant agrees that it will, whenever reasonably
required by the Landlord, consent and become a party to any document relating to
this Lease which may be required by a purchaser, mortgagee, or financial
institution in connection with the Premises. Except as otherwise provided in
this Lease, the rights of the Tenant shall not be altered or varied by the terms
of such document.
12.3 Attornment
The Tenant shall promptly on request attorn to any Mortgagee, or to the owners
of the Building and Lands, or the lessee under any ground, operating,
overriding, underlying, or similar Lease of all or substantially all of the
Building made by the Landlord or otherwise affecting the Building and Lands or
the purchaser on any foreclosure or sale proceedings taken under any Mortgage,
and shall recognize such Mortgagee, owner, lessee or purchaser as the Landlord
under this Lease.
12.4 Non-Disturbance Agreement
The Landlord undertakes upon receipt of a written request by the Tenant, and
agrees to use reasonable efforts to obtain a written undertaking binding upon
any Mortgagee, owner, lessee, or purchaser, and enforceable by and for the
benefit of the Tenant under applicable law, that despite any subordination or
attornment by the Tenant, this Lease and the Tenant's rights hereunder shall
continue undisturbed so long as the Tenant is not in default.
12.5 Execution of Documents
The Tenant irrevocably constitutes the Landlord the agent and attorney of the
Tenant for the purpose of executing any agreement, certificate, attornment or
subordination required by this Lease and for registering postponements in favour
of any Mortgagee if the Tenant fails to execute such documents within ten (10)
days after request by the Landlord.
12.6 Registration of Lease
Neither the Tenant nor anyone claiming under the Tenant shall register this
Lease or any Transfer without the prior written consent of the Landlord. If the
Tenant or any permitted Transferee wishes to register a document for the
purposes of giving notice of this Lease or a Transfer, then the Landlord shall
at the request and expense of the Tenant execute a notice, caveat or short form
of Lease for the purposes of registration in such form as approved by the
Landlord and without disclosure of any terms which the Landlord does not desire
to have disclosed. If the Lands comprise more than one parcel of land, the
Landlord may direct the Tenant or Transferee as to the parcel or parcels against
which registration may be affected. The Tenant, or any permitted Transferee,
shall on registration of any notice of lease or other memorandum, give the
Landlord a notice of withdrawal of any such notice of lease or other memorandum,
which the Landlord shall hold and only use upon the expiration or earlier
termination of this Lease.
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ARTICLE XIII
CONTROL OF DEVELOPMENT
13.1 Use and Maintenance of Common Areas
The Tenant and those doing business with it, for purposes associated with the
Tenant's business on the Premises, shall have a non-exclusive right to use the
Common Areas for their intended purposes during Normal business Hours in common
with others entitled thereto and subject to any Rules and Regulations imposed by
the Landlord. The Landlord shall keep the Common Areas in good repair and
condition and shall clean the Common Areas when reasonably necessary. The Tenant
acknowledges that all Common Areas shall at all times be under the exclusive
control and management of the Landlord.
13.2 Alterations by Landlord
The Landlord may: (a) alter, add to, subtract from, construct improvements to,
rearrange, build additional storeys on and construct additional facilities in,
adjoining or near the building; (b) relocate the facilities and improvements in
or comprising the Building erected on the Lands; (c) do such things on or in the
Lands or Building as required to comply with any laws, by-laws, regulations,
orders or directives affecting the Lands or any part of the Building; and (d) do
such other things on or in the Lands or Building as the Landlord, in any use of
good business judgment, determines to be advisable. The Landlord shall not be in
a breach of its covenant for quiet enjoyment or liable for any loss, costs or
damages, whether direct or indirect, incurred by the Tenant due to any of the
foregoing.
13.3 Relocation of Premises by Landlord
The Landlord shall have the right at any time upon sixty (60) days' written
notice (the "Notice of Relocation") to relocate the Tenant to other premises in
the Building (the "Relocated Premises") and the following terms and conditions
shall be applicable:
(a) the Relocated Premises (which term shall mean the Premises after
relocation) shall have a Rentable Area approximately the same as, or
greater than, the Premises;
(b) the Landlord shall provide at its expense Leasehold Improvements in
the Relocated Premises equal to the standards of the Leasehold
Improvements in the Premises which have been completed or which the
Landlord is obliged herein to provide in the Premises;
(c) the Landlord shall pay for the reasonable moving costs (if any) from
the Premises to the Relocated Premises of the Tenant's Trade
Fixtures and furnishings;
(d) as compensation for all other costs, expenses and damages which the
Tenant may suffer or incur in connection with the relocation
including disruption and loss of business, annual Net Rent and
Additional Rent for the Relocated Premises for the period of the
first one (1) month of occupancy shall abate;
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(e) annual Net Rent and Tenant's Proportionate Share or Adjusted
Proportionate Share, of Additional Rent for the Relocated Premises
shall be no greater than the annual Net Rent and Tenant's
Proportionate Share or Adjusted Proportionate Share of Additional
Rent for the Premises, notwithstanding the Relocated Premises may
contain a greater Rentable Area; and
(f) all other terms and conditions of this Lease shall apply to the
Relocated Premises except as are inconsistent with the terms and
conditions of this Section 13.3.
13.4 Expropriation
In the event of expropriation of all or part of the Premises, neither the
Landlord nor Tenant will have a claim against the other for the shortening of
the Term, nor the reduction or alteration of the Premises, and the Landlord and
Tenant shall each look only to the expropriating authority for compensation. In
the event of expropriation of fifteen (15%) percent or more of the Lands or ten
(10%) percent or more of the Rentable Area of the Building, then in either such
event the Landlord shall have the right, to be exercised by notice in writing to
the Tenant within ninety (90) days following such expropriation, to elect to
terminate this Lease. If the Landlord gives such notice the Term of this Lease
shall terminate as of the date actual physical possession is taken by the
expropriating authority and all rental shall be paid up to that date and the
Tenant shall have no claim against the Landlord for the value of any unexpired
Term of this Lease or for damages or for any other reason whatsoever. If the
Landlord does not so terminate this Lease, this Lease shall continue on in full
force and effect, with the Premises being adjusted to reflect any portion
thereof taken by the expropriating authority.
13.5 Premises for Sale
The Landlord may at any time during the Term or any renewal term of this Lease
place on the exterior of the Premises and/or the exterior of the Building a
notice of reasonable dimensions stating that the Building and Lands or part
thereof are for sale and the Tenant shall not permit such notice to be removed.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Rules and Regulations
The Tenant shall comply with all rules and regulations and amendments thereto
adopted by the Landlord from time to time with respect to the Building and
Lands, including, without limitation, the Rules and Regulations attached hereto
as Schedule "C", so long as such Rules and Regulations are not inconsistent with
and do not contradict this Lease. Such Rules and Regulations may differentiate
between different types of businesses in the Building, and the Landlord shall
have no obligation to enforce any Rule and Regulations or the provisions of any
other Lease against any other Tenant, and the Landlord shall have no liability
to the Tenant with respect thereto.
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40
<PAGE>
14.2 Unavoidable Delay
Except as expressly provided in this Lease, whenever the Landlord or Tenant is
delayed in the fulfilment of any obligation under this Lease (other than the
payment of Rent and surrender of the Premises on termination) by an unavoidable
occurrence which is not the fault of the party delayed in performing such
obligation, then the time for fulfilment of such obligation shall be extended
during the period in which such circumstances operate to delay the fulfilment of
such obligation.
14.3 No Waiver
If the Landlord or Tenant excuses or overlooks any default by the other under
this Lease, such excusing or overlooking shall not be a waiver of the Landlord's
or Tenant's rights under this Lease in respect of any later default by the
other, nor in any way defeat the rights of the Landlord or Tenant, as the case
may be, under this Lease for any such later default. All rights and remedies of
the Landlord under this Lease are cumulative and not alternative.
14.4 Notices
Notices required or permitted to be given by this Lease shall be considered to
have been given if personally delivered or if mailed by prepaid registered mail
to the parties at the following addresses or to such other addresses as from
time to time designated by the parties in writing. Any notice so given by
prepaid registered mail shall be considered to have been received on the fourth
business day following the date of mailing of the notice, and any notice by
personal delivery shall be considered to have been received on the date of
personal delivery.
(a) Landlord's Address:
210 Colonnade Road, Unit 1
NEPEAN, Ontario
K2E 7L-5
Attention: David Goldfarb, President
(b) Tenant's Address:
The Tenant's Address for Notice as set forth in Section 1.1(i) of
this Lease
(c) Indemnifier's Address:
The Indemnifier's Address for Notice as set forth in Section 1.1(i)
of this Lease
In the case of strikes, lock outs or other stoppages in the Canadian Postal
system, any such notices or other communications required or permitted to be
given by this Lease shall be delivered personally to the party to whom
addressed.
14.5 Successors
This lease shall be binding upon and shall enure to the benefit of the Landlord
and Tenant, and their respective successors and assigns, but only if the consent
of the Landlord has been obtained
================================================================================
41
<PAGE>
to an assignment, sublease, licence or other parting with possession of the
Premises by the Tenant in the manner provided in Section 10.1 of this Lease.
14.6 Joint and Several Liability
If there is at any time more than one Tenant or more than one Person
constituting the Tenant, their covenants shall be considered to be joint and
several and shall apply to each and every one of them. If the Tenant is or
becomes a partnership, each Person who is a member, or shall become a member, of
such partnership or its successors shall be and continue to be jointly and
severally liable for the performance of all covenants of the Tenant pursuant to
this Lease, whether or not such Person ceases to be a member of such partnership
or its successor.
14.7 Captions and Section Numbers
Captions, section numbers, article numbers and table of contents appearing in
this Lease are inserted only as a matter of convenience and in no way affect the
substance of this Lease.
14.6 Extended Meanings
The words "hereof", "hereto" and similar expressions used in this Lease relate
to the whole of this Lease and not only to the provisions in which such
expressions appear. The Lease shall be read with all changes in number and
gender as may be appropriate or required by the context. Any reference to the
Tenant includes, where the context allows, the employees, agents, invitees and
licensees of the Tenant and all others over whom the Tenant might reasonably be
expected to exercise control.
14.9 Partial Invalidity
All of the provisions of this Lease are to be construed as covenants even though
not expressed as such. If any such provision is held or rendered illegal or
unenforceable it shall be considered separate and severable from this Lease and
the remaining provisions of this Lease shall remain in force and bind the
parties as though the illegal or unenforceable provision had never been included
in this Lease.
14.10 Entire Agreement
This Lease and its schedules and riders, if any, and the Offer to Lease, if any,
between the Landlord and Tenant to the extent that the provisions thereof are
stated not to merge on the execution of this Lease, set forth the entire
agreement between the Landlord and Tenant and there are no agreements or
understandings between them other than as set out therein. This Lease and its
schedules and riders may not be modified except by agreement in writing executed
by the Landlord and Tenant.
14.11 Governing Law
This Lease shall be construed in accordance with and governed by the laws of the
Province of
================================================================================
42
<PAGE>
Ontario.
14.12 Time of Essence
Time is of the essence of this Lease.
14.13 No Partnership
Nothing in this Lease creates any relationship between the parties other than
that of the Landlord and Tenant and nothing in this Lease constitutes the
Landlord a partner of the Tenant or a joint venturer or member of a common
enterprise with the Tenant.
14.14 Quiet Enjoyment
If the Tenant pays Rent, fully performs all of its obligations under this Lease,
and there has been no Event of Default, the Tenant shall be entitled to peaceful
and quiet enjoyment of the Premises for the Term without interruption or
interference by the Landlord or any Person claiming through the Landlord.
14.15 Name of Building or Development
The Landlord shall have the right, after thirty (30) days notice to the Tenant,
to change the name, number or designation of the Building or Development,
without liability to the Tenant.
14.16 Exercise of Rights
All rights and powers reserved to the Landlord by this Lease may be exercised by
either the Landlord or its agents or other representatives.
14.17 Parking
The Tenant shall have the right during the Term of this Lease to the use in
common with others entitled to such use of the areas for parking of automobiles
designated by the Landlord from time to time. The Landlord shall have no
obligation to supervise, police or control the exclusivity of such parking
areas, nor to prevent their use by persons other than Tenants of the Building.
================================================================================
43
<PAGE>
ARTICLE XV
SPECIAL PROVISIONS
15.1 Leased Premises Taken "As Is"
The Tenant agrees that there is no promise, representation or undertaking by or
binding upon the Landlord with respect to any alteration, remodelling or
decoration of the Premises, or installation of equipment or fixtures in the
Premises and that the Tenant is taking the Premises "as is", SAVE AND EXCEPT for
the following work to be completed by the Landlord, at the Landlord's sole cost
and expense, prior to the commencement date:
(1) The Landlord shall demise a Reception Area complete with door and
hardware as shown on Schedule "B";
(2) The Landlord shall stretch all carpet;
(3) The Landlord shall clean all carpet and hardwood flooring;
(4) The Landlord shall install vertical blinds on west wall of Office #4
and Office #5;
(5) The Landlord shall install a dishwasher in the existing kitchen;
15.2 Option to Renew
(a) Provided that:
(i) the Tenant is not, and at no time has been, in default during
the term of this Lease, under any of the covenants, terms,
conditions and provisions of this Lease; and
(ii) the Tenant has given to the Landlord written notice of the
Tenant's intent to renew this Lease not less than six (6)
months and not more than twelve (12) months before the date of
expiry of the Term of this Lease;
The Landlord hereby grants to the Tenant the option to renew this
Lease for a further term of five (5) years under the terms and
conditions specified in Section 15.2(b) of this Lease.
(b) Any renewal pursuant to this Section 15.2 shall be on the Landlord's
then current Standard Lease Form except:
(i) any additional option to renew the renewal term shall be
negotiated upon the Tenant's notice to renew under Section
15.2(a) (ii) of this Lease;
(ii) any net rent free period for the renewal term shall be
negotiated upon the Tenant's notice to renew under Section
15.2(a)(ii) of this Lease; and
(iii) any leasehold improvement allowance for the renewal term shall
be negotiated upon the Tenant's notice to renew under Section
15.2(a)(ii) of this Lease.
(c) The annual Net Rent payable by the Tenant for the renewal term shall
be agreed upon by the parties no later than ninety (90) days prior
to the date of expiry of the
================================================================================
44
<PAGE>
Term of this Lease, or an amount as determined pursuant to an
arbitration conducted in accordance with the Arbitrations Act of
Ontario. If applicable, this Option shall constitute the required
submission to arbitration. Notwithstanding anything contained in
this Lease or in the Arbitrations Act of Ontario, the following
provisions shall apply to any arbitration conducted hereunder:
(i) the request for arbitration shall be deemed to be made upon
the 90th day prior to the date of expiry of the Term of this
Lease;
(ii) each party shall then have fifteen (15) days within which to
either agree upon the appointment of a sole arbitrator, or to
appoint their respective arbitrators, who shall in turn select
a Chairman of the Board of Arbitration within a further period
of ten (10) days;
(iii) if either party fails to appoint its arbitrator within the
aforesaid fifteen (15) day period, then any arbitrator
appointed within that period by the other party shall have the
authority to act as the sole arbitrator;
(iv) in awarding a new annual Net Rent, the arbitrator or
arbitrators shall consider the fair market rental of the
Premises as improved (whether at the expense of the Landlord
or the Tenant), the rent to be or expected to be received by
the Landlord for similar premises within the Development
increases in the consumer Price Index over the period of years
comprising the Term, prevailing rents for similar premises
within the vicinity, and the Landlord's rental plan for the
Development indicating the highest and best use for the
Premises.
(v) in any event, the annual Net Rent so awarded shall not be less
than the annual Net Rent payable by the Tenant to the Landlord
during the Rental Year immediately preceding the Renewal Term;
and
(vi) the arbitrator or arbitrators shall do all things necessary to
ensure that the award is rendered prior to the expiry date of
the Term, and may, in his or their discretion, if the award
must be rendered thereafter, order interest to be paid by the
Tenant to the Landlord (at the rate specified in Section 4.8
of this Lease) on the amount of any difference between the
annual Net Rent payable during the last Rental year of the
Term, and the annual Net Rent so awarded, from the date of the
expiry of the Term to the date of payment. For the purposes
hereof, "Consumer Price Index" shall mean the index for Ottawa
- All items as published by Statistics Canada in its monthly
catalogue report, or any replacement index or publication
designed to convey relatively similar information.
15.3 Right of First Refusal
PROVIDED the Tenant is not in default of its obligations under the terms
of the Lease the Tenant shall be granted a once only first right of refusal to
lease the remaining 815 square feet of the premises, as shown in blue on
Schedule "B". The Tenant shall also be given a once only first right of refusal
to lease the adjacent space on the second floor which may become available
during
================================================================================
45
<PAGE>
the term of the Lease. The Tenant shall also be granted a once only first right
of refusal to lease the ground floor unit designated as Bay 8 and comprising of
1600 square feet.
15.4 Signage
SUBJECT TO the provisions set forth in Section 5.4 of the Lease, the
Landlord shall provide access to the metal street front facade over the premises
for the Tenants signage;
15.5 Operating Costs, Taxes and Utilities
NOTWITHSTANDING the provisions of Section 4.6 of the Lease, the Operating
Costs, Taxes and Utilities shall not exceed $5.25 per square foot for the year
ending December 31, 1995; thereafter, increases shall be capped at an annual
rate of not more than 8%.
15.6 Lease Cancellation
PROVIDED the Tenant is not in default of its obligations under the terms
of the Lease, the Tenant may, upon six (6) months written notice, cancel the
Lease upon the following conditions: - (i) during the first year of the term,
upon payment of nine (9) month's gross rent as penalty for such cancellation;
(ii) during the third year of the term, upon payment of six (6) month's gross
rent as penalty for such cancellation; and (iii) during the fourth year of the
term, upon payment of three (3) months gross rent as penalty for such
cancellation.
15.7 Street Front Entrance
The Landlord shall construct a new street front entrance as shown on
Schedule "D"; said entrance shall be suitably finished in materials similar in
nature to the existing street front entrance;
Schedules "A" to "D" inclusive form part of and are included in this Lease.
IN WITNESS WHEREOF the parties have executed this Lease under seal.
OTTAWA HOUSE OF DAVID LIMITED
carrying on business under the firm
name and style of
DAVID DEVELOPMENTS
per: /s/ David Goldfarb
-----------------------------------
David Goldfarb, President
(affix corporate seal) CARAVELLE NETWORKS CORPORATION
per: /s/ Robert Robertson
----------------------------------
authorizing signing officer
================================================================================
46
<PAGE>
SCHEDULE "A"
LEGAL DESCRIPTION OF LANDS
ALL AND SINGULAR that certain parcel or tract of land and premises situate,
lying and being in the city of Nepean, in the Regional Municipality of
Ottawa-Carleton, and BEING COMPOSED OF Part of Lot 29, Concession A, Rideau
Front, and being more particularly described as Parts 7 and 8 on Plan 5R-5700
deposited in the Registry Office for the Registry Division of Ottawa-Carleton
No. 5 reserving thereout and therefrom unto The Corporation of the City of
Nepean, its successors and assigns the right and easement in perpetuity upon,
under, over, along and across the said part 7 on Reference Plan 5R-5700.
================================================================================
<PAGE>
SCHEDULE "B"
FLOOR PLANS OF PREMISES
[FLOOR PLAN]
================================================================================
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
The Tenant covenants and agrees to comply with the following rules and
regulations:
(i) The Tenant shall not perform any acts or carry on any practice which may
damage the Common Areas or be a nuisance to any other tenant in the
building.
(ii) In regard to the use and occupancy of the Premises and Common Areas, the
Tenant will:
(a) Keep the inside and outside of all glass in the doors and windows of
the Premises clean;
(b) Keep all exterior storefront surfaces of the Premises clean;
(c) Replace promptly at its expense, any cracked or broken window glass
of the Premises with glass of like kind and quality;
(d) Maintain the Premises, at its expense, in a clean, orderly and
sanitary condition and free of insects, rodents, vermin and other
pests;
(e) Keep any garbage, trash, rubbish or refuse in ratproof containers
within the interior of the Premises until removed as herein
provided;
(f) Have such garbage, trash, rubbish or refuse removed at its expense
on a regular basis as prescribed by the Landlord;
(g) Keep all mechanical apparatus free of vibration and noise which may
be transmitted beyond the Premises;
(h) Comply with all laws, by-laws, rules and regulations of governmental
authorities now or hereafter in effect; and
(i) Conduct its business in all respects in a dignified manner in
accordance with the highest standards of store operation;
(iii) In regard to the use and occupancy of the Premises and Common Areas, the
Tenant will not:
(a) Place or maintain any merchandise or other articles in any vestibule
or entry of the Premises, on the footwalks adjacent thereto or
elsewhere on the exterior of the Premises or Common Areas;
(b) Use or permit the use of any objectionable advertising medium such
as, without limitation, loud speakers, phonographs, public address
systems, sound amplifiers, radio broadcast or television apparatus
within the Development which is in any manner audible or visible
outside of the Premises;
(c) Permit undue accumulations of garbage, trash, rubbish or other
refuse within or without the Premises;
(d) Cause or permit objectionable odors to emanate or be dispelled from
the Premises;
(e) Solicit business in the parking or other Common Areas;
================================================================================
1
<PAGE>
(f) Distribute handbills or other advertising matter to, or in upon any
automobile parked in any parking areas or in any other Common Areas;
(g) Permit the parking of delivery vehicles so as to interfere with the
use of any driveway, walkway parking area, or other Common Areas of
the Development;
(h) Receive, ship, load or unload articles of any kind including
merchandise, supplies, materials, debris, garbage, trash, refuse and
other chattels except through service access facilities designated
from time to time by the Landlord;
(i) Mount or place an antenna of any nature on the exterior of the
Premises or the Common Areas;
(j) Use the plumbing facilities for any other purposes than for which
they are constructed, and no foreign substance of any kind shall be
thrown therein, and the expense of any breakage, stoppage provision
shall be borne by the Tenant;
(k) Use any part of the Premises for lodging, sleeping or any illegal
purposes; and
(l) Cause, permit or suffer any machines selling merchandise, rendering
services or providing, however operated, entertainment, including
vending machines, to be present on the Premises unless consented to
in advance in writing by the Landlord;
(iv) The Tenant shall mention the name of the Building in its advertising
relating to the business carried on in the Premises and such name shall be
used only for the Premises during the Term; the Tenant's use of the
Building name shall be subject to such reasonable regulations as the
Landlord may from time to time impose. The Tenant shall acquire no rights
in any such name;
(v) When required by any governmental authority having jurisdiction the Tenant
will provide (within the Premises) facilities or accomodation for garbage
and waste and its disposal and pick-up in accordance with such
requirements.
(vi) Any reference in these Rules and Regulations to the Tenant shall include,
where the context allows, the servants, employees, agents, invitees,
concessionaires and licencees of the Tenant and all others over whom the
Tenant might reasonably be expected to exercise control.
(vii) The Landlord reserves the right to limit the weight and to describe the
position in the Premises of all safes, furniture, equipment, machinery and
stock of merchandise.
================================================================================
2
<PAGE>
SCHEDULE "D"
Street Front Entrance
[FLOOR PLAN]
================================================================================
<PAGE>
ADDENDUM TO THE LEASE AGREEMENT
- BETWEEN -
CARAVELLE NETWORKS CORPORATION
- AND -
DAVID DEVELOPMENTS
================================================================================
This shall form as a legal and binding agreement between the two parties
mentioned above with respect to the Lease dated January 13, 1995 for the
premises known as Suite 301, 210 Colonnade Road, Nepean, Ontario.
The Landlord has agreed to lease to the Tenant the remaining space on its floor,
presently vacant, upon the following terms and conditions:
1. Premises: Suite 303, 210 Colonnade Road, Nepean, comprising approximately
935 Square Feet
2. Net Rent
The Net Rent payable by the Tenant shall be the amounts per annum and per month
set out below in the manner provided for in Section 4.2 of the Lease.
================================================================================
FROM TO: ANNUAL MONTHLY RATE PER
- ---- --- ------ ------- --------
NET RENT NET RENT SQUARE FOOT
-------- -------- ----------
January 1, 1996 January 31, 1997 $4,114.00 $342.83 $4.40
February 1, 1997 January 31, 2000 $4,675.00 $389.58 $5.00
================================================================================
================================================================================
210 COLONNADE ROAD, NEPEAN, ONT. K2E 7L5 TEL. (613) 723-1000 FAX (613) 723-1056
<PAGE>
3. Term
The Term of this Lease Amendment is for a period of FOUR (4) YEARS, ONE (1)
MONTH commencing on the FIRST DAY OF JANUARY, 1996 and ending on the 31st DAY
OF JANUARY, 2000.
4. Additional Rent
Upon execution of this Agreement, the Tenant will occupy the entire floor which
is separately metered for gas and hydro consumption. EFFECTIVE JANUARY 1ST,
1996, the Tenant will be billed directly for gas and hydro charges and the
Landlord shall, therefore, reduce the estimated taxes and operating costs to
$4.50 PER SQUARE FOOT as of January Ist, 1996.
5. Landlord's Work
Upon receipt of the executed Addendum to Lease, the Landlord will complete the
following work, at the Landlord's sole cost and expense:
(i) The Landlord will install 28 oz. carpeting complete with underpad and carpet
base in the office as shown on Schedule "A" attached;
(ii) The Landlord will remove all remaining office walls;
(iii) The Landlord will paint all walls;
(iv) The Landlord will install vinyl asbestos tile in the remainder of the
premises;
ALL OTHER TERMS AND CONDITIONS OF THE LEASE BETWEEN DAVID DEVELOPMENTS and
CARAVELLE NETWORKS CORPORATION DATED JANUARY 13, 1995 SHALL REMAIN IN FULL FORCE
AND EFFECT
PLEASE SIGNIFY YOUR ACCEPTANCE OF THE ADDENDUM TO LEASE BY SIGNING WHERE
INDICATED AT THE BOTTOM OF THIS AGREEMENT AND RETURNING THE DUPLICATE NO LATER
THAN FRIDAY, DECEMBER 8TH, 1995,
DAVID DEVELOPMENTS
per: /s/ David L. Goldfarb
------------------------------
David L. Goldfarb
ADDENDUM TO LEASE executed by the Tenant this 7 day of December, 1995
CARAVELLE NETWORKS CORPORATION
per: /s/ Robert Robertson (affix corporate seal)
------------------------------
================================================================================
210 COLONNADE ROAD, NEPEAN, ONT. K2E 7L5 TEL. (613) 723-1000 FAX (613) 723-1056
<PAGE>
SCHEDULE "A"
[FLOOR PLAN]
<PAGE>
ADDENDUM TO THE LEASE AGREEMENT
- BETWEEN -
CARAVELLE NETWORKS CORPORATION
- AND -
DAVID DEVELOPMENTS
================================================================================
This shall form as a legal and binding agreement between the two parties
mentioned above with respect to the Lease dated January 13, 1995 for the
premises known as Suite 301, 210 Colonnade Road, Nepean, Ontario.
The Landlord has agreed to lease to the Tenant additional space at 210 Colonnade
Road, presently occupied by Pelyco Systems Inc., upon the following terms and
conditions:
1. Premises: Suite 203, 210 Colonnade Road, Nepean, comprising approximately
1969 Square Feet
2. Net Rent
The Net Rent payable by the Tenant shall be the amounts per annum and per month
set out below in the manner provided for in Section 4.2 of the Lease.
================================================================================
FROM TO ANNUAL MONTHLY RATE PER
- ---- -- ------ ------- --------
NET RENT NET RENT SQUARE FOOT
-------- -------- ----------
July 1, 1996 January 31, 2000 $10,829.50 $902.46 $5.50
================================================================================
================================================================================
210 COLONNADE ROAD, NEPEAN, ONT. K2E 7L5 TEL. (613) 723-1000 FAX (613) 723-1056
<PAGE>
2
3. Term
The Term of this Lease Amendment is for a period of FORTY-THREE MONTHS
commencing on the FIRST DAY OF JULY, 1996 and ending on the 31ST DAY OF
JANUARY, 2000.
4. Landlord's Work
The following work shall be completed by the Landlord, at the Landlord's sole
cost and expense, prior to the commencement date:
(1) The Landlord shall paint all walls in the premises;
(2) The Landlord shall clean all carpets in the premises;
(3) The Landlord shall install a steel door and frame at the rear of the
premises opening out to the mid landing of their existing premises as
indicated on Schedule "A" attached hereto;
5. Relocation of Existing Tenant
The Landlord shall relocate the present Tenant of Suite 203, PELYCO SYSTEMS INC.
to an alternate Suite at 190 Colonnade Road, and the Tenant, Caravelle Networks
Corporation, shall be responsible for all relocation costs, not to exceed the
sum of $6,500.00, as more particularly set forth in the Lease Proposal dated
April 23rd, 1996;
ALL OTHER TERMS AND CONDITIONS OF THE LEASE BETWEEN DAVID DEVELOPMENTS and
CARAVELLE NETWORKS CORPORATION DATED JANUARY 13, 1995 SHALL REMAIN IN FULL FORCE
AND EFFECT
PLEASE SIGNIFY YOUR ACCEPTANCE OF THE ADDENDUM TO LEASE BY SIGNING WHERE
INDICATED AT THE BOTTOM OF THIS AGREEMENT AND RETURNING THE DUPLICATE NO LATER
THAN FRIDAY, MAY 10, 1996
DAVID DEVELOPMENTS
per /s/ David L. Goldfarb
-------------------------------
David L. Goldfarb
ADDENDUM TO LEASE executed by the Tenant this day of May, 1996
CARAVELLE NETWORKS CORPORATION
per: __________________________ (affix corporate seal)
================================================================================
210 COLONNADE ROAD, NEPEAN, ONT. K2E 7L5 TEL. (613) 723-1000 FAX (613) 723-1056
<PAGE>
March 22, 1998
Caravelle Networks Corporation
210 Colonnade Road, Suite 301
Nepean, Ontario
K2E 7L5
Attention: Mr. Simon Addey-Jibb
Vice-President, Finance & Administration
Dear Sir: -
Re: Suite 301 (4100 square feet) Suite 303 (935 square feet) - and -
Suite 203 (1969 square feet)
210 Colonnade Road, Nepean
- --------------------------------------------------------------------------------
As you are probably aware, the Business Opportunity Tax (B.O.T.) was eliminated
on January 1st, 1998. In the past, this tax was assessed and billed directly to
you. The elimination of this tax has resulted in increased property taxes, and
we have estimated the increase to be approximately ninety cents per square foot
based on the 1998 interim billing. This amount will be adjusted, if necessary,
once the 1998 final tax figures become known. We are, therefore, increasing your
monthly portion of taxes and operating COSTS EFFECTIVE APRIL 1ST, 1998, as
follows: -
Basic Rent - (Suite 301) $ 1,708.34
Basic Rent - (Suite 303) 389.58
Basic Rent - (Suite 203) 902.46
Additional Rent - (Suite 301) 1,879.17
Additional Rent - (Suite 303) 428.54
Additional Rent - (Suite 203) 1,066.54
G. S. T. 446.23
----------
TOTAL $ 6,820.86
===== ==========
================================================================================
210 COLONNADE ROAD, NEPEAN, ONT. K2E 7L5 TEL. (613) 723-1000 FAX (613) 723-1056
<PAGE>
The Additional Rent for Suites 301 and 303 has been increased from $4.60 per
square foot to $5.50 per square foot. The Additional Rent for Suite 203
(including utilities) has been increased from $5.60 per square foot to $6.50 per
square foot. The utilities are not separately assessed for Suite 203.
We trust you will find the enclosed satisfactory and we look forward to
receiving the April rent cheque in the amended amount.
Yours truly,
DAVID DEVELOPMENTS
/s/ David L. Goldfarb
David L. Goldfarb
================================================================================
210 COLONNADE ROAD, NEPEAN, ONT. K2E 7L5 TEL. (613) 723-1000 FAX (613) 723-1056
<PAGE>
Exhibit 10.10
DATED 9th April 1998
- --------------------------------------------------------------------------------
(1) SWALLOWFIELD OFFICE SERVICES LIMITED
(2) AVESTA TECHNOLOGIES INC
- --------------------------------------------------------------------------------
AGREEMENT
relating to Office Suite No(s) 27
Wyvols Court, Swallowfield,
Reading, Berkshire, RG7 1PY
- --------------------------------------------------------------------------------
<PAGE>
THIS AGREEMENT dated 9th April 1998 is made between
(1) The Owner: SWALLOWFIELD OFFICES SERVICES LIMITED of 28 Grosvenor Street,
London, W1X 9FE
(2) Occupier: AVESTA TECHNOLOGIES INC of Two Rector Street, New York, NY
10006, USA
1. DEFINITIONS
In this Agreement the following expressions shall mean
1.1 "The Inclusive Services" - the services specified in The First Schedule
1.2 "The Chargeable Services" - such of the services specified in The Second
Schedule as are from time to time available, and any other services as are
from time to time available
2. LICENSE
The Owner grants license to the Occupier to use Serviced Office Suite
No(s) 27 ("the Premises") on the Ground floor of Wyvols Court,
Swallowfield, Nr Reading, Berkshire, RG7 1PY ("the Building") together
with the right (in common with the Owner and all others from time to time
entitled) to use the common parts of the Building for the purpose only of
access to the Premises and to use such toilet washroom and kitchen
facilities as the Owner shall from time to time designate for the
Occupier's use but subject to the right of the Owner (and all others
authorized from time to time by the Owner) to use any service conducting
media within the Premises
3. LICENSE PERIOD
The period of this license shall commence on 1st April 1998 and shall
expire on 30th September 1998
4. RENT
The rent payable shall be (pound)2,175.00 plus VAT per calendar month
inclusive of business rates and water charges and the Inclusive Services
payable monthly in advance on the first day of each month
5. OCCUPIER'S OBLIGATIONS
The Occupier agrees with the Owner:
<PAGE>
5.1. to pay the rent specified in Clause 4 at all times and in the manner set
out in Clause 4 without any deduction
5.2 to pay the Owner all costs and expenses (including legal costs and
surveyors' fees) which may be incurred by the Owner in connection with the
recovery of arrears of rent or other monies payable pursuant to this
Agreement
5.3 to keep the Premises and all Owner's fixtures, fittings and equipment in
the same state of repair and condition as they are now in as evidenced by
the attached Schedule of Condition (fair wear and tear excepted)
5.4 not to damage any of the decorations of the Premises or any of the
fixtures, fittings and equipment provided by the Owner for use by the
Occupier
5.5 to permit the Owner and those authorised by the Owner to enter the
premises for any reasonable purpose, including in connection with the
maintenance, repair and alteration of the Building or anything serving or
running through the Building, subject to the Owner making good all damage
thereby occasioned to the Premises
5.6 not to make any alteration or addition to the Premises
5.7 to comply with all statutory requirements relating to the Premises,
including all town and country planning legislation
5.8 not to display any notice or advertisements as to be visible from outside
the Premises
5.9.1 not to use the Premises other than as high-class offices in connection
with the Occupier's business
5.9.2 not do on the Premises anything which may be a nuisance or annoyance or
cause danger, injury or damage to the Owner or its tenants
5.9.3 not to invite the public generally to come to the Premises, and not to use
the Premises for a purpose which attracts casual callers
5.10 not to do or omit anything whereby any policy of insurance on the Premises
or the Building may become void or voidable or otherwise prejudiced, or
whereby the premium may be increased
5.11 to pay VAT (or similar tax which shall replace VAT) on all taxable
supplies received by the Occupier pursuant to this Agreement and, if
required by the Owner, on the rent payable pursuant to this Agreement
5.12 to comply with such regulations as the Owner may from time to time impose
in relation to the use of the Premises, the use of any toilets washrooms
and kitchen facilities in the Building, the management of the Building, or
the provision of the Chargeable Services
2
<PAGE>
5.13 to pay the Owner's Charges from time to time for the provision of the
Chargeable Services monthly in arrears on the first day of each month
5.14 not to use the address of the Premises as the Occupier's registered office
5.15 to pay the Owner a service retainer of(pound)8,700.00 on exchange of this
Agreement
5.16 if and whenever the Occupier fails to pay the rent or any other monies due
under this Agreement on the due date (whether formally demanded or not),
the Occupier shall pay to the Owner interest at 4% above National
Westminster Bank base rate from time to time on such rent or other monies
in arrears calculated from the due date to the date of payment
5.17 to keep the Owner indemnified from and against all expenses, loss and
claims arising from any breach of the Occupier's obligations contained in
this Agreement, or from the use of the Premises by the Occupier, or
arising from any act, neglect or default of the Occupier
5.18 not, without the previous written consent of the Owner, to install any
fixtures fittings or equipment in the Premises
5.19 not during the subsistence of this Agreement or for a period of 6 months
after the expiry or sooner determination of the period of this Agreement
to employ (directly or indirectly) any person who has been in the
employment of the Owner at the Building during the subsistence of this
Agreement and if the Occupier breaches the provisions of this clause the
Occupier shall pay to the Owner on demand by way of liquidated damages an
amount equal to 40% of the gross annual remuneration of such employee
6. OWNER'S OBLIGATION
The Occupier paying the rent payable pursuant to this Agreement and
performing and observing the obligations on the part of the Occupier
contained in this Agreement, the Owner agrees with the Occupier:
6.1 to use reasonable endeavours to provide the Inclusive Services
6.2 to indemnify the Occupier against all business rates and water charges
payable in respect of the Premises
6.3 to refund the Service Retainer on the determination of this Agreement less
any sums due to the Owner pursuant to the provisions of this Agreement
7. PROVISOS
7.1 The Owner shall not be liable or responsible for any loss, injuries or
damage sustained by the Occupier or any invitee or licensee of the
Occupier (either personally or to their property), and the Owner shall not
be liable to the occupier for any damage which may be caused by stoppage
or defect of any plant or machinery in or service to
3
<PAGE>
the Premises or the failure of the Owner, for reasons beyond the Owner's
reasonable control, to provide the Services, or for any loss or damage
occasioned by any errors or omissions arising from the provision of the
Inclusive Services and/or the Chargeable Services
7.2 If the Premises or any part shall at any time be destroyed so as to be
unfit for occupation or use, then, save to the extent that the insurance
of the Premises shall have been vitiated or payment of the policy monies
refused by or in consequence of any act, neglect, omission or default of
the Occupier, the rent payable pursuant to this Agreement, or a fair
proportion thereof according to the nature and extent of the damage
sustained shall, from the date of such damage or destruction, be
suspended.and cease to be payable until the Premises shall have been
rebuilt or reinstated and made fit for [ text unreadable ] provision shall
be determined by an arbitrator in accordance with the Arbitration Acts
1950 to 1979
7.13 On the determination of this Agreement, the Occupier shall vacate the
Premises and return to the Owner all keys, security devices and any other
property belonging to the Owner
7.4 The Owner shall be entitled to discontinue the provision of the Inclusive
Services (including without limitation the Telephone Answering Services)
in respect of any period or periods during which the Occupier shall be in
breach of any of the provisions of this Agreement
8. PERSONAL
This Agreement and the license to occupy the Premises granted to the
Occupier are personal to the Occupier, and are not transferable, and the
Occupier shall not permit anyone (other than persons employed by the
Occupier or having business with the Occupier) to use or have access to
the Premises
9. OCCUPIER'S EFFECTS
9.1 The Occupier irrevocably appoints the Owner to be the Occupier's agent to
store or dispose of any effects left by the Occupier on the Premises for
more than seven days after the expiry of this Agreement subject to any
conditions which the Owner thinks fit and without the Owner being liable
to the Occupier save to account for the net proceeds of sale less the cost
of storage (if any) and any other expenses reasonably incurred by the
Owner
4
<PAGE>
9.2 Any goods or other effects left at the Premises on or after the expiry of
this Agreement shall be subject to a lien in favour of the Owner in
respect of any liability of the Occupier to the Owner pursuant to or
arising out of this Agreement and the Owner shall have power to sell or
otherwise dispose of all such goods and effects on whatever terms the
Owner shall think fit and to apply the net proceeds of such sale or
disposal towards satisfaction of such liability
Signed for and on behalf of /s/ Peter Allport
SWALLOWFIELD OFFICE SERVICES LIMITED
Signed for and on behalf of /s/ Cameron Saifi
AVESTA TECHNOLOGIES INC
5
<PAGE>
THE FIRST SCHEDULE
Details of the Inclusive Services
o Receptionist Services
o Telephone Answering Services
o Heating
o Lighting
o Electricity
o Cleaning
o Repair and maintenance of the Building
o Insurance of the Building and Landlord's contents
o Subject to availability, courtesy Network access of
eight hours monthly at over 150 HQ Centres Worldwide.
Within the UK two hours courtesy Network access will -
apply excluding your home centre. (Hours may not be
carried forward to the following month.)
THE SECOND SCHEDULE
o Secretarial Services
o Photocopying
o Use of Boardrooms
o Postal charges plus 15% handling fee
o Telephone charges at BT standard rate
o Facsimile
o Catering Services
o Administration Services
6
<PAGE>
[Floor Plan]
<PAGE>
Exhibit 10.11(a)
AVESTA TECHNOLOGIES, INC.
STOCK RESTRICTION AGREEMENT
AGREEMENT, made as of the 19th day of December, 1996, by and among Avesta
Technologies, Inc., a Delaware corporation (the "Company"), and Kam Saifi (the
"Stockholder").
WHEREAS, the Stockholder is the holder of an aggregate of 2,191,948 shares
of common stock, $.01 par value, of the Company (the "Common Stock");
WHEREAS, the Company desires to place certain restrictions on the
disposition of shares of Common Stock held by the Stockholder and the parties
are willing to execute this Agreement and to be bound by the provisions hereof;
AREAS, the Company has entered into a certain Series A Preferred Stock and
Warrant Purchase Agreement (the "Purchase Agreement") dated December 10, 1996
between the Company and the entities listed on the Schedule of Purchasers
attached as Exhibit A to the Purchase Agreement (the "Purchasers"); and
WHEREAS, it is a condition to the obligations of the Purchasers under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company to further the interests of the Company and its present and future
stockholders, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Stock" shall mean and include all shares of Common Stock, and
all other securities of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization or any other means).
(b) "Shares" shall mean and include all shares of Stock owned by the
Stockholder.
(c) As used in the context of the Stockholder's employment with the
Company, "For Cause" shall mean and include (i) a material breach of the
Noncompetition and Nonsolicitation Agreement or the Nondisclosure and
Developments Agreement between the Company and the Stockholder, (ii) conviction
of a felony, a crime of moral turpitude or any crime against the Company, (iii)
repeated substance abuse, (iv) habitual failure to report to work or (v) failure
to follow the directions of the Board of Directors after thirty (30) days'
written notice by the Board of Directors of such initial failure.
<PAGE>
2. Prohibited Transfers.
(a) The Stockholder shall not sell, assign, transfer, pledge,
hypothecate, mortgage, encumber or dispose of all or any of his Shares except
(i) Vested Shares, as defined in Section 3(b), (ii) to the Company or (iii) as
expressly provided in this Agreement. Notwithstanding the foregoing, the
Stockholder may transfer all or any of his Shares (i) by way of gift to any
member of his family or to any trust for the benefit of any such family member
or the Stockholder, provided that any such transferee shall agree in writing
with the Company, as a condition to such transfer, to be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Stockholder, or (ii) by will or the laws of descent and distribution, in which
event each such transferee shall be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder. As used
herein, the word "family" shall include any spouse, lineal ancestor or
descendant, brother or sister.
(b) The Stockholder agrees that in connection with any underwritten
public offering of Common Stock, upon the request of the Company or the
principal underwriter managing such public offering, the Shares may not be sold,
offered for sale or otherwise disposed of without the prior written consent of
the Company or such underwriter, as the case may be, for at least 180 days after
the effectiveness of the registration statement filed in connection with such
offering, or such longer period of time as the Board of Directors of the Company
may determine if all of the Company's directors, officers and affiliates agree
to be similarly bound. This Section 2(b) shall expressly survive a termination
of this Agreement pursuant to Section 4 hereof.
3. Option of Company Conditioned Upon Termination of Employment or Sale of
Series A Preferred Stock.
(a) If the Stockholder shall for any reason, including, without
limitation, death, disability or involuntary removal with or without cause,
cease to be employed in any capacity by the Company or any of its subsidiaries,
the Company may within 120 days from the date upon which the Stockholder shall
so cease to be employed, exercise its option under this Section 3 to purchase
from the Stockholder all of his Shares (all Shares being subject to equitable
adjustment for any stock split, stock dividend, combination of shares or the
like and based upon Common Stock or Common Stock equivalents) other than any of
such Shares which now are or hereafter become Vested Shares, as defined in
Section 3(b).
(b) "Vested Shares" shall mean the following amounts of the Shares
on the following dates: twenty-five percent (25%) of the Shares shall vest on
the first anniversary of the date of the date of the Purchase Agreement, and
1/48th of the Shares shall vest on the first day of each month following the
anniversary of the date of the Purchase Agreement, provided that, if the
Stockholder's termination is For Cause, no such additional Shares shall become
Vested Shares after the date upon which the Stockholder shall cease to be
employed in any capacity by the Company or any of its subsidiaries. If the
Stockholder's employment by the Company is terminated other than For Cause, the
Stockholder's Vested Shares shall include Shares that would have vested had the
Stockholder remained employed for an additional twelve (12) months from the
employment termination date. In addition, upon an Acquisition (as defined in the
Company's 1996 Stock Plan) of the Company then immediately prior to the
consummation of
2
<PAGE>
such Acquisition, such portion of the Shares as would have vested pursuant to
this Section 3(b) if the Stockholder had continued to be employed with the
Company during the twelve (12) month period immediately following any of the
foregoing events shall become Vested Shares.
(c) In addition to the other option provided in this Section 3, the
Stockholder agrees that if the Second Closing of the sale of Series A Preferred
Stock pursuant to the Purchase Agreement, or any amendment thereto, does not
occur, the Company shall within 60 days from the last date on which such Second
Closing could have occurred exercise its option under this Section 3 to purchase
from the Stockholder 52,360 of his Shares (all Shares being subject to equitable
adjustment for any stock split, stock dividend, combination of shares or the
like and based upon Common Stock or Common Stock equivalents); provided,
however, that if the Second Closing occurs but the Company sells less than all
shares of the Series A Preferred Stock authorized to be sold at such Second
Closing, this repurchase option shall be adjusted so that it shall apply to
52,360 shares multiplied by a fraction (a) the numerator of which shall be the
number of shares sold in the Second Closing and (b) the denominator of which is
the total number of shares authorized for sale in the Second Closing.
(d) The purchase price of any Shares for which the Company exercises
its option under this Section 3 (the "Option Price") shall be $.0000037 per
Share (such price being subject to equitable adjustment for any stock split,
stock dividend, combination of shares or the like and based upon Common Stock or
Common Stock equivalents).
(e) If the Company desires to exercise its option to purchase, it
shall do so by communicating in writing its election to purchase to the
Stockholder, which communication shall state the number of Shares the Company is
electing to purchase and the Option Price and shall be delivered in person or
mailed to the Stockholder at the address set forth in accordance with Section 8
below within the 120-day period provided for in Section 3(a). The sale of the
Shares to be sold to the Company pursuant to this Section 3 shall be made at the
offices of the Company on the 20th day following the date of the Company's
written election to purchase (or if such 20th day is not a business day, then on
the next succeeding business day). Such sale shall be effected by the
Stockholder's delivery to the Company of a certificate or certificates
evidencing the Shares to be purchased by it, duly endorsed for transfer to the
Company, against payment to the Stockholder by the Company of the Option Price
for each Share to be purchased by the Company.
4. Term. This Agreement shall terminate on the fourth anniversary of the
date of this Agreement.
5. Failure to Deliver Shares. If the Stockholder becomes obligated to sell
any Shares to the Company under this Agreement and fails to deliver such Shares
in accordance with the terms of this Agreement, the Company, may, at its option,
in addition to all other remedies it may have, send to the Stockholder the
purchase price for such Shares as is herein specified. Thereupon, the Company
upon written notice to the Stockholder, (a) shall cancel on its books the
certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of the Company a new certificate or
certificates representing such Shares, and thereupon all of the Stockholder's
rights in and to such Shares shall terminate.
3
<PAGE>
6. Specific Enforcement. The Stockholder expressly agrees that the Company
will be irreparably damaged if this Agreement is not specifically enforced. Upon
a breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by the Stockholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions hereof.
7. Legend. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of except
in accordance with and subject to all the terms and conditions of a
certain Stock Restriction Agreement dated as of December 19, 1996, a
copy of which the Company will furnish to the holder of this
certificate upon request and without charge."
8. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery or on the date of postmark if mailed by
certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on the applicable signature page hereto
or such other address as the addressee may subsequently notify the other parties
of in writing.
9. Entire Agreement and Amendments. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and neither
this Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a written agreement signed by the parties hereto. To the
extent any term or other provision of any other indenture, agreement or
instrument by which any party hereto is bound conflicts with this Agreement,
this Agreement shall have precedence over such conflicting term or provision.
10. Governing Law; Successors and Assigns. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and shall in all respects be interpreted, enforced and governed under the
internal and domestic laws of such state, without giving effect to the
principles of conflicts of laws of such state. Any claims or legal actions by
one party against the other arising out of the relationship between the parties
contemplated herein (whether or not arising under this Agreement) shall be
governed by the laws of the State of New York and shall be commenced and
maintained in any state or federal court located in such state, and the parties
hereby submit to the jurisdiction and venue of any such court. This Agreement
shall be binding upon the heirs, personal representatives, executors,
administrators, successors and assigns of the parties.
11. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
4
<PAGE>
12. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
13. Captions. Captions are for convenience only and are not deemed to be
part of this Agreement.
14. Continuation of Employment. Nothing in this Agreement shall create an
obligation on the Company to continue the Stockholder's employment with the
Company.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COMPANY:
AVESTA TECHNOLOGIES, INC.
By: /s/ David Arbeitel
-------------------------------------
Title: Vice President
-------------------------------------
Address: 2041 Winding Brook Way
-----------------------------------
Scotch Plains, NJ 07076
-----------------------------------
STOCKHOLDER:
/s/ Kam Saifi
--------------------------------------------
Address: 2041 Winding Brook Way
-----------------------------------
Scotch Plains, NJ 07076
-----------------------------------
6
<PAGE>
Exhibit 10.11(b)
AVESTA TECHNOLOGIES, INC.
STOCK RESTRICTION AGREEMENT
AGREEMENT, made as of the 19th day of December, 1996, by and among Avesta
Technologies, Inc., a Delaware corporation (the "Company"), and David Arbeitel
(the "Stockholder").
WHEREAS, the Stockholder is the holder of an aggregate of 389,457 shares
of common stock, $.01 par value, of the Company (the "Common Stock");
WHEREAS, the Company desires to place certain restrictions on the
disposition of shares of Common Stock held by the Stockholder and the parties
are willing to execute this Agreement and to be bound by the provisions hereof;
WHEREAS, the Company has entered into a certain Series A Preferred Stock
and Warrant Purchase Agreement (the "Purchase Agreement") dated December 10,
1996 between the Company and the entities listed on the Schedule of Purchasers
attached as Exhibit A to the Purchase Agreement (the "Purchasers"); and
WHEREAS, it is a condition to the obligations of the Purchasers under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company to further the interests of the Company and its present and future
stockholders, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Stock" shall mean and include all shares of Common Stock; and
all other securities-of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization or any other means).
(b) "Shares" shall mean and include all shares of Stock owned by the
Stockholder.
(c) As used in the context of the Stockholder's employment with the
Company, "For Cause" shall mean and include (i) a material breach of the
Noncompetition and Nonsolicitation Agreement or the Nondisclosure and
Developments Agreement between the Company and the Stockholder, (ii) conviction
of a felony, a crime of moral turpitude or any crime against the Company, (iii)
repeated substance abuse, (iv) habitual failure to report to work or (v) failure
to follow the directions of the Board of Directors after thirty (30) days'
written notice by the Board of Directors of such initial failure.
<PAGE>
2. Prohibited Transfers.
(a) The Stockholder shall not sell, assign, transfer, pledge,
hypothecate, mortgage, encumber or dispose of all or any of his Shares except
(i) Vested Shares, as defined in Section 3(b), (ii) to the Company or (iii) as
expressly provided in this Agreement. Notwithstanding the foregoing, the
Stockholder may transfer all or any of his Shares (i) by way of gift to any
member of his family or to any trust for the benefit of any such family member
or the Stockholder, provided that any such transferee shall agree in writing
with the Company, as a condition to such transfer, to be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Stockholder, or (ii) by will or the laws of descent and distribution, in which
event each such transferee shall be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder. As used
herein, the word "family" shall include any spouse, lineal ancestor or
descendant, brother or sister.
(b) The Stockholder agrees that in connection with any underwritten
public offering of Common Stock, upon the request of the Company or the
principal underwriter managing such public offering, the Shares may not be sold,
offered for sale or otherwise disposed of without the prior written consent of
the Company or such underwriter, as the case may be, for at least 180 days after
the effectiveness of the registration statement filed in connection with such
offering, or such longer period of time as the Board of Directors of the Company
may determine if all of the Company's directors, officers and affiliates agree
to be similarly bound. This Section 2(b) shall expressly survive a termination
of this Agreement pursuant to Section 4 hereof.
3. Option of Company Conditioned Upon Termination of Employment or Sale of
Series A Preferred Stock.
(a) If the Stockholder shall for any reason, including, without
limitation, death, disability or involuntary removal with or without cause,
cease to be employed in any capacity by the Company or any of its subsidiaries,
the Company may within 120 days from the date upon which the Stockholder shall
so cease to be employed, exercise its option under this Section 3 to purchase
from the Stockholder all of his Shares (all Shares being subject to equitable
adjustment for any stock split, stock dividend, combination of shares or the
like and based upon Common Stock or Common Stock equivalents) other than any of
such Shares which now are or hereafter become Vested Shares, as defined in
Section 3(b).
(b) "Vested Shares" shall mean the following amounts of the Shares
on the following dates: twenty-five percent (25%) of the Shares shall vest on
the first anniversary of the date of the date of the Purchase Agreement, and
1/48th of the Shares shall vest on the first day of each month following the
anniversary of the date of the Purchase Agreement, provided that, if the
Stockholder's termination is For Cause, no such additional Shares shall become
Vested Shares after the date upon which the Stockholder shall cease to be
employed in any capacity by the Company or any of its subsidiaries. If the
Stockholder's employment by the Company is terminated other than For Cause, the
Stockholder's Vested Shares shall include Shares that would have vested had the
Stockholder remained employed for an additional twelve (12) months from the
employment termination date. In addition, upon an Acquisition (as defined in the
Company's 1996 Stock Plan) of the Company then immediately prior to the
consummation of such Acquisition, such portion of the Shares as would have
vested pursuant to this Section 3(b) if
2
<PAGE>
the Stockholder had continued to be employed with the Company during the twelve
(12) month period immediately following any of the foregoing events shall become
Vested Shares.
(c) The purchase price of any Shares for which the Company exercises
its option under this Section 3 (the "Option Price") shall be $.0000037 (such
price being subject to equitable adjustment for any stock split, stock dividend,
combination of shares or the like and based upon Common Stock or Common Stock
equivalents).
(d) If the Company desires to exercise its option to purchase, it
shall do so by communicating in writing its election to purchase to the
Stockholder, which communication shall state the number of Shares the Company is
electing to purchase and the Option Price and shall be delivered in person or
mailed to the Stockholder at the address set forth accordance with Section 8
below within the 120-day period provided for in Section 3(a). The sale of the
Shares to be sold to the Company pursuant to this Section 3 shall be made at the
offices of the Company on the 20th day following the date of the Company's
written election to purchase (or if such 20th day is not a business day, then on
the next succeeding business day). Such sale shall be effected by the
Stockholder's delivery to the Company of a certificate or certificates
evidencing the Shares to be purchased by it, duly endorsed for transfer to the
Company, against payment to the Stockholder by the Company of the Option Price
for each Share to be purchased by the Company.
4. Term. This Agreement shall terminate on the fourth anniversary of the
date of this Agreement.
5. Failure to Deliver Shares. If the Stockholder becomes obligated to sell
any Shares to the Company under this Agreement and fails to deliver such Shares
in accordance with the terms of this Agreement, the Company, may, at its option,
in addition to all other remedies it may have, send to the Stockholder the
purchase price for such Shares as is herein specified. Thereupon, the Company
upon written notice to the Stockholder, (a) shall cancel on its books the
certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of the Company a new certificate or
certificates representing such Shares, and thereupon all of the Stockholder's
rights in and to such Shares shall terminate.
6. Specific Enforcement. The Stockholder expressly agrees that the Company
will be irreparably damaged if this Agreement is not specifically enforced. Upon
a breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by the Stockholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions hereof.
7. Legend. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of except
in accordance with and subject to all the terms and conditions of a
certain Stock Restriction Agreement dated as of December 19, 1996, a
copy of which the Company
3
<PAGE>
will furnish to the holder of this certificate upon request and
without charge."
8. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery or on the date of postmark if mailed by
certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on the applicable signature page hereto
or such other address as the addressee may subsequently notify the other parties
of in writing.
9. Entire Agreement and Amendments. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and neither
this Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a written agreement signed by the parties hereto. To the
extent any term or other provision of any other indenture, agreement or
instrument by which any party hereto is bound conflicts with this Agreement,
this Agreement shall have precedence over such conflicting term or provision.
10. Governing Law; Successors and Assigns. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and shall in all respects be interpreted, enforced and governed under the
internal and domestic laws of such state, without giving effect to the
principles of conflicts of laws of such state. Any claims or legal actions by
one party against the other arising out of the relationship between the parties
contemplated herein (whether or not arising under this Agreement) shall be
governed by the laws of the State of New York and shall be commenced and
maintained in any state or federal court located in such state, and the parties
hereby submit to the jurisdiction and venue of any such count. This Agreement
shall be binding upon the heirs, personal representatives, executors,
administrators, successors and assigns of the parties.
11. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
12. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
13. Captions. Captions are for convenience only and are not deemed to be
part of this Agreement.
14. Continuation of Employment. Nothing in this Agreement shall create an
obligation on the Company to continue the Stockholder's employment with the
Company.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COMPANY:
AVESTA TECHNOLOGIES, INC.
By: /s/ Kam M. Saifi
-------------------------------------
Title: President
-------------------------------------
Address: 2041 Winding Brook Way
--------------------------------
Scotch Plains, NJ 07076
--------------------------------
STOCKHOLDER:
/s/ David Arbeitel
--------------------------------------------
Address: 2041 Winding Brook Way
--------------------------------
Scotch Plains, NJ 07076
--------------------------------
5
<PAGE>
Exhibit 10.11(c)
AVESTA TECHNOLOGIES, INC.
STOCK RESTRICTION AGREEMENT
AGREEMENT, made as of the 19th day of December, 1996, by and among Avesta
Technologies, Inc., a Delaware corporation (the "Company"), and Robert Kostes
(the "Stockholder").
WHEREAS, the Stockholder is the holder of an aggregate of 83,455 shares of
common stock, $.01 par value, of the Company (the "Common Stock");
WHEREAS, the Company desires to place certain restrictions on the
disposition of shares of Common Stock held by the Stockholder and the parties
are willing to execute this Agreement and to be bound by the provisions hereof;
WHEREAS, the Company has entered into a certain Series A Preferred Stock
and Warrant Purchase Agreement (the "Purchase Agreement") dated December 10,
1996 between the Company and the entities listed on the Schedule of Purchasers
attached as Exhibit A to the Purchase Agreement (the "Purchasers"); and
WHEREAS, it is a condition to the obligations of the Purchasers under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company to further the interests of the Company and its present and future
stockholders, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Stock" shall mean and include all shares of Common Stock, and
all other securities of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization or any other means).
(b) "Shares" shall mean and include all shares of Stock owned by the
Stockholder.
(c) As used in the context of the Stockholder's employment with the
Company, "For Cause" shall mean and include (i) a material breach of the
Noncompetition and Nonsolicitation Agreement or the Nondisclosure and
Developments Agreement between the Company and the Stockholder, (ii) conviction
of a felony, a crime of moral turpitude or any crime against the Company, (iii)
repeated substance abuse, (iv) habitual failure to report to work or (v) failure
to follow the directions of the Board of Directors after thirty (30) days'
written notice by the Board of Directors of such initial failure.
<PAGE>
2. Prohibited Transfers.
(a) The Stockholder shall not sell, assign, transfer, pledge,
hypothecate, mortgage, encumber or dispose of all or any of his Shares except
(i) Vested Shares, as defined in Section 3(b), (ii) to the Company or (iii) as
expressly provided in this Agreement. Notwithstanding the foregoing, the
Stockholder may transfer all or any of his Shares (i) by way of gift to any
member of his family or to any trust for the benefit of any such family member
or the Stockholder, provided that any such transferee shall agree in writing
with the Company, as a condition to such transfer, to be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Stockholder, or (ii) by will or the laws of descent and distribution, in which
event each such transferee shall be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the-Stockholder. As used
herein, the word "family" shall include any spouse, lineal ancestor or
descendant, brother or sister.
(b) The Stockholder agrees that in connection with any underwritten
public offering of Common Stock, upon the request of the Company or the
principal underwriter managing such public offering, the Shares may not be sold,
offered for sale or otherwise disposed of without the prior written consent of
the Company or such underwriter, as the case may be, for at least 180 days after
the effectiveness of the registration statement filed in connection with such
offering, or such longer period of time as the Board of Directors of the Company
may determine if all of the Company's directors, officers and affiliates agree
to be similarly bound. This Section 2(b) shall expressly survive a termination
of this Agreement pursuant to Section 4 hereof.
3. Option of Company Conditioned Upon Termination of Employment or Sale of
Series A Preferred Stock.
(a) If the Stockholder shall for any reason, including, without
limitation, death, disability or involuntary removal with or without cause,
cease to be employed in any capacity by the Company or any of its subsidiaries,
the Company may within 120 days from the date upon which the Stockholder shall
so cease to be employed, exercise its option under this Section 3 to purchase
from the Stockholder all of his Shares (all Shares being subject to equitable
adjustment for any stock split, stock dividend, combination of shares or the
like and based upon Common Stock or Common Stock equivalents) other than any of
such Shares which now are or hereafter become Vested Shares, as defined in
Section 3(b).
(b) "Vested Shares" shall mean the following amounts of the Shares
on the following dates: twenty-five percent (25%) of the Shares shall vest on
the first anniversary of the date of the Purchase Agreement, and 1/48th of the
Shares shall vest on the first day of each month following the anniversary of
the date of the Purchase Agreement, provided that, if the Stockholder's
termination is For Cause, no such additional Shares shall become Vested Shares
after the date upon which the Stockholder shall cease to be employed in any
capacity by the Company or any of its subsidiaries. If the Stockholder's
employment by the Company is terminated other than For Cause, the Stockholder's
Vested Shares shall include Shares that would have vested had the Stockholder
remained employed for an additional twelve (12) months from the employment
termination date. In addition, upon an Acquisition (as defined in the Company's
1996 Stock Plan) of the Company then immediately prior to the consummation of
such Acquisition, such portion of the Shares as would have vested pursuant to
this Section 3(b) if
2
<PAGE>
the Stockholder had continued to be employed with the Company during the twelve
(12) month period immediately following any of the foregoing events shall become
Vested Shares.
(c) The purchase price of any Shares for which the Company exercises
its option under this Section 3 (the "Option Price") shall be $.0000037 (such
price being subject to equitable adjustment for any stock split, stock dividend,
combination of shares or the like and based upon Common Stock or Common Stock
equivalents).
(d) If the Company desires to exercise its option to purchase, it
shall do so by communicating in writing its election to purchase to the
Stockholder, which communication shall state the number of Shares the Company is
electing to purchase and the Option Price and shall be delivered in person or
mailed to the Stockholder at the address set forth in accordance with Section 8
below within the 120-day period provided for in Section 3(a). The sale of the
Shares to be sold to the Company pursuant to this Section 3 shall be made at the
offices of the Company on the 20th day following the date of the Company's
written election to purchase (or if such 20th day is not a business day, then on
the next succeeding business day). Such sale shall be effected by the
Stockholder's delivery to the Company of a certificate or certificates
evidencing the Shares to be purchased by it, duly endorsed for transfer to the
Company, against payment to the Stockholder by the Company of the Option Price
for each Share to be purchased by the Company.
4. Term. This Agreement shall terminate on the fourth anniversary of the
date of this Agreement.
5. Failure to Deliver Shares. If the Stockholder becomes obligated to sell
any Shares to the Company under this Agreement and fails to deliver such Shares
in accordance with the terms of this Agreement, the Company, may, at its option,
in addition to all other remedies it may have, send to the Stockholder the
purchase price for sum Shares as is herein specified. Thereupon, the Company
upon written notice to the Stockholder, (a) shall cancel on its books the
certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of the Company a new certificate or
certificates representing such Shares, and thereupon all of the Stockholder's
rights in and to such Shares shall terminate.
6. Specific Enforcement. The Stockholder expressly agrees that the Company
will be irreparably damaged if this Agreement is not specifically enforced. Upon
a breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by the Stockholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions hereof
7. Legend. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of except
in accordance with and subject to all the terms and conditions of a
certain Stock Restriction Agreement dated as of December 19, 1996, a
copy of which the Company
3
<PAGE>
will furnish to the holder of this certificate upon request and
without charge."
8. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery or on the date of postmark if mailed by
certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on the applicable signature page hereto
or such other address as the addressee may subsequently notify the other parties
of in writing.
9. Entire Agreement and Amendments. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and neither
this Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a written agreement signed by the parties hereto. To the
extent any term or other provision of any other indenture, agreement or
instrument by which any party hereto is bound conflicts with this Agreement,
this Agreement shall have precedence over such conflicting term or provision.
10. Governing Law; Successors and Assigns. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and shall in all respects be interpreted, enforced and governed under the
internal and domestic laws of such state, without giving effect to the
principles of conflicts of laws of such state. Any claims or legal actions by
one party against the other arising out of the relationship between the parties
contemplated herein (whether or not arising under this Agreement) shall be
governed by the laws of the State of New York and shall be commenced and
maintained in any state or federal court located in such state, and the parties
hereby submit to the jurisdiction and venue of any such court. This Agreement
shall be binding upon the heirs, personal representatives, executors,
administrators, successors and assigns of the parties.
11. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
12. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
13. Captions. Captions are for convenience only and are not deemed to be
part of this Agreement.
14. Continuation of Employment. Nothing in this Agreement shall create an
obligation on the Company to continue the Stockholder's employment with the
Company.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COMPANY:
AVESTA TECHNOLOGIES, INC.
By: /s/ Kam M. Saifi
-------------------------------------
Title: President
-------------------------------------
Address: 2041 Winding Brook Way
--------------------------------
Scotch Plains, NJ 07076
--------------------------------
STOCKHOLDER:
/s/ Robert Kostes
--------------------------------------------
Address: 2041 Winding Brook Way
--------------------------------
Scotch Plains, NJ 07076
--------------------------------
5
<PAGE>
Exhibit 10.12
AGREEMENT AND PLAN OF AMALGAMATION
BY AND AMONG
AVESTA TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
AND
AVESTA TECHNOLOGIES CANADA, INC.
(AN ONTARIO CORPORATION AND WHOLLY
OWNED SUBSIDIARY OF AVESTA TECHNOLOGIES, INC.)
AND
CARAVELLE INC.
(AN ONTARIO CORPORATION)
AND
THE CARAVELLE SHAREHOLDERS
AS OF MAY 8, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1....................................................................................................... 2
1.1 SURVIVING CORPORATION; EFFECTIVE TIME..................................................... 2
1.2 ARTICLES OF INCORPORATION AND BYLAWS....................................................... 2
1.3 DIRECTORS AND OFFICERS..................................................................... 2
1.4 PURCHASE PRICE AND CONVERSION OF CARAVELLE STOCK........................................... 2
1.5 EXCHANGE OF CERTIFICATES................................................................... 3
1.6 TREATMENT OF CARAVELLE OPTIONS............................................................. 3
ARTICLE 2........................................................................................................ 4
2.1 CORPORATE EXISTENCE AND GOOD STANDING...................................................... 4
2.2 CORPORATE AUTHORITY........................................................................ 5
2.3 CAPITALIZATION............................................................................. 5
2.4 SUBSIDIARIES............................................................................... 5
2.5 FINANCIAL STATEMENTS....................................................................... 5
2.6 ABSENCE OF CERTAIN CHANGES................................................................. 6
2.7 PROPERTIES................................................................................. 7
2.8 INVENTORIES................................................................................ 7
2.9 ACCOUNTS RECEIVABLE........................................................................ 8
2.10 LITIGATION................................................................................. 8
2.11 TAXES...................................................................................... 8
2.12 NO BREACH OF AGREEMENTS.................................................................... 8
2.13 EMPLOYEES AND SERVICE PROVIDERS............................................................ 9
2.14 CERTAIN AGREEMENTS AFFECTED BY THE AMALGAMATION............................................ 10
2.15 DIRECTORS, OFFICERS AND EMPLOYEES.......................................................... 11
2.16 INSURANCE.................................................................................. 11
2.17 CONTRACTS AND LICENSES..................................................................... 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.18 INTELLECTUAL PROPERTY RIGHTS............................................................... 13
2.19 COMPLIANCE WITH LAW; CONSENTS.............................................................. 14
2.20 ENVIRONMENTAL MATTERS...................................................................... 14
2.21 AFFILIATE RELATIONSHIPS.................................................................... 15
2.22 NO TERMINATION OF BUSINESS RELATIONSHIP.................................................... 16
2.23 CUSTOMERS.................................................................................. 16
2.24 CORPORATE RECORDS.......................................................................... 16
2.25 POWERS OF ATTORNEY; BANK ACCOUNTS.......................................................... 16
2.26 VOTE REQUIRED.............................................................................. 16
2.27 BOARD APPROVAL............................................................................. 16
2.28 BROKERS OR FINDERS......................................................................... 17
2.29 RETAINED EMPLOYEES AND AGREEMENTS.......................................................... 17
2.30 CERTAIN AGREEMENTS......................................................................... 17
2.31 LIENS...................................................................................... 17
2.32 REPRESENTATIONS COMPLETE................................................................... 17
2.33 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES.......................................... 17
ARTICLE 3........................................................................................................ 17
3.1 AUTHORITY.................................................................................. 17
3.2 INVESTMENT REPRESENTATIONS................................................................. 18
3.3 ACCURACY OF REPRESENTATIONS AND WARRANTIES................................................. 18
3.4 SHARE OWNERSHIP............................................................................ 18
3.5 REPRESENTATIONS COMPLETE................................................................... 18
3.6 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES.......................................... 18
ARTICLE 4........................................................................................................ 19
4.1 CORPORATE EXISTENCE AND GOOD STANDING...................................................... 19
4.2 CORPORATE AUTHORITY........................................................................ 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.3 CONSENTS................................................................................... 19
4.4 NO BREACH OF AGREEMENTS.................................................................... 19
4.5 BROKERS.................................................................................... 20
4.6 SHARES..................................................................................... 20
4.7 FINANCIAL STATEMENTS....................................................................... 20
4.8 CAPITALIZATION............................................................................. 20
4.9 REPRESENTATIONS COMPLETE................................................................... 21
4.10 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES.......................................... 21
ARTICLE 5........................................................................................................ 21
5.1 CONDUCT OF BUSINESS BY AVESTA TECHNOLOGIES CANADA AND CARAVELLE............................ 21
5.2 CONDUCT OF BUSINESS OF CARAVELLE........................................................... 22
5.3 EXCLUSIVE DEALING.......................................................................... 23
5.4 ACCESS TO INFORMATION...................................................................... 24
5.5 DISCLOSURE OF TRANSACTION.................................................................. 24
5.6 CERTAIN DEFAULTS; LITIGATION............................................................... 24
5.7 AUDITED FINANCIAL STATEMENTS............................................................... 25
5.8 BREACH OF REPRESENTATIONS AND WARRANTIES................................................... 25
5.9 NECESSARY CONSENTS......................................................................... 25
5.10 COMMERCIALLY REASONABLE EFFORTS............................................................ 25
5.11 ESCROW AGREEMENT........................................................................... 25
ARTICLE 6........................................................................................................ 26
6.1 REPRESENTATIONS AND WARRANTIES TRUE........................................................ 26
6.2 COVENANTS PERFORMED........................................................................ 26
6.3 CERTIFICATE................................................................................ 26
6.4 NO VIOLATIONS; NO ACTIONS.................................................................. 26
6.5 OPINION OF COUNSEL FOR CARAVELLE........................................................... 26
6.6 PROCEEDINGS AND DOCUMENTS.................................................................. 26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.7 DELIVERY OF DOCUMENTS...................................................................... 26
6.8 NO MATERIAL ADVERSE EFFECT................................................................. 26
6.9 REQUIRED CONSENTS.......................................................................... 27
6.10 SCHEDULES.................................................................................. 27
6.11 ILLEGALITY OR LEGAL CONSTRAINT............................................................. 27
6.12 CARAVELLE AUDIT............................................................................ 27
6.13 ESCROW AGREEMENT........................................................................... 27
6.14 AGREEMENTS................................................................................. 27
6.15 CARAVELLE OPTION HOLDER WAIVERS............................................................ 27
6.16 RELEASES AND INDEMNIFICATIONS.............................................................. 27
6.17 SHAREHOLDER VOTE AND INDEMNITY............................................................. 27
6.18 RIGHTS OFFERING............................................................................ 27
6.19 SEVERANCE AGREEMENT WITH TIM BOREHAM....................................................... 27
6.20 TERMINATION OF EMPLOYMENT AGREEMENTS....................................................... 28
6.21 FUNDAMENTAL AGREEMENTS..................................................................... 28
6.22 DUE DILIGENCE.............................................................................. 28
ARTICLE 7........................................................................................................ 28
7.1 REPRESENTATIONS TRUE....................................................................... 28
7.2 COVENANTS PERFORMED........................................................................ 28
7.3 CERTIFICATE................................................................................ 28
7.4 NO VIOLATIONS; NO ACTIONS.................................................................. 28
7.5 OPINION OF COUNSEL FOR AVESTA AND AVESTA TECHNOLOGIES CANADA............................... 28
7.6 PROCEEDINGS AND DOCUMENTS.................................................................. 29
7.7 DELIVERY OF DOCUMENTS...................................................................... 29
7.8 REQUIRED CONSENTS.......................................................................... 29
7.9 ILLEGALITY OR LEGAL CONSTRAINT............................................................. 29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.10 EMPLOYMENT BY AVESTA AND AVESTA TECHNOLOGIES CANADA........................................ 29
7.11 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT............................................. 29
7.12 NO MATERIAL ADVERSE EFFECT................................................................. 29
ARTICLE 8........................................................................................................ 29
8.1 TIME AND PLACE............................................................................. 29
8.2 DELIVERIES BY CARAVELLE.................................................................... 29
8.3 DELIVERIES OF AVESTA AND AVESTA TECHNOLOGIES CANADA........................................ 31
ARTICLE 9........................................................................................................ 32
9.1 TERMINATION................................................................................ 32
9.2 TERMINATION FEES........................................................................... 33
ARTICLE 10....................................................................................................... 33
10.1 ESCROW FUND................................................................................ 33
10.2 DAMAGES.................................................................................... 33
10.3 ITCS....................................................................................... 34
10.4 POST-CLOSING ADJUSTMENTS................................................................... 34
10.5 THRESHOLD.................................................................................. 34
10.6 ESCROW PERIOD.............................................................................. 35
10.7 CLAIMS UPON ESCROW FUND.................................................................... 35
10.8 OBJECTIONS TO CLAIMS....................................................................... 35
10.9 RESOLUTION OF CONFLICTS; ARBITRATION....................................................... 36
10.10 SHAREHOLDERS' AGENT........................................................................ 36
10.11 ACTIONS OF THE SHAREHOLDERS' AGENT......................................................... 37
10.12 THIRD-PARTY CLAIMS......................................................................... 37
ARTICLE 11....................................................................................................... 38
11.1 CURRENCY; EXCHANGE RATE.................................................................... 38
11.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS..................................... 38
11.3 ACKNOWLEDGEMENT OF ENFORCEABILITY.......................................................... 38
11.4 FURTHER ASSURANCES......................................................................... 38
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.5 BROKER OR FINDER........................................................................... 38
11.6 EACH PARTY TO BEAR OWN COSTS............................................................... 38
11.7 HEADINGS................................................................................... 38
11.8 ENTIRE AGREEMENT; WAIVERS.................................................................. 38
11.9 THIRD PARTIES.............................................................................. 39
11.10 PARTIES IN INTEREST........................................................................ 39
11.11 NOTICES.................................................................................... 39
11.12 GOVERNING LAW.............................................................................. 40
11.13 CONSENT TO JURISDICTION AND FORUM SELECTION................................................ 40
11.14 COUNTERPARTS............................................................................... 40
11.15 SEVERABILITY............................................................................... 40
11.16 CONSTRUCTION OF AGREEMENT; KNOWLEDGE....................................................... 41
11.17 PUBLICITY.................................................................................. 41
11.18 MUTUAL DRAFTING............................................................................ 41
11.19 SPECIFIC PERFORMANCE AND OTHER REMEDIES.................................................... 41
11.20 CONFLICT................................................................................... 41
</TABLE>
AGREEMENT AND PLAN OF AMALGAMATION
THIS AGREEMENT AND PLAN OF AMALGAMATION (this "AGREEMENT") is made and
entered into as of May 8th, 1998, by and among Avesta Technologies, Inc., a
Delaware corporation ("AVESTA"), Avesta Technologies Canada, Inc., an Ontario
corporation and a wholly-owned subsidiary of Avesta ("AVESTA TECHNOLOGIES
Canada"), Caravelle Inc., an Ontario corporation ("CARAVELLE"), and the
shareholders of Caravelle (collectively, the "CARAVELLE SHAREHOLDERS").
RECITALS
WHEREAS, Avesta, Avesta Technologies Canada and Caravelle have
each determined to engage in the transactions contemplated hereby, pursuant to
which (i) Avesta Technologies Canada will statutorily amalgamate with Caravelle
(the "AMALGAMATION"), (ii) each issued and outstanding share of capital stock of
Caravelle (the "CARAVELLE STOCK") shall be converted
<PAGE>
into issued and outstanding exchangeable non-voting shares of Amalco (as defined
below) and (iii) each issued and outstanding share of capital stock of Avesta
Technologies Canada shall be converted into issued and outstanding voting shares
of Amalco, to be issued to Avesta, all in the manner herein described; and
WHEREAS, the respective Boards of Directors of Avesta, Avesta
Technologies Canada and Caravelle, and Avesta, as the sole stockholder of Avesta
Technologies Canada, have each approved this Agreement, the Amalgamation, and
the other transactions contemplated by this Agreement, and the shareholders of
Caravelle (collectively, the "CARAVELLE SHAREHOLDERS") must still approve this
Agreement, the Amalgamation, and the other transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
ARTICLE 1
THE AMALGAMATION
1.1 SURVIVING CORPORATION; EFFECTIVE TIME.
(a) At the Closing (as hereinafter defined), subject
to the terms and conditions of this Agreement and the certificate of
amalgamation (the "CERTIFICATE OF AMALGAMATION"), Avesta Technologies Canada
shall be amalgamated with Caravelle in accordance with the Ontario Business
Corporations Act (the "OBCA"), whereupon the separate existence of Avesta
Technologies Canada and Caravelle shall cease. The new entity shall be referred
to herein as "AMALCO," and Amalco shall be named Avesta Technologies Canada,
Inc.
(b) Simultaneously with the Closing, Avesta
Technologies Canada and Caravelle shall file the Articles of Amalgamation
pursuant to Section 174 of the OBCA. The said Amalgamation shall become
effective at such time and on such date as such Articles of Amalgamation are
duly filed (the date of such latter filing being hereinafter referred to as the
"EFFECTIVE DATE" and the time of such latter filing being hereinafter referred
to as the "EFFECTIVE TIME"). From and after the Effective Time, Amalco shall
possess all the property, rights, privileges, powers and franchises and be
subject to all of the debts, restrictions, liabilities and duties of both Avesta
Technologies Canada and Caravelle, as provided under the OBCA.
1.2 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation, as amended, and Bylaws of Amalco shall be substantially in the
form as set forth on EXHIBIT 1.2.
1.3 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, the directors and officers of Amalco shall be as set forth on
SCHEDULE 1.3.
1.4 PURCHASE PRICE AND CONVERSION OF CARAVELLE STOCK. The
purchase price shall be $1,538,222 (the "PURCHASE PRICE"), which shall be
payable in 354,429 exchangeable shares of Amalco which shall be subject to
substantially the same terms and conditions as set forth on EXHIBIT 1.4 (the
"AMALCO EXCHANGEABLE SHARES"), and each of which shall be exchanged for one
share of Avesta Series B Preferred Stock immediately after the Effective Time
(the "AVESTA SERIES B PREFERRED STOCK")(the "EXCHANGE"). Each of the Amalco
Exchangeable Shares shall be valued at $4.34 per
<PAGE>
share.
(a) AUTOMATIC CONVERSION. As of the Effective Time,
by virtue of the Amalgamation, and pursuant to the Articles of Amalgamation,
automatically and without any action on the part of any holder thereof, each
share of Caravelle Stock issued and outstanding immediately prior to the
Effective Time shall be converted into that number of fully paid and
nonassessable shares of Amalco Exchangeable Shares determined by multiplying the
share of Caravelle Stock by the Conversion Ratio. For the purposes hereof, the
"CONVERSION RATIO" shall be the number obtained by dividing 354,429 by the
number of shares of Caravelle Stock outstanding immediately prior to the
Effective Time. All shares of Caravelle Stock outstanding immediately prior to
the Effective Time, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto.
(b) ADJUSTMENTS TO CONVERSION RATIO. The Conversion
Ratio shall be adjusted to reflect fully the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Amalco Exchangeable Shares or Caravelle Stock),
reorganization, recapitalization or other like change with respect to Amalco
Exchangeable Shares or Caravelle Stock occurring after the date hereof and prior
to the Effective Time.
(c) FRACTIONAL SHARES. No fraction of a share of
Amalco Exchangeable Shares shall be issued, but in lieu thereof each holder of
Caravelle Stock who would otherwise be entitled to a fraction of a share of
Amalco Exchangeable Shares shall receive from Avesta the nearest number of whole
Amalco Exchangeable Shares up to which such fraction would be rounded.
1.5 EXCHANGE OF CERTIFICATES.
(a) At the Closing, Avesta Technologies Canada shall
deliver to each Caravelle Shareholder who delivered his, her or its certificate
representing his or her or its Caravelle Stock (a "CERTIFICATE") a certificate
for the number of Amalco Exchangeable Shares to which such holder is entitled
pursuant to Section 1.4. In the event of a transfer of ownership of Certificates
which has not been registered in the transfer records of Caravelle, Amalco
Exchangeable Shares may be delivered to a transferee if the Certificate is
presented to Avesta Technologies Canada and accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. When surrendered as contemplated
by this Section 1.5(a), each holder of Caravelle Stock immediately prior to the
Effective Date shall thereafter cease to possess any rights with respect to such
Caravelle Stock, except the right to receive upon such surrender such number of
shares of Amalco Exchangeable Shares as provided by Section 1.4 herein. Pursuant
to Section 1.4 of the Amended and Restated Investor Rights Agreement (as defined
below), Technocap Inc. may transfer, without consideration, its shares of Avesta
Series B Preferred Stock to any of its partners or shareholders, or retired
partners or shareholders, or to the estate of any of its partners or
shareholders or retired partners or shareholders, so long as each such
transferee agrees in writing to be bound by the terms and conditions of this
Agreement and the Amended and Restated Investor Rights Agreement.
(b) All Amalco Exchangeable Shares delivered in
exchange for the Caravelle Stock in accordance with the terms hereof shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such Caravelle Stock. After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of Caravelle of the
Certificates that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates
<PAGE>
are presented for any reason, they shall be cancelled and exchanged as
provided in this Section 1.5.
1.6 TREATMENT OF CARAVELLE OPTIONS.
(a) TERMINATION AND REPLACEMENT. At the Effective
Time, each outstanding option to purchase shares of Caravelle Stock granted
under the Caravelle Plan (the "CARAVELLE OPTION PLAN"), and not exercised and
comprising a portion of the issued and outstanding Caravelle Stock immediately
prior to the Effective Time, whether vested or unvested, shall immediately
terminate and, in lieu of those options, Avesta shall grant to each of the
holders of those terminated options new options to purchase shares of Avesta
Common Stock (the "AVESTA OPTIONS") under the Avesta 1996 Stock Option Plan (the
"AVESTA OPTION PLAN"), each with an exercise price equal to $0.22 per share of
Avesta Common Stock and a term of ten (10) years measured from the Effective
Date. SCHEDULE 1.6 hereto sets forth the total number, as of the date hereof, of
the outstanding options under the Caravelle Option Plan, and, with respect to
the Avesta Options to be granted pursuant to this Agreement, (i) the number of
shares of Avesta Common Stock to be subject to each of the Avesta Options, (ii)
the total number of such shares that shall be vested in connection with the
Amalgamation (the "COLUMN A SHARES") and (iii) the total number of such shares
that shall vest following the Amalgamation, subject to the optionee's continued
employment with Avesta (the "COLUMN B SHARES"). The Column A Shares shall be
fully-vested at the end of the three (3)-month period following the Effective
Date. The Column B Shares shall vest in a series of thirty-six (36) successive
equal monthly installments as the optionee completes each month of employment
with Avesta over the thirty-six (36)-month period following the Amalgamation.
Each such Avesta Option granted pursuant to Section
1.6(a) of this Agreement shall be subject to the provisions of the Avesta Option
Plan and to such other terms and conditions, not inconsistent with the Avesta
Option Plan set forth as EXHIBIT 1.6(A), provided for each such option in a
Stock Option Agreement to be issued to each Caravelle Option Holder as soon as
practicable following the Effective Date but in no event later than 20 days
following such date.
(b) WAIVER. Prior to the Effective Time, Caravelle
shall obtain from each holder of outstanding options under the Caravelle Option
Plan (each, a "CARAVELLE OPTION HOLDER") a written waiver relating to the
cancellation of his or her Caravelle Options, in substantially the form of
attached EXHIBIT 1.6(B) (the "WAIVER").
(c) ASSUMPTION OF BOSSIO OPTION. At the Effective
Time, the option granted to Mr. Carlo Bossio to purchase 9,720 shares of
Caravelle Stock with an adjusted exercise price of $10.98 per share (the "BOSSIO
OPTION") shall be assumed by Avesta. The assumed Bossio Option shall continue to
have the same terms and conditions set forth for the Option in that certain
letter from Caravelle to Mr. Bossio evidencing the Bossio Option, as such terms
were subsequently adjusted; PROVIDED, HOWEVER that (i) such option shall be
exercisable for that number of shares of Avesta Common Stock equal to the
product of the number Caravelle shares that were issuable upon exercise of such
option immediately prior to the Effective Time multiplied by the Conversion
Ratio and rounded down to the next whole share, and (ii) the per share exercise
price for the shares of Avesta Common Stock issuable upon exercise of such
assumed Bossio Option shall be equal to the quotient determined by dividing the
exercise price per share of Caravelle Stock at which such Option was exercisable
immediately prior to the Effective Time by the Conversion Ratio, rounded up to
the next whole cent. As soon as practicable following the Effective Date, Avesta
shall provide Mr. Bossio with a Stock Option Assumption Agreement evidencing the
adjustment of the Bossio Option in connection with the option assumption.
ARTICLE 2
<PAGE>
REPRESENTATIONS AND WARRANTIES OF CARAVELLE
Except as disclosed in a schedule referring specifically to
the applicable representations and warranties in this Agreement, which is
delivered by Caravelle to Avesta and Avesta Technologies Canada prior to the
execution of this Agreement and which is annexed hereto as SCHEDULE 2, and an
update of such schedule which is delivered in connection with the Closing (the
"CARAVELLE DISCLOSURE SCHEDULE"), Caravelle agrees with, and represents and
warrants to, Avesta and Avesta Technologies Canada as set forth below:
2.1 CORPORATE EXISTENCE AND GOOD STANDING. Caravelle is a
corporation duly organized, validly existing and in good standing under the laws
of Ontario, has requisite corporate power and corporate authority to carry on
its business as now being conducted, is entitled to own, lease or operate the
property and assets now owned, leased or operated by it, and has no operations
and conducts no business outside of the jurisdictions in which it is authorized
to do business. Caravelle is qualified to do business, is in good standing and
has all required and appropriate licenses in each jurisdiction in which its
failure to obtain or maintain such qualification, good standing or licensing (i)
would, individually or in the aggregate, have a material adverse effect on the
business, prospects, properties, results of operations, or condition (financial
or otherwise) (each a "MATERIAL ADVERSE EFFECT") of Caravelle, or (ii) would
result in a material breach of any of the other representations, warranties,
covenants or agreements set forth in this Agreement.
2.2 CORPORATE AUTHORITY. Caravelle has all requisite corporate
power and authority to execute and deliver this Agreement and all other
documents contemplated hereby (collectively, the "DOCUMENTS"), to consummate the
transactions contemplated hereby, and to perform its obligations under the terms
of this Agreement. The Documents have been duly executed and delivered by
Caravelle, have been authorized by all necessary corporate action of Caravelle
and constitute legal, valid and binding obligations of Caravelle, enforceable
against Caravelle in accordance with their terms, except as such enforceability
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally
and by general equitable principles.
2.3 CAPITALIZATION. The authorized capital stock of Caravelle
consists of an unlimited number of voting common shares, an unlimited number of
non-voting common shares, an unlimited number of Class A Preferred Shares and an
unlimited number of Class B Preferred Shares of Caravelle Stock, of which
10,233,234 voting common shares are presently issued and outstanding. All of the
outstanding shares of Caravelle Stock have been duly authorized and validly
issued and are fully paid and nonassessable and are free from any charge, lien,
encumbrance or adverse claim of any kind whatsoever. There have been no
additional shares of Caravelle Stock which have been issued and are presently
outstanding and other than as set forth on Section 2.3 of the Caravelle
Disclosure Schedule, which sets forth (i) a complete and accurate list of all
persons and entities holding any Caravelle Stock or outstanding options to
purchase Caravelle Stock; (ii) the aggregate number of shares of Caravelle Stock
held by each such person; (iii) the aggregate number of options which are
outstanding and unexercised held by each such person or entity (the "OPTIONS");
and (iv) the number of Options exercisable immediately prior to the Effective
Time to purchase shares of Caravelle Stock that would be, at the time of such
purchase, vested, non-forfeitable and not subject to any repurchase right by
Caravelle (the "VESTED Options") and there are no subscriptions, options,
warrants, calls, conversion rights, rights of exchange, or other rights, plans,
agreements or commitments of any nature whatsoever (including, without
limitation, conversion or preemptive rights) providing for the purchase,
issuance, transaction, registration or sale of any shares of Caravelle's capital
stock or any securities convertible into or exchangeable for any shares of
Caravelle's capital stock. All of the
<PAGE>
outstanding shares of Caravelle Stock and the Options have been issued pursuant
to valid exemptions from the prospectus and registration requirements under all
securities laws and in accordance with all other applicable laws.
2.4 SUBSIDIARIES. Caravelle has no subsidiaries and does not
otherwise own or control, directly or indirectly, any interest in any other
corporation, association, joint venture or other business entity.
2.5 FINANCIAL STATEMENTS. Caravelle has delivered to Avesta
the audited balance sheet and related statements of income and cash flows of
Caravelle at and for its fiscal periods ended December 31, 1996, December 31,
1995, and December 31, 1994 and draft financial statements for the year ended
December 31, 1997 (the "FINANCIAL STATEMENTS"), and the unaudited balance sheet
and related statements of income and cash flows of Caravelle at and for the
three month period ended March 31, 1998 (the "INTERIM FINANCIAL STATEMENTS").
The internal books and records of Caravelle from which the Financial Statements
and Interim Financial Statements were derived do not contain any information
which is false or misleading. The Financial Statements and the Interim Financial
Statements (i) were prepared in accordance with such books and records; (ii)
were prepared in accordance with Caravelle's accounting policies and principles,
and are in accordance with Canadian generally accepted accounting principles
("GAAP"), applied on a consistent basis throughout the periods indicated and
consistent with each other; and (iii) fairly present Caravelle's financial
position and results of operations at the dates and for the periods reflected
therein.
2.6 ABSENCE OF CERTAIN CHANGES. Other than as set out in
Section 2.6 of the Caravelle Disclosure Schedule, since January 31, 1998,
Caravelle has conducted its business in the ordinary course and there has not
occurred:
(a) Any change, event or condition (whether covered
by insurance or not) that would result in a Material Adverse Effect on
Caravelle;
(b) Any damage, destruction or loss (whether covered
by insurance or not) materially and adversely affecting any of the properties or
businesses of Caravelle;
(c) Any extraordinary increase in or extraordinary
modification of any compensation or benefits paid by Caravelle to any of its
officers, directors, employees, agents or shareholders;
(d) Any increase in or modification of any bonus,
pension, insurance or other employee benefit plan, payment or arrangement
(including, without limitation, the granting of stock options, restricted stock
awards or stock appreciation rights) made to, for or with any of Caravelle's
directors or employees;
(e) Any declaration, setting aside or payment of
dividends or distributions in respect of the capital stock of Caravelle, or any
split-up or other recapitalization in respect of the capital stock of Caravelle
or any direct or indirect redemption, repurchase or other acquisition of any
such capital stock of Caravelle or any agreement to do any of the foregoing;
(f) Other than the rights offering set forth in
Section 6.19, any issuance, transfer, sale or pledge by Caravelle of any shares
of its capital stock or other securities or of any commitment, option, right or
privilege under which Caravelle is or may become obligated to issue any shares
of its capital stock or other securities;
<PAGE>
(g) Any alteration in any term of any outstanding
securities of Caravelle;
(h) Any indebtedness incurred by Caravelle;
(i) Any loan made or agreed to be made by Caravelle,
nor has Caravelle become liable or agreed to become liable as a
guarantor with respect to any loan;
(j) Any change in the accounting methods, practices
or policies followed by Caravelle from those in effect during the past
three (3) fiscal years;
(k) Any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, other intangible assets or other
Intellectual Property (as hereinafter defined) by Caravelle;
(l) Any purchase or other acquisition of, or any
sale, lease, disposition of, mortgage, pledge or subjection to any lien or
encumbrance on, any material property or asset, tangible or intangible, of
Caravelle or any agreement to do any of the foregoing;
(m) Other than the severance payment owed to Eric
Melka and the Boreham Agreement (as defined below), any contract entered into,
either in writing or orally, between Caravelle and any other party which has a
term of greater than twelve (12) months or which requires Caravelle to pay more
than Five Thousand Dollars ($5,000.00) during the term of such contract;
(n) Any write-down of the value of any asset or
investment on Caravelle's books or records, except for depreciation and
amortization taken in the ordinary course of business and consistent with past
practice, which past practice has been previously disclosed to Avesta and Avesta
Technologies Canada;
(o) Any cancellation of any debts or waiver of any
claims or rights of substantial value, or sale, transfer or other disposition of
any properties or assets (real, personal or mixed, tangible or intangible);
(p) Any actual or threatened amendment, termination
or loss of (i) any contract, lease, license or other agreement to which
Caravelle was or is a party; or (ii) any certificate or other authorization
required for the continued operation by Caravelle of any portion of its
business;
(q) Other than the termination of employment of Eric
Melka, any resignation or termination of employment of any key officer
or employee of Caravelle;
(r) Any change in or amendment to the Articles of
Incorporation or Bylaws of Caravelle; or
(s) Any agreement or commitment, whether written or
oral, by Caravelle to do any of the things described in this Section 2.6.
2.7 PROPERTIES. Caravelle neither owns nor holds title to any
real property. With respect to the property and assets it leases, Caravelle is
in compliance in all material respects with such leases and holds a valid
leasehold interest free of any charges, liens, encumbrances or adverse claims of
any kind whatsoever. The Caravelle Disclosure Schedule sets forth (i) a list of
all leases or
<PAGE>
rental contracts under which Caravelle is presently a lessee, lessor, sublessee
or sublessor or has been a lessee, lessor, sublessee or sublessor in the past
twenty-four (24) months and (ii) a list of all equipment used by Caravelle in
the operation of its business which is owned or leased by Caravelle and which
had an original cost of Five Thousand Dollars ($5,000.00) or more. Caravelle has
beneficial ownership of and good and marketable title to all properties and
assets used in its operations or necessary for the conduct of its business, and
such properties and assets are subject to no charges, liens, encumbrances or
adverse claims of any kind whatsoever. All real and tangible personal property,
including machinery, equipment and fixtures currently used by Caravelle in the
operation of its business is, and at the time of the Effective Date will be, in
good operating condition and repair, ordinary wear and tear excepted, and are
adequate and suitable for the purposes for which they are presently being used.
All improvements on leased property used by Caravelle in the operation of its
businesses and the present use thereof are in accordance with all applicable
laws. The value of any fixed asset used by Caravelle in the operation of its
respective business has not been written up or down, other than pursuant to
depreciation or amortization expenses in accordance with past practice.
2.8 INVENTORIES. All of the inventory recorded on the Interim
Financial Statements consists of, and all inventory on the Effective Date will
consist of, items of a quality usable or saleable within six months in the
ordinary course of business, consistent with past practices, and are and will be
in quantities sufficient for the normal operation of the business of Caravelle
in accordance with past practices.
2.9 ACCOUNTS RECEIVABLE. The Caravelle Disclosure Schedule
sets forth (i) a complete and accurate list of the accounts and notes
receivables of Caravelle as of the date of this Agreement, and (ii) a complete
and accurate aging of such accounts and notes receivables. Such accounts and
notes receivables arose in bona-fide arm's length transactions in the normal
course of business and such accounts and notes receivables are, and will be at
the Closing, valid and binding obligations of the account debtors without
counterclaims, set-offs or other defenses thereto, and such accounts and notes
receivables are (except to the extent of the reserves thereon as set forth in
the Interim Financial Statements) collectible in the ordinary course of
business. The values at which accounts and notes receivables are carried on the
books and records of Caravelle reflect the receivables valuation policy of
Caravelle which is consistent with its past practice and in accordance with
Canadian GAAP.
2.10 LITIGATION. Other than as set forth on Section 2.10 of
the Caravelle Disclosure Schedule, there is no litigation, arbitration or
proceeding pending by or against Caravelle, its properties or assets, the
capital stock of Caravelle or its officers, directors or shareholders before any
agency, court, tribunal, foreign or domestic, or any governmental agency, and,
to the best knowledge of Caravelle, there is no threat of any such litigation,
arbitration or proceeding, and no facts exist which might form the basis for any
such litigation, arbitration or proceeding. To the best knowledge of Caravelle,
Caravelle is not the subject of any investigation for violation of any laws,
regulations or administrative orders applicable to its business by any
governmental authority or any other person. There is no judgment, writ, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against Caravelle, its
properties or assets or the capital stock of Caravelle or which in any manner
would prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby.
2.11 TAXES. Other than as set forth on Section 2.11 of the
Caravelle Disclosure Schedule, Caravelle has (i) duly and timely filed or caused
to be filed all relevant tax returns, statements, reports and forms required to
be
<PAGE>
filed prior to the date of this Agreement and will duly and timely file or cause
to be filed all applicable tax returns, statements, reports and forms required
to be filed prior to the Closing which relate to Caravelle or with respect to
which Caravelle is liable or otherwise in any way subject, including, without
limitation, any income, property, sales, use, franchise, added value,
withholding, and social security taxes, and all such tax returns (A) are
complete, accurate and in accordance with all legal requirements applicable
thereto and (B) as of the time of filing, correctly reflected the facts
regarding the income, business assets, operations, activities, status or other
matters of Caravelle required to be shown thereon, (ii) paid, when due, all
taxes shown to be due and payable on such returns, or pursuant to any assessment
or otherwise, and (iii) properly accrued, charged or established adequate
reserves for all taxes arising in respect of any fiscal year of Caravelle. No
tax liabilities, disallowances or assessments relating to the business, assets
or employees or independent contractors of Caravelle have been assessed as of
the date hereof, and, to the best knowledge of Caravelle, there is no basis for
any such liabilities, disallowances or assessments. Caravelle is not delinquent
in the payment of any taxes which would result in the imposition of any charge,
lien, encumbrance or adverse claim of any kind whatsoever on Caravelle, its
properties or assets or the capital stock of Caravelle.
2.12 NO BREACH OF AGREEMENTS. Caravelle is not (a) in
violation of any term or provision of its Articles of Incorporation, as amended,
or Bylaws, or (b) in breach, violation or default of any term or provision of
any contract, lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, hypothec or security agreement, deed of trust,
or other agreement, instrument or arrangement to which Caravelle is a party or
by which Caravelle or its assets are bound, where such violation would have a
Material Adverse Effect, or (c) in violation or breach of any law, rule or
regulation of any governmental authority, or any judgment, order, injunction or
decree applicable to Caravelle, its assets or the Caravelle stock. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement will not result in or constitute any of the
following: (i) a violation of the Articles of Incorporation, as amended, or
Bylaws of the Corporation; (ii) a conflict, breach, violation or default with or
an event that, with notice or lapse of time or both, would be a conflict,
breach, violation or default of (A) any material contract, lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to which Caravelle
is a party or by which Caravelle or its assets are bound, where such violation
would have a Material Adverse Effect, or (B) any law, rule or regulation of any
governmental authority, or any judgment, order, injunction or decree applicable
to Caravelle, its assets or its capital stock; (iii) an event that would permit
any party to terminate any agreement or to accelerate the maturity of or permit
the subordination of any indebtedness or other obligation of Caravelle or the
Caravelle Stock; or (iv) the creation or imposition of any charge, lien,
encumbrance or adverse claim of any kind whatsoever on any of the assets of
Caravelle or the Caravelle Stock.
2.13 EMPLOYEES AND SERVICE PROVIDERS.
(a) Caravelle is not a party to or bound by any contract or
commitment to pay any royalty, license fee or management fee;
(b) Caravelle does not have any employment contract with any
person whomsoever except such contracts as are listed in Section 2.13 of the
Caravelle Disclosure Schedule, attached hereto and such Schedule truly and
correctly sets out whether such contracts are in writing and the annual salary
and the length of employment of each of the employees of Caravelle;
(c) Caravelle is not bound by or a party to:
(i) any collective bargaining agreement, or
<PAGE>
(ii) any benefit plan including, without limiting
the generality of the foregoing, any pension
plan maintained by or on behalf of Caravelle
for any of its employees, except such
agreements and plans as are listed in Section
2.13 of the Caravelle Disclosure Schedule
attached hereto;
(d) All benefit plans listed in Section 2.13 of the Caravelle
Disclosure Schedule attached hereto have been duly registered where required by,
and are in good standing under, all applicable legislation including, without
limiting the generality of the foregoing, the INCOME TAX ACT (Canada) and the
PENSION BENEFITS ACT (Ontario) and all required employer contributions under any
such plans have been made and the applicable funds have been funded in
accordance with the terms thereof of the plans and no past service funding
liabilities exist thereunder;
(e) No trade union, council of trade unions, employee
bargaining agency or affiliated bargaining agent:
(i) holds bargaining rights with respect to any of
Caravelle's employees by way of certification,
interim certification, voluntary recognition,
designation or successor rights,
(ii) has applied to be certified as the bargaining
agent of any of Caravelle's employees, or
(iii) has applied to have Caravelle declared a
related employer pursuant to Section 1(4) of
the LABOUR RELATIONS ACT (Ontario);
(f) There are no actual, threatened or pending organizing
activities of any trade union, council of trade unions, employee bargaining
agency or affiliated bargaining agent or any actual, threatened or pending
unfair labor practice complaints, strikes, work stoppages, picketing, lock-outs,
hand-billings, boycotts, slowdowns, arbitrations, grievances, complaints,
charges or similar labor related disputes or proceedings pertaining to
Caravelle, and there have not been any such activities or disputes or
proceedings within the last year, except as disclosed in Section 2.13 of the
Caravelle Disclosure Schedule.
(g) All vacation pay for employees of Caravelle is properly
reflected and accrued in the books and accounts thereof.
(h) Except in the ordinary course of business or as required
by law of the Collective Agreement and consistent with Caravelle's past
practices, since January 31, 1998, there have been no changes in the terms and
conditions of employment of any employees of Caravelle, including their
salaries, remuneration and any other payments to them, and there have been no
changes in any remuneration payable or benefits provided to any officer,
director, consultant, independent or dependent contractor or agent of Caravelle,
and Caravelle has not agreed or otherwise become committed to change any of the
foregoing since that date.
(i) Section 2.13 of the Caravelle Disclosure Schedule contains
a list of every benefit plan, program, agreement or arrangement (whether written
or unwritten) maintained, contributed to, or provided by Caravelle or any
affiliate or subsidiary thereof for the benefit of any of its employees or
dependent or independent contractors of Caravelle or their respective dependents
or
<PAGE>
beneficiaries (the "BENEFIT PLANS") including all bonus, deferred compensation,
incentive compensation, share purchase, share option, stock appreciation,
phantom stock, savings, profit sharing, severance or termination pay, health or
other medical, life, disability or other insurance (whether insured or
self-insured), supplementary unemployment benefit, pension, retirement and
supplementary retirement plans, programs, agreements and arrangements.
(j) Section 2.13 of the Caravelle Disclosure Schedule contains
a list of all compensation policies and practices of Caravelle ("COMPENSATION
POLICIES") applicable to employees and dependent and independent contractors
thereof.
(k) Caravelle has delivered to Avesta true, complete and
up-to-date copies of all Benefit Plans and Compensation Policies and all
amendments thereto together with all summary descriptions of the Benefit Plans
and Compensation Policies provided to past or present participants therein and,
if applicable, the two most recent actuarial reports, the financial statements
and evidence of any registration in respect thereof.
(l) No fact, condition or circumstance exists that would
materially affect the information contained in the documents provided pursuant
to Section 2.13 and, in particular, no promises or commitments have been made by
Caravelle to amend any Benefit Plan or Compensation Policy.
2.14 CERTAIN AGREEMENTS AFFECTED BY THE AMALGAMATION. Other
than with respect to stock options and payments due hereunder, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby shall (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Caravelle, (ii)
materially increase any benefits otherwise payable by Caravelle to any director
or employee of Caravelle, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.15 DIRECTORS, OFFICERS AND EMPLOYEES. Caravelle has
delivered to Avesta a true and complete list of the names and current salaries
of all employees of Caravelle and of all agreements with such employees
(collectively, the "EMPLOYMENT AGREEMENTS"). Except for the Employment
Agreements, complete and accurate copies of which have been delivered to Avesta
and Avesta Technologies Canada, Caravelle is not a party to any effective
consulting or employment agreements with individual consultants or employees
(including officers and directors). Caravelle is in compliance with all
currently applicable laws and regulations respecting employment, discrimination
in employment, verification of immigration status, terms and conditions of
employment and occupational safety and health and equal employment opportunity
practices, and is not engaged in any unfair labor practice. Caravelle has
received no notice from any governmental entity, and there has not been asserted
before any governmental entity, any claim, action or proceeding to which
Caravelle is a party or involving Caravelle and there is neither pending nor, to
the best knowledge of Caravelle, threatened any investigation or hearing
concerning Caravelle arising out of or based upon any such laws, regulations or
practices.
2.16 INSURANCE. The Caravelle Disclosure Schedule sets forth a
complete and accurate list and summary of all policies of insurance of any
nature whatsoever maintained by Caravelle pertaining to the business of
Caravelle, showing, among other things, the amount of coverage, the company
issuing the policy and expiration date of each policy. Such policies are in full
force and effect and, except as otherwise set forth in the Caravelle Disclosure
Schedule, such policies, or other policies covering the same risks, have been in
full force and effect, without gaps,
<PAGE>
continuously for the past two (2) years. Copies of all current insurance
policies of Caravelle have been made available to Avesta and Avesta Technologies
Canada for inspection. Caravelle is not in default under any of such policies,
and has not failed to give any notice or to present any claim under any such
policy in a due and timely fashion. Caravelle is not aware of any facts
concerning Caravelle or its business, operations, assets and liabilities,
contingent or otherwise, upon which an insurer might be justified in
questioning, reducing, or denying coverage or increasing premiums on existing
policies and all such insurance polices can be maintained in full force and
effect without substantial increase in premium or reducing the coverage thereof
following the Effective Date. The Caravelle Disclosure Schedule sets forth by
policy all accrued insurance obligations relating to the business of Caravelle
as of the date of this Agreement.
2.17 CONTRACTS AND LICENSES. The Caravelle Disclosure Schedule
sets forth a complete and accurate list of:
(a) Each contract, whether written or oral, between Caravelle
and any party to whom Caravelle provides products or services, which involved
payments to Caravelle of more than Ten Thousand Dollars ($10,000.00) during the
year ended December 31, 1997 or can reasonably be expected to involve payments
to Caravelle of more than Ten Thousand Dollars ($10,000.00) during the year
ending December 31, 1998;
(b) Each contract (except for real property leases, equipment
rental contracts, evidence of indebtedness and insurance contracts), whether
written or oral, between Caravelle and any party to whom Caravelle is obligated
or can reasonably be expected to pay more than Ten Thousand Dollars ($10,000.00)
for any twelve (12) month period;
(c) Each agreement for the license of any copyright, trade
secret or other proprietary right, or requiring indemnification by Caravelle
with respect to infringements of proprietary rights not entered into in the
ordinary course of business;
(d) Each material permit, license, franchise, certificate of
need and each other material certificate or authorization issued to Caravelle by
any governmental authority having jurisdiction in any area where Caravelle
provides products or services (a "LICENSE" or "LICENSES");
(e) Each agreement, contract or commitment containing any
covenant limiting the freedom of Caravelle to engage in any line of business or
compete with any person;
(f) Each joint marketing or development agreement to which
Caravelle is a party, either directly or indirectly;
(g) Each distribution agreement (identifying any that contain
exclusivity provisions) to which Caravelle is a party and a schedule of all
distributors and resellers of Caravelle's products as of the date hereof;
(h) Each agreement, contract or commitment to which Caravelle
is a party relating to capital expenditures involving future obligations in
excess of Ten Thousand Dollars ($10,000.00) and not cancelable without penalty;
(i) Each agreement of indemnification or guaranty not entered
into in the ordinary course of business to which Caravelle is a party other than
indemnification agreements between Caravelle and any of its officers or
directors;
<PAGE>
(j) Each agreement, contract or commitment to which Caravelle
is a party relating to the disposition or acquisition of assets not in the
ordinary course of business or any ownership interest in any corporation,
partnership, joint venture or other business enterprise; and
(k) Each mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument to which Caravelle is a
party relating to the borrowing of money or extension of credit.
The contracts and agreements which are required to be identified in the
Caravelle Disclosure Schedule are hereinafter referred to as the "CONTRACTS."
True and complete copies of each written Contract and true and complete written
summaries of each oral Contract have been delivered to Avesta and Avesta
Technologies Canada by Caravelle. Except as set forth on the Caravelle
Disclosure Schedule:
(i) Each of the Contracts is a legal, valid, binding and
enforceable agreement of Caravelle and the other parties thereto and
will continue to be legal, valid, binding and enforceable after the
Effective Date;
(ii) As of the date hereof, Caravelle has no reason to
believe that it will not be able to fulfill all of its obligations
under the Contracts which remain to be performed after the date hereof;
(iii) There has not occurred any material default (or
event which upon the provision of notice or lapse of time or both would
become such a default) under any of the Contracts on the part of
Caravelle of which Caravelle has failed to inform Avesta and Avesta
Technologies Canada or where such default, in the aggregate, would have
a Material Adverse Effect;
(iv) The Contracts are all of the agreements, contracts
and instruments that are material to Caravelle and necessary for the
operation of its business;
(v) The Licenses are the only governmental permits,
licenses, franchises, certificates of need and other certificates and
authorizations that are required for and are material to the operation
of Caravelle's business as such business is now, and since Caravelle's
inception has been, conducted;
(vi) The Licenses are, and as of the Effective Date will
be, in full force and effect and the continuing validity and
effectiveness of such Licenses will not be affected by the exchange of
the Amalco Exchangeable Shares to the Caravelle Shareholders as herein
contemplated; and
(vii) Caravelle is and has been in compliance in all
material respects with all conditions or requirements of the Licenses,
and Caravelle has not been notified by any governmental or licensing
authority that such parties intend to cancel, terminate or modify any
of such Licenses, and, to the best knowledge of Caravelle, there are no
valid grounds for any such cancellation, termination or modification.
2.18 INTELLECTUAL PROPERTY RIGHTS.
(a) Caravelle owns, or is licensed or otherwise
possesses legally
<PAGE>
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
forms), and tangible or intangible proprietary information or material
(collectively, the "INTELLECTUAL PROPERTY") that are used in the business of
Caravelle as currently conducted or as proposed to be conducted by Caravelle.
(b) Caravelle has provided Avesta and Avesta
Technologies Canada with a list, and such list is set forth on the Caravelle
Disclosure Schedule, of (i) all patents and patent applications and all
registered and unregistered trademarks, trade names and service marks,
registered and unregistered copyrights, and maskworks which Caravelle considers
to be material to its business and included in the Intellectual Property,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any application for such issuance and
registration has been filed, (ii) all licenses, sublicenses and other agreements
as to which Caravelle is a party and pursuant to which any person is authorized
to use any Intellectual Property, and (iii) all material licenses, sublicenses
and other agreements as to which Caravelle is a party and pursuant to which
Caravelle is authorized to use any third party patents, trademarks or
copyrights, including software (the "THIRD PARTY INTELLECTUAL PROPERTY RIGHTS")
which are incorporated in, are, or form a part of any Caravelle product that is
material to its business.
(c) Caravelle is not aware of any unauthorized use,
disclosure, infringement or misappropriation of any Intellectual Property
rights of Caravelle, any trade secret material to Caravelle, or any Intellectual
Property right of any third party to the extent licensed by or through
Caravelle, by any third party, including any employee or former employee of
Caravelle. Caravelle has not entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property, other
than indemnification provisions contained in purchase orders or customer
agreements arising in the ordinary course of business.
(d) Caravelle is not, nor will it be as a result of
the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property or Third Party Intellectual
Property Rights.
(e) All patents, registered trademarks, service marks
and copyrights held by Caravelle are valid and subsisting. Caravelle (i) is not
a party to any suit, action or proceeding which involves a claim of infringement
of any patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party nor, to the best knowledge
of Caravelle, has any such suit, action or proceeding been threatened and (ii)
has not brought any action, suit or proceeding for infringement of Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party. The manufacture, marketing, licensing or sale of
Caravelle's products does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party.
(f) Caravelle has a policy to secure valid written
assignments from all consultants and employees who contribute or have
contributed to the creation or development of Intellectual Property of the
rights to such contributions that Caravelle does not already own by operation of
law. Each person presently employed by Caravelle, and each person, whether
presently employed by Caravelle or not, who has developed technology which
relates to the Intellectual Property, has executed a proprietary information
agreement in Caravelle's standard form a copy of which is set out in the
Caravelle Disclosure Schedule. Such proprietary information agreements
<PAGE>
constitute legal, valid and binding obligations of Caravelle and, to the best of
Caravelle's knowledge, of such other persons.
(g) Caravelle has taken all reasonable and
appropriate steps to protect and preserve the confidentiality of all
Intellectual Property not otherwise protected by patents, or patent applications
or copyright (the "CONFIDENTIAL INFORMATION"). To the best of Caravelle's
knowledge, all use, disclosure or appropriation of Confidential Information
owned by Caravelle or by a third party has been pursuant to the terms of a
written agreement between Caravelle and such third party. To the best of
Caravelle's knowledge, all use, disclosure or appropriation of Confidential
Information not owned by Caravelle has been pursuant to the terms of a written
agreement between Caravelle and the owner of such Confidential Information.
2.19 COMPLIANCE WITH LAW; CONSENTS. The business and
operations of Caravelle have been and are being conducted in compliance with all
laws, rules, regulations and licensing requirements applicable thereto.
Caravelle is not aware of any facts which might form the basis for a claim that
any violation of such laws exists. There are no unresolved notices of deficiency
or charges of violation brought or, to the best knowledge of Caravelle,
threatened against Caravelle, under any Federal, state Provincial or other local
laws or regulations. Except in connection with filing the Certificate of
Amalgamation, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Federal, state,
Provincial or local governmental authority or any non-governmental third party
on the part of Caravelle is required in connection with the execution, delivery
and performance by Caravelle of this Agreement, the consummation of the
transactions contemplated hereby or the Canadian operation of the business of
Caravelle following the Effective Date.
2.20 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the term
"ENVIRONMENTAL LAWS" shall mean all Federal, Provincial and local environmental
protection, occupational, health and safety or similar laws, ordinances,
restrictions, licenses, rules, regulations and permit conditions, and the term
"HAZARDOUS MATERIALS" shall mean any hazardous or toxic substances, wastes or
materials, defined as such or governed by any applicable Environmental Law.
(b) Caravelle is in compliance in all material
respects with all Environmental Laws and there are no facts known after due
inquiry by Caravelle that could give rise to a notice of non-compliance with any
Environmental Law.
(c) Section 2.20 of the Caravelle Disclosure Schedule
contains a complete list of all environmental permits, consents, waivers,
licenses and rights used in or required to carry on the business of Caravelle in
its usual and ordinary course, such permits are in full force and effect.
(d) Caravelle has not used any of its facilities to
generate, manufacture, refine, treat, transport, store, handle, dispose,
transfer, produce or process Hazardous Materials except in compliance in all
material respects with all Environmental Laws.
(e) To the knowledge of Caravelle after due inquiry,
there are no pending changes to Environmental Laws that would render illegal, or
materially restrict, the operation of the business in its usual and ordinary
course.
(f) Caravelle has not been convicted of an offence or
been subjected to
<PAGE>
any judgment, injunction or other proceeding or been fined or otherwise
sentenced for non-compliance with any Environmental Laws, and it has not settled
any prosecution or other proceeding short of conviction.
(g) Caravelle has not caused or permitted the release
of any Hazardous Material at, on or under the lands occupied thereby,
or the release of any Hazardous Material off-site of such lands, except in
compliance in all material respects with Environmental Laws.
(h) Caravelle has not received written notice, or
knowledge after due inquiry of any facts that could give rise to any
notice, that Caravelle is potentially responsible for any remedial action under
any Environmental Law.
(i) Caravelle has provided Avesta with copies of all
analyses and monitoring data for soil, groundwater and surface water and
all reports pertaining to any environmental assessments or audits relating
thereto that were obtained by, or are in the possession or control of Caravelle.
(j) Caravelle has maintained all environmental and
operating documents and records in the manner and for the time periods required
by Environmental Laws and, except as disclosed in Section 2.20 of the Caravelle
Disclosure Schedule, has never conducted an environmental audit of any lands it
occupies.
(k) Caravelle has not breached any obligation to
report to any person imposed by any Environmental Law.
2.21 AFFILIATE RELATIONSHIPS. Caravelle has no material
financial interest, direct or indirect, in any supplier or service provider to,
or customer of, subsidiary or other party to any contract or other arrangement
which is material to Caravelle. No officer, director of shareholder of Caravelle
(nor any spouse of any of such persons, or any trust, partnership or corporation
in which any of such persons has or has had a material economic interest), has
or has had, directly or indirectly, (i) an interest in any entity which
furnishes or sells a material amount of products or services that Caravelle
furnishes or sells; (ii) an interest in any entity that purchases from or sells
or furnishes to Caravelle, any material amount of products or services; (iii) a
beneficial interest in any contract or agreement set forth on the Caravelle
Disclosure Schedule; or (iv) a beneficial interest in Avesta or Avesta
Technologies Canada; provided, that ownership of no more than one percent (1%)
of the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this Section 2.21.
2.22 NO TERMINATION OF BUSINESS RELATIONSHIP. None of the
entities, governmental or otherwise, with which Caravelle has a material
business relationship or any other present material customer of Caravelle has
given notice of any intention to cancel or otherwise terminate a material
business relationship with Caravelle and Caravelle has no knowledge of any event
(including, without limitation, the transactions contemplated hereby) which
would precipitate the cancellation or termination of, or entitle any such entity
or customer to terminate, such a material business relationship.
2.23 CUSTOMERS. The Caravelle Disclosure Schedule sets forth a
list of all of Caravelle's current customers and suppliers which are material to
the conduct of its business. Other than as set out in the Caravelle Disclosure
Schedule, no customer of Caravelle has exercised any right of return or similar
remedy with respect to any products or services provided by Caravelle, and to
the
<PAGE>
best knowledge of Caravelle, there are no intentions, claims or plans by any
customers to return any products in the future.
2.24 CORPORATE RECORDS. The Corporate Records of the
Corporation are materially complete and accurate and all material corporate
proceedings and actions reflected therein have been conducted or taken in
compliance with all applicable Laws and with the articles and by-laws of the
Corporation, and without limiting the generality of the foregoing, (i) the
minute books contain complete and accurate minutes in all material respects of
all meetings of the directors and shareholders of the Corporation held since the
incorporation of the Corporation, and all such meetings were duly called and
held; (ii) the minute books contain all written resolutions that were duly
passed; (iii) the share certificate books, register of shareholders and register
of transfers or any such similar records of the Corporation are complex and
accurate, and all such transfers have been duly completed and approved and any
exigible tax payable by the Corporation in connection with the transfer of any
securities of the Corporation has been duly paid; and (iv) the registers of
directors and officers or any such similar records of the Corporation are
complete and accurate and all former and present directors and officers of the
Corporation were duly elected or appointed, as the case may be.
2.25 POWERS OF ATTORNEY; BANK ACCOUNTS. The Caravelle
Disclosure Schedule sets forth (i) the names and addresses of all persons
holding a power of attorney on behalf of Caravelle; and (ii) the names and
addresses of all banks or other financial institutions in which Caravelle has an
account, deposit, or safe-deposit box, with the number and a description of the
account and the names of all persons authorized to draw on such accounts or
deposits or to have access to such boxes.
2.26 VOTE REQUIRED. The affirmative vote of the holders of
two-thirds of the shares of Caravelle Stock outstanding, plus the approval of
Working Ventures, Technocap and Potter, Alexander and Associates, Inc. is the
only vote, or approval by, the holders of any of Caravelle's capital stock
necessary to approve the Amalgamation.
2.27 BOARD APPROVAL. The Board of Directors of Caravelle has,
prior to the date hereof, unanimously (i) approved this Agreement and the
transactions contemplated hereby; (ii) determined that the Amalgamation is in
the best interests of the Caravelle Shareholders and is on terms that are fair
to such shareholders, and (iii) determined to recommend that the Caravelle
Shareholders approve this Agreement and the transactions contemplated hereby.
2.28 BROKERS OR FINDERS. Caravelle has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.29 RETAINED EMPLOYEES AND AGREEMENTS. Caravelle shall use
its best efforts to obtain on or prior to the Effective Date (i) from each of
the Caravelle employees identified on part (a) of SCHEDULE 2.29 attached hereto,
an executed form of Avesta's standard Noncompetition and Nonsolicitation
Agreement; and (ii) from each of the Caravelle employees identified on part (b)
of SCHEDULE 2.29 attached hereto, an executed form of Avesta's standard Employee
Nondisclosure and Developments Agreement (both substantially in the forms
attached hereto as EXHIBIT 2.29), together with any and all other documents
reasonably requested by Avesta in connection with the retention of such
employees by Avesta. Effective as of the Effective Date, Avesta shall continue
the employment of each such person identified on SCHEDULE 2.29 (the "CARAVELLE
EMPLOYEES").
2.30 CERTAIN AGREEMENTS. Caravelle shall use commercially
reasonable efforts to cause (i) each Caravelle employee whose employment with
Caravelle was terminated after January 1,
<PAGE>
1998, including but not limited to Eric Melka, as soon as practicable after
Closing, to sign a general release and indemnity in favor of Caravelle and its
successors and (ii) Tim Boreham and Lynda Partner to enter into the Boreham and
Partner Agreements (as hereinafter defined).
2.31 LIENS. Other than as set forth on Section 2.31 of the
Caravelle Disclosure Schedule, there are no liens or rights of others
outstanding against Caravelle or any of its assets.
2.32 REPRESENTATIONS COMPLETE. None of the representations and
warranties made by Caravelle herein, nor any statement made in the Caravelle
Disclosure Schedule or any other Exhibit, Schedule or certificate furnished
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein,
or necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
2.33 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES.
Caravelle shall not take any actions that would result in any of the
representations or warranties set forth in this Article 2 being untrue.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CARAVELLE SHAREHOLDERS
Each Caravelle Shareholder hereby, severally and not jointly,
represents and warrants to Avesta and Avesta Technologies Canada as follows:
3.1 AUTHORITY.
(a) Such Caravelle Shareholder has all requisite
power and authority to execute and deliver this Agreement, the Escrow Agreement
(as hereinafter defined), the Amended and Restated Investor Rights Agreement and
any other agreement required in connection with becoming holders of Amalco
Exchangeable Shares or the Avesta Series B Preferred Shares (together, the
"FUNDAMENTAL AGREEMENTS") and to perform his, her or its obligations under the
Fundamental Agreements. The Fundamental Agreements shall each have been duly and
validly executed and delivered by such stockholder, and each shall constitute a
valid and binding obligation of such stockholder, enforceable against such
stockholder in accordance with its terms.
(b) The execution and delivery of the Fundamental
Agreements by such stockholder and the consummation by such stockholder of
the transactions contemplated thereby will not (i) require on the part of such
stockholder any filing with, or permit, authorization, consent or approval of,
any governmental entity, (ii) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of, create in any party any right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, security interest or
other arrangement to which such stockholder is a party or by which such
stockholder is bound or to which any of its assets are subject, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
such stockholder or any of its properties or assets.
3.2 INVESTMENT REPRESENTATIONS.
<PAGE>
(a) Such Caravelle Shareholder is acquiring the
Amalco Exchangeable Shares for his, her or its own account for investment only,
and not with a view to, or for sale in connection with, any distribution of such
Amalco Exchangeable Shares in violation of the Securities Act or any rule or
regulation under the Securities Act.
(b) Such Caravelle Shareholder has had adequate
opportunity to obtain from representatives of Avesta such information, in
addition to the representations set forth in the Agreement, as is necessary to
evaluate the merits and risks of his, her or its investment in Avesta.
(c) Such Caravelle Shareholder has sufficient
experience in business, financial and investment matters to be able to evaluate
the risks involved in the acquisition of the Amalco Exchangeable Shares to be
issued to him, her or it and to make an informed investment decision with
respect to such investment.
3.3 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
Caravelle Shareholders represents and warrants that it has reviewed the
representations and warranties made by Caravelle and set forth above in Section
2 and, to the best of its knowledge, such representations are true and correct.
3.4 SHARE OWNERSHIP. Each of the Caravelle Shareholders
represents and warrants that it is the owner, free and clear of any
encumbrances, of the number of shares of Caravelle Common Stock set forth
opposite his, her or its name in SCHEDULE 1. Each Caravelle Shareholder has full
right and authority to transfer said shares to Avesta.
3.5 REPRESENTATIONS COMPLETE. None of the representations and
warranties made by the Caravelle Shareholders herein, nor any statement made in
the Caravelle Disclosure Schedule or any other Exhibit, Schedule or certificate
furnished pursuant to this Agreement, contains or will contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein, or necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading.
3.6 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES. The
Caravelle Shareholders shall not take any actions that would result in any of
the representations or warranties set forth in Articles 2 or 3 being untrue.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AVESTA
AND AVESTA TECHNOLOGIES CANADA
Except as disclosed in a document referring specifically to
the representations and warranties in this Agreement which is delivered by
Avesta and Avesta Technologies Canada to Caravelle prior to the execution of
this Agreement (the "AVESTA DISCLOSURE SCHEDULE"), each of Avesta and Avesta
Technologies Canada, jointly and severally, agrees with, and represents and
warrants to Caravelle and the Caravelle Shareholders as set forth below:
4.1 CORPORATE EXISTENCE AND GOOD STANDING. Each of Avesta and
Avesta Technologies Canada is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation. Each of
Avesta and Avesta Technologies Canada is qualified to do business, is in good
standing and has all required and appropriate licenses in each jurisdiction in
<PAGE>
which its failure to obtain or maintain such qualification, good standing or
licensing (i) would, individually or in the aggregate, have or reasonably could
be expected to have a Material Adverse Effect on Avesta and Avesta Technologies
Canada, taken as a whole; or (ii) would result in a material breach of any of
the other representations, warranties, covenants or agreements set forth in this
Agreement.
4.2 CORPORATE AUTHORITY. Each of Avesta and Avesta
Technologies Canada has all requisite corporate power and authority to execute
and deliver this Agreement and all other documents contemplated hereby
(collectively, the "AVESTA DOCUMENTS"), to consummate the transactions
contemplated hereby, and to perform its obligations under the terms of this
Agreement. The Avesta Documents have been duly executed and delivered by each of
Avesta and Avesta Technologies Canada, have been authorized by all necessary
corporate action of Avesta and Avesta Technologies Canada, and constitute legal,
valid and binding obligations of each of Avesta and Avesta Technologies Canada,
enforceable against each of Avesta and Avesta Technologies Canada in accordance
with their terms, except as such enforceability may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general equitable
principles.
4.3 CONSENTS. Except in connection with filing the Articles of
Amalgamation for Amalco, no consent, approval, authorization, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Federal, state, Provincial or local governmental authority or
any governmental third party on the part of Avesta or Avesta Technologies Canada
is required in connection with the execution, delivery and performance by Avesta
and Avesta Technologies Canada of this Agreement or the consummation of the
transactions contemplated hereby.
4.4 NO BREACH OF AGREEMENTS. The consummation of the
transactions contemplated by this Agreement will not result in or constitute any
of the following: (i) a conflict, breach, violation or default with or an event
that, with notice or lapse of time or both, would be a conflict, breach,
violation or default of (A) the respective Certificates of Incorporation or
Bylaws of Avesta and Avesta Technologies Canada, or (B) of any material
contract, lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument
or arrangement to which Avesta or Avesta Technologies Canada is a party or by
which Avesta or Avesta Technologies Canada or their respective assets are bound,
or (C) any law, rule or regulation of any governmental authority, or any
judgment, order, injunction or decree applicable to Avesta or Avesta
Technologies Canada, their respective assets or their respective capital stock;
(ii) an event that would permit any party to terminate any agreement or to
accelerate the maturity of or permit the subordination of any indebtedness or
other obligation of Avesta or Avesta Technologies Canada or the capital stock of
Avesta or Avesta Technologies Canada; or (iii) the creation or imposition of any
charge, lien, encumbrance or adverse claim of any kind whatsoever on any of the
assets of Avesta or Avesta Technologies Canada or the capital stock of Avesta or
Avesta Technologies Canada.
4.5 BROKERS. Neither Avesta nor Avesta Technologies Canada has
incurred, and neither will incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
4.6 SHARES. Each of the shares of Amalco Exchangeable Shares
and Avesta Series B Preferred Stock is free and clear of any encumbrances, and
may be legally transferred to the Caravelle
<PAGE>
Shareholders. The Avesta Series B Preferred Stock which shall be issued to the
Caravelle Shareholders shall be the same stock, with the same attributes and
rights, as that issued to every other investor in Avesta who purchased the
Avesta Series B Preferred Stock.
4.7 FINANCIAL STATEMENTS. Avesta has provided Caravelle with
its draft financial statements for the year ended December 31, 1997 and for the
three months January, February and March 1998 (the "AVESTA FINANCIAL
STATEMENTS"). The internal books and records of Avesta from which the Avesta
Financial Statements were derived do not contain any information which is false
or misleading. The Avesta Financial Statements (i) were prepared in accordance
with such books and records; (ii) were prepared in accordance with Avesta's
accounting policies and principles, and are in accordance with GAAP; and (iii)
present fairly Avesta's financial position and results of operations at the
dates and for the periods reflected therein.
4.8 CAPITALIZATION.
(a) The authorized capital stock of Avesta consists
of 20,000,000 shares of Common Stock, 1,767,243 shares of Series A Preferred
Stock, and 2,158,668 shares of Series B Preferred Stock, of which 5,329,720
shares of Common Stock, 1,767,243 shares of Series A Preferred Stock, warrants
to purchase 436,357 shares of Series A Preferred Stock, 1,728,117 shares of
Series B Preferred Stock, and warrants to purchase 61,889 shares of Series B
Preferred Stock are presently issued and outstanding. All of the outstanding
shares of Avesta stock have been duly authorized and validly issued and are
fully paid and nonassessable and are free from any charge, lien, encumbrance or
adverse claim of any kind whatsoever. There are options to purchase 2,091,776
shares of Avesta Common Stock which are outstanding and unexercised pursuant to
the Avesta 1996 Stock Option Plan. All of the outstanding shares of Avesta stock
and the Options have been issued pursuant to valid exemptions from registration
under all securities laws and in accordance with all other applicable laws.
(b) The authorized capital stock of Avesta
Technologies Canada consists of 100 common shares. All of the outstanding shares
of Avesta Technologies Canada stock have been duly authorized and validly issued
and are fully paid and nonassessable and are free from any charge, lien,
encumbrance or adverse claim of any kind whatsoever. Other than as set forth
herein, there are no options which are outstanding and unexercised, and there
are no subscriptions, options, warrants, calls, conversion rights, rights of
exchange, or other rights, plans, agreements or commitments of any nature
whatsoever (including, without limitation, conversion or preemptive rights)
providing for the purchase, issuance, transaction, registration or sale of any
shares of Avesta Technologies Canada's capital stock or any securities
convertible into or exchangeable for any shares of Avesta Technologies Canada's
capital stock. All of the outstanding shares of Avesta Technologies Canada stock
have been issued pursuant to valid exemptions from registration under all
securities laws and in accordance with all other applicable laws.
4.9 REPRESENTATIONS COMPLETE. None of the representations and
warranties made by Avesta and Avesta Technologies Canada herein, any document
provided to Caravelle in connection with this transaction, nor any statement
made in the Avesta and Avesta Technologies Canada Disclosure Schedule or any
other Exhibit, Schedule or certificate furnished pursuant to this Agreement,
contains or will contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein, or necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
4.10 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES. Avesta
and Avesta Technologies Canada shall not take any actions that would result in
any of the representations or
<PAGE>
warranties set forth in this Article 4 being untrue.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS BY AVISTA TECHNOLOGIES CANADA AND
CARAVELLE. Except as disclosed in Section 5.1 of the Caravelle Disclosure
Schedule, during the period from March 6, 1998 and continuing until the earlier
of the termination of this Agreement or the Effective Time, each of Avesta
Technologies Canada and Caravelle agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by the other) to
carry on its business in the usual, regular and ordinary course of business in
substantially the same manner as heretofore conducted, to pay debts and taxes
when due subject to good faith disputes over such debts or taxes, to pay or
perform other obligations when due, and to use all reasonable efforts consistent
with past practice and policies to preserve intact its present business
organizations, use its reasonable efforts consistent with past practice to keep
available the services of its present officers and key employees and use its
reasonable efforts consistent with past practice to preserve its relationships
with customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Each of Avesta Technologies Canada
and Caravelle agree to use its best efforts to promptly notify the other of any
event or occurrence not in the ordinary course of its business, and of any event
which would have a Material Adverse Effect on such party taken as a whole.
Without limiting the foregoing, except as expressly contemplated by this
Agreement, neither Avesta Technologies Canada nor Caravelle shall do, cause or
permit any of the following, or allow, cause or permit it to do, cause or permit
any of the following, without the prior written consent of the other parties
hereto:
(a) CHARTER DOCUMENTS. Cause or permit any amendments
to its Articles of Incorporation, as amended, or Bylaws, except for the filing
of Articles of Amendment to create the Exchangeable Shares;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or
pay any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) STOCK OPTION PLANS, ETC. Accelerate, amend or
change the period of exercisability or vesting of options or other rights
granted under its employee stock plans or director stock plans or authorize cash
payments in exchange for any options or other rights granted under any of such
plans;
(d) OTHER. Take, or agree in writing or otherwise to
take, any of the actions described in Sections 5.1(a) through (c) above, or any
action which would make any of its representations warranties, covenants or
agreements contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
5.2 CONDUCT OF BUSINESS OF CARAVELLE. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, Caravelle shall not do, cause or permit
any of the following, without the prior written consent of
<PAGE>
Avesta and Avesta Technologies Canada:
(a) MATERIAL CONTRACTS. Except for contracts or
commitments entered into in the ordinary course of business consistent with past
practice in an amount less than Ten Thousand Dollars ($10,000.00) in any one
case enter into any contract or commitment, or violate, amend or otherwise
modify or waive any of the terms of any of its existing contracts or
commitments;
(b) ISSUANCE OF SECURITIES. Other than in connection
with the Caravelle Rights Offering, issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
grant any subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares of
Caravelle Stock pursuant to the exercise of stock options, warrants or other
rights therefor outstanding as of January 31, 1998;
(c) INTELLECTUAL PROPERTY. Transfer to any person or
entity any rights to its Intellectual Property;
(d) EXCLUSIVE RIGHTS. Enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing or
distribution rights with respect to any of its products or technology;
(e) DISPOSITIONS. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are
material, individually or in the aggregate, to its business, taken as a whole;
(f) INDEBTEDNESS. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except in the ordinary course of
business consistent with past practice;
(g) LEASES. Enter into any operating lease, except in
the ordinary course of business consistent with past practice;
(h) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy
in an amount in excess of Ten Thousand Dollars ($10,000.00) in any one case, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
liabilities reflected or reserved against in the Interim Financial Statements;
(i) CAPITAL EXPENDITURES. Make any material capital
expenditures, capital additions or capital improvements other than as set forth
on the Caravelle 1998 Operating Plan;
(j) INSURANCE. Reduce the amount of any material
insurance coverage provided by existing insurance policies other than to
reduce or eliminate the Key Person Life Insurance on Lynda Partner;
(k) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES.
Adopt or amend any material employee benefit or stock purchase or stock
ownership or option plan, or hire any new officer level employee (except that it
may hire a replacement for any current officer level employee if it first
provides Avesta and Avesta Technologies Canada ten (10) days' prior written
notice regarding such hiring decision), hire any director level employee in
departments other than sales, marketing or
<PAGE>
engineering without first providing Avesta and Avesta Technologies Canada ten
(10) days' prior written notice of such hire, pay any special bonus or special
remuneration to any employee or director, or increase the salaries or wage rates
of its employees;
(l) SEVERANCE ARRANGEMENTS. Grant any severance or
termination pay (i) to any director or officer, or (ii) to any other employee
except payments made pursuant to standard written agreements outstanding on the
date hereof;
(m) LAWSUITS. Commence a lawsuit other than (i) for
the routine collection of bills, (ii) in such cases where it in good
faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it consults with
Avesta and Avesta Technologies Canada prior to the filing of such a suit, or
(iii) for a breach of this Agreement;
(n) ACQUISITIONS. Acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its business, taken as a whole, or acquire
or agree to acquire any equity securities of any corporation, partnership,
association or business organization;
(o) TAXES. Other than in the ordinary course of
business, make or change any material election in respect of taxes, adopt or
change any accounting method in respect of taxes, enter into any closing
agreement, settle any claim or assessment in respect of taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of taxes;
(p) NOTICES. Caravelle shall give all notices and
other information required to be given to the employees of Caravelle, any
collective bargaining unit representing any group of employees of Caravelle, and
any applicable government authority under the any applicable law in connection
with the transactions contemplated by this Agreement;
(q) REVALUATION. Revalue any of its assets,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable; or
(r) OTHER. Take or agree in writing or otherwise to
take, any of the actions described in Sections 5.2(a) through (q) above, or any
action which would make any of its representations warranties, covenants or
agreements contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
5.3 EXCLUSIVE DEALING. Until the earlier of the Closing or the
termination of this Agreement pursuant to Section 9 hereof, neither Caravelle
nor the Caravelle Shareholders will, directly or indirectly, through any
officer, director, employee, affiliate or agent or otherwise, (a) take any
action to solicit, initiate, seek, entertain, or encourage or support any
inquiry, proposal or offer from any person or business entity relating to an
acquisition or purchase of all or any portion of the assets of (other than in
the ordinary course of business) or an equity interest in Caravelle or any
amalgamation, merger, consolidation or business combination with Caravelle, or
(b) participate in any discussions or negotiations regarding, or furnish to any
other person or business entity, any information with respect to or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
Caravelle and the Caravelle Shareholders shall promptly notify Avesta of any
such proposal or offer,
<PAGE>
or any inquiry or contact with respect thereto received by Caravelle or, to
their knowledge, any Caravelle Shareholder.
5.4 ACCESS TO INFORMATION. Each of Caravelle and Avesta (each
a "DISCLOSING PARTY") shall give the other party and their respective
accountants, legal counsel and other representatives (collectively, the
"REQUESTING PARTIES") full access, during normal business hours throughout the
period prior to the Closing, to all of the properties, books, contracts,
commitments and records relating to the business, assets and liabilities of the
Disclosing Party, and shall furnish the Requesting Parties, their respective
accountants, legal counsel and other representatives during such period all such
information concerning its affairs as the Requesting Parties may reasonably
request; provided that any furnishing of such information pursuant hereto or any
investigation by a Requesting Party shall not affect such Requesting Party's
right to rely on the representations, warranties, covenants and agreements made
by the Disclosing Party in this Agreement. Pending the Closing, each Requesting
Party shall hold in confidence all information so obtained and will use such
information only for purposes related to the transactions contemplated hereby.
Each Requesting Party further agrees that, pending the Closing, it will not
disclose any such information to any third party except upon the prior written
consent of the Disclosing Party, or except as required by law or except to its
accountants, legal counsel or other representatives who have agreed to maintain
the confidentiality of such information. If the transactions contemplated hereby
are not consummated, the Requesting Party shall return all data to the
Disclosing Party and continue to honor the foregoing confidentiality and
non-disclosure covenants for a period of three (3) years. Such obligation of
confidentiality shall not extend to any information (i) which is shown to be or
to have been generally known to others engaged in the same trade or business as
the Disclosing Party; (ii) previously known to the Requesting Party prior to the
start of discussions leading to the execution of this Agreement; (iii) obtained
by the Requesting Party in good faith from third parties who are not obligated
to maintain the information confidential; (iv) that is or shall be public
knowledge through no act or omission by the Requesting Party or any of its
directors, officers, employees, or representatives; or (v) that is required to
be disclosed pursuant to any law, rule or regulation or pursuant to any order or
decree of any appropriate court or governmental agency or pursuant to any
disclosure obligations set forth in the Federal securities laws.
5.5 DISCLOSURE OF TRANSACTION. Each of the parties hereto
agrees to issue a mutually acceptable joint press release upon the execution of
this Agreement and upon the Closing. Each party will review and agree to the
text of any other public announcement related to this Agreement, the Closing or
the transactions contemplated hereby prior to the release thereof.
5.6 CERTAIN DEFAULTS; LITIGATION. Caravelle will give prompt
notice to Avesta and Avesta Technologies Canada of:
(a) any notice of default received by Caravelle
subsequent to the date of this Agreement and prior to the Closing under any
instrument or agreement to which Caravelle or its assets is a party or by which
it is bound, which default could, if not remedied, result in a Material Adverse
Effect or which would render incorrect or misleading any representation made
herein; or
(b) any suit, action, proceeding or investigation
instituted or threatened against or affecting Caravelle subsequent to the
date of this Agreement and prior to the Closing which, if adversely determined,
could result in a Material Adverse Effect or which would render incorrect or
misleading any representation made herein.
5.7 AUDITED FINANCIAL STATEMENTS. On the Effective Date,
Caravelle shall have
<PAGE>
delivered to Avesta and Avesta Technologies Canada audited financial statements
of Caravelle, including footnotes, for the fiscal year ended December 31, 1997
prepared by Caravelle's independent auditors in accordance with Canadian GAAP
(the "CARAVELLE AUDIT").
5.8 BREACH OF REPRESENTATIONS AND WARRANTIES. Each of
Caravelle, the Caravelle Shareholders, Avesta and Avesta Technologies Canada
shall use commercially reasonable efforts to assure that their respective
representations and warranties remain true and correct in all material respects.
In the event of, and promptly after, becoming aware of the occurrence or pending
or threatened occurrence of any event which would cause their respective
representations and warranties not to be true and correct, each party shall give
detailed notice thereof to the other and shall use commercially reasonable
efforts to prevent or promptly remedy such pending or threatened occurrence or
event.
5.9 NECESSARY CONSENTS. Each of Caravelle, Avesta and Avesta
Technologies Canada shall promptly apply for or otherwise seek, and use its
commercially reasonable efforts to obtain, all consents and approvals required
to be obtained by it for the consummation of the transactions contemplated by
this Agreement, and Caravelle shall use its best efforts to obtain all necessary
consents, waivers and approvals under any of Caravelle's Contracts in connection
with the Amalgamation, (including but not limited to consent to the assignment
of the lease for Caravelle's offices), except such consents and approvals as
Avesta, Avesta Technologies Canada and Caravelle agree Caravelle shall not seek
to obtain, as contemplated by the Caravelle Disclosure Schedule.
5.10 COMMERCIALLY REASONABLE EFFORTS. Caravelle, the Caravelle
Shareholders, Avesta and Avesta Technologies Canada shall each use commercially
reasonable efforts to effectuate the transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to closing under this
Agreement.
5.11 ESCROW AGREEMENT. On or before the Effective Time,
Avesta, Caravelle, the Escrow Agent (as hereinafter defined) and the Caravelle
Shareholders will execute the Escrow Agreement contemplated by Article 10
substantially in the form attached hereto as EXHIBIT 5.11 (the "ESCROW
AGREEMENT").
ARTICLE 6
CONDITIONS PRECEDENT TO
OBLIGATIONS OF AVESTA AND AVESTA TECHNOLOGIES CANADA
The obligations of Avesta and Avesta Technologies Canada to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or before the Closing, of all the following conditions, unless
expressly waived in writing by Avesta and Avesta Technologies Canada:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. All representations
and warranties by Caravelle and the Caravelle Shareholders in this Agreement,
the Caravelle Disclosure Schedule, or the other Schedules and Exhibits hereto,
or in any written statement or certificate that shall be delivered by Caravelle
under this Agreement shall be true on and as of the Effective Date as though
such representations and warranties were made on and as of that date.
6.2 CONVENANTS PERFORMED. Caravelle and the Caravelle
Shareholders shall have performed, satisfied, and complied with all covenants,
agreements, and conditions required by this
<PAGE>
Agreement to be performed or complied with by Caravelle on or before the
Effective Date.
6.3 CERTIFICATE. Avesta and Avesta Technologies Canada shall
have received from Caravelle a certificate from the Chief Executive Officer and
Chief Financial Officer of Caravelle, as officers of, and on behalf of
Caravelle, and not in their personal capacities, dated the Effective Date,
certifying, in such detail as Avesta and Avesta Technologies Canada and their
counsel may reasonably request, that the conditions specified in this Article 6
have been satisfied (the "CARAVELLE OFFICERS' CERTIFICATE").
6.4 NO VIOLATIONS; NO ACTIONS. Consummation of the
transactions contemplated by this Agreement shall not violate any order, decree
or judgment of any court or governmental body having competent jurisdiction and
no action or proceeding shall have been instituted or threatened by any person,
entity or governmental agency which, in any such case, in the sole judgment of
Avesta and Avesta Technologies Canada acting reasonably, has a reasonable
probability of resulting in (i) the obtaining of material damages from
Caravelle; (ii) an order, judgment or decree restraining, prohibiting or
rendering unlawful the consummation of the transactions contemplated by this
Agreement; or (iii) other relief in connection therewith.
6.5 OPINION OF COUNSEL FOR CARAVELLE. Avesta and Avesta
Technologies Canada shall have received an opinion from LaBarge Weinstein,
counsel for Caravelle, dated the Effective Date, in form and substance
satisfactory to Avesta and Avesta Technologies Canada and their counsel (the
"LABARGE WEINSTEIN OPINION").
6.6 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to Avesta and Avesta Technologies Canada and their
counsel, and Avesta and Avesta Technologies Canada shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.
6.7 DELIVERY OF DOCOMENTS. Avesta and Avesta Technologies
Canada shall have received all documents and other items to be delivered by
Caravelle pursuant to this Section 6.
6.8 NO MATERIAL ADVERSE EFFECT. During the period from January
31, 1998 to the Effective Date, there shall not have been any material adverse
change in the business, properties, results of operations, or condition
(financial or otherwise) of Caravelle.
6.9 REQUIRED CONSENTS. All consents, approvals and waivers
from third parties and governmental authorities necessary to the transactions as
contemplated hereby shall have been given, including but not limited to the
approval of Innovation Ontario Corporation.
6.10 SCHEDULES. Caravelle shall have completed and attached
hereto the Caravelle Disclosure Schedule required by this Agreement, such
Caravelle Disclosure Schedule shall have been updated immediately prior to the
Closing, and the Caravelle Disclosure Schedule shall have been acceptable to
Avesta and Avesta Technologies Canada and their counsel, in their sole
discretion.
6.11 ILLEGALITY OR LEGAL CONSTRAINT. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated or enforced (and not repealed, superseded or otherwise
made inapplicable) by any court or governmental authority which prohibits the
execution of this Agreement or the consummation of the transactions contemplated
hereby (each party agreeing promptly to use its reasonable best efforts to have
any such order, decree
<PAGE>
or injunction lifted).
6.12 CARAVELLE AUDIT. Caravelle shall have received a clean
and unqualified opinion from its independent auditors in connection with the
Caravelle Audit.
6.13 ESCROW AGREEMENT. Avesta, the Escrow Agent and the
Shareholders' Agent shall have entered into the Escrow Agreement.
6.14 AGREEMENTS. Caravelle shall have delivered to Avesta (i)
from each of the Caravelle employees identified on part (a) of SCHEDULE 2.29
attached hereto, an executed form of Avesta's standard Noncompetition and
Nonsolicitation Agreement; (ii) from each of the Caravelle employees identified
on part (b) of SCHEDULE 2.29 attached hereto, an executed form of Avesta's
standard Employee Nondisclosure and Developments Agreement; and (iii) an
executed employment agreement between Avesta Technologies Canada and Lynda
Partner which is satisfactory to Avesta (the "PARTNER AGREEMENT").
6.15 CARAVELLE OPTION HOLDER WAIVERS. Each Caravelle Option
Holder shall have executed the Waiver required under Section 1.6 with respect to
his or her outstanding options under the Caravelle Option Plan.
6.16 RELEASES AND INDEMNIFICATIONS. Tim Boreham and Eric Melka
shall have entered into releases and indemnifications, substantially in the form
of EXHIBIT 6.16 (each, a "RELEASE AND INDEMNIFICATION").
6.17 SHAREHOLDER VOTE AND INDEMNITY. Shareholders representing
at least 95% of the Caravelle shares shall have voted in favor of the
Amalgamation and the Caravelle Shareholders shall have agreed to place shares of
Avesta Series B Preferred Stock into escrow pursuant to Section 10 of this
Agreement.
6.18 RIGHTS OFFERING. Caravelle shall have completed a rights
offering and shall have received C $412,500 in proceeds from such offering the
"CARAVELLE RIGHTS OFFERING").
6.19 SEVERANCE AGREEMENT WITH TIM BOREHAM. Caravelle shall
have entered into a severance agreement with Tim Boreham which contains
substantially the same terms and conditions as those set forth on EXHIBIT 6.19
(the "BOREHAM AGREEMENT").
6.20 TERMINATION OF EMPLOYMENT AGREEMENTS. Caravelle shall
have terminated each of the employment agreements for those employees listed on
SCHEDULE 2.29 attached hereto.
6.21 FUNDAMENTAL AGREEMENTS. The Caravelle Shareholders
representing at least 95% of the issued and outstanding shares of Caravelle
Stock shall have each executed this Agreement; the Shareholder's Agent shall
have executed the Escrow Agreement, and the Caravelle Shareholders shall have
executed all other applicable Fundamental Agreements.
6.22 DUE DILIGENCE. Avesta and Avesta Technologies Canada
shall have been, in their sole discretion, reasonably satisfied with their due
diligence review of Caravelle.
<PAGE>
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF
CARAVELLE AND THE CARAVELLE SHAREHOLDERS
The obligations of Caravelle and the Caravelle Shareholders to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or before the Closing, of all the following conditions, unless
expressly waived in writing by Caravelle:
7.1 REPRESENTATIONS TRUE. All representations and warranties
by Avesta and Avesta Technologies Canada in this Agreement, the Avesta
Disclosure Schedule or the other Schedules and Exhibits hereto, or in any
written statement or certificate that shall be delivered to Caravelle by Avesta
and Avesta Technologies Canada under this Agreement shall be true on and as of
the Effective Date as though such representations and warranties were made on
and as of that date.
7.2 COVENANTS PERFORMED. Avesta and Avesta Technologies Canada
shall have performed, satisfied, and complied with all covenants, agreements,
and conditions required by this Agreement to be performed or complied with by
Avesta and Avesta Technologies Canada on or before the Effective Date.
7.3 CERTIFICATE. Caravelle shall have received from Avesta and
Avesta Technologies Canada a certificate from the Chief Executive Officer of
Avesta and Avesta Technologies Canada, respectively, dated the Effective Date,
certifying, in such detail as Caravelle and its counsel may reasonably request,
that the conditions specified in this Article 7 have been satisfied (the "AVESTA
OFFICERS' CERTIFICATE").
7.4 NO VIOLATIONS; NO ACTIONS. Consummation of the
transactions contemplated by this Agreement shall not violate any order, decree
or judgment of any court or governmental body having competent jurisdiction and
no action or proceeding shall have been instituted or threatened by any person,
entity or governmental agency which, in any such case, in the sole judgment of
Caravelle, has a reasonable probability of resulting in (i) the obtaining of
material damages from Avesta; (ii) an order, judgment or decree restraining,
prohibiting or rendering unlawful the consummation of the transactions
contemplated by this Agreement, or (iii) other relief in connection therewith.
7.5 OPINION OF COUNSEL FOR AVESTA AND AVESTA TECHNOLOGIES
CANADA. Caravelle and the Caravelle Shareholders shall have received an opinion
from Brobeck, Phleger & Harrison LLP, counsel for Avesta and an opinion from
McCarthy Tetrault, counsel for Avesta Technologies Canada, dated the Effective
Date, in form and substance reasonably satisfactory to Caravelle and its counsel
(the "BP&H AND MCCARTHY TETRAULT OPINIONS").
7.6 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to Caravelle and its counsel, and Caravelle shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
7.7 DELIVERY OF DOCUMENTS. Caravelle shall have received all
documents and other items to be delivered by Avesta and Avesta Technologies
Canada under Section 7.
7.8 REQUIRED CONSENTS. All consents, approvals and waivers
from third parties and governmental authorities necessary to the transactions as
contemplated hereby shall have been obtained.
<PAGE>
7.9 ILLEGALITY OR LEGAL CONSTRAINT. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated or enforced (and not repealed, superseded or otherwise
made inapplicable) by any court or governmental authority which prohibits the
execution of this Agreement or the consummation of the transactions contemplated
hereby (each party agreeing promptly to use its reasonable best efforts to have
any such order, decree or injunction lifted).
7.10 EMPLOYMENT BY AVESTA AND AVESTA TECHNOLOGIES CANADA.
Avesta shall continue the employment of the Caravelle Employees specified in
SCHEDULE 2.29 hereto.
7.11 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT. The
Caravelle Shareholders shall have entered into the Amended and Restated Investor
Rights Agreement set forth as EXHIBIT 7.11 hereto.
7.12 NO MATERIAL ADVERSE EFFECT. During the period from
January 31, 1998 to the Effective Date, there shall not have been any material
adverse change in the business, properties, results of operations, or condition
(financial or otherwise) of Avesta.
ARTICLE 8
CLOSING
8.1 TIME AND PLACE. The closing of the Amalgamation (the
"CLOSING") shall occur simultaneously at the offices of Brobeck, Phleger &
Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019 and LaBarge
Weinstein, Xerox Tower, 333 Preston Street, 11th Floor, Ottawa, K1S 5NY, Canada
at 10:00 a.m. (eastern standard time) on the earliest practicable date after the
conditions of Articles 6 and 7 shall have been met or at such other time and
date to which the parties may agree in writing (the "CLOSING DATE").
8.2 DELIVERIES BY CARAVELLE. At the Closing, Caravelle shall
execute and deliver or cause to be executed and delivered to Avesta and Avesta
Technologies Canada:
(a) CORPORATE DOCUMENTS. The Articles of
Incorporation, as amended, of Caravelle, certified by the President as of a
recent date, and the Bylaws of Caravelle, certified by the Secretary of
Caravelle as in effect as of the Closing Date;
(b) CERTIFICATES OF STATUS. Certificates of Status,
dated not more than seven days prior to the Effective Date.
(c) RESOLUTIONS. A copy of the resolutions of (i) the
Board of Directors of Caravelle, certified by the Secretary of
Caravelle, as having been duly and validly adopted and being in full force and
effect, authorizing the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by Caravelle; and (ii) the
Shareholders of Caravelle;
(d) OFFICERS' CERTIFICATE. The Caravelle Officers'
Certificate;
(e) SECRETARY'S CERTIFICATE. A certificate of the
Secretary of Caravelle, in form and substance satisfactory to Avesta and Avesta
Technologies Canada and their counsel, certifying (i) that attached thereto are
true and certified copies of the Articles of Incorporation, as amended, and
Bylaws of Caravelle, as amended to the Closing Date; (ii) that attached thereto
are true
<PAGE>
and complete copies of the resolutions of the Board of Directors of Caravelle
authorizing the execution, delivery and performance of this Agreement and any
other documents, instruments and certificates required to be executed by it in
connection herewith and approving the consummation of the transactions
contemplated hereby; (iii) the names and true signatures of the officers of
Caravelle signing this Agreement and all other documents to be delivered in
connection with this Agreement and the consummation of the transactions
contemplated hereby; and (iv) such other matters as Avesta and Avesta
Technologies Canada or their counsel may reasonably request;
(f) BOOKS AND RECORDS. All of the minute books, stock
ledgers and similar corporate records of Caravelle;
(g) SEARCHES. Such searches under the Personal
Property Security Act showing that there are liens or rights of others
outstanding against Caravelle or any of its assets as of the Closing Date or a
date that is not more than five (5) days prior to the Closing Date;
(h) CONSENTS. Evidence that all consents, releases,
approvals, or authorizations of or notifications to any third parties
(including governmental agencies), if any, required to effect the Amalgamation
and to consummate the transactions contemplated hereby have been obtained by
Caravelle;
(i) ESCROW AGREEMENT. The Escrow Agreement;
(j) OPINION OF COUNSEL. The LaBarge Weinstein
Opinion;
(k) CARAVELLE AUDIT. The Caravelle Audit; and
(l) RELEASES AND INDEMNIFICATIONS. Documentation
evidencing the execution and delivery of the Releases and Indemnifications which
shall be in full force and effect as of the Effective Date;
(m) THE BOREHAM AGREEMENT. The Boreham Agreement;
(n) PARTNER AGREEMENT. The Partner Agreement; and
(o) OTHER DOCUMENTS. Such other documents and
instruments as Avesta and Avesta Technologies Canada or its counsel shall deem
reasonably necessary to consummate the transactions contemplated hereby.
All documents delivered to Avesta and Avesta Technologies
Canada shall be in form and substance reasonably satisfactory to Avesta and
Avesta Technologies Canada and their counsel.
8.3 DELIVERIES OF AVESTA AND AVESTA TECHNOLOGIES CANADA. At
the Closing, Avesta and Avesta Technologies Canada shall execute and deliver or
cause to be executed and delivered to Caravelle simultaneously with delivery of
the items referred to in Section 8.2 above:
(a) CORPORATE DOCUMENTS. The Articles of
Incorporation of Avesta and Avesta Technologies Canada, respectively, certified
by the Secretary of State of the State of Delaware and in the case of Avesta
Technologies Canada pursuant to the OBCA by the Ministry of Consumer and
Commercial Relations as of a recent date, and the Bylaws of Avesta and Avesta
Technologies Canada, respectively, certified by the Secretary of Avesta as in
effect at the Closing;
<PAGE>
(b) CERTIFICATES OF GOOD STANDING. Certificates from
the Secretary of State of the State of Delaware and in the case of Avesta
Technologies Canada pursuant to the OBCA to the effect that each of Avesta and
Avesta Technologies Canada is in good standing and listing all charter documents
of each of Avesta and Avesta Technologies Canada on file;
(c) RESOLUTIONS. A copy of the resolutions of each of
the Board of Directors of and the sole stockholder of Avesta
Technologies Canada, certified by the Secretary thereof, as having been duly and
validly adopted and being in full force and effect, authorizing the execution
and delivery of this Agreement and the performance of the transactions
contemplated hereby by Avesta and Avesta Technologies Canada;
(d) CONSENTS. Evidence that all consents, releases,
approvals, or authorizations of or notifications to any third parties
(including governmental agencies), if any, required to effect the Amalgamation
and to consummate the transactions contemplated hereby have been obtained by
Avesta and Avesta Technologies Canada;
(e) STOCK CERTIFICATES. Certificates representing the
Amalco Exchangeable Shares to be issued in the Amalgamation;
(f) OPINIONS OF BP&H AND MCCARTHY TETRAULT. The BP&H
Opinion and the McCarthy Tetrault Opinion;
(g) OTHER DOCUMENTS. Such other documents and
instruments as Caravelle or its counsel shall deem reasonably necessary to
consummate the transactions contemplated hereby.
All documents delivered to Caravelle shall be in form and
substance reasonably satisfactory to Caravelle and its counsel.
ARTICLE 9
TERMINATION
9.1 TERMINATION.
(a) This Agreement may be terminated at any time
prior to the Effective Time:
(i) by the respective agreement of the Boards
of Directors of each of Avesta, Avesta Technologies Canada and Caravelle.
(ii) by Avesta or Avesta Technologies Canada
(provided neither Avesta nor Avesta Technologies Canada is otherwise in breach),
if (a) the conditions in Article 6 have not been met; or (b) there has been a
breach by Caravelle or the Caravelle Shareholders of any representation,
warranty, covenant or agreement set forth in this Agreement which is material
and which Caravelle or the Caravelle Shareholders fail to cure within ten (10)
business days after notice thereof is given by Avesta or Avesta Technologies
Canada (except that no cure period shall be provided for a breach by Caravelle
or the Caravelle Shareholders which by its nature cannot be cured);
<PAGE>
(iii) by Caravelle (provided Caravelle is not
otherwise in breach), if (a) the conditions in Article 7 have not been met; or
(b) there has been a breach by Avesta or Avesta Technologies Canada of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Avesta or Avesta Technologies Canada which is material and which
Avesta or Avesta Technologies Canada fail to cure within ten (10) business days
after notice thereof is given by Caravelle (except that no cure period shall be
provided for a breach by Avesta or Avesta Technologies Canada which by its
nature cannot be cured);
(iv) by Avesta, Avesta Technologies Canada or
Caravelle, if the Closing shall not have occurred before 5:00 p.m. (eastern
standard time) on June 8, 1998;
(v) by Avesta or Avesta Technologies Canada if
the Caravelle Shareholders (a) representing at least 95% of the issued and
outstanding shares of Caravelle Stock fail to vote in favor of the Amalgamation
within five business days after the meeting of the Caravelle Shareholders called
to vote upon the Amalgamation; or (b) fail to place 138,249 shares of Avesta
Series B Preferred Stock into escrow pursuant to Section 10 hereof;
(vi) by Caravelle if there is any litigation
either pending or threatened (including injunctive relief) which attempts to
prevent Avesta or Avesta Technologies Canada from entering into this Agreement
or the transactions contemplated hereby from becoming effective; or
(vii) by Avesta or Avesta Technologies Canada
if (a) there is any litigation pending or threatened (including injunctive
relief) which attempts to prevent Caravelle from entering into this Agreement or
the transactions contemplated hereby from becoming effective.
(b) Where action is taken to terminate this Agreement
pursuant to this Section 9.1, it shall be sufficient for such action to be
authorized by the Board of Directors of the party taking such action.
(c) In the event of termination of this Agreement as
provided in this Section, this Agreement shall forthwith become void; PROVIDED,
HOWEVER, that the agreements contained or referred to in Section 9.2 hereof
shall survive. Termination of this Agreement shall not limit the liability of
any party hereto except as provided in this Agreement.
9.2 TERMINATION FEES. In the event this Agreement is
terminated by:
(a) AVESTA OR AVESTA TECHNOLOGIES CANADA:
(i) pursuant to Section 9.1(a)(v)(a), Caravelle
shall reimburse Avesta and Avesta Technologies Canada for the aggregate of their
expenses incurred in connection with this transaction from the period March 6,
1998 through the date of termination of this Agreement, including but not
limited to legal, audit and travel expenses; and
(ii) for convenience, Avesta shall reimburse
Caravelle for its operating expenses (as set forth on the Caravelle 1998
Operating Plan (attached hereto as EXHIBIT 9.2) from March 6, 1998 through the
date of termination of this Agreement; or
(b) CARAVELLE for convenience, Caravelle shall
reimburse Avesta and
<PAGE>
Avesta Technologies Canada for the aggregate of their expenses incurred in
connection with this transaction from the period March 6, 1998 through the date
of termination of this Agreement, including but not limited to legal, audit and
travel expenses.
ARTICLE 10
INDEMNIFICATION, POST-CLOSING ESCROW AND POST-CLOSING ADJUSTMENT
10.1 ESCROW FUND. As soon as practicable after the
Exchange, the Caravelle Shareholders shall place an aggregate of 138,249
shares of the Avesta Series B Preferred Stock to be issued to the Caravelle
Shareholders, in accordance with each Caravelle Shareholder's PRO RATA share
ownership (the "ESCROW SHARES"), shall be registered in the name of, and be
deposited with First Union National Bank or other institution selected by
Avesta with the reasonable consent of the Shareholders' Agent (as defined
below), as escrow agent (the "ESCROW AGENT"), such deposit to constitute the
escrow fund (the "ESCROW FUND") and to be governed by the terms set forth in
the form of Escrow Agreement attached hereto as EXHIBIT 5.11 (the "ESCROW
AGREEMENT"). The Escrow Fund shall be available to compensate Avesta for any
Damages and Deviations (both as defined below).
A total of 92,166 shares of Avesta Series B Preferred Stock
shall be allocated to reimbursing Avesta for Damages (the "DAMAGES SHARES"),
and 46,083 shares of Avesta Series B Preferred Stock shall be allocated to
reimbursing Avesta for Deviations (the "POST-CLOSING AUDIT SHARES"). In
determining the amount of any Damages attributable to a breach, any
materiality standard contained in a representation, warranty or covenant of
Avesta shall be disregarded.
10.2 DAMAGES. The Caravelle Shareholders, severally, and not
jointly, will indemnify and hold harmless Avesta, Amalco and their respective
officers, directors, agents and employees, and each person, if any, who controls
or may control Avesta or Amalco within the meaning of the Securities Act
(hereinafter referred to individually as an "INDEMNIFIED PERSON" and
collectively as "INDEMNIFIED PERSONS") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
or causes of action (including, without limitation, reasonable costs of
investigation, defense and prosecution of litigation and attorneys' fees and
costs) that such Indemnified Person has incurred or reasonably anticipates
incurring by reason of the breach by Caravelle or the Caravelle Shareholders of
any representation, warranty, covenant or agreement of Caravelle or the
Caravelle Shareholders contained herein (the "BREACH DAMAGES"). Avesta shall be
entitled to receive out of the Escrow Fund shares of Avesta Series B Preferred
Stock:
(a) in an amount sufficient to reimburse Avesta for
any Breach Damages, and
(b) in an amount sufficient to reimburse Avesta for
any difference between (i) C $383,989; and (ii) the aggregate amount of
Investment Tax Credits relating to current and capital scientific research and
development expenditures ("ITCS") actually awarded by Revenue Canada for the
years 1996 and 1997 (the "ITC DAMAGES"). For the purposes of this Agreement,
Breach Damages and ITC Damages shall be collectively referred to as the
"Damages".
10.3 ITCs. After the Effective Date, Avesta shall use
commercially reasonable efforts to pursue with Revenue Canada the award of the
ITCs.
10.4 POST-CLOSING ADJUSTMENTS.
(a) POST-CLOSING AUDIT. Within 60 days after the
Closing Date, Avesta
<PAGE>
shall cause to be conducted an Audit of the Caravelle balance sheet as of the
Closing Date (the "POST-CLOSING AUDIT"). In the event the Post-Closing Audit
results in deviations (other than the Caravelle Rights Offering) from the
Caravelle balance sheet as of January 31, 1998 which are not reflected in the
Caravelle 1998 Operating Plan (each, a "DEVIATION"): (i) in the case the
Post-Closing Audit results in a higher Accumulated Deficit, Avesta shall be
entitled to receive out of the Escrow Fund shares in an amount equal to the
dollar amount of the negative Deviation, all in accordance with this Section 10;
or (ii) in the case the Post-Closing Audit results in Lower Accumulated Deficit,
the Caravelle Shareholders shall be entitled to receive all of the Post-Closing
Audit Shares plus a cash amount equal to the positive Deviation (the "DEVIATION
BONUS"). In any case, Avesta will only consider invoiced receivables less than
or equal to 90 days old for the purposes of credit during the Post-Closing
Audit. Should any receivables older than 90 days as of the Closing Date be
collected after the Closing Date, but prior to the Post-Closing Audit, such
amounts will be considered valid receivables as of the Closing Date.
(b) ADJUSTMENT TO REFLECT ITC AWARD. In the event
Revenue Canada awards ITCs for the years 1996 and 1997 which, in the aggregate,
are greater than C $383,989, then on or after the one year anniversary of the
Effective Date, and after Revenue Canada's final ruling on the ITCs, the
Caravelle Shareholders shall be entitled to receive (a) out of the Escrow Fund
shares of Series B Preferred Stock in an amount equal to 50% of the difference
between (i) the aggregate amount of ITCs actually awarded by Revenue Canada for
the years 1996 and 1997; and (ii) C $383,989; (the "ITC BONUS") or (b) if there
are insufficient Damages Shares in the Escrow Fund to cover the ITC Bonus, the
remainder of Damages Shares in the Escrow Fund, plus a cash amount equal to the
difference between the ITC Bonus and the value of the remaining Damages Shares.
For the purposes of this Agreement, the Deviation Bonus and the ITC Bonus shall
be referred to as the "Adjustment".
10.5 THRESHOLD. Notwithstanding the foregoing, Avesta may not
receive any shares from the Escrow Fund unless and until an Officer's
Certificate (as hereinafter defined) (i) identifying Damages, the aggregate
amount of which exceeds $25,000, has been delivered to the Escrow Agent as
provided in Section 10.7 below and such amount is determined pursuant to this
Article 10 to be payable, in which case Avesta shall receive an amount of shares
of Avesta Series B Preferred Stock equal in value to the amount of Damages over
and above the first $25,000 of Damages, provided, however, that in no event
shall Avesta receive more than 92,166 shares of Avesta Series B Preferred Stock
as reimbursement for such Damages; or (ii) identifying Deviations, the aggregate
amount of which exceeds $15,000, has been delivered to the Escrow Agent as
provided in Section 10.7, below, and such amount is determined pursuant to
Article 10 to be payable, in which case Avesta shall receive an amount of shares
of Avesta Series B Preferred Stock equal in value to the amount of Deviations
over and above the first $15,000 of Deviations, PROVIDED, HOWEVER, that in no
event shall Avesta receive more than 46,083 shares of Avesta Series B Preferred
Stock as reimbursement for such Deviations. Once the foregoing $25,000 Damage
threshold and/or $15,000 Deviation threshold has been met, Avesta shall
thereafter be entitled to receive shares of Avesta Series B Preferred Stock out
of the Escrow Fund to cover any subsequent Damages or Deviations.
10.6 ESCROW PERIOD. The Escrow Period shall terminate (i) with
respect to all the Post-Closing Audit Shares at the expiration of two months
after the Effective Time, and (ii) subject to Section 11.2, with respect to the
Damages Shares at the expiration of the later of (a) twelve (12) months after
the Effective Time, or (b) Revenue Canada's final ruling on the ITCs for the
years 1996 and 1997. Any shares of Avesta Series B Preferred Stock held in the
Escrow Fund at such times shall be delivered to the Caravelle Shareholders in
accordance with such Caravelle Shareholders' respective percentage of share
ownership; PROVIDED, HOWEVER, that the portion of the Escrow Shares, which, in
<PAGE>
the reasonable judgment of Avesta, are or may be necessary to satisfy any
unsatisfied claims for Damages or Deviations specified in any Officer's
Certificate delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved in accordance with the provisions of this Section 10.
10.7 CLAIMS UPON ESCROW FUND.
(a) Upon receipt by the Escrow Agent on or before the
last day of the Escrow Period of a certificate signed by the Chief Financial
Officer of Avesta or Amalco (an "OFFICER'S CERTIFICATE") stating that an
Adjustment exists, or Damages exist in an aggregate amount greater than $25,000,
or Deviations exist in an aggregate amount greater than $15,000; and specifying
in reasonable detail the individual items of such Damages or Deviations included
in the amount so stated, the date each such item was paid, or properly accrued
or arose, the nature of the misrepresentation, breach of warranty or claim to
which such item is related, the Escrow Agent shall, subject to the provisions of
this Article 10, deliver to Avesta out of the Escrow Fund, as promptly as
practicable, shares of Avesta Series B Preferred Stock held in the Escrow Fund
having a value equal to such amount of Adjustment, Damages or the Deviation.
(b) For the purpose of compensating Avesta for their
Damages and Deviations, or the Caravelle Shareholders for an Adjustment pursuant
to this Agreement, the Avesta Series B Preferred Stock in the Escrow Fund shall
be valued at U.S. $4.34 per share.
10.8 OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Shareholders' Agent (as defined below) and
for a period of fifteen (15) days after such delivery, the Escrow Agent shall
make no delivery of Avesta Series B Preferred Stock or other property pursuant
to this Section 10.8 unless the Escrow Agent shall have received written
authorization from the Shareholders' Agent to make such delivery. After the
expiration of such fifteen (15) day period, the Escrow Agent shall make delivery
of the Avesta Series B Preferred Stock in accordance with this Section 10.8,
provided that no such payment or delivery may be made if the Shareholders' Agent
shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
and to Avesta prior to the expiration of such fifteen (15) day period.
10.9 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) In case the Shareholders' Agent shall so object
in writing to any claim or claims by Avesta made in any Officer's Certificate
whether in respect of Damages or Deviations, Avesta shall have fifteen (15) days
to respond in a written statement to the objection of the Shareholders' Agent.
If after such fifteen (15) day period there remains a dispute as to any claims,
the Shareholders' Agent and Avesta shall attempt in good faith for thirty (30)
days to agree upon the rights of the respective parties with respect to each of
such claims. If the Shareholders' Agent and Avesta should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Avesta Series B Preferred
Stock in accordance with the terms thereof.
(b) If no such agreement can be reached after good
faith negotiation, either Avesta or the Shareholders' Agent may, by
written notice to the other, demand arbitration of
<PAGE>
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. Within fifteen (15) days after such written notice is sent, Avesta
and the Shareholders' Agent shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The decision of the
arbitrators as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement,
and notwithstanding anything in this Section 10.8, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in New York City, New York under the commercial rules
then in effect of the American Arbitration Association. For purposes of this
Section 10.8(c), in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, Avesta shall be deemed
to be the Non-Prevailing Party unless the arbitrators award Avesta more than
one-half (1/2) of the amount in dispute, plus any amounts not in dispute;
otherwise, the Caravelle Shareholders for whom shares of Caravelle Stock
otherwise issuable to them have been deposited in the Escrow Fund shall be
deemed to be the Non-Prevailing Party. The "NON-PREVAILING PARTY" to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
10.10 SHAREHOLDERS' AGENT.
(a) Michael Potter shall be constituted and appointed
as agent (the "SHAREHOLDERS' AGENT") for and on behalf of the Caravelle
Shareholders to give and receive notices and communications, to authorize
delivery to Avesta of the Avesta Series B Preferred Stock in satisfaction of
claims by Avesta, to object to such deliveries, to agree to negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims to assist
Avesta in procuring, or to procure on behalf of Avesta, the ITCs, and to take
all actions necessary or appropriate in the judgment of the Shareholders' Agent
for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than thirty (30) days' prior written notice to Avesta. No bond shall be
required of the Shareholders' Agent, and the Shareholders' Agent shall receive
no compensation for its services, or expense reimbursement in connection with
its expenses incurred. Notices or communications to or from the Shareholders'
Agent shall constitute notice to or from each of the Caravelle Shareholders. The
Shareholders' Agent shall possess and be exclusively entitled in his sole
discretion to exercise all shareholder rights of every kind and nature in
connection with the Escrow Shares, including, without limiting the generality of
the foregoing, the right to receive all notices of and to attend at all meetings
of the shareholders of Amalco, to vote in person or in proxy thereat, to receive
and review all documentation with respect to such meetings and to exercise all
rights attaching to the shares of Amalco.
(b) The Shareholders' Agent shall not be liable for
any act done or omitted hereunder as Shareholders' Agent while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith. The Caravelle Shareholders shall, severally and not jointly,
indemnify the Shareholders' Agent and hold him harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part
of the Shareholders' Agent and arising out of or in connection with the
acceptance or administration of his duties hereunder.
<PAGE>
(c) The Shareholders' Agent shall have reasonable
access to information about Caravelle and the reasonable assistance of
Amalco's officers and employees for purposes of performing his duties and
exercising its rights hereunder, provided that the Shareholders' Agent shall
treat confidentially and not disclose any nonpublic information from or about
Caravelle to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
10.11 ACTIONS OF THE SHAREHOLDERS' AGENT. A decision, act,
consent or instruction of the Shareholders' Agent shall constitute a decision of
all Caravelle Shareholders for whom shares of Avesta Series B Preferred Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Caravelle Shareholder, and the Escrow
Agent and Avesta may rely upon any decision, act, consent or instruction of the
Shareholders' Agent as being the decision, act, consent or instruction of each
and every such Caravelle Shareholder. The Escrow Agent and Avesta is hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Agent.
10.12 THIRD-PARTY CLAIMS. In the event Avesta becomes aware of
a third-party claim which Avesta or Caravelle believe may result in a Demand
against the Escrow Fund, Avesta shall notify the Shareholders' Agent of such
claim, and the Shareholders' Agent and the Caravelle Shareholders for whom
shares of Avesta Series B Preferred Stock otherwise issuable to them are
deposited in the Escrow Fund shall be entitled, at their expense, to participate
in any defense of such claim. Avesta shall have the right in its sole discretion
to settle any such claim. In the event that the Shareholders' Agent has
consented to any such settlement, the Shareholders' Agent shall have no power or
authority to object under any provision of this Article 10 to the amount of any
claim by Avesta against the Escrow Fund for indemnity with respect to such
settlement.
10.13 LIMITATION OF LIABILITY OF CARAVELLE SHAREHOLDERS. Other
than with respect to claims for causes of action based in fraud, willful
misconduct, criminal acts, or suits brought by, and with respect to, the
Caravelle Shareholders, the liability of the Caravelle Shareholders hereunder
shall not exceed the sum of $1,200,000. Each Caravelle Shareholder's liability
shall be in proportion with his, her or its pro-rata percentage of ownership of
Caravelle Stock.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 CURRENCY; EXCHANGE RATE. All sums referenced herein shall
be in U.S. Dollars. Any sum which is to be paid hereunder in Canadian Dollars
shall be designated C $ and shall be calculated at the average of the exchange
rates published by the Royal Bank of Canada for the month of April, 1998.
11.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
All representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
consummation of the Amalgamation, shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of any party
hereto, and shall (except to the extent that survival is necessary to effectuate
the intent of the provisions hereof) terminate twelve (12) months after the
Effective Date.
11.3 ACKNOWLEDGEMENT OF ENFORCEABILITY. Each of the parties
hereto acknowledges that due to logistical and legal reasons, this Agreement may
be executed by each of the parties hereto at different times. Each of the
parties hereto agrees that each provision of this Agreement, including
<PAGE>
but not limited to the provisions of Article 9, shall be fully binding upon all
of the parties hereto once it is signed by Avesta, Caravelle, and Potter
Alexander and Associates, Inc.
11.4 FURTHER ASSURANCES. At the request of any of the parties
hereto, and without further consideration, each party agrees to execute such
documents and instruments and to do such further acts as may be necessary or
desirable to effectuate the transactions contemplated hereby.
11.5 BROKER OR FINDER. Each of the parties represents and
warrants that it has dealt with no broker or finder in connection with any of
the transactions contemplated by this Agreement and, insofar as it knows, no
broker or other person is entitled to any broker or finder's fee in connection
with these transactions. Each of the parties hereto further agrees to indemnify
and hold harmless any other against any loss, liability, damage, cost, claim, or
expense incurred by reason of any brokerage commission or finder's fee alleged
to be payable to any party.
11.6 EACH PARTY TO BEAR OWN COSTS. Other than with respect to
the Termination Fees set forth in Section 9.2 and arbitration costs pursuant to
10.8(c), each of the parties hereto shall pay all costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in closing
and carrying out the transactions contemplated by this Agreement.
11.7 HEADINGS. The subject headings of the Articles and
Sections of this Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
11.8 ENTIRE AGREEMENT; WAIVERS. This Agreement, the disclosure
schedules, and the Exhibits and Schedules hereto constitute the entire agreement
between the parties pertaining to the contemporaneous agreements,
representations, and understandings of the parties with respect to the subject
matter and supersede all prior assignments and understandings, both written and
oral, among the parties with respect to the subject matter hereof and are not
intended to confer upon any other person any rights or remedies hereunder except
as otherwise provided herein. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by all parties. No waiver
of any of the provisions of this Agreement shall be deemed, or shall constitute,
a waiver of any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
11.9 THIRD PARTIES. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their respective
successors and permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over against any party to this Agreement.
11.10 PARTIES IN INTEREST. This Agreement and the rights and
obligations set forth herein may not be transferred, assigned, pledged or
hypothecated by any party hereto, other than by operation of law, without the
consent of each party hereto. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns.
11.11 NOTICES. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party to
whom notice is to be given, on the date of transmittal of services via
<PAGE>
telecopy to the party to whom notice is to be given, or on the third day after
mailing if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid, and properly addressed as
follows (or at such other address for a party as shall be specified by like
notice):
<TABLE>
<CAPTION>
To Avesta or Avesta Technologies Canada at:
<S> <C>
Avesta Technologies, Inc.
Two Rector Street
New York, New York 10006
Attention: Kevin Boyle, Esq.
Telecopy No.: (212) 209-1558
With a copy to: Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attention: Alexander D. Lynch, Esq.
Telecopy No.: (212) 586-7878
To Caravelle at: Caravelle Inc.
210 Colonnade Road, South
Suite 301
Ottawa, Ontario K2E-7L5
Canada
Attention: Lynda Partner, President and CEO
Telecopy No.: (613) 225-4777
With a copy to: LaBarge Weinstein
Xerox Tower
333 Preston Street, 11th Floor
Ottawa, K1S 5N4
Canada
Attention: Debbie Weinstein, Esq.
Telecopy No.: (613) 231-3900
To the Shareholders'
Agent: Sussex Capital
62 John Street
Ottawa, ON K1M 1M3
Canada
Attention: Michael Potter
Telecopy No.: (613) 741-6511
With a Copy to: LaBarge Weinstein
Xerox Tower
333 Preston Street, 11th Floor
Ottawa, K1S 5N4
Canada
Attention: Debbie Weinstein, Esq.
Telecopy No.: (613) 231-3900
</TABLE>
<PAGE>
Any party may change its address for purposes of this Section by giving notice
of the new address to each of the other parties in the manner set forth above.
11.12 GOVERNING LAW. The terms of this Agreement shall be
governed by the laws of the State of New York, without regard to principles of
choice or conflicts of laws.
11.13 CONSENT TO JURISDICTION AND FORUM SELECTION. The parties
agree that all actions or proceedings arising in connection with this Agreement
shall be tried and litigated exclusively in the state and Federal courts located
in the State of New York. The aforementioned choice of venue is intended by the
parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this Section
11.13. Each party hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this Section, and stipulates that the
state and Federal courts located in the State of New York shall have in personam
jurisdiction and venue over each of them for the purposes of litigating any
dispute, controversy or proceeding arising out of or related to this Agreement.
Each party hereby authorizes and accepts service of process sufficient for
personal jurisdiction in any action against it as contemplated by this Section
11.13 by registered or certified mail, return receipt requested, postage
prepaid, to its address for the giving of notices as set forth in this
Agreement. Any final judgment rendered against a party in any action or
proceeding shall be conclusive as to the subject of such final judgment and may
be enforced in other jurisdictions in any manner provided by law.
11.14 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument and shall become effective when one
or more counterparts have been signed by each of the parties and delivered to
the other party.
11.15 SEVERABILITY. All provisions contained herein are
severable and in the event that any of them shall be held to be to any extent
invalid or otherwise unenforceable by any court of competent jurisdiction, such
provision shall be construed as if it were written so as to effectuate to the
greatest possible extent the parties' expressed intent; and in every case the
remainder of this Agreement shall not be affected thereby and shall remain valid
and enforceable, as if such affected provision were not contained herein.
11.16 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. The words
"include," "includes," and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." For purposes of this
Agreement, and except as provided in the following sentence, the term
"knowledge," when used in reference to a corporation means the actual knowledge
of the executive officers of such corporation after such officers shall have
made inquiry that is customary and appropriate under the circumstances to which
reference is made, and when used in reference to an individual means the actual
knowledge of such individual after the individual shall have made inquiry that
is customary and appropriate under the circumstances to which reference is made.
11.17 PUBLICITY. The parties shall cooperate with each other
in the development and distribution of all news releases and other public
disclosures relating to the transactions contemplated hereby. None of the
parties shall issue or make, or cause to have issued or made, any
<PAGE>
press release or announcement concerning the transactions contemplated hereby
without the advance approval in writing of the form and substance thereof by the
other parties, unless otherwise required by applicable law.
11.18 MUTUAL DRAFTING. This Agreement is the joint product of
the parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties, and shall not be
construed for or against any party hereto.
11.19 SPECIFIC PERFORMANCE AND OTHER REMEDIES. The parties
hereto each acknowledge that the rights of each party to consummate the
transactions contemplated hereby are special, unique and of extraordinary
character, and that, in the event that any party violates or fails or refuses to
perform any covenant or agreement made by it herein, the non-breaching party may
be without an adequate remedy at law. The parties each agree, therefore, that in
the event that either party violates or fails or refuses to perform any covenant
or agreement made by such party herein, the non-breaching party or parties may,
subject to the terms of this Agreement and in addition to any remedies at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief.
11.20 CONFLICT. In the event of a conflict or inconsistency
between the terms of this Agreement and the terms of any other agreement,
including the Escrow Agreement, the terms of this Agreement shall govern.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Plan of Reorganization as of the date set forth below his, her or
its signature, to be effective on the date first set forth above.
AVESTA TECHNOLOGIES, INC.
BY: /S/ KAM SAIFI
---------------------------------
ITS:
---------------------------------
AVESTA TECHNOLOGIES CANADA, INC.
BY: /S/ KAM SAIFI
---------------------------------
ITS:
---------------------------------
CARAVELLE, INC.
BY: /S/ LYNDA PARTNER
---------------------------------
ITS: PRESIDENT & CEO
---------------------------------
CARAVELLE SHAREHOLDERS
BY: /S/ CARAVELLE SHAREHOLDERS
---------------------------------
ITS:
---------------------------------
<PAGE>
SCHEDULE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.2 Articles of Incorporation and Bylaws of Amalco
Exhibit 1.4 Amalco Exchangeable Share Conditions
Exhibit 1.6(a) Avesta Option Plan
Exhibit 1.6(b) Caravelle Option Holders' Waiver Letter
Exhibit 2.29 Avesta's Standard Noncompetition and Nonsolicitation Agreement
Avesta's Standard Employee Nondisclosure and Developments Agreement
Exhibit 5.11 Escrow Agreement
Exhibit 6.16 Release and Indemnification Agreement
Exhibit 6.19 The Boreham Agreement
Exhibit 7.11 Amended and Restated Investor Rights Agreement
Exhibit 9.2 Caravelle 1998 Operating Plan
</TABLE>
<PAGE>
SCHEDULE OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1 Caravelle Shareholders
Schedule 1.3 Directors and Officers of Amalco
Schedule 1.6 Caravelle Options
Schedule 2 Caravelle Disclosure Schedule
Schedule 2.29 List of Caravelle Employees
</TABLE>
<PAGE>
EXHIBIT 10.13
FIRST AMENDMENT, dated June 1, 1998, TO AGREEMENT AND PLAN OF
AMALGAMATION BY AND AMONG AVESTA TECHNOLOGIES, INC. AND AVESTA TECHNOLOGIES
CANADA, INC. AND CARAVELLE INC. AND THE CARAVELLE SHAREHOLDERS AS OF MAY 8, 1998
(the "Agreement") by and among those parties to the Agreement.
W I T N E S S E T H
WHEREAS, the parties hereto have each entered into the
Agreement pursuant to which, among other things, Avesta Technologies Canada will
statutorily amalgamate with Caravelle Inc.; and
WHEREAS, the parties hereto desire to amend certain provisions
of the Agreement as set forth below.
NOW THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1. SECTION 3.3. Section 3.3 of the Agreement is hereby
deleted in its entirety and shall be replaced by the following:
"ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of
the Caravelle Shareholders represents and warrants
that it has reviewed the representations and
warranties made by Caravelle and set forth above in
Section 2 and, to its knowledge without having made
any inquiry or investigation, such representations
and warranties are true and correct."
2. SECTION 3.5. Section 3.5 of the Agreement is hereby
deleted in its entirety and shall be replaced by the following:
"REPRESENTATIONS COMPLETE. Each of the Caravelle
Shareholders represents and warrants that the
representations and warranties made by it contains or
will contain no untrue statement of a material fact,
or omit to state any material fact required to be
stated therein, or necessary in order to make the
statements made, in light of the circumstances under
which they were made, not misleading."
3. SECTION 10.13. Section 10.13 of the Agreement is
hereby deleted in its entirety and shall be replaced by the following:
<PAGE>
"LIMITATION OF LIABILITY OF CARAVELLE SHAREHOLDERS.
Other than with respect to claims for causes of
action based in fraud, willful misconduct, criminal
acts, or suits brought by, and with respect to, the
Caravelle Shareholders, the liability of the
Caravelle Shareholders hereunder shall not exceed the
sum of $1,200,000, which shall be payable solely in
shares of Avesta Series B Preferred Stock. Each
Caravelle Shareholder's liability shall be in
proportion with his, her or its pro-rata percentage
of ownership of Caravelle Stock."
4. SHAREHOLDERS' AGENT. The parties hereby agree that
Section 10.10 of the Agreement shall be amended only to reflect that Bonnie
Wright shall be the Shareholders' Agent instead of Michael Potter. Accordingly,
all references to Michael Potter shall be deemed to be references to Bonnie
Wright. In furtherance of the foregoing, the designation of the Shareholders'
Agent's address in Section 11.11 of the Agreement shall be deleted in its
entirety and replaced by the following:
Bonnie Wright
c/o Working Ventures
9 Antares Drive
Nepean, Ontario K2E-7V5
Canada
5. All other terms and conditions of the Agreement shall
remain unchanged.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
First Amendment as of the date set forth below his, her or its signature, to be
effective on the date first set forth above.
AVESTA TECHNOLOGIES, INC.
BY: /s/ Kam Saifi
-------------------------------
ITS: President & CEO
-------------------------------
DATED: May 1, 1998
-------------------------------
AVESTA TECHNOLOGIES CANADA, INC.
BY: /s/ Kam Saifi
-------------------------------
ITS: President & CEO
-------------------------------
DATED: June 1, 1998
-------------------------------
CARAVELLE, INC.
BY: /s/ Lynda Partner
-------------------------------
ITS: President & CEO
-------------------------------
DATED: May 1, 1998
-------------------------------
CARAVELLE SHAREHOLDERS
BY: /S/ Caravelle Shareholders
-------------------------------
<PAGE>
Exhibit 10.14
WANGZ BUSINESS CENTRE
7 Temasek Boulevard
The Penthouse
#44-01 Sumtec Tower One
Singapore 038987
Tel (65) 430-6786
Fax (65) 430-6699
E-mail: [email protected]
Website: www.pbc-aala.com
BUSINESS IDENTITY PLAN IV AGREEMENT
<TABLE>
<S> <C>
Company/or person (the "Subscriber") Avesta Technologies
Registered Address 7 Temasek Boulevard, The Penthouse, #44-01 Suntec
Tower One, Singapore 038987
Business Registration Number -
Nature of Business IT
Name of Person to sign/I.D. No. Mr. Paul Harapin
Contact Number(s) 733 7968/001 61 412449922
Billing Address As above
Service (the "Service") Full Communication Package (FCP)
Monthly Fee S$350.00 per month + 3% GST, i.c. $360.50
(payable quarterly in advance)
Deposit (the "Deposit") S$700.00
Commencement Date 1 June 1999 - 31 Aug. 1999
Telephone Number Assigned 65 4306 786/Fax 4306 699
Voicemail Number 786, Mailbox No: M16
</TABLE>
The Service includes the use of Wangz's address as a mailing and registered
address; one direct commercial telephone line with telephone answering under
Subscriber's name or Subscriber's company name; convey of messages via
voicemail; and access to (not applicable for Suite 5 or Suite 29) Wangz's fax
number. Three hours (min. one hour count) non-cumulative complimentary use of
office/meeting space per month. Charges on fax, secretarial and other business
services and facilities are applicable based on in-house client rates.
The Subscriber hereby applies to Wangz for the Service and agrees that upon
his/her execution hereof, he/she accepts and agrees to the terms and conditions
specified in the Second Schedule overleaf which shall be deemed to be part of
this Agreement.
In consideration of the payment of the Deposit and the first quarter's Retainer
Fee by the Subscriber to Wangz on signing this Agreement in the amount and
manner, and subject to the terms and conditions as specified in the Second
Schedule, Wangz hereby agrees to render the Service to the Subscriber.
Approved by Confirmed & Agreed by
WANGZ BUSINESS CENTRE Avesta Technologies
OPERATED BY
Soroti Pte Ltd AVESTA TECHNOLOGIES PTE LTD.
/s/illegible 1 JUNE 99 /s/ PAUL HARAPIN 1/6/99
- --------------------------------------- -------------------------------------
WANGZ BUSINESS CENTRE Director
OPERATED BY
SOROTI PTE LTD
<PAGE>
SECOND SCHEDULE
TERMS AND CONDITIONS
1) SUBSCRIBER COMMITMENT
The Subscriber shall, in good faith, subscribe to the Service for a
minimum period of 3 months. Subscriber shall forfeit the Deposit should
he/she terminate the Service prior to the said period and termination
of service in accordance to paragraph (4) shall not apply.
2) ENGAGEMENT OF EMPLOYMENT
To acknowledge that all employees of the Company have entered into an
agreement with the Company not to accept any offer of employment with
any Subscriber or its subsidiary or affiliated companies within six
months from the date of termination of this agreement. If the Company
should agree to release an employee from his agreement and such
employee shall subsequently accept employment with a Subscriber or its
subsidiary or affiliated companies within six months of termination of
his Agreement, the Subscriber agrees with the Company that a staff
placement fee will be due and repayable to the Company which shall be
calculated at 15% of the last annual salary of the employee or $6,000
whichever is the greater. Notwithstanding this, the Company does not
permit any current or formal employee, even after six months of their
termination of employment with the Company, to enter into any form of
employment with the Licensee while the Licensee is still housed in the
Premises of the Company.
3 PAYMENT
The Subscriber shall pay to Wangz, in advance, the quarterly Retainer
Fee and accrued service and facilities charges, if any, prescribed by
Wangz periodically. All payments must be paid within 7 days from the
debit note issue date and no reminder will be issued. Payments made to
Wangz shall only be valid and acceptable if made either by cheque or by
direct deposit to Wangz's bank account and evidenced by presentation of
the pay-in slip to Wangz and or by other means approved and agreed by
Wangz.
4. SUSPENSION OR TERMINATION FOR SERVICES BY WANGZ
Suspension or termination and forfeit of Deposit will be at Wangz's
discretion on non-payment and breach of the terms of this Agreement.
Suspension of Service shall be imposed should Wangz fail to receive
payment from the Subscriber within 15 days of the debit note issue date
stated. Full amount of Deposit shall be forfeited as payment for the
respective month. Wangz reserves the right to terminate the Service for
any reason which in Wangz's opinion has an adverse effect on Wangz's
business.
5. TERMINATION OF SERVICE BY THE SUBSCRIBER
Termination of Service by the Subscriber must be served on Wangz at its
registered office in written form giving at least one month's notice
and the Deposit after deducting all costs and expenses of Wangz and all
accrued charges, if any, will be refunded 45 days after the date of
termination. Otherwise, the full amount of Deposit shall be forfeited
in lieu of notice.
6. LIMITATION OF SERVICE
i) An additional charge of S$200 per month will be imposed for
each additional company name used but Wangz reserves the right
to limit the Service to one company name per Agreement at its
discretion.
ii) Wangz will only allow each Subscriber a maximum of three
persons to use the Service. A S$50 fee will be applied to each
additional name.
iii) For Subscribers of the Service, only mail, fax and telephone
messages would be conveyed. The Service does not include the
following:
(a) The use of the assigned direct line at Wangz premises
by Subscriber.
(b) The use of Wangz's reception area as a meeting or
waiting place.
(c) Handling of parcels. Any parcel received will be
subject to storage charges at the discretion of Wangz
but not less than S$30.00 per parcel on a per day
basis.
<PAGE>
7) AMENDMENT OF CONDITIONS
Wangz shall be entitled to vary, add to or modify any of the provisions
of this Agreement and/or alter the amount of the Retainer Fee or any
other fee payable in connection with the Service at any time and from
time to time. Wangz will make every reasonable effort to inform the
subscribers by written notification.
8) ADDITIONAL DEPOSIT
An additional deposit will be required should Wangz's costs and
expenses in connection with the Service amount to more than or an
equivalent of 70% of the Subscriber's existing deposit with Wangz.
9) SUPPLY OF CORRECT INFORMATION
At the time of application for the Service, the Subscriber shall supply
to Wangz his/her correct and complete information (including name,
address, telephone number, Business Registration License, identity card
number and Certificate of Incorporation, if any) for completing the
Agreement and shall inform Wangz of any change or alteration thereof
immediately. All notices and documents to be given to the Subscriber in
relation to the Service will be sent by ordinary post to the Subscriber
at the latest address supplied by the Subscriber.
10) SUBSCRIBER'S RISK
The Subscriber agrees to subscribe the Service at his/her own risks.
Wangz will not be liable for any losses or damages caused hereof.
/s/ illegible 1 JUNE 99
- -----------------------------------
WANGZ BUSINESS CENTRE
OPERATED BY
SOROTI PTE LTD
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
Avesta Technologies Canada, Inc.
Avesta Technologies PTE LTD
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports
dated November 4, 1999, except for the first paragraph of Note 8 as to which
the date is , 1999, in the Registration Statement (Form S-1) and
related Prospectus of Avesta Technologies, Inc. dated November 19, 1999.
Ernst & Young LLP
New York, New York
- ---------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the restatement of capital accounts described in the first paragraph of
Note 8 to the financial statements.
/s/ Ernst & Young LLP
-----------------
Ernst & Young LLP
New York, New York
November 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 768,949
<SECURITIES> 17,546,230
<RECEIVABLES> 5,923,763
<ALLOWANCES> 431,000
<INVENTORY> 0
<CURRENT-ASSETS> 24,627,217
<PP&E> 1,578,688
<DEPRECIATION> 635,255
<TOTAL-ASSETS> 26,793,559
<CURRENT-LIABILITIES> 6,943,542
<BONDS> 0
35,385,197
0
<COMMON> 88,023
<OTHER-SE> 356,615
<TOTAL-LIABILITY-AND-EQUITY> 26,793,559
<SALES> 9,722,061
<TOTAL-REVENUES> 9,722,061
<CGS> 1,217,413
<TOTAL-COSTS> 14,837,958
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 331,000
<INTEREST-EXPENSE> 120,800
<INCOME-PRETAX> (6,042,328)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,042,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,042,328)
<EPS-BASIC> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
