<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
BEST SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
VIRGINIA 7372 54-1222526
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
11413 ISAAC NEWTON SQUARE
RESTON, VA 20190
(703) 709-5200
------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
TIMOTHY A. DAVENPORT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BEST SOFTWARE, INC.
11413 ISAAC NEWTON SQUARE
RESTON, VA 20190
(703) 709-5200
------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
DAVID SYLVESTER, ESQ. ALEXANDER D. LYNCH, ESQ.
BRENT B. SILER, ESQ. BABAK YAGHMAIE, ESQ.
WILLIAM F. WINSLOW, ESQ. BROBECK, PHLEGER & HARRISON LLP
HALE AND DORR LLP 1633 BROADWAY
1455 PENNSYLVANIA AVENUE, N.W. NEW YORK, NEW YORK 10019
WASHINGTON, DC 20004 (212) 581-1600
(202) 942-8400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum
Title of securities to be Amount to be offering price per aggregate offering Amount of
registered registered(1) share(2) price(2) registration fee
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<S> <C> <C> <C> <C>
Common Stock, no par value...... 4,197,500 shares $13.00 $ 54,567,500 $ 16,536
========================================================================================================================
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(1) Includes 547,500 shares which the Underwriters have the option to purchase
from the Selling Shareholders to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 8, 1997
PROSPECTUS
3,650,000 SHARES
[BEST LOGO]
COMMON STOCK
Of the 3,650,000 shares of Common Stock offered hereby, 2,750,000 shares
are being sold by Best Software, Inc. (the "Company") and 900,000 shares are
being sold by the Selling Shareholders. The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholders. See "Principal and
Selling Shareholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol BEST.
---------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)........... $ $ $ $
================================================================================================
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $700,000.
(3) The Selling Shareholders have granted to the Underwriters a 30-day option to
purchase up to 547,500 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Selling Shareholders will
be $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST WILLIAM BLAIR & COMPANY
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
Best Software, FAS, FAS Encore, FASTrack, FAS Report Writer, Abra, Abra
Software, Abra HR, Abra Payroll, Abra Attendance, Abra Applicant, Abra Resume
Scan and Abra People Manager are trademarks, SupportPlus and Abra SupportPlus
are service marks, BEST! (the Best logo) and Abra Train are registered
trademarks, and FAS SupportPlus is a registered service mark of the Company. All
other trademarks and registered trademarks used in this Prospectus are the
property of their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
THE COMPANY
The Company is a leading provider of asset, human resources and payroll
management software solutions for middle market businesses. The Company's
feature-rich, cost-effective solutions are easy to implement and enhance
productivity by automating management, compliance and reporting functions in
areas of specialized expertise that entail complex and frequently changing laws
and regulations. The Company's solutions have been designed to complement core
accounting systems and are scaleable from stand-alone desktop applications
running on personal computers to multi-user work group and client/server
programs designed for use on personal computer local area networks. As of June
30, 1997, the Company had over 40,000 licensed customer locations, representing
approximately 115,000 licensed seats.
In order to improve efficiencies and control costs, middle market
businesses are increasingly seeking to automate their asset, human resources and
payroll functions. The Company's suite of software solutions is tailored to meet
the needs of middle market businesses and is designed to increase efficiency by
automating and streamlining the complex processes associated with these
functions. The Company's solutions, which integrate with many core accounting
systems, include its FAS asset management and Abra human resources and payroll
management product lines. The Company's products perform a variety of functions,
including sophisticated depreciation calculations, payroll processing, employee
tracking, employee cost and productivity analyses and tax report and tax form
generation. The Company believes that its solutions provide significant cost
savings opportunities for its customers through improved productivity and
control.
The Company derives significant recurring revenue from maintenance and
support agreements and other services. In fiscal 1997, approximately 85% of the
Company's customers purchased maintenance and support agreements in connection
with their initial license of the Company's products. The Company achieved
renewal rates of existing maintenance and support agreements of over 75% during
the same period. Revenue from services, including maintenance and support
agreements, training and consulting services, accounted for approximately 49% of
the Company's total revenue in fiscal 1997. The Company expects to continue to
derive a significant portion of its revenue from services.
The Company employs a multi-channel sales and marketing strategy, which
includes its network of value-added resellers, accounting firms and consultants,
as well as a direct-response telesales operation, strategic marketing alliances
and its direct sales organization. Numerous accounting firms, including four of
the Big Six, use the Company's solutions internally and the Company regularly
receives customer referrals from offices of the Big Six and other accounting
firms. The Company also has formal and informal marketing alliances with
approximately 20 core accounting and other industry-specific software vendors,
including Great Plains Software, Inc., Platinum Software Corporation, Scala
North America, Inc. and State of the Art, Inc. The Company believes this
diversity of sales and marketing channels permits it to distribute its products
in the most efficient and effective manner, while reducing reliance on any one
channel.
The Company's strategy is to extend its leadership position in the asset,
human resources and payroll management software solutions market and to develop
other specialized and complementary solutions in order to provide its customers
with an integrated suite of products. The Company believes that its large
existing customer base represents a significant potential market for such
products. The Company also intends to continue to make its solutions available
on a variety of platforms, including client/server architecture, in order to
meet its customers' evolving technological needs.
3
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THE OFFERING
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<S> <C>
Common Stock offered by the Company................... 2,750,000 shares
Common Stock offered by the Selling Shareholders...... 900,000 shares(1)
Common Stock to be outstanding after the offering..... 10,865,722 shares(1)(2)
Use of Proceeds....................................... Working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol................ BEST
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue.................................... $35,023 $39,229 $39,484 $9,499 $10,646
Gross margin..................................... 26,860 29,422 31,558 7,408 8,805
Operating income................................. 2,338 1,997 5,560 114 867
Net income....................................... $ 3,515 $ 3,527 $ 4,436 $ 80 $ 349
Pro forma net income per share(3)................ $ 0.48 $ 0.04
Pro forma weighted average shares
outstanding(3)................................ 9,281 9,357
SUPPLEMENTAL FINANCIAL DATA FOR ONGOING
BUSINESS(4):
Total revenue.................................... $26,218 $30,768 $38,446 $8,458 $10,646
Gross margin..................................... 20,715 23,772 30,862 6,709 8,805
Operating income................................. 2,885 1,981 5,618 155 867
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
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ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 7,429 $ 7,542 $ 37,532
Working capital (deficit).............................. (7,743) (7,630) 22,360
Total assets........................................... 16,815 16,928 46,918
Deferred maintenance and service revenue............... 13,632 13,632 13,632
Redeemable convertible preferred stock................. 500 -- --
Redeemable common stock warrants....................... 792 -- --
Total shareholders' equity (deficit)................... (7,361) (5,956) 24,034
</TABLE>
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(1) Includes 55,694 shares to be issued upon the Warrant Exercise (as defined
below), which will be sold by a Selling Shareholder in this offering.
Excludes an additional 33,881 shares to be issued upon the exercise of the
underlying warrant if the Underwriters' over-allotment option is exercised
in full.
(2) Excludes 1,325,699 shares of Common Stock issuable pursuant to options and
warrants (after giving effect to the Warrant Exercise) outstanding at June
30, 1997, at a weighted average exercise price of $2.51 per share, and
1,900,000 additional shares of Common Stock reserved for issuance under the
Company's stock plans. See "Management -- Stock Plans" and "Description of
Capital Stock -- Warrants."
(3) Pro forma to give effect to the Warrant Exercise and the Put Elimination (as
defined below). See Note 1 of Notes to Consolidated Financial Statements.
(4) Following the sale by the Company of its tax preparation software product
line in April 1994 and its service bureau payroll and write-up product lines
for accountants in August 1995 and the exclusive license of its MYOB product
line in May 1996 (the "MYOB License"), the Company now derives substantially
all of its revenue from its FAS and Abra product lines and related services
and from royalty payments under the MYOB License (collectively, the "Ongoing
Business").
(5) Gives effect to the Warrant Exercise, the Preferred Stock Conversion (as
defined below) and the Put Elimination.
(6) Adjusted to reflect the sale of 2,750,000 shares of Common Stock by the
Company at an assumed initial public offering price of $12.00 per share and
the receipt by the Company of the net proceeds therefrom.
------------------------
The Company was incorporated in Virginia in 1982. Unless the context
otherwise requires, the "Company" refers to Best Software, Inc., a Virginia
corporation, and its wholly owned subsidiaries. The Company's principal
executive offices are located at 11413 Isaac Newton Square, Reston, Virginia
20190. The Company's telephone number is (703) 709-5200.
------------------------
Unless otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) gives effect to a
3-for-2 stock split, to be effected in the form of a stock dividend prior to the
closing of the offering, (iii) has been adjusted to reflect the partial exercise
of a warrant (the "PNC Warrant") to purchase 55,694 shares of Common Stock
immediately prior to the closing of this offering (the "Warrant Exercise"),
which shares will be sold by a Selling Shareholder in this offering, and (iv)
gives effect to the conversion of all outstanding shares of Class A Preferred
Stock into an aggregate of 625,005 shares of Common Stock and the elimination of
the mandatory redemption feature of the PNC Warrant and certain other warrants
to purchase Common Stock, both of which will occur automatically upon the
closing of this offering (the "Preferred Stock Conversion" and the "Put
Elimination," respectively). See "Description of Capital Stock" and "Principal
and Selling Shareholders." References to the Company's "fiscal" year mean the
twelve months ended on March 31 of that calendar year.
5
<PAGE> 7
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Significant Fluctuations in Quarterly Operating Results. The Company has
experienced, and expects to continue to experience, significant fluctuations in
its quarterly operating results. There can be no assurance that the Company will
be profitable in any particular quarter. The Company's future quarterly
operating results will depend upon a number of factors, including the demand for
its products, the type and level of services purchased by its customers, the mix
of sales through direct and indirect sales channels, the level of product and
price competition that it encounters, the length of its sales cycles, the timing
of larger customer implementations, the timing and success of sales and
marketing programs, particularly direct mail campaigns, the timing and
acceptance of new product introductions and product enhancements by the Company
and its competitors, the timing and amount of the Company's product development
programs, the mix of products and services sold, the timing of new hires, market
acceptance of new products, competitive conditions in the industry and general
economic conditions. The Company's expense levels are based, in significant
part, on anticipated revenue trends. Because a high percentage of these expenses
are relatively fixed in the short term, if revenue levels fall below
expectations, the Company's operating results are likely to be materially and
adversely affected. Historically, the Company's revenues and earnings for the
first calendar quarter have been lower than those for the preceding quarter
because a disproportionate number of customers purchase the Company's products
in the fourth calendar quarter in anticipation of the close of their own fiscal
years and the ensuing tax season. In addition, margins in the first calendar
quarter have historically been lower due to the shipment by the Company of large
numbers of annual software updates in that quarter reflecting regulatory
changes. The Company anticipates that the sales cycle for its enhanced
client/server products, upon their introduction, will generally be longer than
that associated with its current products. Any significant lengthening of the
Company's sales cycle could have a material adverse effect on the Company's
business, operating results and financial condition and, in particular, could
contribute to significant fluctuations in operating results on a quarterly
basis. As a result of these and other factors, the Company's quarterly operating
results are subject to variation, and the Company believes that
quarter-to-quarter comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
In addition, due to all the foregoing factors, the Company's operating results
in future periods may be below the expectations of securities analysts and
investors. In that event, the market price of the Company's Common Stock would
likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Selected Quarterly
Operating Results."
Product Concentration; Discontinued Product Lines. The Company currently
derives substantially all of its revenue from its FAS and Abra product lines and
related services. These product lines are expected to continue to account for a
substantial portion of the Company's revenues for the foreseeable future.
Accordingly, the Company's future operating results will depend, in part, on
maintaining and increasing acceptance of these products and related services.
Any factors adversely affecting the pricing of or demand for these products and
services or an increase in competition for such products and services could have
a material adverse effect on the Company's business, operating results and
financial condition. The Company's historical consolidated financial statements
for the applicable periods include results of operations relating to certain
product lines subsequently sold by the Company or licensed under the MYOB
License. Accordingly, the Company's historical consolidated financial statements
are not indicative of operating results attributable to the Ongoing Business.
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<PAGE> 8
In addition, the Company derives revenue from the MYOB License, which will
expire in June 2000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
New Products and Rapid Technological Change. The market for business
application software is characterized by rapid technological advancements,
changes in customer requirements, frequent new product introductions and
enhancements and changing industry standards. The life cycles of the Company's
products are difficult to estimate and the Company's current market position
could be undermined by rapid technological changes and the introduction of new
products and enhancements by new or existing competitors. The Company's growth
and future success will depend, in part, upon its ability to enhance its current
products and introduce new products in order to keep pace with products offered
by the Company's competitors, adapt to technological advancements and changing
industry standards and produce additional functionality to address the
increasingly sophisticated requirements of its customers. The Company currently
has a number of new product development efforts underway, including the
development of enhanced client/server versions of its FAS and Abra products and
the development of a new budgeting software product. The Company's product
development efforts are expected to require substantial additional investment by
the Company. There can be no assurance that the Company will have sufficient
resources to make the necessary investment or that it will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products or enhancements. In addition, there
can be no assurance that such products or enhancements will meet the
requirements of the marketplace or achieve market acceptance or that the
Company's customers will migrate to client/server environments at the rate
expected by the Company. If the market for the Company's products shifts rapidly
towards the client/server environment, the absence of enhanced client/server
versions of its FAS and Abra products, or any delay in the commercial
availability or market acceptance of such products, could have a material
adverse effect on the Company's business, operating results and financial
condition. Any failure by the Company to anticipate or respond adequately to
technological advancements, customer requirements and changing industry
standards, or any significant delays in the development, introduction or
availability of new products or enhancements, could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Product Development."
Product Migration. Prior to fiscal 1994, substantially all of the
Company's revenue from its FAS and Abra products was derived from DOS-based
versions of those products. Since fiscal 1994, when the Company introduced
Windows-based versions of its FAS and Abra products, a significant number of the
Company's DOS installed base of customers for these product lines has migrated
to the Company's Windows-based products. However, there can be no assurance that
in the future a significant percentage of the Company's remaining installed base
of DOS customers will migrate to the Company's Windows-based products. In
particular, the Company believes that smaller customers are less likely to
migrate to the Company's Windows-based products because the cost of migrating is
high relative to their size and because, in many cases, the DOS-based products
adequately meet their needs. If a significant number of the Company's remaining
DOS customers elect not to migrate to the Company's Windows-based products,
purchase competitive products or encounter problems in implementing the
Company's Windows-based products, the Company's business, operating results and
financial condition could be materially and adversely affected.
Risks Associated with Sales Channels. To date, the Company has sold its
products and services primarily through a network of value-added resellers,
accounting firms and consultants (together, "Business Partners"), a
direct-response telesales operation, strategic marketing alliances and a direct
sales force focusing on national accounts. The Company's ability to achieve
significant revenue growth in the future will depend, in large part, upon its
ability to establish and maintain relationships with its Business Partners,
strategic alliance partners and national accounts and upon the success of its
direct mail campaigns and telesales efforts. The Company's ability to
successfully market its products, including its enhanced client/server products
under development, will depend on its ability to adapt its sales channels to
address the evolving markets for such products. Failure to do so could have a
7
<PAGE> 9
material and adverse effect on the Company's business, operating results and
financial condition. See "Business -- Strategy" and "Business -- Sales and
Marketing."
The Company's ability to achieve significant revenue growth in the future
will depend, in part, on its success in recruiting and training sufficient
direct sales personnel and expanding its Business Partner network. Although the
Company is currently investing, and plans to continue to invest, significant
resources to develop and expand its direct sales force and Business Partner
network, the Company has at times experienced and may continue to experience
difficulty in recruiting qualified personnel for its direct sales force and
identifying, certifying, and/or maintaining qualified Business Partners. There
can be no assurance that the Company will be able to maintain or successfully
expand its direct sales force or Business Partner network or that any such
expansion will result in an increase in revenue. Further, there can be no
assurance that a sufficient number of direct sales personnel or Business
Partners will be able to successfully address the client/server market. Any
failure by the Company to expand its direct sales force or its Business Partner
network could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, if the Company is
successful in expanding its direct sales force, there can be no assurance that
its direct sales personnel will be successful in increasing the Company's
revenue to a sufficient extent to cover the increased expenses associated with
such expansion. The Company's agreements with its Business Partners generally
are nonexclusive and may be terminated by either party at any time without
cause. The Company's Business Partners are not within the control of the
Company, are not obligated to purchase products from the Company and may also
represent or refer product lines of its competitors. Business Partners' sales
tend to fluctuate based on their implementation schedules and internal
resources, which are beyond the control of the Company. There can be no
assurance that these Business Partners will continue their current relationships
with the Company or that they will not give higher priority to the sale or
referral of other products, which could include products of competitors. A
reduction in sales efforts or discontinuance of sales or referrals of the
Company's products by its Business Partners could lead to reduced sales and
could materially adversely affect the Company's business, operating results and
financial condition. The Company expects that any material increase in the
Company's indirect sales as a percentage of total revenue will materially and
adversely affect the Company's average selling prices and gross margins due to
the lower unit prices that the Company receives through indirect channels.
The Company's strategy of marketing its products directly to end users and
indirectly through its Business Partners may result in distribution channel
conflicts. The Company's direct sales efforts may compete with those of its
indirect channels and, to the extent more than one Business Partner targets the
same customer, such Business Partners may come into conflict with each other.
There can be no assurance that channel conflict will not adversely affect the
Company's relationships with its customers or Business Partners or its ability
to attract other Business Partners. See "Business -- Sales and Marketing."
Competition. The market for the Company's products is intensely
competitive and rapidly changing. The Company faces different competitors for
each of its product lines. The Company's asset management products compete
principally with products offered by the Bureau of National Affairs, Inc. in the
single-user and work group environments, and the Company anticipates that its
enhanced client/server asset management products, when introduced, will compete
with products offered by PeopleSoft, Inc., Oracle Corporation and others. The
Company's human resources and payroll management products compete primarily with
products offered by Spectrum Human Resources Corporation, Human Resources
Microsystems and Ceridian Corporation (FLX) in the single-user and work group
environment, and the Company anticipates that its enhanced client/server human
resources and payroll products, when introduced, will compete with products
offered by PeopleSoft, Inc., Ultimate Software Group, Inc. and SAP AG in the
client/server environment. The Company's human resource and payroll management
products also compete with payroll service bureaus, such as ADP, Inc. and
PayChex, Inc., and with in-house management information systems staffs. Some of
the Company's existing competitors, as well as a number of potential new
competitors, have larger
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technical staffs, more established and larger sales and marketing organizations
and greater financial resources than the Company. There can be no assurance that
the Company will continue to compete successfully with its existing competitors
or will be able to compete successfully with new competitors. In addition, there
can be no assurance that competitors will not develop products that are superior
to the Company's products or achieve greater market acceptance. Competitive
pressures in the form of aggressive price competition could also have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future success will depend significantly upon its
ability to increase its share of its target markets, to maintain and increase
its renewal revenues from existing customers and to sell additional products,
product enhancements, maintenance and support agreements and training and
consulting services to existing customers and new customers. There can be no
assurance that the Company will continue to compete favorably or that
competition will not have a material adverse effect on the Company's business,
operating results or financial condition.
Timely Release of Periodic Updates to Reflect Tax Law and Other Regulatory
Changes. The Company's asset, human resources and payroll management software
products are affected by changes in laws and regulations and generally must be
updated annually or periodically to maintain their accuracy and competitiveness.
There can be no assurance that the Company will be able to release these annual
or periodic updates on a timely basis in the future. Failure to do so could have
a material adverse effect on market acceptance of the Company's products, which
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, significant changes in tax laws
and regulations or other regulatory provisions applicable to the Company's
products could require the Company to make a significant investment in product
modifications, which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Products"
and "Business -- Product Development."
Product Errors; Product Liability. Software products such as those offered
by the Company typically contain undetected errors or failures when first
introduced or as new versions are released. Testing of the Company's products is
particularly challenging because it is difficult to simulate the wide variety of
computing environments in which the Company's customers may deploy these
products. Despite extensive testing, the Company from time to time has
discovered defects or errors in its products. Accordingly, there can be no
assurance that such defects, errors or difficulties will not cause delays in
product introductions and shipments, result in increased costs and diversion of
development resources, require design modifications or decrease market
acceptance or customer satisfaction with the Company's products. In addition,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found after commencement of
commercial shipments, resulting in loss of or delay in market acceptance, which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
Although the Company has not experienced any material product liability
claims to date, the sale and support of software products and the performance of
related services by the Company entails the risk of such claims. Many of the
Company's products are used by customers in the preparation of tax returns and
other regulatory reports. If any of the Company's products contain errors that
produce inaccurate results upon which users rely, the Company could be subject
to liability claims from users which could, in turn, materially adversely affect
the Company's business, operating results and financial condition. The Company
attempts to limit its product liability exposure to users through contractual
limitations on liability, including appropriate disclaimers in its "shrink wrap"
license agreement with end users. The Company's software license agreements
generally provide that the software is provided "as is" without warranty of any
kind. There can be no assurance, however, that the contractual limitations used
by the Company will be enforceable or will provide the Company with adequate
protection against product liability claims. The Company also maintains errors
and omissions insurance. There can be no assurance, however, that such coverage
will be sufficient to cover any claims made in the future, will continue to be
available on reasonable terms, or that the insurer will not disclaim coverage as
to any future claim. A successful claim for product or service liability brought
9
<PAGE> 11
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
Protection of Intellectual Property; Risks of Infringement. The Company's
success is heavily dependent upon its proprietary technology. The Company
regards its software as proprietary, and relies primarily on a combination of
trade secret, copyright and trademark law, trade secret, confidentiality
agreements and contractual provisions to protect its proprietary rights. The
Company has no patents or patent applications pending, and existing trade secret
and copyright laws afford only limited protection. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult and, while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem, particularly in international markets and as a
result of the growing use of the Internet. In selling its products, the Company
relies primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, it is possible that such licenses may be unenforceable under the laws
of certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the steps taken by the Company
to protect its proprietary rights will be adequate or that the Company's
competitors will not independently develop products or technologies that are
substantially equivalent or superior to the Company's products or technologies.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time-consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business -- Intellectual Property Rights and Licenses."
Acquisitions. The Company may, from time to time, pursue acquisitions of
businesses, customer bases, products or technologies that complement or expand
its existing business. The Company evaluates potential acquisition opportunities
from time to time, including those that could be material in size and scope.
Acquisitions involve a number of risks, including the diversion of management's
attention from day-to-day operations to the assimilation of the operations and
personnel of the acquired companies and the incorporation of acquired
operations, customer bases, products or technologies. Such acquisitions could
also have adverse short-term effects on the Company's operating results, and
could result in dilutive issuances of equity securities, the incurrence of debt
and the loss of key employees. In addition, many business acquisitions must be
accounted for as purchases and, because most software-related acquisitions
involve the purchase of significant intangible assets, these acquisitions
typically result in substantial amortization charges and charges for acquired
research and development projects, which could have a material adverse effect on
the Company's operating results. There can be no assurance that any such
acquisitions will occur or that, if such acquisitions do occur, the acquired
businesses, customer bases, products or technologies will generate sufficient
revenue to offset the associated costs or effects.
International Operations. Although the Company's revenue from
international sales has historically been insignificant, the Company recently
opened an office in Canada and intends to increase its sales and marketing
efforts in other international markets. The Company anticipates that its
international operations will require the Company to recruit and hire a number
of new consulting, sales and marketing and support personnel in Canada and other
countries in which the Company establishes operations. In addition, the Company
has only limited experience in developing localized versions of its products and
in marketing and distributing its products internationally. Moreover, the
Company
10
<PAGE> 12
does not currently have relationships with any Business Partners that target
international markets. The Company's international sales and marketing efforts
will require significant investment by the Company in advance of anticipated
future revenue. There can be no assurance that the Company's international sales
and marketing efforts will be successful or will generate significant revenue.
There are a number of other risks inherent in international business activities,
including costs and risks of localizing products for foreign countries,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, currency
fluctuations, difficulties in the repatriation of earnings, the burdens of
complying with a wide variety of foreign laws and exposures to gains and losses
on foreign currency transactions. There can be no assurance that such factors
will not have a material adverse effect on the Company's business, operating
results or financial condition. See "Business -- Strategy."
Reliance on Microsoft Technologies. The Company's software products are
designed primarily to operate with Microsoft technologies, including Windows NT,
Windows 95, Windows 3.x, SQL Server, Visual FoxPro and Visual Basic, and the
Company's strategy requires that its products and technology be compatible with
new developments in Microsoft technology. A decreasing portion of the Company's
products are also designed to operate with Microsoft DOS. Although the Company
believes that Microsoft technologies are currently widely utilized by businesses
of all sizes, there can be no assurance that businesses will continue to adopt
such technologies as anticipated, will migrate from older Microsoft technologies
(such as DOS or earlier versions of Windows) to newer Microsoft technologies or
will not adopt alternative technologies that the Company does not support. If
businesses do not migrate from older technologies and adopt the Microsoft
technologies with which the Company's products are compatible, the Company's
business, operating results and financial condition will be materially and
adversely affected.
Dependence on Key Personnel. The Company's success depends, in significant
part, upon the continued services of its key technical, marketing, sales and
management personnel and on its ability to continue to attract, motivate and
retain highly qualified employees. The loss of key personnel could have a
material adverse effect on the Company's business, operating results and
financial conditions. Although the Company has employment agreements with
certain key employees, these employees, like all other employees, may
voluntarily terminate their employment with the Company at any time. Competition
for technical, marketing, sales and management employees is intense and the
process of locating personnel with the combination of skills and attributes
required to execute the Company's strategy can be difficult, time-consuming and
expensive. There can be no assurance that the Company will be successful in
attracting or retaining highly skilled technical, management, sales and
marketing personnel and the failure to attract, hire, assimilate or retain such
personnel could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management."
Control by Principal Shareholders, Officers and Directors. Upon completion
of this offering, the present directors, executive officers and principal
shareholders of the Company and their affiliates will beneficially own
approximately 58.6% of the outstanding Common Stock (53.8% if the Underwriters'
over-allotment option is exercised in full). As a result, these shareholders
will be able to exercise control over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal and Selling Shareholders."
Broad Discretion in Allocation of Net Proceeds. The primary purposes of
this offering are to establish a public market for the Company's Common Stock,
to facilitate the Company's future access to public equity markets and to obtain
additional working capital. The Company intends to use the net proceeds of this
offering for general corporate purposes, including product development and
working capital. The Company may use a portion of the net proceeds of the
offering to acquire or invest in businesses, technologies or products
complementary to the Company's business. There are no current agreements or
negotiations with respect to any acquisitions, investments or other
transactions. As of
11
<PAGE> 13
the date of this Prospectus, the Company has no specific plans to use the net
proceeds of this offering and will have broad discretion in the application of
the proceeds. See "Use of Proceeds."
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Company's Common Stock and
there is no assurance that an active trading market will develop or be sustained
after this offering. The initial public offering price will be determined
through negotiations among the Company and the Representatives of the
Underwriters and may not be indicative of the market price of the Common Stock
after this offering. The trading price of the Common Stock is likely to be
highly volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to patents, copyrights or proprietary
rights, conditions and trends in the software industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the public equity markets have from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the stock of technology companies. These broad market
fluctuations, as well as shortfalls in sales or earnings as compared with
securities analysts' expectations, changes in such analysts' recommendations or
projections and general economic and market conditions, may materially and
adversely affect the market price of the Company's Common Stock. See
"Underwriting."
Anti-takeover Effect of Certain Charter, By-Law and Statutory Provision;
Possible Issuance of Preferred Stock. The Company's Amended and Restated
Articles of Incorporation and Amended and Restated By-Laws, as well as Virginia
corporate law, contain certain provisions that could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions allow the
Company to issue without shareholder approval preferred stock having rights
senior to those of the Common Stock. Other provisions impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions. In addition, the Company's Board of Directors
is divided into three classes, each of which will serve for a staggered
three-year term, which may make it more difficult for a third party to gain
control of the Company's Board of Directors. See "Description of Capital
Stock -- Virginia Law and Certain Charter and By-Law Provisions."
Shares Eligible for Future Sale. Sales of substantial amounts of the
Company's Common Stock in the public market after this offering, or the
perception that such sales might occur, could adversely affect prevailing market
prices for the Common Stock. Upon completion of this offering, the Company will
have outstanding 10,865,722 shares of Common Stock. Of these shares, the
3,650,000 shares offered hereby will be freely tradable without restriction in
the public market. Approximately 1,871,479 additional shares will be eligible
for immediate sale as of the date of this Prospectus (of which will be
subject to 180-day lock-up agreements between certain shareholders and the
Representatives of the Underwriters), and approximately 5,338,577 additional
shares will be eligible for sale beginning 90 days after the date of this
Prospectus (of which will be subject to 180-day lock-up agreements).
Hambrecht & Quist LLC may, in its sole discretion and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements. In addition, the Company intends to file registration statements on
Form S-8 under the Securities Act of 1933, as amended (the "Securities Act"), on
or about the date of this Prospectus to register all shares of Common Stock
issued or reserved for issuance under its stock plans. In addition, the holders
of approximately 6,735,433 shares of Common Stock are entitled to registration
rights with respect to such shares. See "Management -- Stock Plans,"
"Description of Capital Stock -- Registration Rights" and "Shares Eligible for
Future Sale."
Dilution. Purchasers of the Common Stock offered hereby will experience
immediate and significant dilution in the pro forma net tangible book value of
$9.79 per share. To the extent outstanding options or warrants to purchase the
Company's Common Stock are exercised, there will be further dilution to the new
public investors. See "Dilution."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered by it hereby are estimated to be approximately $30.0
million at an assumed initial public offering price of $12.00 per share after
deducting the estimated underwriting discount and the estimated expenses of the
offering. The Company will not receive any proceeds from the sale of shares by
the Selling Shareholders.
The principal purposes of this offering are to establish a public market
for the Company's Common Stock, to facilitate future access by the Company to
public equity markets and to obtain additional working capital. The Company
intends to use the net proceeds for general corporate purposes, including
product development and working capital. The Company may also use a portion of
the net proceeds to acquire or invest in businesses, technologies or products
complementary to the Company's business. There are no current agreements or
understandings with respect to any acquisitions, investments or other
transactions, no such acquisitions, investments or transactions are being
planned or negotiated as of the date of this Prospectus, and no portion of the
net proceeds has been allocated for any specific acquisition.
Pending any such uses, the Company intends to invest the net proceeds from
the offering in investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company paid a dividend of $3,556,264 in the aggregate ($0.455 per
share of Common Stock) to shareholders of record on February 20, 1997 and a
dividend of $7,565,114 in the aggregate ($0.915 per share of Common Stock) to
shareholders of record on June 27, 1997. Other than these dividends, the Company
has never paid cash dividends on its Common Stock. The Company currently intends
to retain any future earnings to fund the development and growth of its
business, and does not anticipate paying any cash dividends for the foreseeable
future.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis giving effect to the
Warrant Exercise, the Preferred Stock Conversion and the Put Elimination and
(iii) as adjusted to give effect to the sale of 2,750,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company. This information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere is this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, net of current portion..................... $ 650 $ 650 $ 650
Redeemable convertible preferred stock.................... 500 -- --
Redeemable common stock warrants.......................... 792 -- --
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued or outstanding............. -- -- --
Common stock, no par value; 40,000,000 shares
authorized; 7,435,023 shares issued and
outstanding, actual; 8,115,722 shares issued and
outstanding, pro forma; 10,865,722 shares issued
and outstanding, as adjusted(1).................... 785 1,491 31,481
Additional paid-in capital................................ -- 699 699
Accumulated deficit....................................... (8,146) (8,146) (8,146)
------- ------- -------
Total shareholders' equity (deficit)............ (7,361) (5,956) 24,034
------- ------- -------
Total capitalization....................... $(5,419) $(5,306) $24,684
======= ======= =======
</TABLE>
- ---------------
(1) Gives effect to an amendment of the Company's Amended and Restated Articles
of Incorporation, filed subsequent to June 30, 1997, increasing the number
of authorized shares of Common Stock. Excludes 1,325,699 shares of Common
Stock issuable pursuant to options and warrants (after giving effect to the
Warrant Exercise) outstanding at June 30, 1997, at a weighted average
exercise price of $2.51 per share, and 1,900,000 additional shares of Common
Stock reserved for issuance under the Company's stock plans. See
"Management -- Stock Plans" and "Description of Capital Stock -- Warrants."
14
<PAGE> 16
DILUTION
The deficit in pro forma net tangible book value of the Company at June 30,
1997 was $(6.0 million) or $(0.73) per share of Common Stock. Pro forma net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding, after giving effect to the Preferred Stock Conversion, the Warrant
Exercise and the Put Elimination. After giving effect to the sale by the Company
of the 2,750,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share, and after deducting the estimated
underwriting discount and estimated offering expenses, the pro forma net
tangible book value of the Company as of June 30, 1997 would have been $24.0
million or $2.21 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $2.94 per share to existing
shareholders and an immediate dilution of $9.79 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book deficit per share before the
offering............................................... $(0.73)
Increase per share attributable to new investors.......... 2.94
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.21
------
Dilution per share to new investors......................... $ 9.79
======
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1997,
after giving effect to the Preferred Stock Conversion and the Warrant Exercise,
the difference between existing shareholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)............... 8,115,722 74.7% $ 1,459,617 4.2% $ 0.18
New investors(1)....................... 2,750,000 25.3 33,000,000 95.8 12.00
---------- ------ ----------- ------
Total................................ 10,865,722 100.0% $34,459,617 100.0%
========== ====== =========== ======
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options or warrants. At June 30, 1997, there were 1,325,699 shares of Common
Stock reserved for issuance upon exercise of outstanding options and warrants
(after giving effect to the Warrant Exercise) at a weighted average exercise
price of $2.51 per share. To the extent that these options or warrants are
exercised, there will be further dilution to new investors. See
"Management -- Stock Plans" and "Description of Capital Stock -- Warrants."
- ---------------
(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 7,215,722 or 66.4% of the total
number of shares of Common Stock outstanding after this offering (6,668,222
or 61.4%, if the over-allotment option is exercised in full), and will
increase the number of shares held by new investors to 3,650,000 or 33.6%
(4,197,500 or 38.6%, if the over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding after this offering.
See "Principal and Selling Shareholders."
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The selected consolidated
statement of operations data set forth below for the fiscal years ended March
31, 1995, 1996 and 1997 and the consolidated balance sheet data as of March 31,
1996 and 1997 are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Prospectus and
should be read in conjunction with those consolidated financial statements and
notes thereto. The selected consolidated statement of operations data presented
below for the fiscal years ended March 31, 1993 and 1994 and the consolidated
balance sheet data as of March 31, 1993, 1994 and 1995 are derived from audited
financial statements not included in this Prospectus. The selected consolidated
financial data for the three-month periods ended June 30, 1996 and 1997 and the
consolidated balance sheet data as of June 30, 1997 are derived from unaudited
financial statements of the Company included elsewhere in this Prospectus which,
in the opinion of management, include all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the financial
information set forth therein. The results of operations for the three months
ended June 30, 1997 are not necessarily indicative of the results of operations
to be expected for the full year or for any future period. In addition, the
Company's historical financial statements include results of operations relating
to the Divested Product Lines and the MYOB product line and therefore are not
indicative of the results of operations attributable to the Ongoing Business.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- -------- ------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
License fees and royalty.......................... $ 9,595 $ 19,339 $20,346 $22,677 $20,161 $5,064 $ 5,358
Services.......................................... 5,932 8,202 14,677 16,552 19,323 4,435 5,288
------- ------- ------- ------- --------- ------ ---------
Total........................................... 15,527 27,541 35,023 39,229 39,484 9,499 10,646
------- ------- ------- ------- --------- ------ ---------
Cost of revenue:
License fees and royalty.......................... 1,150 2,807 3,806 4,501 2,251 577 371
Services.......................................... 662 2,355 4,357 5,306 5,675 1,514 1,470
------- ------- ------- ------- --------- ------ ---------
Total........................................... 1,812 5,162 8,163 9,807 7,926 2,091 1,841
------- ------- ------- ------- --------- ------ ---------
Gross margin........................................ 13,715 22,379 26,860 29,422 31,558 7,408 8,805
------- ------- ------- ------- --------- ------ ---------
Operating expenses:
Sales and marketing............................... 5,114 9,482 11,354 12,812 14,355 3,954 4,305
Research and development.......................... 1,151 2,173 5,707 7,389 6,089 1,817 2,048
General and administrative........................ 4,416 5,797 4,284 5,789 5,554 1,523 1,585
Amortization of acquired intangibles.............. 2,746 1,984 3,177 1,435 -- -- --
Acquired research and development projects........ 2,500 -- -- -- -- -- --
------- ------- ------- ------- --------- ------ ---------
Total........................................... 15,927 19,436 24,522 27,425 25,998 7,294 7,938
------- ------- ------- ------- --------- ------ ---------
Operating income (loss)............................. (2,212) 2,943 2,338 1,997 5,560 114 867
------- ------- ------- ------- --------- ------ ---------
Other income (expense), net:
Interest income (expense), net.................... 78 (424) (176) (145) 351 11 (293)
Gain on sale of product lines..................... -- -- -- 750 -- -- --
------- ------- ------- ------- --------- ------ ---------
Total........................................... 78 (424) (176) 605 351 11 (293)
------- ------- ------- ------- --------- ------ ---------
Income (loss) from continuing operations before
income taxes...................................... (2,134) 2,519 2,162 2,602 5,911 125 574
Income tax benefit (provision)...................... 615 (400) (550) 925 (1,475) (45) (225)
------- ------- ------- ------- --------- ------ ---------
Income (loss) from continuing operations............ (1,519) 2,119 1,612 3,527 4,436 80 349
Gain on disposal of discontinued business........... -- -- 1,903 -- -- -- --
Loss from operations of discontinued business....... (1,563) (8,990) -- -- -- -- --
------- ------- ------- ------- --------- ------ ---------
Net income (loss)................................... $(3,082) $ (6,871) $ 3,515 $ 3,527 $ 4,436 $ 80 $ 349
======= ======= ======= ======= ========= ====== =========
Pro forma net income per share(1)................... $ 0.48 $ 0.04
========= =========
Pro forma weighted average shares outstanding(1).... 9,281 9,357
========= =========
<CAPTION>
MARCH 31,
------------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 1,657 $ 2,070 $ 3,534 $ 8,105 $13,365 $ 7,429
Working capital deficit............................. (6,141) (12,888) (5,169) (583) (913) (7,743)
Total assets........................................ 19,544 19,633 13,794 17,625 21,160 16,815
Deferred maintenance and service revenue............ 3,828 7,987 8,814 9,398 12,288 13,632
Long-term debt...................................... 6,309 5,119 2,954 2,133 650 650
Redeemable convertible preferred stock.............. 500 500 500 500 500 500
Redeemable common stock warrants.................... 465 206 206 296 642 792
Total shareholders' (deficit)....................... (912) (7,763) (4,202) (698) (144) (7,361)
</TABLE>
- ---------------
(1) Pro forma to give effect to the Warrant Exercise and the Put Elimination.
See Note 1 of Notes to Consolidated Financial Statements.
16
<PAGE> 18
SUPPLEMENTAL FINANCIAL DATA FOR ONGOING BUSINESS
Following the sale by the Company of its tax preparation software product
line in April 1994 and its service bureau payroll and write-up product lines for
accountants in August 1995 (together, the "Divested Product Lines") and the
exclusive license of its MYOB small business accounting product line in May 1996
(the "MYOB License"), the Company now derives substantially all of its revenue
from the licensing of its FAS and Abra products and related services and from
the royalty payments under the MYOB License (collectively, the "Ongoing
Business"). The Company's historical financial statements include results of
operations relating to the Divested Product Lines and the MYOB product line and
therefore are not indicative of the results of operations attributable to the
Ongoing Business. The following table sets forth for the periods indicated
certain supplemental financial data for the Ongoing Business.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------- ----------------
1995 1996 1997 1996 1997
------- ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
License fees and royalty...................................... $12,732 $15,352 $19,204 $4,104 $ 5,358
Services...................................................... 13,486 15,416 19,242 4,354 5,288
------- ------- ------- ------ -------
Total....................................................... 26,218 30,768 38,446 8,458 10,646
------- ------- ------- ------ -------
Cost of revenue:
License fees and royalty...................................... 2,820 3,039 2,109 435 371
Services...................................................... 2,683 3,957 5,475 1,314 1,470
------- ------- ------- ------ -------
Total....................................................... 5,503 6,996 7,584 1,749 1,841
------- ------- ------- ------ -------
Gross margin...................................................... 20,715 23,772 30,862 6,709 8,805
------- ------- ------- ------ -------
Operating expenses:
Sales and marketing........................................... 8,238 10,366 14,036 3,647 4,305
Research and development...................................... 4,436 6,110 5,817 1,545 2,048
General and administrative.................................... 3,915 4,898 5,391 1,362 1,585
Amortization of acquired intangibles.......................... 1,241 417 -- -- --
------- ------- ------- ------ -------
Total....................................................... 17,830 21,791 25,244 6,554 7,938
------- ------- ------- ------ -------
Operating income.................................................. 2,885 1,981 5,618 155 867
Other income (expense), net....................................... 61 (144) 352 13 (293)
------- ------- ------- ------ -------
Income before income taxes........................................ $ 2,946 $ 1,837 $ 5,970 $ 168 $ 574
======= ======= ======= ====== =======
</TABLE>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this Prospectus. References to the Company's "fiscal" year mean
the twelve months ended on March 31 of that calendar year.
OVERVIEW
The Company is a leading provider of asset, human resources and payroll
management software solutions for middle market businesses. The Company's
feature-rich, cost-effective solutions are easy to implement and enhance
productivity by automating management, compliance and reporting functions in
areas of specialized expertise that entail complex and frequently changing laws
and regulations. The Company's solutions have been designed to complement core
accounting systems and are scaleable from stand-alone desktop applications
running on personal computers to multi-user work group and client/server
programs designed for use on personal computer local area networks. As of June
30, 1997, the Company had over 40,000 licensed customer locations, representing
approximately 115,000 licensed seats.
The Company launched its FAS fixed asset management product line in 1983
and a professional tax preparation software product line in 1985. In 1991, the
Company acquired the Abra human resources and payroll management product line.
Between 1992 and 1994, the Company purchased a write-up product line for
accountants, a small business accounting software product line (the "MYOB
product line") and a service bureau payroll product line for accountants. The
Company thereafter decided to focus primarily on serving middle market
businesses, and sold its professional tax preparation software business in April
1994 and its service bureau payroll and write-up product lines for accountants
in August 1995 (together, the "Divested Product Lines"). In May 1996, the
Company licensed its MYOB product line to a third party. Under such license (the
"MYOB License"), the Company is to receive royalties over the four-year license
term, which ends in June 2000.
The Company currently derives substantially all of its revenue from its FAS
and Abra product lines and related services and from the MYOB License (the
"Ongoing Business"). The Company's historical consolidated financial statements
include results of operations relating to the Divested Product Lines and the
MYOB product line. Accordingly, the Company's historical consolidated financial
statements are not indicative of operating results attributable to the Ongoing
Business, the results of which are reflected in the supplemental financial data
for the Ongoing Business appearing elsewhere in this prospectus.
Prior to fiscal 1994, substantially all of the Company's revenues from the
FAS and Abra product lines were derived from licenses of DOS-based versions of
these products. Since fiscal 1994, the Company has introduced Windows versions
of these products and, since fiscal 1995, a significant number of the Company's
DOS customers have migrated to the Company's Windows-based products.
Additionally, since the introduction of multi-user versions of its products in
fiscal 1995 and fiscal 1996, the Company has sold an increased number of
multi-user licenses of its FAS and Abra products. Upon the introduction of a new
product or an enhanced version of an existing product, the Company has typically
derived significant license fee revenue from trade-ups by existing customers.
Typically, the license fees paid for trade-ups are lower than the license fees
for an initial license. In addition, the Windows-based products and the
multi-user products generally have higher average license fees and gross margins
than the DOS-based products.
In addition to revenue from product licenses, the Company derives
significant recurring revenue from maintenance and support agreements. In each
of fiscal 1996 and 1997, approximately 85% of the
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<PAGE> 20
Company's customers purchased maintenance and support agreements in connection
with their initial license of the Company's products. During each of the last
two fiscal years, the Company has achieved average annual renewal rates for its
maintenance and support agreements of approximately 80%. Under its maintenance
and support agreements, the Company provides technical support and periodic
software updates. In late fiscal 1997, the Company launched its consulting
services, which include installation, set-up and conversion services. Training
and consulting revenue are anticipated to have lower gross margins than revenue
from maintenance and support agreements. In fiscal 1997, approximately 50% of
total revenue from the Ongoing Business was attributable to services, of which a
substantial portion was derived from maintenance and support agreements.
Maintenance and support agreements are generally priced as a percentage of the
initial license fee for the underlying products.
The Company recognizes revenue on license fees upon shipment of the
product, net of provisions for returns and allowances, provided that no
significant Company obligations remain and that collection of the resulting
account receivable is probable. For products with free trial periods, revenue is
recognized upon acceptance of the product by the customer. Revenue from the MYOB
License is recognized ratably within each year of the term of the license
agreement, based on specified annual royalty payments. Revenue from maintenance
and support agreements is recognized pro rata over the term of the agreements,
which is generally one year. Revenue from other services, such as training and
consulting, is recognized as the services are provided.
The Company employs a multi-channel sales and marketing strategy utilizing
four primary channels: Business Partners, a direct-response telesales operation,
strategic marketing alliances and a direct sales organization. In 1995, the
Company began to develop its direct sales organization and has invested and
expects to continue to invest in the development of this channel. The Company
expects that sales through direct channels will generally have higher gross
margins than sales through indirect channels, although these higher margins may
be offset in whole or in part by increased sales and marketing expenses. In
addition, in October 1996, the Company established a wholly owned subsidiary in
Ontario, Canada to localize and market the Company's FAS and Abra products in
the Canadian market.
The Company has made, and intends to continue to make, significant
investments in research and development to develop new products and enhanced
client/server versions of its existing products. In addition, the Company
releases periodic updates of its products to incorporate regulatory changes. As
of June 30, 1997, the Company had 62 full-time software development personnel
with expertise in Windows, Windows NT, client/server and/or Internet
environments. Of these developers, five are Certified Public Accountants and
seven are Certified Payroll Professionals.
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standard No. 86 "Accounting For The Costs Of
Computer Software To Be Sold, Leased Or Otherwise Marketed." Costs incurred
prior to establishment of technological feasibility are expensed as incurred and
reflected as research and development costs. The Company capitalized software
development costs of $126,000 in fiscal 1995, all of which were fully amortized
by the end of fiscal 1996. There were no software development costs capitalized
in fiscal 1996 or 1997 or in the three-month period ended June 30, 1997. During
these periods, the time between the establishment of technological feasibility
and general release was very short. Costs otherwise capitalizable after
technological feasibility were insignificant and, therefore, were expensed as
incurred.
In fiscal 1994, the Company established a valuation allowance for certain
deferred tax assets. The valuation allowance was subsequently reduced as a
result of the Company's analysis of then current levels of earnings and
anticipated operating results. As a result, the Company's effective tax rate has
been significantly lower than the applicable statutory rates. The Company
expects that the effective tax rate in future periods will more closely reflect
statutory rates.
19
<PAGE> 21
OPERATING RESULTS
The following table sets forth for the periods indicated certain
consolidated statement of operations data expressed as a percentage of total
revenue. The Company's historical financial statements include operating results
relating to the Divested Product Lines and the MYOB product line and, therefore,
are not indicative of the results of operations attributable to the Ongoing
Business.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
MARCH 31, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
License fees and royalty.............................. 58.1% 57.8% 51.1% 53.3% 50.3%
Services.............................................. 41.9 42.2 48.9 46.7 49.7
----- ----- ----- ----- -----
Total......................................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenue:
License fees and royalty.............................. 10.9 11.5 5.7 6.1 3.5
Services.............................................. 12.4 13.5 14.4 15.9 13.8
----- ----- ----- ----- -----
Total......................................... 23.3 25.0 20.1 22.0 17.3
----- ----- ----- ----- -----
Gross margin............................................ 76.7 75.0 79.9 78.0 82.7
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing................................... 32.4 32.7 36.4 41.6 40.5
Research and development.............................. 16.3 18.8 15.4 19.1 19.2
General and administrative............................ 12.2 14.7 14.0 16.1 14.9
Amortization of acquired intangibles.................. 9.1 3.7 -- -- --
----- ----- ----- ----- -----
Total......................................... 70.0 69.9 65.8 76.8 74.6
----- ----- ----- ----- -----
Operating income........................................ 6.7 5.1 14.1 1.2 8.1
Other income (expense), net............................. (0.5) 1.5 0.9 0.1 (2.7)
----- ----- ----- ----- -----
Income from continuing operations before income taxes... 6.2 6.6 15.0 1.3 5.4
Income tax benefit (provision).......................... (1.6) 2.4 (3.8) (0.5) (2.1)
----- ----- ----- ----- -----
Income from continuing operations....................... 4.6 9.0 11.2 0.8 3.3
Gain on disposal of discontinued business............... 5.4 -- -- -- --
----- ----- ----- ----- -----
Net income.............................................. 10.0% 9.0% 11.2% 0.8% 3.3%
===== ===== ===== ===== =====
GROSS MARGINS:
Gross margin on license fees and royalty revenue...... 81.3% 80.2% 88.8% 88.6% 93.1%
Gross margin on services revenue...................... 70.3% 67.9% 70.6% 65.9% 72.2%
</TABLE>
20
<PAGE> 22
The following table sets forth for the periods indicated certain
supplemental financial data for the Ongoing Business expressed as a percentage
of total revenue from the Ongoing Business.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
MARCH 31, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL FINANCIAL DATA FOR ONGOING BUSINESS:
Revenue:
License fees and royalty.............................. 48.6% 49.9% 49.9% 48.5% 50.3%
Services.............................................. 51.4 50.1 50.1 51.5 49.7
----- ----- ----- ----- -----
Total......................................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenue:
License fees and royalty.............................. 10.8 9.9 5.5 5.2 3.5
Services.............................................. 10.2 12.8 14.2 15.5 13.8
----- ----- ----- ----- -----
Total......................................... 21.0 22.7 19.7 20.7 17.3
----- ----- ----- ----- -----
Gross margin............................................ 79.0 77.3 80.3 79.3 82.7
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing................................... 31.4 33.7 36.5 43.1 40.5
Research and development.............................. 16.9 19.9 15.1 18.3 19.2
General and administrative............................ 15.0 15.9 14.1 16.3 14.9
Amortization of acquired intangibles.................. 4.7 1.4 0.0 0.0 0.0
----- ----- ----- ----- -----
Total......................................... 68.0 70.9 65.7 77.7 74.6
----- ----- ----- ----- -----
Operating income........................................ 11.0 6.4 14.6 1.8 8.1
Other income (expense), net............................. 0.2 (0.4) 0.9 0.2 (2.7)
----- ----- ----- ----- -----
Income before income taxes.............................. 11.2% 6.0% 15.5% 2.0% 5.4%
===== ===== ===== ===== =====
GROSS MARGINS:
Gross margin on license fees and royalty revenue...... 77.9% 80.2% 89.0% 89.4% 93.1%
Gross margin on services revenue...................... 80.1% 74.3% 71.5% 69.8% 72.2%
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
License Fees and Royalty Revenue. License fees and royalty revenue
consists of fees from software licenses and royalties from the MYOB License.
License fees and royalty revenue increased from $5.1 million for the three
months ended June 30, 1996 to $5.4 million for the three months ended June 30,
1997, representing an increase of 5.8%. As a percentage of total revenue,
license fees and royalty revenue decreased from 53.3% to 50.3% for the
three-month periods ended June 30, 1996 and 1997, respectively. The dollar
increase in license fees and royalty revenue was due to a 23.4% increase in
license fee revenue from FAS and Abra products, which resulted primarily from
increased sales of higher priced Windows-based and multi-user products, offset
in part by the elimination of license fees attributable to the MYOB product
line. During the three months ended June 30, 1997, the Company also received
royalty revenue of $221,000 from the MYOB License.
Services Revenue. Services revenue includes revenue from maintenance and
support agreements and training and consulting services. Services revenue
increased from $4.4 million for the three months ended June 30, 1996 to $5.3
million for the three months ended June 30, 1997, representing an increase of
19.3%. As a percentage of total revenue, services revenue increased from 46.7%
to 49.7% for the three months ended June 30, 1996 and 1997, respectively. The
dollar increase in services revenue was primarily due to an increase in the
number of maintenance and support agreements, which resulted from an increased
renewal rate and a larger installed base of customers, and a higher average
contract value resulting from increased sales of higher priced license products.
To a lesser extent, the increase in services revenue was due to the Company's
increased focus on offering training and other
21
<PAGE> 23
consulting services, which include installation, set-up and data conversion
activities. The increase in services revenue as a percentage of total revenue
was primarily attributable to increased renewal rates and the elimination of
revenue attributable to the MYOB product line, whose customers purchased
proportionately fewer services.
Cost of License Fees and Royalty Revenue. Cost of license fees and royalty
revenue consists primarily of the costs of media, product manuals, shipping and
fulfillment, and royalties paid to third parties. Cost of license fees and
royalty revenue decreased from $577,000 for the three months ended June 30, 1996
to $371,000 for the three months ended June 30, 1997, representing a decrease of
35.7%. As a percentage of license fees and royalty revenue, cost of license fees
and royalty revenue decreased from 11.4% to 6.9% for the three-month periods
ended June 30, 1996 and 1997, respectively. The decrease in cost of license fees
and royalty revenue as a percentage of license fees and royalty revenue was
primarily due to increased sales of higher margin Windows-based and multi-user
products and the elimination of license fees attributable to the lower margin
MYOB product line. To a lesser extent, the decrease was due to the $221,000 in
royalty revenue received under the MYOB License for the three months ended June
30, 1997, for which the associated costs were nominal.
Cost of Services Revenue. Cost of services revenue consists primarily of
personnel costs, telephone charges and other costs related to providing
telephone support, training and consulting services. Cost of services revenue
was $1.5 million for both of the three-month periods ended June 30, 1996 and
1997. As a percentage of services revenue, cost of services revenue decreased
from 34.1% to 27.8% for the three-month periods ended June 30, 1996 and 1997,
respectively. The decrease in cost of services revenue as a percentage of
services revenue was primarily due to the elimination of services related to the
MYOB product line, which historically had higher cost of services as a
percentage of services revenue than the Company's FAS and Abra product lines.
Sales and Marketing. Sales and marketing expenses consist primarily of
direct mail programs, advertising, other marketing programs, personnel costs,
commissions, travel and administrative costs. Sales and marketing expenses
increased from $4.0 million for the three months ended June 30, 1996, to $4.3
million for the three months ended June 30, 1997, representing an increase of
8.9%. As a percentage of total revenue, sales and marketing expenses decreased
from 41.6% to 40.5% for the three-month periods ended June 30, 1996 and 1997,
respectively. The dollar increase was primarily due to increased costs
associated with the Company's expanded 1997 Business Partner Conference, the
establishment of the Company's Canadian operations and increased lead
generation, advertising and corporate brand awareness activities. The decrease
in sales and marketing expenses as a percentage of total revenue was primarily
attributable to increased efficiencies in the Company's direct mail program.
Research and Development. Research and development expenses consist
primarily of personnel costs and fees paid to outside consultants. Research and
development expenses increased from $1.8 million for the three months ended June
30, 1996 to $2.0 million for the three months ended June 30, 1997, representing
an increase of 12.7%. As a percentage of total revenue, research and development
expenses increased slightly from 19.1% to 19.2% for the three-month periods
ended June 30, 1996 and 1997, respectively. The dollar increase in research and
development expenses was primarily the result of increased expenses relating to
the development of a new budgeting product and, to a lesser extent, the expenses
incurred to localize the Company's FAS and Abra product lines for sale in
Canada.
General and Administrative. General and administrative expenses include
the costs of corporate operations, finance and accounting, human resources and
other general operations. General and administrative expenses increased from
$1.5 million for the three months ended June 30, 1996 to $1.6 million for the
three months ended June 30, 1997, representing an increase of 4.0%. As a
percentage of total revenue, general and administrative expenses decreased from
16.1% to 14.9% for the three-month periods ended June 30, 1996 and 1997,
respectively. The dollar increase in general and administrative expenses was the
result of increased staffing and related expenses necessary to manage
22
<PAGE> 24
and support the expansion of the Company's operations. Since general and
administrative expenses increased at a lower rate than total revenue, such
expenses decreased as a percentage of total revenue.
Other Income (Expense), Net. Other income (expense), net was $11,000 for
the three months ended June 30, 1996 and $(293,000) for the three months ended
June 30, 1997. Interest expense for the three months ended June 30, 1997 was
primarily due to $520,000 of interest expense attributable to a payment of
$432,000 to a warrant holder, and the related reduction in the exercise price of
the warrant, in connection with the June 1997 dividend to shareholders, offset
in part by increased interest income. See "Certain Transactions."
Provision for Income Taxes. The provision for income taxes was $45,000 for
the three months ended June 30, 1996 and $225,000 for the three months ended
June 30, 1997, representing 36.1% and 39.2% of income before taxes,
respectively.
FISCAL 1995, 1996 AND 1997
License Fees and Royalty Revenue. License fees and royalty revenue
increased from $20.3 million in fiscal 1995 to $22.7 million in fiscal 1996, and
decreased to $20.2 million in fiscal 1997, representing an increase of 11.5% and
a decrease of 11.1%, respectively. As a percentage of total revenue, license
fees and royalty revenue decreased from 58.1% to 57.8% and to 51.1% for fiscal
1995, 1996 and 1997, respectively.
The dollar increase from fiscal 1995 to fiscal 1996 was the result of an
increase in license fee revenue from FAS and Abra products, which was partially
offset by the decline in license fee revenue attributable to the Company's
service bureau and write-up product lines, which were sold in August 1995. The
dollar decrease from fiscal 1996 to fiscal 1997 was the result of the
elimination of license fees from the MYOB product line, which more than offset
an increase in license fee revenue for FAS and Abra products. The decrease as a
percentage of total revenue from fiscal 1996 to fiscal 1997 was the result of
the elimination of license fees from the MYOB product line, which generated
higher license fees as a percentage of total revenue than the FAS and Abra
product lines. During fiscal 1997, the Company received royalty revenue of
$664,000 from the MYOB License.
Services Revenue. Services revenue increased from $14.7 million in fiscal
1995 to $16.6 million in fiscal 1996 and to $19.3 million in fiscal 1997,
representing increases of 12.8% and 16.7%, respectively. As a percentage of
total revenue, services revenue increased from 41.9% to 42.2% and to 48.9% for
fiscal 1995, 1996 and 1997, respectively. The dollar increases in services
revenue was primarily due to the increase in maintenance and support agreements,
which resulted from an increased renewal rate and a larger installed base of
customers, and higher average contract value. To a lesser extent, the increase
in services revenue was due to the Company's increased focus on providing
training services and, with respect to the increase from fiscal 1996 to fiscal
1997, other consulting services. The increase in services revenue as a
percentage of total revenue from fiscal 1996 to fiscal 1997 was primarily
attributable to increased renewal rates and the elimination of revenue
attributable to the MYOB product line, whose customers purchased proportionately
fewer services.
Cost of License Fees and Royalty Revenue. Cost of license fees and royalty
revenue increased from $3.8 million in fiscal 1995 to $4.5 million in fiscal
1996 and decreased to $2.3 million in fiscal 1997, representing an 18.3%
increase and a 50.0% decrease, respectively. As a percentage of license fees and
royalty revenue, cost of license fees and royalty revenue changed from 18.7% to
19.8% and to 11.2% for fiscal 1995, 1996 and 1997, respectively.
The dollar increase from fiscal 1995 to fiscal 1996 was primarily due to an
increase in the number of units shipped in fiscal 1996. The increase as a
percentage of license fees and royalty revenue from fiscal 1995 to fiscal 1996
was primarily attributable to royalties paid by the Company to a third-party
developer with respect to license fees received by the Company for its FASTrack
product, offset in part by the elimination of license fees from the write-up
product line, which had higher packaging and shipping costs than the FAS and
Abra products lines.
23
<PAGE> 25
The decrease in cost of license fees and royalty revenue from fiscal 1996
to fiscal 1997 was primarily due to the elimination of costs associated with the
MYOB product line, the elimination of $1.2 million of amortization of
capitalized software development costs recorded in each of fiscal 1995 and
fiscal 1996 and, to a lesser extent, a change in the media on which the
Company's products were delivered from diskettes to lower cost CD-ROMs. The
decrease as a percentage of license fees and royalty revenue from fiscal 1996 to
fiscal 1997 was primarily due to the elimination of the MYOB product line, which
had a lower margin than the Company's FAS and Abra products, to $664,000 of
royalty revenue from the MYOB License in fiscal 1997, for which the associated
costs are nominal, and to the change to CD-ROM media.
Cost of Services Revenue. Cost of services revenue increased from $4.4
million in fiscal 1995 to $5.3 million in fiscal 1996 and to $5.7 million in
fiscal 1997, representing increases of 21.8% and 7.0%, respectively. As a
percentage of services revenue, cost of services revenue changed from 29.7% to
32.1% and to 29.4% for fiscal 1995, 1996 and 1997, respectively. The dollar
increases in cost of services revenue were attributable primarily to costs
associated with additional personnel to meet the demands of the increased number
of maintenance and support customers and, to a lesser extent, to costs
associated with enhancing customer support systems, offset in part in fiscal
1997 by the elimination of costs associated with providing services for the MYOB
product line. The decrease in cost of services revenue as a percentage of
services revenue in fiscal 1997 was due to the elimination of services related
to the MYOB product line, which historically had higher cost of services as a
percentage of services revenue than the Company's FAS and Abra product lines.
Sales and Marketing. Sales and marketing expense increased from $11.4
million in fiscal 1995 to $12.8 million in fiscal 1996 and to $14.4 million in
fiscal 1997, representing increases of 12.8% and 12.0%, respectively. As a
percentage of total revenue, sales and marketing expenses increased from 32.4%
to 32.7% and to 36.4% for fiscal 1995, 1996 and 1997, respectively. The
increases in sales and marketing expenses in each period were primarily due to
the hiring of additional sales and marketing personnel and, to a lesser extent,
increased lead generation, advertising and corporate brand awareness activities.
Research and Development. Research and development expenses increased from
$5.7 million in fiscal 1995 to $7.4 million in fiscal 1996 and decreased to $6.1
million in fiscal 1997, representing an increase of 29.5% and a decrease of
17.6%, respectively. As a percentage of total revenue, research and development
expenses changed from 16.3% to 18.8% and to 15.4% for fiscal 1995, 1996 and
1997, respectively. The increase in research and development expenses from
fiscal 1995 to fiscal 1996, and the decrease from fiscal 1996 to fiscal 1997,
were primarily due to expenses in fiscal 1996 relating to the updating of
product lines to include Windows-based versions and enhanced multi-user versions
and nonrecurring development expenses associated with the MYOB product line.
General and Administrative. General and administrative expenses increased
from $4.3 million in fiscal 1995 to $5.8 million in fiscal 1996 and decreased to
$5.5 million in fiscal 1997, representing an increase of 35.1% and a decrease of
4.4%, respectively. As a percentage of total revenue, general and administrative
expenses changed from 12.2% to 14.7% and to 14.0% for fiscal 1995, 1996 and
1997, respectively. The increase in general and administrative expenses in
fiscal 1996 related to the Company's continued development of its management
infrastructure, including the addition of personnel to support growth in the
Company's operations and the hiring of its current Chief Executive Officer. The
decrease in general and administrative expenses for fiscal 1997 was due
primarily to the reduction in general and administrative expenses associated
with the MYOB product line.
Amortization of Acquired Intangibles. Amortization of acquired intangibles
relates to costs capitalized as a result of various acquisitions. Amortization
of acquired intangibles was $3.2 million in fiscal 1995 and $1.4 million in
fiscal 1996. Capitalized costs for intellectual property rights and other
intangibles were fully amortized as of the end of fiscal 1996.
Other Income (Expense), Net. Other income (expense), net was $(176,000)
for fiscal 1995, $605,000 for fiscal 1996 and $351,000 for fiscal 1997. Interest
expense for fiscal 1997 was primarily due to $215,000 of interest expense
attributable to a reduction in the exercise price of a warrant in connection
24
<PAGE> 26
with the February 1997 dividend to shareholders, offset in part by increased
interest income. See "Certain Transactions."
(Provision) Benefit for Income Taxes: The (provision) benefit for income
taxes was $(550,000), $925,000 and $(1.5 million) for fiscal 1995, 1996 and
1997, representing (25.0)%, 35.5% and (25.0)% of income before taxes,
respectively. For fiscal 1995, the difference between the expected tax provision
based on Federal statutory rates and the effective tax rate resulted principally
from the utilization of a net operating loss carryforward. For fiscal 1996 and
1997, the difference between the expected tax provision based on Federal
statutory rates and the effective tax rate resulted principally from tax
benefits relating to a reduction of the valuation allowance against the
Company's deferred tax asset of $2.0 million and $1.2 million in 1996 and 1997,
respectively, based on management's analysis of current levels of earnings and
anticipated operating results. The Company expects that the income tax provision
in future periods will more closely reflect the statutory tax rates. See Note 6
of Notes to Consolidated Financial Statements.
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<PAGE> 27
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth for the last nine quarters (i) certain
consolidated statement of operations data, (ii) certain selected financial data
for the Ongoing Business, (iii) certain consolidated statement of operations
data expressed as a percentage of total revenue and (iv) certain selected
financial data for the Ongoing Business expressed as a percentage of total
revenue from the Ongoing Business. In management's opinion, the unaudited
quarterly consolidated statement of operations data has been prepared on the
same basis as the audited consolidated financial statements and includes all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented, when read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Company believes that
quarter-to-quarter comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997
--------- --------- -------- ---------- --------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
License fees and
royalty.............. $ 4,381 $ 4,720 $ 6,230 $ 7,346 $ 5,064 $ 4,603 $ 5,504 $ 4,990 $ 5,358
Services............... 3,922 3,835 4,383 4,412 4,435 4,688 5,024 5,176 5,288
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ 8,303 8,555 10,613 11,758 9,499 9,291 10,528 10,166 10,646
------ ------ ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
License fees and
royalty.............. 675 735 1,267 1,824 577 362 509 803 371
Services............... 1,255 1,171 1,397 1,483 1,514 1,241 1,355 1,565 1,470
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ 1,930 1,906 2,664 3,307 2,091 1,603 1,864 2,368 1,841
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin............ 6,373 6,649 7,949 8,451 7,408 7,688 8,664 7,798 8,805
Operating expenses:
Sales and marketing.... 3,035 3,054 3,455 3,268 3,954 2,999 3,858 3,544 4,305
Research and
development.......... 1,817 2,036 1,964 1,572 1,817 1,464 1,470 1,338 2,048
General and
administrative....... 1,473 1,465 1,436 1,415 1,523 1,250 1,389 1,392 1,585
Amortization of
acquired
intangibles.......... 345 328 289 473 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ 6,670 6,883 7,144 6,728 7,294 5,713 6,717 6,274 7,938
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (297) (234) 805 1,723 114 1,975 1,947 1,524 867
Other income (expense),
net.................... (65) 619 52 (1) 11 87 128 125 (293)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (362) 385 857 1,722 125 2,062 2,075 1,649 574
Income tax benefit
(provision)............ 145 (155) (345) 1,280 (45) (940) (945) 455 (225)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ (217) $ 230 $ 512 $ 3,002 $ 80 $ 1,122 $ 1,130 $ 2,104 $ 349
====== ====== ====== ====== ====== ====== ====== ====== ======
SUPPLEMENTAL FINANCIAL
DATA FOR ONGOING
BUSINESS:
Revenue:
License fees........... $ 3,128 $ 2,923 $ 4,525 $ 4,776 $ 4,104 $ 4,606 $ 5,504 $ 4,990 $ 5,358
Services............... 3,671 3,566 4,054 4,125 4,354 4,688 5,024 5,176 5,288
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ 6,799 6,489 8,579 8,901 8,458 9,294 10,528 10,166 10,646
------ ------ ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
License fees............ 499 425 858 1,257 435 362 509 803 371
Services................ 900 854 1,071 1,132 1,314 1,241 1,355 1,565 1,470
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ 1,399 1,279 1,929 2,389 1,749 1,603 1,864 2,368 1,841
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin............ 5,400 5,210 6,650 6,512 6,709 7,691 8,664 7,798 8,805
Operating expenses:
Sales and marketing.... 2,460 2,444 2,872 2,590 3,647 2,987 3,858 3,544 4,305
Research and
development.......... 1,388 1,470 1,464 1,788 1,545 1,464 1,470 1,338 2,048
General and
administrative....... 1,217 1,213 1,210 1,258 1,362 1,248 1,389 1,392 1,585
Amortization of
acquired
intangibles.......... 58 58 58 243 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............ 5,123 5,185 5,604 5,879 6,554 5,699 6,717 6,274 7,938
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income........ $ 277 $ 25 $ 1,046 $ 633 $ 155 $ 1,992 $ 1,947 $ 1,524 $ 867
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997
--------- --------- -------- ---------- --------- --------- -------- --------- --------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
License fees and
royalty.............. 52.8% 55.2% 58.7% 62.5% 53.3% 49.5% 52.3% 49.1% 50.3%
Services............... 47.2 44.8 41.3 37.5 46.7 50.5 47.7 50.9 49.7
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Total............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Cost of revenue:
License fees and
royalty.............. 8.1 8.6 11.9 15.5 6.1 3.9 4.8 7.9 3.5
Services............... 15.1 13.7 13.2 12.6 15.9 13.4 12.9 15.4 13.8
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Total............ 23.2 22.3 25.1 28.1 22.0 17.3 17.7 23.3 17.3
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Gross margin............ 76.8 77.7 74.9 71.9 78.0 82.7 82.3 76.7 82.7
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Operating expenses:
Sales and marketing.... 36.6 35.7 32.6 27.8 41.6 32.3 36.7 34.9 40.5
Research and
development.......... 21.9 23.8 18.5 13.4 19.1 15.8 14.0 13.2 19.2
General and
administrative....... 17.7 17.1 13.5 12.0 16.1 13.3 13.1 13.6 14.9
Amortization of
acquired
intangibles.......... 4.2 3.8 2.7 4.0 -- -- -- -- --
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Total............ 80.4 80.4 67.3 57.2 76.8 61.4 63.8 61.7 74.6
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Operating income
(loss)................. (3.6) (2.7) 7.6 14.7 1.2 21.3 18.5 15.0 8.1
Other income (expense),
net.................... (0.8) 7.2 0.5 0.0 0.1 0.9 1.2 1.2 (2.7)
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Income (loss) from
continuing operations
before income taxes.... (4.4) 4.5 8.1 14.7 1.3 22.2 19.7 16.2 5.4
Income tax benefit
(provision)............ 1.8 (1.8) (3.3) 10.8 (0.5) (10.1) (9.0) 4.5 (2.1)
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Net income (loss)....... (2.6)% 2.7% 4.8% 25.5% 0.8% 12.1% 10.7% 20.7% 3.3%
=========== ========== ========== ============= =========== ========== ========== ============ ==========
SUPPLEMENTAL FINANCIAL
DATA FOR ONGOING
BUSINESS: (AS A PERCENTAGE OF TOTAL REVENUE FROM ONGOING BUSINESS)
Revenue:
License fees and
royalty.............. 46.0% 45.0% 52.7% 53.7% 48.5% 49.6% 52.3% 49.1% 50.3%
Services............... 54.0 55.0 47.3 46.3 51.5 50.4 47.7 50.9 49.7
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Total............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Cost of revenue:
License fees and
royalty.............. 7.3 6.5 10.0 14.1 5.2 3.9 4.8 7.9 3.5
Services............... 13.3 13.2 12.5 12.7 15.5 13.3 12.9 15.4 13.8
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Total............ 20.6 19.7 22.5 26.8 20.7 17.2 17.7 23.3 17.3
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Gross margin............ 79.4 80.3 77.5 73.2 79.3 82.8 82.3 76.7 82.7
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Operating expenses:
Sales and marketing.... 36.2 37.6 33.5 29.1 43.1 32.1 36.7 34.9 40.5
Research and
development.......... 20.3 22.7 17.1 20.1 18.3 15.8 14.0 13.2 19.2
General and
administrative....... 17.9 18.7 14.0 14.1 16.3 13.4 13.1 13.6 14.9
Amortization of
acquired
intangibles.......... 0.9 0.9 0.7 2.7 -- -- -- -- --
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Total............ 75.3 79.9 65.3 66.0 77.7 61.3 63.8 61.7 74.6
--------- --------- -------- ---------- --------- --------- -------- --------- --------
Operating income........ 4.1% 0.4% 12.2% 7.2% 1.6% 21.5% 18.5% 15.0% 8.1%
========= ========= ======== ========== ======== ======== ======== ========= =======
</TABLE>
The Company has experienced, and expects to continue to experience,
significant fluctuations in its quarterly operating results. There can be no
assurance that the Company will be profitable in any particular quarter. The
Company's future quarterly operating results will depend upon a number of
factors, including the demand for its products, the type and level of services
purchased by its customers, the mix of sales through direct and indirect sales
channels, the level of product and price competition that it encounters, the
length of its sales cycles, the timing of larger customer implementations, the
timing and success of sales and marketing programs, particularly direct mail
campaigns, the timing and acceptance of new product introductions and product
enhancements by the Company and its competitors, the timing and amount of the
Company's product development programs, the mix of products and services sold,
the timing of new hires, market acceptance of new products, competitive
conditions in the industry and general economic conditions. The Company's
expense levels are based, in significant part, on anticipated revenue trends.
Because a high percentage of these expenses are
27
<PAGE> 29
relatively fixed in the short term, if revenue levels fall below expectations,
the Company's operating results are likely to be materially and adversely
affected. Historically, the Company's revenues and earnings for the first
calendar quarter have been lower than those for the preceding quarter because a
disproportionate number of customers purchase the Company's products in the
fourth calendar quarter in anticipation of the close of their own fiscal years
and the ensuing tax season. In addition, margins in the first calendar quarter
have historically been lower due to the shipment by the Company of large numbers
of annual software updates in that quarter, reflecting regulatory changes. The
Company anticipates that the sales cycle for its enhanced client/server
products, upon their introduction, will generally be longer than that associated
with its current products. Any lengthening of the Company's sales cycle could
have a material adverse effect on the Company's business, operating results and
financial condition and, in particular, could contribute to significant
fluctuations in operating results on a quarterly basis. As a result of these and
other factors, the Company's quarterly operating results in future quarters are
subject to variation, and the Company believes that quarter-to-quarter
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as an indication of future performance. In addition, due to
all the foregoing factors, the Company's operating results in future periods may
be below the expectations of securities analysts and investors. In that event,
the market price of the Company's Common Stock would likely be materially
adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through cash provided by operations. The
Company had cash and cash equivalents of $7.4 million at June 30, 1997.
For fiscal 1997 and the three months ended June 30, 1997, net cash provided
by operating activities was $11.7 million and $1.7 million, respectively. In
fiscal 1997, net cash provided by operating activities consisted primarily of
net income, deferred maintenance and services revenue and increased collections
of accounts receivable. In the three months ended June 30, 1997, cash provided
by operating activities consisted primarily of net income, deferred maintenance
and services revenue, offset by an increased accounts receivable balance and by
an increase in prepaid expenses.
Net cash used in investing activities for fiscal 1997 and for the three
months ended June 30, 1997 was $1.1 million and $150,000, respectively. In both
periods, net cash used in investing activities was used primarily for the
purchase of property and equipment.
Net cash used in financing activities for fiscal 1997 and the three months
ended June 30, 1997 was $5.3 million and $7.5 million, respectively. During
fiscal 1997, the principal use of cash was the payment of a dividend and the
repayment of a note. During the three months ended June 30, 1997, the principal
use of cash was the payment of dividends totaling $7.6 million.
The Company believes that the net proceeds from this offering and cash
generated from operations will be sufficient to fund its operations for at least
the next 12 months.
28
<PAGE> 30
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants approved for
exposure a draft Statement of Position that would supersede Statement of
Position 91-1, Software Revenue Recognition. If approved, the new Statement of
Position would have to be implemented for fiscal years beginning after December
15, 1997. The Company believes that the proposed changes would not have a
material financial impact on the Company.
In March 1997, the Financial Accounting Board issued Statement No. 128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 is effective for financial
statements issued after December 15, 1997. Under SFAS No. 128, the presentation
of primary earnings per share is replaced with basic earnings per share. See
Note 1 of Notes to Consolidated Financial Statements.
29
<PAGE> 31
BUSINESS
The Company is a leading provider of asset, human resources and payroll
management software solutions for middle market businesses. The Company's
feature-rich, cost-effective solutions are easy to implement and enhance
productivity by automating management, compliance and reporting functions in
areas of specialized expertise that entail complex and frequently changing laws
and regulations. The Company's solutions have been designed to complement core
accounting systems and are scaleable from stand-alone desktop applications
running on personal computers to multi-user work group and client/server
programs designed for use on personal computer local area networks. As of June
30, 1997, the Company had over 40,000 licensed customer locations, representing
approximately 115,000 licensed seats. In addition to revenue from product
licenses, the Company derives significant recurring revenue from maintenance and
support agreements. The Company reaches its large customer base and target
market through a multi-channel sales and marketing strategy that includes its
network of value-added resellers, accounting firms and consultants ("Business
Partners"), a direct-response telesales operation, strategic marketing alliances
and a direct sales organization.
INDUSTRY BACKGROUND
Increased competitive pressures and rapidly changing market conditions are
continually challenging businesses of all sizes to enhance profitability by
improving operating efficiencies and implementing better cost controls.
Businesses are increasingly relying on technological advancements to achieve
these goals. In particular, businesses are utilizing the wide availability of
affordable computing solutions to automate many of their core accounting and
operational functions. As a result, many businesses are dedicating substantial
resources to automating and streamlining the processes associated with several
key functions, including asset, human resources and payroll management.
Automating and streamlining these functions results in improved efficiencies
from better utilization of assets, a reduction in associated losses and expenses
(including insurance and taxes) and more precise accounting and reporting. In
the human resources area, businesses can achieve efficiencies by streamlining
the input and management of personnel and payroll information and by providing
improved access to such information across the organization.
Effective management of asset, human resources and payroll functions
requires highly specialized expertise and the ability to remain abreast of
frequently changing regulatory requirements. In the asset management area, these
include complex tax and accounting regulations governing the application of
numerous depreciation calculations, as well as a variety of regulatory
requirements that affect many aspects of a business' asset management function.
Compliance with these regulations requires comprehensive tracking of fixed
assets, compilation of detailed historical data and accurate, timely reporting.
Similarly, the efficient utilization of human resources information and
compliance with various laws and regulations, such as equal employment
opportunity laws and the Americans with Disabilities Act, requires human
resources managers to accurately compile, retain and report large amounts of
personnel data and statistics. These include information on hiring and
recruitment, training, evaluation and promotion of employees. In addition, under
Federal and state tax regulations employers must implement frequently changing
withholding taxes and other payroll taxes for employees and must accurately
report such payments to tax authorities.
Core accounting software generally does not provide adequate management,
compliance and reporting functions in areas of specialized expertise, such as
asset, human resources and payroll management. As a result, many businesses are
relegated to the use of less than optimal solutions such as spreadsheet-based
techniques and manual processes, which can be time-consuming and inaccurate,
mainframe or minicomputer-based solutions or in-house software development,
which are often expensive and can be difficult to implement, or third-party
outsourcing, which can be inflexible and expensive and over which the customer
has limited control.
30
<PAGE> 32
The Company believes that the need for asset, human resources and payroll
management software solutions is particularly acute in the middle market, which
generally consists of businesses with $1 million to $250 million in revenues and
ten to 2,500 employees. Although many middle market businesses have formal
information technology ("IT") departments, such businesses generally have fewer
IT resources than larger companies. Middle market businesses are also less
likely to have dedicated, in-house personnel with specialized substantive
expertise in asset, human resources and payroll management. In addition, the
middle market is characterized by changing software technologies as businesses
take advantage of developments in technology to increase competitiveness. While
many middle market businesses perform accounting and other financial management
functions on stand-alone personal computers or multi-user networks that support
Windows NT and/or Novell environments, increasingly these businesses have begun
to adopt client/server architectures, such as those based on Microsoft SQL
Server. For all of these reasons, middle market businesses require highly
functional, cost-effective software solutions that can be easily and rapidly
implemented, are easy to learn and use, can scale to accommodate evolving
software technology preferences and are reinforced by an extensive support
capability.
THE BEST SOLUTION
The Company is a leading provider of asset, human resources and payroll
management software solutions. The Company's FAS and Abra product lines provide
comprehensive functionality in a cost-effective and easy-to-implement manner and
integrate with many leading core accounting systems. Numerous accounting firms,
including four of the Big Six, use the Company's solutions internally and the
Company regularly receives customer referrals from offices of the Big Six and
other accounting firms. The Company has formal and informal marketing alliances
with approximately 20 core accounting and other industry-specific software
vendors, including Great Plains Software, Inc., Platinum Software Corporation,
Scala North America, Inc. and State of the Art, Inc.
The Company's solutions are designed to offer the following benefits to its
customers:
Comprehensive Functionality. The Company's software solutions are designed
to provide comprehensive functionality for asset, human resources and payroll
management and are tailored to the needs of middle market businesses. Specific
features of the Company's products include sophisticated depreciation
calculations, extensive management capabilities, tax reporting, tax form
preparation, payroll processing, employee tracking and employee cost and
productivity analyses. As a result, the Company's customers are able to manage
assets, human resources and payroll more efficiently across their organizations.
Cost-Effective and Easy to Implement and Use. The Company designs its
products to provide, at prices affordable to middle market businesses, a feature
set competitive with much higher priced software solutions. The Company believes
its solutions offer performance features more typical of those provided by
higher-priced mainframe and minicomputer systems or third-party service
providers. Because middle market businesses typically have limited IT resources,
the Company also designs its products, which are based on the Windows interface
standard, to be easy to install, implement and use. Typically, the Company's
solutions can be installed in a matter of hours.
Highly Specialized Expertise. The Company employs 12 Certified Public
Accountants and 12 Certified Payroll Professionals in the sales and marketing,
research and development and technical support and services functions and has
gained significant expertise over more than a decade in the development of
asset, human resources and payroll management solutions. The Company believes
this highly specialized expertise gives it the ability to assess and anticipate
customer needs and to develop the functionalities required by its customers.
This expertise allows the Company to update program content regularly as
required to accommodate legislative and regulatory developments.
Improved Efficiency and Reduced Costs. The Company believes that its
solutions provide significant cost savings opportunities for its customers
through improved productivity and control. By facilitating asset management, the
Company's FAS product line permits customers to improve the
31
<PAGE> 33
efficiency of asset tracking and control, depreciation calculation, report
generation and tax return preparation to reduce losses and expenses (such as
insurance and taxes) and to ensure precise accounting and reporting of fixed
assets. The Company's Abra product line automates the tracking of employee and
benefit information, recruiting and training, thereby significantly reducing the
time required to complete these functions. In addition, by allowing its
customers to bring their payroll functions in-house, the Company's Abra Payroll
for Windows product reduces or eliminates reliance on expensive third-party
service providers, thereby increasing the customer's control of the payroll
process.
Extensive Service and Support. Due to the sophisticated tax, accounting
and regulatory content of its products, the Company offers extensive substantive
technical support and training to its customers. The Company supports its FAS
and Abra product lines through its SupportPlus program which provides customers
with software updates and unlimited telephone support by the Company's technical
support staff. The Company fielded over 270,000 telephone technical support
inquiries in fiscal 1997, many of which involved questions concerning asset,
human resources or payroll management, and provides frequent seminars on topics
ranging from basic operation to advanced technical subjects. The Company also
provides systems integration and implementation support both directly and
through its Business Partners and uses its Web sites for dissemination of
product information, technical support and feedback from customers and Business
Partners.
Compatibility with Leading Technologies and Leading Core Accounting
Solutions. The Company has focused on maintaining the compatibility of its
products with leading technologies. In particular, the Company's products are
optimized to operate with Microsoft technologies. The Company's products support
Microsoft operating systems, including Windows 95 and Windows NT. New products
are presently being developed to utilize many of the technologies found in the
Microsoft BackOffice suite, including SQL Server, Internet Information Server,
Active Server, Front Page and Visual Basic 5.0. The Company believes that the
use of these industry-standard development tools and technologies reflects the
current market preferences of its customers. The Company intends to continue to
develop solutions that will be compatible with future developments in Microsoft
technology. The Company also designs its products to integrate with many leading
third-party core accounting software solutions.
STRATEGY
The Company's objective is to extend its leadership position in the asset,
human resources and payroll management software solutions market and to develop
a range of other specialized and complementary solutions in order to provide its
customers with an integrated suite of products. The Company believes that by
supplying such solutions, it can serve as a single vendor offering customers
benefits such as bundled price incentives and comprehensive support, while
increasing its per customer average sales prices. The Company's strategy
incorporates the following key elements:
Offer Wide Range of Solutions. The Company seeks to position itself with
senior middle market decision makers as a "one stop" provider of software
solutions that complement its customers' core accounting systems. To further
this strategy, the Company intends not only to provide additional products in
the asset, human resources and payroll areas for existing or developing
technology platforms, but also to expand its product offerings by developing,
sublicensing and/or acquiring new products. For example, the Company is
currently developing a new software product designed to automate the corporate
budgeting process and a recruiting tool enabling customers to place help-wanted
advertisements on most major Web employment bulletin boards.
Leverage Specialized Expertise. The Company intends to continue to
leverage its specialized expertise in the asset, human resources and payroll
management areas to provide comprehensive software solutions to its customers.
The Company believes its in-depth understanding of complex and frequently
changing regulatory requirements and its knowledge of specialized customer
require-
32
<PAGE> 34
ments differentiate it from competitors and provide a significant advantage as
it competes for middle market customers. The Company has formal and informal
marketing alliances with approximately 20 core accounting and other
industry-specific software vendors who, in order to enhance the versatility of
their own systems, offer one or more of the Company's products as an integrated
application or add-on module for their own products. A number of these vendors
have elected to discontinue their own development of competing products and to
rely instead on the Company's specialized expertise as a developer of asset,
human resources and payroll management solutions.
Leverage Large Existing Customer Base. The Company believes that its large
existing customer base of over 40,000 licensed customer locations represents a
significant potential market for future sales of its products. The Company seeks
to leverage its strong market position by selling its new products to existing
customers and cross-selling its products to multiple offices, divisions and
departments of a customer's organization. The Company's customer base represents
a growth opportunity as those customers who are currently using the Company's
desktop and work group solutions migrate from DOS to Windows environments and
from individual or networked personal computers to client/server environments.
Employ Multi-Channel Sales and Marketing. The Company intends to continue
to employ a variety of sales and marketing channels, including its network of
Business Partners, a direct-response telesales operation, strategic marketing
alliances and its direct sales organization. The Company believes this diversity
of sales and marketing channels permits it to distribute its products to target
markets in the most efficient and effective manner, while reducing reliance on
any single channel. The Company has begun marketing certain of its products in
Canada and intends to expand international distribution of its products as they
are adapted for local requirements in other countries.
Provide Comprehensive Customer Service and Support. The Company intends to
continue to place emphasis on providing quality service and technical support to
its customers. The Company believes that offering comprehensive service and
support is important to customer satisfaction and provides a significant
opportunity for the Company to differentiate itself from competitors. The
Company expects to continue to derive a significant portion of its revenue from
technical support and from training and consulting services. The Company has
recently established a consulting services team to perform installation and
customization services for large national customers.
Extend Solutions to Emerging Technology Platforms. The Company's design
strategy is to make its solutions available on a variety of platforms to meet
its customers' evolving needs as they adopt new technologies. For example, in
response to customers' migration to 32-bit client/server architectures, the
Company has begun development of enhanced client/server versions of its
products. Employing technologies found in Microsoft BackOffice, including SQL
Server, Internet Information Server, Active Server, Front Page and Visual Basic
5.0, as well as ActiveX development tools, the Company believes the introduction
of its enhanced client/server products will enable it to address the growing
demand for the extension of its applications throughout the enterprise.
The Company believes that its large existing customer base of over 40,000
licensed customer locations represents a significant potential market for such
products. The Company seeks to leverage its strong market position by selling
these new products to existing customers.
33
<PAGE> 35
PRODUCTS
The Company's FAS and Abra product lines consist of a suite of desktop and
work group solutions that provide middle market customers with cost-effective
and feature-rich tools that comprehensively address their asset, human resources
and payroll management needs. The Company's products operate on the Microsoft
Windows operating system and employ an easy-to-use graphical user interface. The
Company's products are designed to be easy to implement and typically can be
installed in a matter of hours. The following table provides selected
information relating to the Company's FAS and Abra product lines:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FAS ASSET MANAGEMENT SOLUTIONS
- ----------------------------------------------------------------------------------------------
CURRENT VERSION CURRENT LIST
PRODUCT RELEASE DATE PRICE(1) PRODUCT DESCRIPTION
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FAS for Windows April 1997 $2,795 Fixed asset management and
depreciation
- ----------------------------------------------------------------------------------------------
FAS Encore April 1997 $3,995 Fixed asset management and
depreciation with enhanced
functionality
- ----------------------------------------------------------------------------------------------
FASTrack February 1997 $3,795 Asset tracking and management
for use with bar code readers
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<Capion>
- ----------------------------------------------------------------------------------------------
ABRA HUMAN RESOURCES AND PAYROLL MANAGEMENT SOLUTIONS
- ----------------------------------------------------------------------------------------------
CURRENT VERSION CURRENT LIST
PRODUCT RELEASE DATE PRICE(1) PRODUCT DESCRIPTION
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Abra HR for Windows April 1997 $4,690 Human resources management and
employee data tracking
- ----------------------------------------------------------------------------------------------
Abra Payroll for Windows April 1997 $5,490 In-house payroll processing
- ----------------------------------------------------------------------------------------------
Abra Attendance for Windows November 1996 $2,490 Employee attendance tracking
- ----------------------------------------------------------------------------------------------
Abra Applicant for Windows April 1997 $3,890 Job applicant tracking
- ----------------------------------------------------------------------------------------------
Abra Recruiting Solution April 1997 $7,590 Employee recruiting and
applicant resume management
- ----------------------------------------------------------------------------------------------
Abra Train for Windows April 1997 $2,790 Employee training management
- ----------------------------------------------------------------------------------------------
Abra People Manager August 1996 $495 Human resources management for
smaller businesses
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Prices shown are based on typical configurations (three network seats for
the FAS products; five seats for all Abra products except Abra People
Manager; one user for Abra People Manager).
34
<PAGE> 36
FAS ASSET MANAGEMENT PRODUCTS
The Company's FAS asset management products automate and streamline the
complex and tedious processes necessary to accurately and reliably track and
account for assets, including sophisticated depreciation calculations;
maintaining detailed historical data on, as well as tracking the location of,
assets across the enterprise; maintaining accurate audit trails; and preparing
management and tax reports and forms on demand. The Company's FAS products are
highly versatile and are designed to meet the customer's specific asset
management needs. These products can be integrated with many core accounting
systems and are offered separately or in integrated suites. The Company supports
its FAS products through the FAS SupportPlus membership program, which provides
customers with all software updates and unlimited telephone support by the
Company's technical support staff.
In fiscal 1997, the Company derived approximately 57% of its total revenue
from its FAS product line, including software licenses and related maintenance
and support agreements and training services, for both the current Windows
products and the previous generation of DOS products. As of June 30, 1997, the
Company had over 28,000 licensed FAS customer locations, and had approximately
23,000 active FAS SupportPlus maintenance and support agreements.
FAS for Windows and FAS Encore extend the functionality of core accounting
systems by enabling managers to monitor, in real-time, the acquisition,
transfer, depreciation and retirement of fixed assets, calculate depreciation
for book and tax purposes, and track assets for maintenance and insurance
purposes. FAS for Windows maintains a database of extensive information on each
asset and prepares comprehensive management reports and tax reports and forms.
FAS for Windows is designed to calculate asset depreciation using seven standard
depreciation methods without any customization and may easily be customized for
additional methodologies. FAS Encore is designed for businesses that require
more rigorous asset management. FAS Encore extends the functionality of FAS for
Windows with additional features such as automatic transfers and partial
disposals of assets; batch reporting of asset status and activity; password
security; and a built-in Crystal Reports-based report writer for creating
customized reports and presentation graphics. Certain of the features included
in FAS Encore are also available as add-on options for FAS for Windows.
FASTrack is a comprehensive asset tracking solution which utilizes
third-party bar code scanning and imaging technologies that enable the Company's
customers to maintain complete and accurate physical inventories of assets
across the enterprise and to track the location of mobile assets, conduct and
reconcile physical inventories and automatically update all asset records
quickly and easily in order to prevent loss of assets and the inefficiencies
associated with inaccurate depreciation calculations based on obsolete
inventories. FASTrack can be used on a stand-alone basis or can be seamlessly
integrated with both FAS for Windows and FAS Encore.
The Company's current FAS products are 16-bit Windows programs written in
C++ that are compatible with the Windows 3.x, Windows 95 and Windows NT
environments. These products operate with an SQL-standard database. FASTrack
supports multiple bar code readers, including those from Intermec Corporation
and Symbol Technologies, Inc., along with a wide range of bar code labels.
ABRA HUMAN RESOURCES AND PAYROLL MANAGEMENT PRODUCTS
The Company's Abra human resources and payroll management products provide
a comprehensive solution for the management of the human resources functions.
The Company's Abra human resources products integrate human resource, payroll,
recruitment and training data into a single database. As a result, the Company's
Abra products enable businesses to more quickly and easily access and update
employee data, current job and pay information, job and pay history, salary and
performance reviews, employee benefits data, workers' compensation information,
and education and training data. These products can be integrated with many core
accounting systems and are offered separately or in integrated suites. The
Company supports its Abra products through the Abra
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SupportPlus membership program, which provides customers with all software
updates and unlimited telephone support by the Company's technical support
staff.
In fiscal 1997, the Company derived approximately 38% of its total revenue
from its Abra product line, including software products, maintenance and support
agreements, and training and consulting services, for both Windows and DOS
customers. As of June 30, 1997, the Company had over 12,000 licensed Abra
customer locations. In addition, the Company had approximately 24,000 active
Abra SupportPlus maintenance and support agreements, which in certain cases
reflect the purchase of multiple maintenance and support agreements by single
Abra customers.
Abra HR for Windows automates the human resources function, enabling
businesses to more quickly and easily maintain and update employee and benefit
information, including employee profiles, current and historic compensation
information, education and employment history, skill set records, medical
benefits and savings plan enrollment eligibility data, and performance reviews.
Utilizing a variety of built-in reports, Abra HR for Windows also enables
businesses to instantaneously prepare cost analyses, summaries of employee
productivity and regulatory reports, including reports under affirmative action,
health and safety, workers' compensation and immigration regulations. In
addition, Abra HR for Windows can be easily customized to meet other unique
reporting requirements of a business.
Abra Payroll for Windows is an in-house payroll solution that enables
businesses to meet their payroll needs more cost-effectively than by utilizing
third-party service providers. Abra Payroll also provides secure, real-time
access to payroll data and enables users to comply with Federal and state tax
and withholding requirements more easily and efficiently, including preparation
of Forms W-2, 1099 and 941. The product also includes direct deposit
capabilities and electronic tax filing capabilities and interfaces with many
popular general ledger programs.
Abra Attendance for Windows tracks employee absences and leave accruals
with built-in features that enable businesses to define absence codes, handle
Family and Medical Leave Act compliance, and manage accruals and carryovers.
Abra Attendance for Windows enables businesses to create an array of attendance
plans for any employee using different seniority, accrual and carryover rules.
Abra Attendance for Windows integrates with Abra Payroll for Windows to provide
updates of vacation and other balances on employee pay stubs.
Abra Recruiting Solution is an integrated resume scanning and applicant
tracking software product, consisting of Abra Resume Scan and Abra Applicant.
Using the Abra Recruiting Solution, businesses can easily scan, organize and
evaluate incoming resumes, as well as search and review stored resumes
electronically to find appropriate job candidates. Abra Applicant automates the
labor-intensive process of sorting resumes and selecting candidates and enables
businesses to more easily and efficiently match job applicants' key skills,
experience and educational background with their specific needs. In addition,
Abra Applicant maintains easy-to-access information relating to candidate
interview status and the interviewers' comments and includes numerous
easy-to-use forms of correspondence, including acknowledgment, invitation, offer
and rejection letters.
Abra Train for Windows is a skill-based training management solution that
allows businesses to automate the tracking of employee training requirements and
history, the scheduling and management of courses and certifications and the
evaluation of the effectiveness of such initiatives.
Abra People Manager is designed specifically for smaller organizations that
do not have a dedicated human resources staff. The program consolidates critical
personnel information into one database on a personal computer and offers the
option to review and generate reports on such information. Abra People Manager
utilizes a Microsoft Access database, giving it a high degree of integration
with the Microsoft Office suite of products.
The Company's Abra products are 16-bit Windows programs and are compatible
with the Windows 3.x and Windows 95 environments. With the exception of Abra
People Manager, which is
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written using Microsoft Visual Basic, all of the Abra products are written using
Microsoft Visual FoxPro, an object-oriented environment and data management
tool.
PRODUCT DEVELOPMENT
The Company intends to continue to develop its products to meet identified
market needs for applications that complement core accounting software systems
and to address the evolving technology needs of its customers. The Company's
current product development efforts are focused primarily on (i) developing
enhanced client/server versions of its existing products, (ii) completing
development of a number of new products and (iii) creating links for certain of
the Company's products with additional third-party core accounting systems and
with other industry-specific applications.
In order to strengthen its role as a leading provider of specialized
software solutions as its customers move from work group to client/server
environments, the Company is developing enhanced client/server versions of its
primary existing asset, human resources and payroll management products. These
products will employ technologies such as Microsoft Windows NT and Microsoft
BackOffice, as well as ActiveX development tools. The Company believes that
enhanced client/server technology will allow wider use of the Company's products
throughout a customer's enterprise. For example, enhanced client/server versions
of the Company's human resources and payroll management products are being
designed to facilitate employee self service, in which the employee will have
access to his or her own human resources data, with additional levels of access
for the employee's manager, the human resources manager and the payroll
administrator, all through a corporate intranet. While traditional human
resources and payroll management systems require that record modifications be
initiated by the human resources and payroll staffs, this new workforce
management system will be designed to permit data to be captured and records to
be modified at various sources. The Company believes that this will improve the
efficiency and lower the costs related to its customers' human resources
function, particularly in larger organizations.
The Company intends to continue to identify market opportunities for new
product offerings that will complement its customers' core accounting systems.
For example, the Company is currently developing a software product designed to
automate the corporate budgeting process. Like the Company's current products,
this new budgeting product will be designed to function as a stand-alone system
or to integrate with core accounting systems. The Company is also developing a
recruiting tool that will enable customers to place help-wanted advertisements
on most major Web employment bulletin boards.
The Company is also focusing product development efforts on creating links
to allow for integration of its products with third-party core accounting and
reporting applications that are not currently compatible with the Company's
solutions. In addition, the Company is working to develop solutions that will
integrate and link its asset management products with complementary third-party
asset management products in industry-specific areas, such as sales tax,
property tax and inventory management.
TECHNICAL SUPPORT AND SERVICES
The Company believes that offering quality service and support is strategic
to its overall business objectives and provides the Company with a significant
opportunity to differentiate itself from competitors. The Company offers its
customers maintenance and technical support through its SupportPlus membership
programs, and also offers training and consulting services. The Company derives
a significant portion of it revenue from maintenance and support services. As of
June 30, 1997, the Company employed 66 persons in technical support and services
functions.
The Company's SupportPlus membership program provides customers expert
telephone support for FAS and Abra products, software updates to reflect tax law
and government regulatory changes, feature enhancements, newsletter
subscriptions, unlimited access to the Company's support center on
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the Web and special discounts on new products and services. In each of fiscal
1996 and 1997, approximately 85% of the Company's customers purchased
maintenance and support agreements in connection with their initial licenses of
Company products. During each of these fiscal years, the Company achieved annual
renewal rates for its maintenance and support agreements, which typically have a
one-year term, of approximately 80%. The Company's telephone support
organization provides extensive product support to customers, including
assistance in connection with implementation, systems operation and regulatory
compliance. The Company's telephone support organization fielded over 270,000
calls in fiscal 1997.
In addition to technical support, the Company offers its customers the
option to attend training seminars covering the use of the Company's solutions
as well as a comprehensive nationwide seminar series featuring basic through
advanced interactive product training. Many of these seminars offer professional
education credits. The Company also offers on-site training at client
facilities. In certain circumstances, the Company's Business Partners provide
training and implementation services directly to their customers.
The Company is in the process of expanding its consulting services
operation, which provides installation, training, data conversion,
implementation and other consulting services. The Company believes this
consulting services operation will become increasingly important as it
introduces its enhanced client/server products in the future.
SALES AND MARKETING
The Company employs a multi-channel sales and marketing strategy utilizing
four primary channels: Business Partners, a direct-response telesales operation,
strategic marketing alliances and its direct sales organization. The Company
believes that this diverse sales and marketing strategy allows it to reach its
target markets in the most efficient and effective manner and reduces reliance
on any single distribution channel. The Company supports its multi-channel sales
and marketing strategy through national advertising in key financial and
business publications, sponsorship of promotional events for customers and
Business Partners and participation in trade shows and conferences. The Company
also uses its Web sites to provide information about Company products and to
reinforce the Company's brand image, as well as to support its sales channels.
As of June 30, 1997, the Company employed 99 persons in sales and marketing.
Business Partners. The Business Partner channel consists of (i) Big Six
and other accounting firms and accounting, human resources and payroll
management consultants and professionals ("professional referral partners") and
(ii) value-added resellers of core accounting and other business software
solutions ("VARs"). The Company believes that its Business Partners have
significant influence over product choices by customers and that its
relationships with its Business Partners are an essential element in its sales
and marketing efforts.
The Company's professional referral partners recommend the Company's
solutions to assist their clients in addressing asset, human resources and
payroll management needs. Because they typically are closely involved with
middle market businesses on a day-to-day basis, the Company's professional
referral partners are well-positioned to understand customer requirements and
make appropriate product recommendations. The Company believes that product
recommendations from accounting firms that have licensed the Company's solutions
for their internal use are particularly effective. The Company has entered into
national licensing relationships with four of the Big Six accounting firms and
has sold local licenses to approximately 3,000 national, regional and local
accounting firm locations. Use of the Company's solutions by clients of these
firms creates efficiencies for both the clients and the accounting firms in the
transmission and processing of asset, human resources and payroll data and frees
the accounting firm to focus more on providing business management and other
higher value services.
VARs are independent sales organizations that market and resell the
Company's products and often offer training and local installation,
implementation and customization services. VARs typically
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have specialized experience in financial or human resources areas, and in many
cases focus on selling to middle market businesses. VARs market the Company's
solutions through their own contacts and to sales leads supplied by the Company.
The Company requires VARs to undergo prescribed training and certification
procedures before being authorized to sell and implement certain of the
Company's software solutions. As of June 30, 1997, the Company was affiliated
with over 150 certified VARs.
Direct-Response Telesales. The Company solicits new customers for its
products through periodic targeted mailings to its prospects. Utilizing its
proprietary database of more than 300,000 potential new customer business names
and other available mailing lists, the Company distributed over 2.8 million
pieces of direct mail relating to its product lines in fiscal 1997. Such
mailings, as well as targeted advertising, generate interest from potential
customers by stressing the cost-effectiveness and functionality of the Company's
products, ongoing changes in government regulations and the support and service
provided by the Company. Responses from potential customers are entered into the
Company's automated lead-tracking system. Once the information or a trial
product has been delivered to the potential customer, follow-up calls are made
until the customer decides whether or not to purchase the product.
Strategic Marketing Alliances. The Company currently has formal and
informal strategic marketing alliances with over 20 leading core accounting and
other industry-specific software vendors. These alliances permit these software
vendors to incorporate the Company's products as specialized integrated
applications or add-on modules to enhance their product offerings. These
alliances benefit the Company by creating an additional sales channel and by
providing a strong recommendation of its products by leading software vendors.
The Company's strategic marketing alliance partners currently include Great
Plains Software, Inc., Platinum Software Corporation, Scala North America, Inc.
and State of the Art, Inc.
Direct Sales. The Company has a direct sales force that currently markets
the Company's products to larger middle market customers and national accounts.
As of June 30, 1997, the Company's direct sales force consisted of seven
persons, located at the Company's offices in Reston, Virginia and St.
Petersburg, Florida and other locations. In addition to marketing the Company's
products to new customers, this channel leverages the Company's broad installed
customer base to sell additional products to divisions or branches of existing
customers.
CUSTOMERS
The Company's FAS asset management products are targeted primarily to the
asset manager, tax accountant, corporate controller and chief financial officer
of middle market businesses and to accounting firms that typically use the
software to perform fixed asset management services for their customers. The
Company's Abra human resources and payroll management products are targeted
primarily to the human resources manager, corporate controller and chief
financial officer of middle market businesses.
The Company has licensed its products to over 40,000 customer locations in
a wide variety of industries and organizations. No one customer accounted for
more than 1% of the Company's total revenue in fiscal 1997.
RESEARCH AND DEVELOPMENT
The Company's research and development staff combines tax, accounting and
asset, and human resources management expertise with programming skills. As of
June 30, 1997, the Company had 62 full-time software development personnel (or
22% of the total employee base) with expertise in Windows, Windows NT,
client/server and/or Internet environments. Of these developers, five are
Certified Public Accountants and seven are Certified Payroll Professionals. In
fiscal 1995, 1996 and 1997 and the three months ended June 30, 1997, the Company
incurred approximately $5.7 million, $7.4 million, $6.1 million and $2.0
million, respectively, in research and development expenses.
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The development and updating of asset, human resources and payroll
management software that incorporates complex regulations demands a rigorous
development cycle that is mandated by the ongoing adoption of new laws,
regulations and forms by Federal, state and local governments and other
regulatory agencies, as well as the uncertain timing of these changes and
releases. The Company has a team of software developers who are experienced in
this development and updating process and the Company has created a set of
proprietary development tools that simplify the process of producing updates and
annual versions of the Company's products within required time frames.
INTELLECTUAL PROPERTY RIGHTS AND LICENSES
The Company generally does not execute licenses with its customers but
instead seeks to protect its software and other intellectual property through a
combination of trade secret, copyright and trademark law, confidentiality
agreements and contractual restrictions on copying and disclosure contained in
its "shrink wrap" licenses and nondisclosure agreements with its employees and
contractors. The Company provides its products to customers on a "right-to-use"
basis under non-exclusive shrink wrap licenses, which generally are
nontransferable and have a perpetual term. The license agreements generally
provide that the software is provided "as is" without warranty of any kind.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult and, while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem, particularly
in international markets and as a result of the growing use of the Internet. The
Company's shrink wrap licenses are not signed by licensees and, therefore, it is
possible that such licenses may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's products and technologies.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time-consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse effect
on the Company's business, operating results and financial condition.
COMPETITION
The market for the Company's products is highly competitive. Although the
Company is not aware of any competitor which competes with it across all of its
product lines, a variety of companies currently offer products that compete with
one or more of the Company's product lines. In addition, as the Company targets
new markets and introduces new product lines, it expects to encounter
competition from additional competitors. The Company's products compete
primarily on the basis of product features and functions, product quality and
reliability, timeliness of product release and updating, ease of use, brand
recognition, quality of customer support, price and product line breadth. The
Company believes that its products generally compete effectively with respect to
these factors.
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The Company faces different competitors for each of its product lines. The
Company's asset management products compete principally with products offered by
the Bureau of National Affairs, Inc. in the single-user and work group
environments, and the Company anticipates that its enhanced client/server
products, when introduced, will compete with products offered by PeopleSoft,
Inc., Oracle Corporation and others. The Company's human resources and payroll
management products compete primarily with Spectrum Human Resources Corporation,
Human Resources Microsystems and Ceridian Corporation (FLX) in the single-user
and work group environment, and the Company anticipates that its enhanced
client/server human resources and payroll products, when introduced, will
compete with products offered by PeopleSoft, Inc., Ultimate Software Group, Inc.
and SAP AG in the client/server environment. The Company's human resources and
payroll management products also compete with payroll service bureaus, such as
ADP, Inc. and Paychex, Inc., and with in-house management information systems
staffs. Several of the Company's competitors or potential competitors have
significantly greater financial, technical and marketing resources than the
Company. See "Risk Factors -- Compensation."
FACILITIES
The Company's corporate headquarters, including its principal
administrative, product development, product management, technical support, and
sales and marketing operations, are located in 39,000 square feet of office
space in a building located in Reston, Virginia. The Company occupies the space
under leases expiring on February 28, 2002, subject to the Company's right to
extend the term by two years for part of the space, and by two or five years for
the remainder of the space. The Company's Abra Software, Inc. subsidiary leases
26,000 square feet of office space in St. Petersburg, Florida, under a lease
that expires in December 1997. The Company also leases space in Palo Alto,
California, McLean, Virginia and Burlington, Ontario, Canada. The Company
believes that its existing facilities are suitable and adequate for its present
needs and that suitable additional space will be available as needed to
accommodate any expansion of operations.
EMPLOYEES
As of June 30, 1997, the Company had 283 full-time employees, including 62
employees primarily engaged in research and development, 66 in technical support
and services, 99 in sales and marketing, and 56 in operations, finance and
administration.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operation in the normal course of business. The Company is
not currently a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of June
30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
James F. Petersen (1)................ 53 Chairman of the Board of Directors
Timothy A. Davenport (1)............. 41 President, Chief Executive Officer and Director
David N. Bosserman................... 40 Executive Vice President, Chief Financial
Officer and Treasurer
David L.G. Horn...................... 40 Vice President, FAS Products Group
James F. Foster...................... 44 President, Abra Software, Inc.
Robert H. Skinner.................... 45 Senior Vice President, Sales
Elaine Kelly......................... 33 Vice President, Marketing
Herbert R. Brinberg (1)(2)(3)........ 71 Director
Peter V. Del Presto (4).............. 46 Retiring Director
Richard A. Lefebvre (2).............. 50 Director
John H. Martinson (1)(2)(3).......... 49 Director
Dorothy T. Webb...................... 50 Director
</TABLE>
- ---------------
(1) Member of the Compensation and Finance Committee
(2) Member of the Option Committee
(3) Member of the Audit Committee
(4) Mr. Del Presto will resign upon the closing of this offering
James F. Petersen co-founded the Company in 1982 and has served as the
Company's Chairman of the Board since its inception. He served as President and
Chief Executive Officer of the Company from 1982 to June 1995. Before founding
the Company, Mr. Petersen was Vice President and Treasurer of Aspen Systems
Corporation, an electronic information and publishing company.
Timothy A. Davenport was appointed President, Chief Executive Officer and a
director of the Company in June 1995. From March 1987 to June 1995, Mr.
Davenport served as Vice President, Developer Tools Group, and Vice President,
Graphics Division, for Lotus Development Corporation ("Lotus"), a computer
software company that markets and develops productivity and work group
applications. Prior to joining Lotus, Mr. Davenport was employed from March 1985
to March 1987 as Vice President of Product Marketing for Decision Resources, a
division of Ashton-Tate Corporation, a company that developed business graphics
applications.
David N. Bosserman has served as the Company's Executive Vice President,
Chief Financial Officer and Treasurer since October 1996. Previously, he served
as the Company's Vice President, Corporate Finance from June 1993 to September
1996, and Director, Finance and Operations from May 1992 to May 1993. From
January 1985 to May 1992, Mr. Bosserman served in various positions, leading to
Senior Manager, at Deloitte & Touche.
David L.G. Horn has served as the Company's Vice President, FAS Products
Group since February 1996. He joined the Company in October 1995 as the
Company's Vice President, FAS Product Management. From February 1984 to October
1995, Mr. Horn was employed by Hewlett-Packard Co., a manufacturer of electronic
products, in various capacities, most recently as Future Products Manager for
its office products division.
James F. Foster became President of Abra Software, Inc., a wholly owned
subsidiary of the Company ("Abra Software"), in April 1993. From September 1992
until April 1993, Mr. Foster served as Chief Operating Officer of Abra Software.
Prior to joining Abra Software, Mr. Foster was employed from July 1984 to
September 1992 by Dun & Bradstreet Software Services, Inc., a business
application software provider, where he held a number of positions in the human
resources software area, most recently as Director of Sales and Marketing for
the personal computer human resources division.
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Robert H. Skinner has served as Senior Vice President, Sales since April
1996. Previously, he served as the Company's Vice President of Sales and
Marketing for FAS from April 1995 to April 1996, and as Director of Sales from
June 1992 to April 1995. From December 1982 to June 1992, Mr. Skinner served as
Vice President of Sales and Marketing for Trinet, Inc., a business information
marketing company.
Elaine Kelly has served as Vice President, Marketing since September 1996.
From October 1993 to September 1996, Ms. Kelly served as a Director of
Marketing. From October 1990 until October 1993, Ms. Kelley served as Marketing
Manager of the Company. From July 1988 to September 1990, Ms. Kelly served as
manager of Marketing Services for Netron Inc., a Canadian software company.
Herbert R. Brinberg has served as a director of the Company since 1990.
Since 1990, Dr. Brinberg has served as the President of Parnassus Associates
International, a company that assists organizations with information and
technology management. From 1978 to 1990, Dr. Brinberg was President and Chief
Executive Officer of Wolters Kluwer U.S. Corporation, an international
publishing company. Dr. Brinberg also serves as a director of K&F Industries,
Inc., a manufacturer of airplane parts and supplies.
Peter V. Del Presto became a director of the Company in 1993. He has served
as a Vice President of PNC Bank Corp., a bank holding company, since 1985. He
also serves as a Vice President of PNC Equity Management Corp. and PNC Capital
Corp. ("PNC"), affiliates of PNC Bank Corp. PNC is a shareholder of the Company.
Mr. Del Presto has tendered his resignation as a director of the Company,
effective as of the closing of this offering.
Richard A. Lefebvre became a director of the Company in February 1996. He
currently serves as Chairman of Axent Technologies, Inc. ("Axent"), a provider
of enterprise-wide information security solutions, a position he has held since
January 1989. From January 1989 through July 1997, he also served as President
and Chief Executive Officer of Axent. Prior to joining Axent, Mr. Lefebvre was
Chief Operating Officer at Sage Software, Inc. (now InterSolv Inc.), a computer
software company, from May 1987 to December 1988. He currently serves on the
boards of Axent and Sylvon Software, Inc., a software, consulting and training
firm.
John H. Martinson has served as a director of the Company since 1988. Since
1986, Mr. Martinson has been a general partner of Edison Partners, L.P., which
is the general partner of Edison Venture Fund, L.P. ("Edison"), a venture
capital partnership and a shareholder of the Company. Mr. Martinson is a
director of Dendrite International Inc. and Nobel Education Dynamics, Inc. He is
a director of the National Venture Capital Association and Chairman of the New
Jersey Technology Council.
Dorothy T. Webb has been a director of the Company since 1984. Since May
1996, Ms. Webb has served as the Company's Vice President, Internet Business
Strategies. From May 1994 until April 1996, Ms. Webb served as Chief Operating
Officer for Best!Ware, Inc., at that time a wholly owned subsidiary of the
Company. From July 1991 until April 1994, Ms. Webb served as Vice President,
Marketing for Abra Software. From October 1983 to July 1991, Ms. Webb was a Vice
President of the Company.
Officers of the Company serve at the pleasure of the Board of Directors.
See "-- Employment Agreements."
COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board consists of two Class I
Directors (Messrs. Petersen and Martinson), three Class II Directors (Dr.
Brinberg and Messrs. Del Presto and Davenport) and two Class III Directors (Ms.
Webb and Mr. Lefebvre). At each annual meeting of shareholders, the number of
directors in the applicable class are elected for a three-year term to succeed
the directors of the same class whose terms are then expiring. The terms of the
Class I Directors, Class II Directors and Class III Directors will expire upon
the election and qualification of successor directors at the annual meeting of
shareholders held in calendar years 1999, 1997 and 1998, respectively. Dr.
Brinberg and Messrs. Del
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Presto and Davenport have been nominated by the Board of Directors for
re-election at the 1997 annual shareholders meeting scheduled for September
1997. Mr. Del Presto has tendered his resignation as a director of the Company,
effective as of the closing of this offering.
Pursuant to a 1995 shareholders voting agreement (the "Voting Agreement")
between Mr. Petersen and Edison, Edison agreed to vote its shares in favor of
Mr. Petersen's election as a director as well as for the election of a nominee
put forward by Mr. Petersen. The Voting Agreement will terminate upon the
closing of this offering.
Mr. Davenport was appointed to the Board as a condition of his employment.
See "-- Employment Agreements."
BOARD COMMITTEES
The Board of Directors has appointed a Compensation and Finance Committee,
consisting of Messrs. Petersen, Davenport and Martinson and Dr. Brinberg, which
establishes the compensation of officers of the Company. The Company also has an
Option Committee, consisting of Messrs. Martinson and Lefebvre and Dr. Brinberg,
which administers the Company's stock plans. The Board of Directors has also
appointed an Audit Committee, consisting of Mr. Martinson and Dr. Brinberg,
which reviews the results and scope of the audit and other services provided by
the Company's independent certified public accountants.
DIRECTOR COMPENSATION
As compensation for serving on the Board of Directors, each director who is
not employed by the Company or serving on the Board as a representative of an
institutional investor (an "outside director") receives an annual retainer of
$6,000, plus a fee of $2,000 for attendance at each meeting of the full Board
and $500 for each committee meeting. In April 1997, the current outside
directors, Dr. Brinberg and Mr. Lefebvre, received options under the 1992 Stock
Option Plan to purchase 4,375 and 5,755 shares of Common Stock, respectively, at
an exercise price of $3.83 per share, which options vest annually over the
remainder of their terms in office. In addition, each outside director elected
or reelected after August 1997 will receive stock options under the Company's
1997 Director Stock Option Plan. See "-- Stock Plans."
Remuneration of directors who represent institutional investors is governed
by the terms of the original agreement between the Company and such
institutional investor. In the case of PNC, Mr. Del Presto receives the annual
retainer and meeting fees described above and, in the case of Edison, Mr.
Martinson receives no retainer or fees for attendance at Board meetings. All
directors are reimbursed for reasonable expenses incurred by them in connection
with their attendance at Board or committee meetings.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company with respect to services rendered during fiscal 1997 to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
- ------------------------------------------- -------- ------- ------------ ----------------
<S> <C> <C> <C> <C>
James F. Petersen.......................... $178,864 $31,706 -- $5,162
Chairman of the Board
Timothy A. Davenport....................... 206,345 37,763 -- 5,682
President and Chief Executive Officer
David L.G. Horn............................ 132,750 30,628 11,250 4,226
Vice President, FAS Products Group
James F. Foster............................ 154,560 21,011 45,000 1,876
President, Abra Software
Robert H. Skinner.......................... 164,024(2) 25,782 60,000 5,058
Senior Vice President, Sales
</TABLE>
- ---------------
(1) Represents matching contributions to the Company's 401(k) Plan made by the
Company on behalf of each of the Named Executive Officers and an additional
profit sharing contribution of $1,876 for each.
(2) Includes $55,501 in sales commissions.
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock made during fiscal 1997 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------
NAME GRANTED(2) FISCAL YEAR PER SHARE DATE 5% 10%
- ------------------------- ----------- --------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. Davenport..... -- -- -- -- -- --
James F. Petersen........ -- -- -- -- -- --
David L.G. Horn.......... 3,750 3.7% $3.50 5/30/05 $ 7,236 $ 17,823
7,500 3.83 10/10/05 15,851 39,041
James F. Foster.......... 45,000 14.9 3.50 5/30/05 86,834 213,877
Robert H. Skinner........ 37,500 17.4 3.50 5/30/05 72,362 178,231
15,000 3.83 10/10/05 31,701 78,082
</TABLE>
- ---------------
(1) The amounts shown as potential realizable values on the options are based on
assumed annualized rates of appreciation in the price of the Common Stock of
5% and 10% over the term of the options, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises are dependent on future performance of the Common Stock. There can
be no assurance that the potential realizable values reflected in this table
will be achieved.
(2) All options vest 20% per year beginning on the first anniversary of the date
of grant.
45
<PAGE> 47
The following table sets forth information regarding the exercise of stock
options during fiscal 1997 and the value of options held as of the end of fiscal
1997 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES SUBJECT VALUE OF UNEXERCISED
SHARES TO UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
UPON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James F. Petersen........ 450,000(2) $1,692,000 -- -- -- --
Timothy A. Davenport..... 60,000 69,600 -- 315,000 -- $ 365,400
David L.G. Horn.......... -- -- 2,250 20,250 $ 1,868 8,708
James F. Foster.......... -- -- 34,500 63,000 74,010 42,990
Robert H. Skinner........ -- -- 9,000 66,000 13,485 32,603
</TABLE>
- ---------------
(1) The dollar values have been calculated by determining the difference between
(i) the fair market value of the securities underlying the options at the
exercise date, in the case of "value realized," or the fiscal year end, in
the case of "value of unexercised in-the-money options" and (ii) the
aggregate exercise price of the options. Solely for purposes of determining
these values, the Company has assumed that the fair market value of the
Common Stock on all applicable dates was the fair market value as determined
by the Board of Directors on such date, since the Common Stock was not
traded on an established market prior to this offering.
(2) In connection with his option exercise, Mr. Petersen secured a short-term
loan from the Company to pay the withholding taxes in the amount of $763,890
due as a result of such exercise, based on a per share exercise price of
$0.57 and a fair market value on the date of exercise of $3.83. The note
bore interest at the rate of 5.66%. In connection with the option exercise,
Mr. Petersen delivered to the Company 199,429 shares of Common Stock to pay
off the principal and interest on this loan.
EMPLOYMENT AGREEMENTS
Pursuant to an Employment Agreement between James F. Petersen and the
Company dated May 17, 1995, the Company agreed to employ Mr. Petersen as
Chairman of the Company until March 30, 2000, with a salary of $170,280, subject
to adjustment. Mr. Petersen is entitled to payment of his salary through March
30, 2000 should his employment be terminated by the Board other than for cause.
Mr. Petersen has agreed not to compete against the Company during his employment
and for one year thereafter.
In connection with the May 1995 hiring of Timothy A. Davenport, President
and Chief Executive Officer of the Company, the Company agreed to pay Mr.
Davenport an annual base salary of $200,000. In addition, the Company issued to
Mr. Davenport, pursuant to its 1992 Stock Option Plan, options to purchase
375,000 shares of Common Stock at an exercise price of $2.67 per share, 300,000
of which will vest equally over a five-year period and 75,000 of which will vest
in full immediately upon the closing of this offering. Mr. Davenport is entitled
to six months of base salary as severance pay should his employment be
terminated other than for cause, except in the case of constructive termination
due to a change in control, in which case he will continue to receive his salary
for 12 months and his stock option vesting will be accelerated by 24 months. The
Company also reimbursed Mr. Davenport for certain relocation expenses and agreed
to appoint him to the Board of Directors.
BONUS PLAN
The Company has a bonus program for certain designated key employees of the
Company, including all executive officers, pursuant to which such employees are
paid cash bonuses based upon the attainment of certain specified corporate,
divisional and individual goals for the year. The amount of the bonus to which
each such employee is entitled is finally determined by the Board of Directors.
STOCK PLANS
Under the Company's Employee Incentive Stock Option Plan adopted in 1988
(the "1988 Option Plan"), there were outstanding options to purchase 145,500
shares of Common Stock as of June 30, 1997. No further options may be granted
under the 1988 Option Plan.
46
<PAGE> 48
The Company's Amended and Restated 1992 Stock Option Plan (the "1992 Option
Plan") covers 1,875,000 shares of Common Stock, after giving effect to an
amendment to the 1992 Option Plan approved by the Board of Directors and
submitted to, but not yet approved by, the Company's shareholders. As of June
30, 1997, options to purchase 759,703 shares of Common Stock were outstanding
under the 1992 Option Plan. In connection with the adoption of the 1997
Incentive Plan (as defined below), the Board has provided that no further
options may be granted under the 1992 Option Plan. The 1992 Option Plan provides
for the grant, as of April 24, 1997, to each outside director who was serving on
the Board of Directors as of such date, of a non-statutory option to purchase a
pro rata portion of 22,500 shares of Common Stock reflecting the remainder of
the three-year term of such director. Such options vest over the remainder of
such term. In April 1997, Dr. Brinberg and Mr. Lefebvre were each granted a
non-statutory option under the 1992 Option Plan to purchase 4,375 shares and
5,755 shares, respectively, of Common Stock at an exercise price of $3.83 per
share.
In August 1997, the Board of Directors adopted the Company's 1997 Stock
Incentive Plan (the "1997 Incentive Plan"). The Company has reserved 1,500,000
shares of Common Stock for issuance under the 1997 Incentive Plan. The 1997
Incentive Plan provides that a variety of awards, including stock options, stock
appreciation rights and restricted and unrestricted stock grants, may be made to
the Company's employees, officers, consultants and advisors who are expected to
contribute to the Company's future growth and success. The Option Committee will
administer the 1997 Incentive Plan and determine the price and other terms upon
which awards shall be made. Stock options may be granted either in the form of
incentive stock options or non-statutory stock options. The option exercise
price of incentive stock options may not be less than the fair market value of
the Common Stock on the date of grant. While the Company currently anticipates
that most grants under the 1997 Incentive Plan will consist of stock options,
the Company may grant stock appreciation rights, which represent rights to
receive any excess in value of shares of Common Stock over the exercise price;
restricted stock awards, which entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase all or part of such
shares at their purchase price in the event that the conditions specified in the
award are not satisfied; or unrestricted stock awards, which represent grants of
shares to participants free of any restrictions under the 1997 Incentive Plan.
Options or other awards that are granted under the 1997 Incentive Plan but
expire unexercised are available for future grants. As of the date of this
Prospectus, no awards have been granted under the 1997 Incentive Plan.
In August 1997, the Board of Directors adopted the Company's 1997 Director
Stock Option Plan (the "Director Plan") to provide for the grant of
non-statutory stock options to outside directors. The Company has reserved
150,000 shares for issuance under the Director Plan. The Director Plan provides
(i) in the case of an outside director elected at the commencement of a
three-year term, for the grant to such director as of the date of election of an
option exercisable to purchase 22,500 shares of Common Stock and (ii) in the
case of an outside director elected in the course of a three-year term (for
example, to fill a vacancy), for the grant to such director of an option to
purchase 22,500 shares of Common Stock multiplied by a fraction, the numerator
of which is 36 minus the number of whole calendar months which have elapsed
since the commencement of the term and the denominator of which is 36. All
options granted under the Director Plan will have an exercise price equal to the
fair market value of the Common Stock on the date of grant and will vest in
equal annual installments over the remainder of such director's three-year term,
on the date of the annual meeting of shareholders. No options have been granted
under the Director Plan to date.
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in August 1997. A total of 250,000
shares of Common Stock are reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify under Section 423 of the Code, will
be administered by the Board of Directors or a committee thereof. Employees
(including officers and employee directors of the Company) are eligible to
participate in the Purchase Plan if they are customarily employed for more than
20 hours per week five months per year. The Company has not yet offered or sold
shares of Common Stock to employees pursuant to the Purchase Plan, but the first
offering under the Purchase Plan will commence on the effective date of
47
<PAGE> 49
this offering and will end on December 31, 1997. Thereafter, the Purchase Plan
will be implemented in sequential six-month offering periods. The Purchase Plan
permits eligible employees to purchase Common Stock through payroll deductions,
which may not exceed an aggregate value of $25,000 (measured at the beginning of
each offering period) in any calendar year. The price at which stock may be
purchased under the Purchase Plan is equal to 85% of the lower of the fair
market value of the Common Stock on the first day of the offering period (the
initial public offering price in the case of the first offering) or the last day
of the offering period. Employees may end their participation in the offering at
any time during the offering period, and participation ends automatically on
termination of a participant's employment with the Company.
401(k) PLAN
In January 1991, the Company adopted a tax-qualified profit sharing plan
(the "401(k) Plan") covering all of the Company's full- and part-time employees.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the lower of 15% of their eligible compensation or the
statutorily prescribed annual limit, and have the amount of such reduction
contributed to their retirement accounts. Also, the Company may, at the
discretion of the Board of Directors, make periodic "profit sharing"
contributions to the employees' accounts. The 401(k) Plan is intended to qualify
under Section 401 of the Code so that contributions by employees or by the
Company to the 401(k) Plan, and income earned on 401(k) Plan contributions, are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company will be deductible by the Company when made. The
Trustee under the 401(k) Plan, at the direction of each participant, invests the
assets of the 401(k) Plan in any of eight investment options. The Company will
make a matching contribution in an amount equal to $0.50 for each $1.00
contributed by an employee up to a maximum of 2% of the participant's
compensation, as defined in the 401(k) Plan. Employer matching contributions and
profit sharing contributions vest to each employee at 50% after two years of
employment, 75% after three years and 100% after four years. In calendar years
1993 through 1995, the participation of highly compensated employees was limited
to 5.5% of eligible compensation. The Company made profit sharing contributions
during calendar year 1997 in the aggregate amount of approximately $220,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Petersen, Chairman of the Board, and Mr. Davenport, President and Chief
Executive Officer, serve on the Compensation and Finance Committee. For
information regarding certain transactions and relationships between the Company
and Mr. Petersen and Mr. Davenport, see "-- Employment Agreements" and "Certain
Transactions."
48
<PAGE> 50
CERTAIN TRANSACTIONS
The Company paid a dividend of $0.455 per share of Common Stock to
shareholders of record on February 20, 1997 and a dividend of $0.915 per share
of Common Stock to shareholders of record on June 27, 1997. All of the Board
members (or their affiliates) except for Mr. Lefebvre were shareholders as of
the record date for payment of the first dividend and all of the Board members
(or their affiliates) were shareholders as of the record date for payment of the
second dividend. In connection with the two dividends, Mr. Petersen received
$2,876,903; Mr. Davenport received $137,100; Edison, an affiliate of Mr.
Martinson, received $5,527,292; Ms. Webb received $1,027,586; Dr. Brinberg
received $20,550; Mr. Lefebvre received $3,294; and PNC, an affiliate of Mr. Del
Presto, received the payments described in the following paragraph.
The Loan and Warrant Purchase Agreement by and between PNC and the Company
dated as of March 2, 1993, prohibits the Company from issuing cash dividends to
its shareholders until the closing of an initial public offering. In
consideration for PNC's waiver of this restriction in connection with the two
dividend issuances described above, the Company agreed, with regard to the first
dividend, to reduce the per share exercise price of the PNC Warrant by the
dividend amount (i.e., from $2.667 to $2.213 per share), and, with regard to the
second dividend, to pay PNC a dividend equivalent payment of $432,338 ($0.915
multiplied by the 472,500 shares underlying the PNC Warrant) and to amend the
PNC Warrant to reduce the then current per share exercise price thereunder by
20% of the dividend value (i.e., from $2.213 to $2.029 per share). PNC is a
beneficial shareholder of the Company and Mr. Del Presto, a director of the
Company, is a Vice President of PNC Bank Corp., an affiliate of PNC. See
"Description of Capital Stock -- Warrants."
In connection with the above described dividends, all employees holding
nonstatutory stock options were given the opportunity to elect to pay some or
all of their withholding tax obligations resulting from exercise of their
options in the form of a secured promissory note, bearing interest at the rate
of 5.66% and 6.06% per annum for the first and second dividend, respectively,
and due and payable to the Company, in cash or stock of the Company (valued at
the then current fair market value), no later than ten business days after the
date upon which the cash dividend was paid. The Company received a number of
such promissory notes from employees, including a note in the amount of $763,890
from Mr. Petersen, Chairman of the Board and a director, and a note in the
amount of $702,578 from Ms. Webb, a director. Both Mr. Petersen and Ms. Webb
delivered Common Stock to the Company to pay off the loan (199,429 and 183,282
shares, respectively).
The Company has adopted a policy that any future transactions between the
Company and its executive officers, directors and affiliates must (i) be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties and (ii) be approved by a majority of the members of the Company's
Board of Directors and by a majority of the disinterested members of the
Company's Board of Directors.
49
<PAGE> 51
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of June 30, 1997, after
giving effect to the Preferred Stock Conversion and the Warrant Exercise, and as
adjusted to reflect the sale of shares offered hereby, (i) by each person who is
known by the Company to own beneficially more than 5% of the outstanding shares
of the Common Stock, (ii) by each of the Named Executive Officers, (iii) by each
director of the Company, (iv) by all directors and executive officers of the
Company as a group and (v) by each Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR NUMBER OF OWNED AFTER
TO THE OFFERING(1) SHARES THE OFFERING(1)(2)
----------------------- BEING -------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED(2) NUMBER PERCENT
- -------------------------------------------- ------------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
James F. Petersen........................... 2,033,695 (3) 25.1% 239,715 1,793,980 16.5%
Timothy A. Davenport........................ 195,000 (4) 2.4 -- 195,000 1.8
David L.G. Horn............................. 3,000 (5) * -- 3,000 *
James F. Foster............................. 48,000 (6) * -- 48,000 *
Robert H. Skinner........................... 17,250 (7) * -- 17,250 *
John H. Martinson........................... 4,034,520 (8) 49.7 475,556 3,558,964 32.8
Peter V. Del Presto......................... 472,500 (9) 5.5 55,694 416,806 3.7
Dorothy T. Webb............................. 714,501 (10) 8.8 84,219 630,282 5.8
Herbert R. Brinberg......................... 15,000 * -- 15,000 *
Richard A. Lefebvre......................... 3,600 * -- 3,600 *
All directors and executive officers as a
group (12 persons)........................ 7,549,516 (11) 87.0 855,184 6,694,332 58.6
OTHER 5% SHAREHOLDERS:
Edison Venture Fund, L.P. .................. 4,034,520 (12) 49.7 475,556 3,558,964 32.8
997 Lenox Drive, #3
Lawrenceville, NJ 08648
James F. Petersen Trust U/A 12/31/93........ 1,043,806 (13) 12.9 123,035 920,771 8.5
8034 Galla Knoll Drive
Springfield, VA 22153
PNC Capital Corp. .......................... 472,500 (14) 5.5 55,694 416,806 3.7
Pittsburgh National Bank
Fifth Avenue and Wood St.
Pittsburgh, PA 15222
OTHER SELLING SHAREHOLDERS:
Irrevocable Trust for James Mitchell
Petersen.................................. 300,000 3.7 35,361 264,639 2.4
Petersen Trust for Nieces and Nephews....... 75,000 * 8,840 66,160 *
William H. Woywood Irrevocable Trust, Dated
10/17/96.................................. 5,217 * 615 4,602 *
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are exercisable, or will become exercisable within 60 days after June
30, 1997, are deemed outstanding. Such shares, however, are not deemed
outstanding for purposes of computing the percentage ownership of any other
person, except that the Warrant Exercise is assumed in all calculations.
Unless otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable. Unless otherwise indicated, the address of each of
the individuals listed in the table is: c/o Best Software, Inc., 11413
Isaac Newton Square, Reston, VA 20190.
(2) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the following Selling
Shareholders will sell the following numbers of additional shares: Edison,
289,295; James F. Petersen, 145,826; Dorothy T. Webb, 51,234; PNC, 33,881;
Irrevocable Trust for James Mitchell Petersen, 21,512; Petersen Trust for
Nieces and Nephews, 5,378; and William H. Woywood Irrevocable Trust, 374.
50
<PAGE> 52
(3) Excludes 375,000 shares held by two irrevocable trusts established by Mr.
Petersen for the benefit of members of his family. Mr. Petersen is not a
trustee or beneficiary of either trust and disclaims beneficial ownership
of these shares. Includes 1,043,806 shares held by a trust established by
Mr. Petersen for the benefit of Nancy Petersen, of which Mr. Petersen is a
trustee and over which he has voting control. See Note (13).
(4) Includes 75,000 shares issuable upon exercise of stock options which will
become exercisable on the effective date of this offering.
(5) Consists of 3,000 shares issuable upon exercise of stock options which are
exercisable within 60 days of June 30, 1997.
(6) Consists of 48,000 shares issuable upon exercise of stock options which are
exercisable within 60 days of June 30, 1997.
(7) Consists of 17,250 shares issuable upon exercise of stock options which are
exercisable within 60 days of June 30, 1997.
(8) These shares are held by Edison. Mr. Martinson is a general partner of
Edison Partners, L.P., the general partner of Edison. Mr. Martinson,
together with the other general partners of Edison Partners, L.P., shares
voting and investment power with respect to the shares held by Edison. Mr.
Martinson does not own any shares in his individual capacity.
(9) These shares are issuable to PNC upon the exercise of the PNC Warrant,
which warrant is currently exercisable in full. Mr. Del Presto is a Vice
President of PNC Bank Corp., an affiliate of PNC, and shares voting and
investment power with respect to these securities. Mr. Del Presto does not
own any shares in his individual capacity.
(10) Consists of 714,501 shares held by a trust for the benefit of members of
Ms. Webb's family, of which Ms. Webb is a trustee. Excludes 5,217 shares
held by an irrevocable trust established by Ms. Webb for the benefit of a
member of her family. Ms. Webb is not a trustee or beneficiary of such
irrevocable trust and disclaims beneficial ownership of these shares.
(11) Includes 566,506 shares issuable upon exercise of the PNC Warrant and stock
options which are exercisable within 60 days of June 30, 1997, or, in the
case of Mr. Davenport's 75,000 option shares, will become exercisable upon
the closing of this offering.
(12) Includes 625,005 shares of Common Stock into which 41,667 shares of Series
A Preferred Stock will automatically convert upon the closing of this
offering.
(13) Mr. Petersen is a trustee of this trust and exercises voting control of
these shares.
(14) Consists of 472,500 shares of Common Stock issuable upon the exercise of
the PNC Warrant. PNC has indicated its intention to exercise the PNC
Warrant to purchase 55,694 shares of Common Stock prior to the offering and
to sell such shares in this offering.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, no par value per
share, and 1,000,000 authorized shares of preferred stock, $.01 par value per
share (the "Preferred Stock").
COMMON STOCK
As of June 30, 1997, there were 8,115,722 shares of Common Stock
outstanding and held of record by 85 shareholders, after giving effect to the
Preferred Stock Conversion and the Warrant Exercise. Based upon the number of
shares outstanding as of that date and after giving effect to the issuance of
the 2,750,000 shares of Common Stock to be sold by the Company in this offering,
there will be 10,865,722 shares of Common Stock outstanding upon the closing of
this offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and non-assessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of Preferred Stock which the Company may designate and issue
in the future.
PREFERRED STOCK
As of June 30, 1997, there were outstanding 41,667 shares of Class A
Preferred Stock held of record by one shareholder. Upon the closing of this
offering, all outstanding shares of Class A Preferred Stock will be converted
automatically into an aggregate of 625,005 shares of Common Stock. Immediately
after the closing of this offering, the Company intends to file an amendment to
its Amended and Restated Articles of Incorporation to eliminate the Class A
Preferred Stock.
The Board of Directors will have the authority, without further action of
the shareholders of the Company, to issue up to an aggregate of 1,000,000 shares
of Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series.
The Board of Directors, without shareholder approval, can issue Preferred
Stock with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
WARRANTS
Following this offering and the Warrant Exercise, the PNC Warrant will be
exercisable to purchase 416,806 shares of Common Stock (382,925 shares if the
Underwriters over-allotment option is
52
<PAGE> 54
exercised in full) at an exercise price of $2.029 per share until March 2, 2003.
See "Certain Transactions."
In addition, there are outstanding warrants to purchase a total of 3,690
shares of Common Stock at an exercise price of $3.08, held by eight shareholders
exercisable until December 23, 1997.
VIRGINIA LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company will be subject to the affiliated transaction provisions of
Sections 13.1-725 through 13.1-728 of the Virginia Stock Corporation Act (the
"VSCA"). These affiliated transaction provisions prohibit a Virginia corporation
with more than 300 shareholders from engaging in an "affiliated transaction"
with an "interested shareholder" for a period of three years after the date of
the transaction in which the person became an interested shareholder, unless the
affiliated transaction is approved in a prescribed manner. "Affiliated
transactions" include mergers, asset sales and certain other transactions
between or among the corporation and an interested shareholder. Subject to
certain exceptions, an "interested shareholder" is a person who, together with
affiliates and associates, owns, or within the preceding three years did own,
10% or more of any class of the corporation's voting stock.
The Company will also be subject to the control share acquisition
provisions of Sections 13.1-728.1 through 13.1-728.9 of the VSCA. Pursuant to
these control share acquisition provisions, shares of a corporation with more
than 300 shareholders acquired in a "control share acquisition" generally have
no voting rights unless such rights are conferred to the acquiror by a vote of
non-interested shareholders. A "control share acquisition" is defined,
generally, as the direct or indirect acquisition of beneficial ownership of
voting shares which would cause the acquiror to have the power to vote or direct
the voting shares having the voting power within the following ranges in an
election of directors: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority or more, of such
votes. If voting rights are conferred to the acquiror by the shareholders of the
target corporation, the acquisition of additional voting shares by the acquiror
is not an additional control share acquisition unless such acquisition gives the
acquiror voting rights in excess of the range in which voting rights had
previously been granted.
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. At each annual meeting of shareholders,
the number of directors in the applicable class are elected for a three-year
term to succeed the directors of the same class whose terms are then expiring.
The terms of the Class I Directors, Class II Directors and Class III Directors
will expire upon the election and qualification of successor directors at the
annual meeting of shareholders held in calendar years 1999, 1997 and 1998,
respectively. These staggered three-year terms may make it more difficult for a
third party to gain control of the Company's Board of Directors.
As allowed by Article 9 of the VSCA, the Company's Amended and Restated
Articles of Incorporation eliminate the liability of the officers and directors
of the Company for monetary damages in any proceeding brought by or in the right
of the Company or brought by or on behalf of shareholders of the Company except
in cases of willful misconduct or a knowing violation of criminal law or any
federal or state securities law. As allowed by Article 10 of the VSCA, the
Company's Amended and Restated Articles of Incorporation also provide for
mandatory indemnification of any director or officer of the Company who is, was,
or is threatened to be made a party to a proceeding (including a proceeding by
or in the right of the Company) because (i) he or she is or was a director or
officer of the Company or (ii) he or she is or was serving the Company or other
legal entity in any capacity at the request of the Company while a director or
officer of the Company, against all liabilities and expenses incurred in
connection with such proceeding, except such liabilities as are incurred because
of such individual's willful misconduct or knowing violation of the criminal
law. In addition, the Company's Amended and Restated Articles of Incorporation
expressly authorize the Company to enter into agreements to indemnify its
officers and directors to the fullest extent permitted by the Amended and
Restated Articles of Incorporation and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
53
<PAGE> 55
The Company's Amended and Restated By-Laws provide that special meetings of
shareholders may be called in accordance with the VSCA, which provides that,
with respect to a Virginia corporation with over 35 shareholders, such meetings
may be called only by the Chairman of the Board of Directors, the President or
the Board of Directors of the Company. The Company's Amended and Restated
By-Laws also provide that the only business that may be brought before a meeting
of shareholders is limited to that described in the notice prepared by officers
of the Company. These provisions could have the effect of delaying shareholder
actions which are favored by the holders of a majority of the outstanding voting
securities of the Company, would be unable to call a special meeting of
shareholders to take action as a shareholder (such as electing new directors or
approving a merger).
The Company's Amended and Restated Articles of Incorporation and Amended
and Restated By-Laws require the affirmative vote of the holders of over
two-thirds of the outstanding voting stock of the Company to amend or repeal any
of the foregoing provisions. Such shareholder vote would be in addition to any
separate class vote that might in the future be required by the Board of
Directors pursuant to the terms of any Preferred Stock that might be outstanding
at the time any such changes are submitted to shareholders.
REGISTRATION RIGHTS
In the event the Company proposes to register any of its securities under
the Securities Act, for its own account or otherwise at any time or times, the
holders of approximately 6,735,433 shares (the "Registrable Shares") of Common
Stock (or shares issuable upon the exercise of warrants) or certain of their
permitted transferees are entitled to notice of such registration and to include
shares of such Common Stock therein, subject to certain conditions and
limitations. The Company is generally required to bear the expenses of all such
registrations (except underwriting discounts and commissions). The Company is
required to use its good faith efforts to effect such registrations, subject to
certain conditions and limitations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe.
54
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,865,722 shares
of Common Stock outstanding (assuming no exercise of outstanding options) see
"Description of Capital Stock -- Common Stock." Of these shares, the 3,650,000
shares of Common Stock sold in this offering (assuming no exercise of the
Underwriters' over-allotment option) will be freely tradable in the public
market without restriction under the Securities Act, except that any shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144
adopted under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the applicable provisions of Rule 144.
The remaining shares are deemed "Restricted Securities" under Rule 144 in
that they were originally issued and sold by the Company in private transactions
in reliance upon exemptions from the Securities Act. Of the Restricted
Securities, approximately 1,871,479 shares may be eligible for sale in the
public market immediately after this offering pursuant to Rule 144(k) under the
Securities Act; of these, are subject to 180-day Lock-up Agreements as
described below. Approximately 5,338,577 additional Restricted Securities will
become eligible for sale in the public market pursuant to Rule 144 or Rule 701
under the Securities Act beginning 90 days after the date of this Prospectus; of
these, are subject to Lock-up Agreements.
The Company, its officers, and directors, the Selling Shareholders and
certain other shareholders of the Company, who in the aggregate will hold
shares of Common Stock upon completion of this offering, have agreed
pursuant to certain agreements (the "Lock-up Agreements") that they will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any of their shares for a period of 180 days from the date
of this Prospectus. The shares subject to the Lock-up Agreements include
and shares, respectively, that would otherwise have been immediately
eligible or eligible within 90 days from the date of this Prospectus, for resale
in the public market without restriction upon completion of this offering
(subject to compliance with Rule 144 by Affiliates).
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Securities for at least one year from the later of the date such
restricted securities were acquired from the Company or the date they were
acquired from an Affiliate, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Common Stock (approximately 106,000 shares immediately after this
offering) or the average weekly trading volume in the Common Stock in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of such sale was filed under Rule 144. Sales under Rule 144 are
also subject to certain provisions relating to the manner and notice of sale and
availability of current public information about the Company. Affiliates may
sell shares not constituting Restricted Securities in accordance with the
foregoing volume limitations and other restrictions, but without regard to the
one-year holding period.
Further, under Rule 144(k), after two years have elapsed from the later of
the date Restricted Securities were acquired from the Company and the date they
were acquired from an Affiliate, a holder of such Restricted Securities who is
not an Affiliate at the time of the sale and has not been an Affiliate for at
least three months prior to the sale would be entitled to sell the shares
immediately without regard to the volume limitations and other conditions
described above.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits non-Affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits Affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus.
55
<PAGE> 57
The Company intends to file S-8 registration statements under the
Securities Act to register all shares of Common Stock subject to the Company's
1988 Option Plan, 1992 Option Plan, 1997 Incentive Plan, Director Plan and
Purchase Plan, which do not qualify for exemption from the registration
requirements of the Securities Act. The Company expects to file these
registration statements as soon as practicable after the closing of this
offering and such registration statements are expected to become effective upon
filing. Shares covered by these registration statements will be eligible for
sale in the public market after the effective dates of such registration
statements, subject to the Lock-up Agreements, if applicable.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no precise prediction can be made as to the effect, if
any, that market sales of shares of Common Stock or the availability of shares
of Common Stock for sale will have on the market price of the Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock of the Company in the public market could adversely affect
prevailing market prices and could impair the Company's future ability to raise
capital through the sale of its equity securities.
The Company has granted registration rights to certain of its shareholders.
See "Description of Capital Stock -- Registration Rights."
56
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and William Blair & Company, L.L.C., have severally agreed to purchase from the
Company and the Selling Shareholders the following respective number of shares
of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
----------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC............................................
William Blair & Company, L.L.C...................................
---------
Total............................................................ 3,650,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Selling Shareholders have granted to the Underwriters an option,
exercisable no later than 30 days after the date of this Prospectus, to purchase
up to 547,500 additional shares of Common Stock at the initial public offering
price, less the underwriting discount, set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise this option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
it shown in the above table bears to the total number of shares of Common Stock
offered hereby. The Selling Shareholders will be obligated, pursuant to the
option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Shareholders, and certain other shareholders of the Company,
including the officers and directors, who will own in aggregate shares of
Common Stock after the offering, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common
57
<PAGE> 59
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them during the 180-day period following the date of this Prospectus.
The Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock during the 180-day
period following the date of this Prospectus, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under its stock option plans, provided that, without
the prior written consent of Hambrecht & Quist LLC, such additional options
shall not be exercisable during such period.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, revenue and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock of the Company at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the Common Stock of the Company. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the Underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when the Common Stock of the
Company sold by the syndicate member is purchased in syndicate covering
transactions. Such transactions may be effected on the Nasdaq National Market,
in the over-the-counter market, or otherwise. Such stabilizing, if commenced,
may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be
passed upon for the Company by Hale and Dorr LLP, Washington, D.C. Certain legal
matters relating to the sale of the Common Stock offered hereby will be passed
upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New
York.
EXPERTS
The audited financial statements and schedule of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent accounting firm and
will make available copies of quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
58
<PAGE> 60
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. As permitted by the rules and regulations of
the Commission, this Prospectus omits certain information contained in the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any agreement or other
document filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance reference is made to the copy of such agreement
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office upon payment of the prescribed fees. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is http://www.sec.gov.
59
<PAGE> 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets
As of March 31, 1996 and 1997 and as of June 30, 1997 (Unaudited)................... F-3
Consolidated Statements of Operations
For the Years Ended March 31, 1995, 1996 and 1997 and for the Three Months Ended
June 30, 1996 and 1997 (Unaudited)............................................... F-4
Consolidated Statements of Shareholders' Deficit
For the Years Ended March 31, 1995, 1996 and 1997 and for the Three Months Ended
June 30, 1997 (Unaudited)........................................................ F-5
Consolidated Statements of Cash Flows
For the Years Ended March 31, 1995, 1996 and 1997 and for the Three Months Ended
June 30, 1996 and 1997 (Unaudited)............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 62
The financial statements included herein have been adjusted to give effect
to the anticipated three-for-two stock split and increase in the authorized
capital of the Company as described in Note 1. We expect to be in a position to
render the following audit report upon the effectiveness of such events,
assuming from August 6, 1997, to the effective date of such events, no other
events will have occurred that would effect the accompanying financial
statements or notes thereto.
ARTHUR ANDERSEN LLP
Washington, D.C.
August 6, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Best Software, Inc.:
We have audited the accompanying consolidated balance sheets of Best
Software, Inc., a Virginia corporation, and subsidiaries as of March 31, 1996
and 1997, and the related consolidated statements of operations, shareholders'
deficit and cash flows for each of the three years in the period ended March 31,
1997. 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 an 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 financial position of Best Software, Inc. and
subsidiaries as of March 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
F-2
<PAGE> 63
BEST SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
------------------------- JUNE 30, JUNE 30,
1996 1997 1997 1997
----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 8,105,231 $13,364,929 $7,428,808
Accounts receivable, net of allowance ($1,506,951,
$832,059, and $1,345,766, respectively).......... 4,035,502 2,123,716 3,401,903
Inventory.......................................... 564,025 182,795 221,010
Prepaid expenses and other current assets.......... 622,099 895,295 1,373,549
Deferred tax asset................................. 500,000 350,000 350,000
----------- ----------- ------------
Total............................................ 13,826,857 16,916,735 12,775,270
----------- ----------- ------------
Property and equipment, net.......................... 1,951,520 1,774,051 1,557,408
Deferred tax asset................................... 1,800,000 2,450,000 2,450,000
Other assets......................................... 47,009 18,978 32,487
----------- ------------ ------------
Total............................................ $17,625,386 $21,159,764 $16,815,165
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 1,811,961 $1,949,012 $2,286,313
Accrued expenses................................... 3,378,684 4,570,914 5,634,107
Notes payable...................................... 666,667 650,000 650,000
Deferred maintenance and service revenue........... 8,412,635 10,605,545 11,915,891
Obligations under capital leases................... 139,612 54,321 31,472
----------- ----------- -----------
Total............................................ 14,409,559 17,829,792 20,517,783
----------- ----------- -----------
Notes payable, net of current portion................ 2,133,333 650,000 650,000
Deferred maintenance and service revenue............. 984,960 1,682,704 1,716,025
----------- ----------- -----------
Total liabilities........................... 17,527,852 20,162,496 22,883,808
----------- ----------- -----------
Commitments and contingencies (Notes 5, 7, 8 and 9)
Redeemable convertible preferred stock:
Class A preferred stock, $0.01 par value; 41,667
shares authorized, issued and outstanding at
March 31, 1996 and 1997 and June 30, 1997,
convertible into 625,005 shares of common stock
upon the closing of an initial public offering
(at liquidation value)........................... 500,000 500,000 500,000 $ --
Redeemable common stock warrants..................... 295,529 641,627 792,033 --
Shareholders' deficit:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued.......................... -- -- -- --
Common stock, no par value; 40,000,000 shares
authorized; 6,529,579, 6,979,483, 7,435,023 and
8,115,722 issued and outstanding, respectively... 199,984 454,622 785,332 1,490,799
Additional paid-in capital......................... 749,321 227,676 -- 699,569
Deferred compensation.............................. (77,000) -- -- --
Accumulated deficit................................ (1,570,300) (826,657) (8,146,008) (8,146,008)
----------- ----------- ----------- ------------
Total shareholders' deficit................. (697,995) (144,359) (7,360,676) $(5,955,640)
============
----------- ------------ ------------
Total................................... $17,625,386 $21,159,764 $16,815,165
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 64
BEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MARCH 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License fees and royalty....... $20,346,229 $22,677,174 $20,161,436 $5,064,440 $ 5,357,634
Services....................... 14,676,917 16,552,398 19,322,987 4,434,515 5,288,451
----------- ----------- ----------- ---------- -----------
Total....................... 35,023,146 39,229,572 39,484,423 9,498,955 10,646,085
----------- ----------- ----------- ---------- -----------
Cost of revenue:
License fees and royalty....... 3,805,771 4,501,351 2,251,124 577,128 371,139
Services....................... 4,356,988 5,305,877 5,675,381 1,513,987 1,470,336
----------- ----------- ----------- ---------- -----------
Total....................... 8,162,759 9,807,228 7,926,505 2,091,115 1,841,475
----------- ----------- ----------- ---------- -----------
Gross margin..................... 26,860,387 29,422,344 31,557,918 7,407,840 8,804,610
----------- ----------- ----------- ---------- -----------
Operating expenses:
Sales and marketing............ 11,353,573 12,811,982 14,355,197 3,953,911 4,304,933
Research and development....... 5,707,290 7,388,807 6,088,730 1,816,864 2,048,326
General and administrative..... 4,284,967 5,789,546 5,553,895 1,523,445 1,584,686
Amortization of acquired
intangibles................. 3,176,901 1,434,861 -- -- --
----------- ----------- ----------- ---------- -----------
Total....................... 24,522,731 27,425,196 25,997,822 7,294,220 7,937,945
----------- ----------- ----------- ---------- -----------
Operating income............... 2,337,656 1,997,148 5,560,096 113,620 866,665
Other income (expense):
Interest income (expense),
net......................... (175,806) (145,082) 351,311 10,994 (293,067)
Gain on sale of product
lines....................... -- 750,000 -- -- --
----------- ----------- ----------- ---------- -----------
Total....................... (175,806) 604,918 351,311 10,994 (293,067)
Income from continuing
operations before income
taxes.......................... 2,161,850 2,602,066 5,911,407 124,614 573,598
Income tax benefit (provision)... (550,000) 925,000 (1,475,000) (45,000) (225,000)
----------- ----------- ----------- ---------- -----------
Income from continuing
operations..................... 1,611,850 3,527,066 4,436,407 79,614 348,598
Gain on disposal of discontinued
business, net of income tax
provision of $625,000.......... 1,902,965 -- -- -- --
----------- ----------- ----------- ---------- -----------
Net income....................... 3,514,815 3,527,066 4,436,407 79,614 348,598
Less accretion (Note 8).......... (31,500) (89,250) (136,500) (22,313) (68,250)
----------- ----------- ----------- ---------- -----------
Net income available to common
shareholders................... $ 3,483,315 $ 3,437,816 $ 4,299,907 $ 57,301 $ 280,348
=========== =========== =========== ========== ===========
Net income per share from
continuing operations.......... $ 0.17 $ 0.36 $ 0.46 $ 0.01 $ 0.03
=========== =========== =========== ========== ===========
Net income per share from gain
on disposal of discontinued
business....................... $ 0.20 $ -- $ -- $ -- $ --
=========== =========== =========== ========== ===========
Weighted average shares
outstanding.................... 9,393,618 9,475,751 9,247,406 9,477,461 9,327,159
=========== =========== =========== ========== ===========
Pro forma net income per share
(unaudited).................... $ 0.48 $ 0.04
=========== ===========
Pro forma weighted average
shares outstanding
(unaudited).................... 9,280,786 9,356,653
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 65
BEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
REDEEMABLE SHAREHOLDERS' DEFICIT
COMMON -----------------------------------------------------------------
REDEEMABLE STOCK NUMBER OF ADDITIONAL
PREFERRED PURCHASE COMMON COMMON PAID-IN DEFERRED ACCUMULATED
STOCK WARRANTS SHARES STOCK CAPITAL COMPENSATION DEFICIT
----------- ---------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994......... $ 500,000 $ 206,279 6,496,279 $ 177,214 $ 750,091 $ (167,457) $(8,522,931)
Exercise of stock options
including tax benefit of
$1,290...................... -- -- 7,050 6,290 1,290 -- --
Compensation expense
associated with stock
options..................... -- -- -- -- -- 39,000 --
Cancellation of stock
options..................... -- -- -- -- (11,457) 11,457 --
Net income.............. -- -- -- -- -- -- 3,514,815
----------- ---------- ---------- ---------- ----------- ------------ -----------
Balance, March 31, 1995......... 500,000 206,279 6,503,329 183,504 739,924 (117,000) (5,008,116)
Exercise of stock options
including tax benefit of
$10,605..................... -- -- 26,250 16,480 10,605 -- --
Compensation associated with
stock options............... -- -- -- -- -- 38,792 --
Cancellation of stock
options..................... -- -- -- -- (1,208) 1,208 --
Redemption value of warrants
in excess of carrying
value....................... -- 89,250 -- -- -- -- (89,250)
Net income.............. -- -- -- -- -- -- 3,527,066
----------- ---------- ---------- ---------- ----------- ------------ -----------
Balance, March 31, 1996......... 500,000 295,529 6,529,579 199,984 749,321 (77,000) (1,570,300)
Exercise of stock options
including tax benefit of
$560,389.................... -- -- 758,071 511,435 560,389 -- --
Compensation associated with
stock options............... -- -- -- -- -- 6,416 --
Purchase and retirement of
treasury stock.............. -- -- (310,792) (270,272) (1,011,450) -- --
Exercise of common stock
purchase warrants........... -- (5,390) 2,625 13,475 -- -- --
Cancellation of stock
options..................... -- -- -- -- (70,584) 70,584 --
Payment of dividend........... -- -- -- -- -- -- (3,556,264)
Redemption value of warrants
in excess of carrying
value....................... 136,500 -- -- -- -- (136,500)
Modification of warrant....... -- 214,988 -- -- -- -- --
Net income.............. -- -- -- -- -- -- 4,436,407
----------- ---------- ---------- ---------- ----------- ------------ -----------
Balance, March 31, 1997......... 500,000 641,627 6,979,483 454,622 227,676 -- (826,657)
Exercise of stock options
including tax benefit of
$538,405 (unaudited)........ -- -- 670,491 351,284 538,405 -- --
Purchase and retirement of
treasury stock
(unaudited)................. -- -- (217,051) (31,354) (766,081) -- (34,585)
Exercise of common stock
purchase warrants
(unaudited)................. -- (4,312) 2,100 10,780 -- -- --
Payment of dividend
(unaudited)................. -- -- -- -- -- -- (7,565,114)
Redemption value of warrants
in excess of carrying value
(unaudited)................. -- 68,250 -- -- -- -- (68,250)
Modification of warrant
(unaudited)................. -- 86,468 -- -- -- -- --
Net income (unaudited).. -- -- -- -- -- -- 348,598
----------- ---------- --------- ---------- ----------- ------------ -----------
Balance, June 30, 1997
(unaudited)................... 500,000 792,033 7,435,023 785,332 -- -- (8,146,008)
----------- ---------- --------- ---------- ----------- ------------ -----------
Pro forma adjustments (Note 1)
(unaudited)................... (500,000) (792,033) 680,699 705,467 699,569 -- --
----------- ---------- --------- ---------- ----------- ------------ -----------
Pro forma balance, June 30, 1997
(unaudited)................... $ -- $ -- 8,115,722 $1,490,799 $ 699,569 $ -- $(8,146,008)
========== ========== ========= ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 66
BEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MARCH 31, JUNE 30,
--------------------------------------- ---------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income........................................ $ 3,514,815 $ 3,527,066 $ 4,436,407 $ 79,614 $ 348,598
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on disposal of discontinued tax business... (1,902,965) -- -- -- --
Gain on sale of product lines................... -- (750,000) -- -- --
Depreciation and amortization................... 5,476,358 3,779,557 1,288,138 326,349 365,875
Compensation associated with stock options...... 39,000 38,792 6,416 6,416 --
Modification of warrants and amortization of
debt discount................................. 131,244 -- 214,988 -- 86,468
Deferred tax asset.............................. -- (2,300,000) (500,000) 500,000 --
(Increase) decrease in assets:
Accounts receivable............................. (1,283,425) 95,563 1,911,786 397,190 (1,278,187)
Inventory....................................... (150,473) (42,963) 381,230 313,495 (38,215)
Prepaid expenses and other assets............... 1,505,085 (359,287) (245,165) (1,241,599) (491,767)
Increase (decrease) in liabilities:
Accounts payable................................ (264,203) 89,335 137,051 499,958 337,301
Accrued expenses................................ (3,247,753) 247,212 1,192,230 (700,984) 1,063,193
Deferred maintenance and service revenue........ 826,977 583,959 2,890,654 1,387,167 1,343,666
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.............................. 4,644,660 4,909,234 11,713,735 1,567,606 1,736,932
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Net proceeds from disposal of discontinued
business...................................... 4,684,385 -- -- -- --
Net proceeds from sale of product lines......... -- 1,609,000 -- -- --
Net proceeds from sale of property and
equipment..................................... -- -- 185,000 -- --
Purchases of property and equipment............. (465,565) (793,105) (1,295,667) (317,691) (149,231)
Investment in software development costs........ (126,054) -- -- -- --
Buyout of product rights........................ (577,000) (429,586) -- -- --
Acquisitions.................................... (3,289,608) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. 226,158 386,309 (1,110,667) (317,691) (149,231)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from note payable...................... 2,000,000 -- -- -- --
Repayment of notes payable...................... (3,538,071) (675,000) (1,500,000) (166,666) --
Payments on line of credit...................... (1,500,000) -- -- -- --
Cash dividends paid to shareholders............. -- -- (3,556,264) -- (7,565,114)
Proceeds from exercise of stock options and
warrants...................................... 6,290 16,480 519,518 -- 357,757
Tax benefit from option exercises............... 1,290 10,605 560,389 -- 538,405
Purchase and retirement of treasury stock....... -- -- (1,281,722) -- (832,021)
Principal payments under capital lease
obligations................................... (68,246) (76,293) (85,291) (20,440) (22,849)
Redemption of warrants.......................... (307,700) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities..... (3,406,437) (724,208) (5,343,370) (187,106) (7,523,822)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 1,464,381 4,571,335 5,259,698 1,062,809 (5,936,121)
Cash and cash equivalents, beginning of period.... 2,069,515 3,533,896 8,105,231 8,105,231 13,364,929
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period.......... $ 3,533,896 $ 8,105,231 $13,364,929 $ 9,168,040 $ 7,428,808
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 67
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Best Software, Inc., is a provider of asset, human resources and payroll
management software solutions for middle market businesses.
The market for business application software is competitive and
characterized by ongoing technological advances. The success of the Company's
future results of operations is dependent upon, among other things, its ability
to adapt to technological developments and changing industry standards.
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.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Best Software, Inc. and
its wholly owned subsidiaries. Best Software, Inc. and its wholly owned
subsidiaries are referred to as the "Company." Intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue from software product licenses is recognized upon shipment of the
product, net of provisions for returns and allowances, provided that no
significant vendor obligations remain and that collection of the resulting
account receivable is probable.
For products with free trial periods, revenue is recognized upon acceptance
of the product by the customer. Revenue from software support agreements is
recognized pro rata over the term of the agreement, which is generally one year.
Revenue from services, such as training and consulting, is recognized as the
services are provided. Revenue from the Company's royalty license is recognized
ratably within each year of the term of the license agreement, based on
specified annual royalty payments.
The American Institute of Certified Public Accountants (the "AICPA")
approved for exposure a draft Statement of Position (the "SOP") that would
supersede SOP 91-1, "Software Revenue Recognition." If approved, the SOP would
need to be implemented for years beginning after December 15, 1997. The Company
believes that the proposed changes would not have a material financial impact on
the Company.
COST OF REVENUE
Direct product costs, royalties paid by the Company based on contractual
agreements, and amortization of capitalized software development costs
($1,218,020 and $1,161,361 for the years ended March 31, 1995 and 1996) are
included in cost of license fees and royalty revenue. Cost of services revenue
includes employee compensation and benefits, telephone charges and other costs
related to providing such services.
F-7
<PAGE> 68
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturity dates of three months or less at the date of purchase.
INVENTORY
Inventory, consisting of software media, manuals and related packaging
materials, is stated at the lower of cost, determined on the first-in, first-out
("FIFO") basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets, which range from three to five years.
Leasehold improvements are amortized over the shorter of the useful life of the
asset or the lease term.
INTELLECTUAL PROPERTY RIGHTS AND INTANGIBLES
For the years ended March 31, 1995 and 1996, amortization of intellectual
property rights and intangibles was $3,176,901 and $1,434,861. Intellectual
property rights and intangibles were fully amortized as of March 31, 1996.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Costs
incurred prior to establishment of technological feasibility are expensed as
incurred and reflected as research and development costs in the accompanying
statements of operations. All capitalized software development costs were fully
amortized as of March 31, 1996.
The Company capitalized software development costs of $126,000 in the
fiscal year ended March 31, 1995. There were no software development costs
capitalized in the fiscal years ended March 31, 1996 or 1997, or in the three
month period ended June 30, 1997. During these periods the time between the
establishment of technological feasibility and general release was very short.
Consequently, costs otherwise capitalizable after technological feasibility were
expensed as they were insignificant.
INCOME TAXES
The Company accounts for income taxes using the liability method as
prescribed by SFAS No. 109, "Accounting for Income Taxes."
CREDIT RISK
Accounts receivable consist of geographically dispersed customers and
include allowances to record receivables at their estimated net realizable
value. The Company maintains its cash and cash equivalents with high credit
quality financial institutions. Cash equivalents consist principally of U.S.
government agency securities.
Included in cash equivalents at June 30, 1997 are investments in an
overnight reverse repurchase agreement with a bank. As of June 30, 1997, the
Company had invested $4,427,000 in an overnight reverse repurchase agreement.
The underlying collateral consists of U.S. government and U.S.
F-8
<PAGE> 69
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
government agency securities. As the transactions are entered into and settled
daily, management believes the risk of market value impairment on a given day is
nominal.
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for income taxes and interest was:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------------- ---------------------------
1995 1996 1997 1996 1997
-------- ---------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income taxes................ $700,000 $1,250,000 $1,800,000 $650,000 $145,000
Interest.................... 575,000 250,000 160,000 80,000 460,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
During the three month period ended June 30, 1996, the Company sold certain
furniture and equipment in exchange for a $185,000 note receivable. The note was
paid during fiscal year 1997.
NET INCOME PER SHARE
Net income per share has been computed based on the weighted average number
of common shares and common equivalent shares outstanding during each period.
Common equivalent shares outstanding include preferred stock, as if-converted,
and the common equivalent shares calculated for the stock options and warrants
using the treasury stock method for all periods presented.
Pursuant to accounting practices prescribed by the Securities and Exchange
Commission, common stock and common stock options issued within the twelve month
period prior to the proposed initial public offering at a price less than the
proposed public offering price have been included in the calculation of earnings
per share as if they were outstanding for all periods presented. The calculation
used the treasury stock method and a proposed offering price of $12.00 per
share, the midpoint of the proposed offering range.
Primary earnings per share are not presented because the difference between
these amounts and the amounts presented is not material.
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 is effective for
financial statements issued after December 15, 1997. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share. The Company believes the
presentation of diluted earnings per share will not materially differ from
earnings per share as presently presented. Basic earnings per share includes no
dilution and is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding for the period. The
Company's basic net income per share from continuing operations for the year
ended March 31, 1997 and the three months ended June 30, 1997 was $0.65 and
$0.04, respectively and $0.61 and $0.05, respectively, on a pro forma basis.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company complies with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets, which consist primarily of property and
equipment, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
F-9
<PAGE> 70
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
determine recoverability of its long-lived assets, the Company evaluates the
probability that future undiscounted net cash flows, without interest charges,
will be less than the carrying amount of the assets. Impairment is measured at
fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of current assets, current liabilities and notes
payable in the accompanying financial statements approximate fair value.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of June 30, 1997 and the
accompanying consolidated statements of operations and cash flows for the three
months ended June 30, 1996 and 1997 included herein have been prepared by the
Company and are unaudited. The information furnished in the unaudited financial
statements referred to above includes all adjustments which are, in the opinion
of management, necessary for a fair presentation of such financial statements.
The results of operations for the three months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the entire fiscal year.
UNAUDITED PRO FORMA INFORMATION
The unaudited pro forma information is being presented to show the
mandatory conversion of the redeemable convertible preferred stock into common
stock upon a qualified initial public offering. If the initial public offering
is consummated under terms presently anticipated, all of the Company's preferred
stock outstanding will automatically convert into shares of its common stock.
The pro forma information also reflects the expiration of warrant redemption
rights and the partial exercise of a warrant that will occur immediately prior
to the closing of this offering. The holder of the warrant to purchase 472,500
shares of common stock has elected to partially exercise the warrant to purchase
55,694 shares of common stock. The Company will receive proceeds of $113,003
from the warrant exercise. Pro forma net income per share differs from the
corresponding period historical earnings per share due to the expiration of the
warrant redemption rights and the assumed partial exercise of the common stock
warrant at the beginning of the periods presented.
INCREASE IN AUTHORIZED SHARES AND STOCK SPLIT
In August 1997, the Board of Directors approved a three-for-two stock split
and, subject to shareholders' approval, increased the authorized capital stock
of the Company to consist of 40,000,000 shares of common stock, no par value,
and 1,000,000 shares of preferred stock, $0.01 par value per share. All share
and per-share amounts in the accompanying financial statements have been
restated to reflect the stock split and increase in authorized shares.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform
to the March 31, 1997 presentation.
2. SALE OF BUSINESS AND ASSETS
On April 6, 1994, in accordance with a plan established during fiscal 1993,
the Company sold its tax preparation software business for a cash payment of
$6.5 million. The Company recorded a pre-tax gain
F-10
<PAGE> 71
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
2. SALE OF BUSINESS AND ASSETS (CONTINUED)
of approximately $2.5 million after transaction expenses, or approximately $1.9
million after tax, in the year ended March 31, 1995.
In August 1995, the Company sold substantially all the assets related to
its service bureau payroll and write-up product lines for $1,609,000. A pre-tax
gain of $750,000 was recorded on this transaction.
Effective May 29, 1996, the Company licensed its small business accounting
product line in return for royalties, payable over a four-year license period.
Royalty income of $663,750 and $221,250 was recognized from this agreement and
is reflected as license fees and royalty in the accompanying statement of
operations during the year ended March 31, 1997 and the three months ended June
30, 1997, respectively. The Company does not anticipate generating any
additional revenue from this product line upon termination of the license
agreement in June 2000.
Following these transactions, the Company now derives substantially all of
its revenue from the sale of its asset, human resources and payroll management
product lines and royalties from the license of its small business accounting
product line (the "Ongoing Business"). Pro forma unaudited results from the
Ongoing Business, which reflect the elimination of revenues and expenses
directly associated with the above business and product lines, for the years
ended March 31, 1995, 1996, 1997 and the three months ended June 30, 1996 and
1997 are shown below. These pro forma unaudited results are not necessarily
indicative of what actual results would have been had these businesses actually
been eliminated as of the beginning of fiscal 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
YEAR ENDED MARCH 31, 30,
--------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue (unaudited)........ $26,218,000 $30,768,000 $38,446,000 $8,458,000 $10,646,000
Operating income (unaudited)..... 2,885,000 1,981,000 5,618,000 155,000 867,000
Income before taxes
(unaudited).................... 2,946,000 1,837,000 5,970,000 168,000 574,000
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------- JUNE 30,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment and computer software................. $ 4,466,177 $ 5,059,248 $ 5,205,403
Furniture and fixtures.......................... 1,235,947 1,221,845 1,224,917
Leasehold improvements.......................... 537,058 520,552 520,557
Accumulated depreciation and amortization....... (4,287,662) (5,027,594) (5,393,469)
----------- ----------- -----------
Total................................. $ 1,951,520 $ 1,774,051 $ 1,557,408
========== ========== ==========
</TABLE>
F-11
<PAGE> 72
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- JUNE 30,
1996 1997 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and benefits.......................... $1,513,783 $3,130,874 $4,166,406
Taxes, other than income........................... 582,314 313,685 301,120
Income taxes payable............................... 250,000 -- --
Royalties payable.................................. 193,469 156,109 110,336
Other.............................................. 839,118 970,246 1,056,245
---------- ---------- -----------
$3,378,684 $4,570,914 $5,634,107
========= ========= =========
</TABLE>
5. NOTES PAYABLE
The Company had a term loan outstanding of $1.5 million with interest of
9.25% at March 31, 1996. The note was paid in full and canceled in July 1996.
In connection with an acquisition in 1992, the Company issued an unsecured
subordinated promissory note for $1,300,000. The note requires principal
payments of $650,000 on July 1, 1997 and 1998. Interest accrues at 6.5% per
annum and is payable quarterly.
6. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1995 1996 1997
-------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal....................................... $440,000 $ 1,225,000 $ 1,745,000
State......................................... 110,000 150,000 230,000
-------- ----------- -----------
550,000 1,375,000 1,975,000
-------- ----------- -----------
Deferred:
Federal....................................... -- (305,000) 620,000
State......................................... -- (40,000) 80,000
-------- ----------- -----------
-- (345,000) 700,000
-------- ----------- -----------
Decrease in valuation allowance................. -- (1,955,000) (1,200,000)
-------- ----------- -----------
$550,000 $ (925,000) $ 1,475,000
======== ========== ==========
</TABLE>
F-12
<PAGE> 73
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets consist of the
following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Tax credit carryovers...................................... $ 1,320,000 $ 175,000
Foreign net operating loss carryforwards................... -- 280,000
Intangible assets.......................................... 2,830,000 2,600,000
Depreciable assets......................................... 220,000 300,000
Other...................................................... 330,000 645,000
----------- -----------
Total deferred tax assets............................. 4,700,000 4,000,000
Valuation allowance................................... (2,400,000) (1,200,000)
----------- -----------
Net deferred tax asset........................... $ 2,300,000 $ 2,800,000
========== ==========
</TABLE>
The Company's tax credit carryforwards expire through 2009.
During fiscal 1996 and 1997, the valuation allowance for deferred tax
assets decreased by approximately $2.0 million and $1.2 million, respectively.
This was the result of the Company's reevaluation of its future forecasted
taxable income, and certain tax planning strategies. The remaining valuation
allowance relates to reversals of temporary differences, primarily relating to
the Company's intangible assets, expected to reverse in future years as to which
the Company is unable to make a judgement about the likelihood of realization
and the realization of foreign net operating loss carryforwards. The Company
believes it is more likely than not that all of the recorded net deferred tax
asset will be realized.
The differences between the expected tax provision based on the federal
income statutory rate and the actual provision for the years ended March 31,
1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate...................................... 34.0% 34.0% 34.0%
State income taxes.......................................... 4.6 6.4 5.0
Change in valuation allowance............................... -- (80.1) (22.9)
Foreign operating losses not deductible in U.S.............. -- -- 5.0
Utilization of NOL carryforwards............................ (14.6) -- --
Other nondeductible items................................... 1.0 4.2 3.9
----- ----- -----
25.0% (35.5)% 25.0%
===== ===== =====
</TABLE>
7. SHAREHOLDERS' DEFICIT
EMPLOYEE STOCK OPTION PLAN
The Company has a nonqualified stock option plan for key employees. As of
March 31, 1997 and June 30, 1997, a total of 725,338 and 145,500 shares of
common stock, respectively, have been reserved for issuance under this plan.
Options are exercisable for a period of one to ten years from the date of grant.
In November 1992, the Company adopted a second stock option plan. A maximum
of 1,875,000 shares of common stock may be granted as either incentive stock
options or nonqualified options. The options are exercisable for a maximum of
ten years from the date of grant.
F-13
<PAGE> 74
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
7. SHAREHOLDERS' DEFICIT (CONTINUED)
Any difference between the fair market value of the stock and the option
price at the date of grant is recorded as compensation expense over the vesting
period, which is generally 60 months. For options granted in fiscal 1997 and the
three months ended June 30, 1997, fair value was determined by independent
appraisal. As of March 31, 1997 and June 30, 1997, aggregate options available
for future grant under the combined plans were 907,440 and 864,384,
respectively. Option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION EXPIRATION AVERAGE
PRICE PER DATE EXERCISE
OPTIONS SHARE (FISCAL YEAR) PRICE
--------- ----------- ------------- --------
<S> <C> <C> <C> <C>
Options outstanding at April 1, 1994..... 1,684,500 $0.07-$3.00 1998-2003 $ 0.61
Granted................................ 97,650 2.00-3.33 2.78
Canceled............................... (138,450) 0.33-3.33 1.59
Exercised.............................. (7,050) 0.57-1.13 0.89
---------
Options outstanding at March 31, 1995.... 1,636,650 0.07-3.33 1998-2004 0.65
Granted................................ 541,500 2.67-3.33 2.71
Canceled............................... (31,725) 1.13-3.33 2.30
Exercised.............................. (26,250) 0.57-3.33 0.63
---------
Options outstanding at March 31, 1996.... 2,120,175 0.07-3.33 1999-2005 1.15
Granted................................ 301,425 3.50-3.83 3.67
Canceled............................... (130,890) 2.00-3.83 2.91
Exercised.............................. (758,072) 0.07-3.33 0.67
---------
Options outstanding at March 31, 1997.... 1,532,638 0.07-3.83 1999-2006 1.73
Granted................................ 51,756 3.83 3.83
Canceled............................... (8,700) 3.50-3.83 3.56
Exercised.............................. (670,491) 0.07-3.50 0.53
---------
Options outstanding at June 30, 1997
(Unaudited)............................ 905,203 $0.33-$3.83 2000-2007 $ 2.74
========
</TABLE>
As of March 31, 1997 and June 30, 1997, options to purchase 788,563 and
228,742 shares of common stock were exercisable with a weighted average exercise
of $0.52 and $1.68, respectively. The weighted-average remaining contractual
life of options outstanding at March 31, 1997 and June 30, 1997 was 4.76 and
6.43 years, respectively.
In July 1997, the Company granted options to purchase 114,150 shares of
common stock at an exercise price of $8.00 per share. In connection with these
grants, the Company will record deferred compensation of approximately $135,000
in the quarter ended September 30, 1997, which will be amortized ratably over
the option vesting period of five years.
In August 1997, the Board of Directors adopted the 1997 Stock Incentive
Plan (the "1997 Incentive Plan"). The Company has reserved 1,500,000 shares of
common stock for issuance under the 1997 Incentive Plan. The 1997 Incentive Plan
provides that a variety of awards, including stock options, stock appreciation
rights and restricted and unrestricted stock grants, may be made to the
Company's employees, officers, consultants and advisors who are expected to
contribute to the Company's future growth and success.
In August 1997, the Board of Directors adopted the Company's 1997 Director
Stock Option Plan (the "Director Plan") to provide for the grant of
non-statutory stock options to outside directors. All
F-14
<PAGE> 75
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
7. SHAREHOLDERS' DEFICIT (CONTINUED)
options granted under the Director Plan will have an exercise price equal to the
fair market value of the common stock on the date of grant. The Company has
reserved 150,000 shares for issuance under the Director Plan. No options have
been granted under the Director Plan to date.
The Company adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation", effective for the Company's March 31,
1997 financial statements. The Company applies Accounting Principles Boards
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Accordingly, compensation cost has
been recognized for its stock plans based on the intrinsic value of the stock
option at the date of the grant (i.e. the difference between the exercise price
and the fair value of the Company's stock). Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
SFAS No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Net income as reported....................................... $3,527,066 $4,436,407
Pro forma.................................................... 3,454,066 4,304,407
Earnings per share as reported............................... 0.36 0.46
Pro forma.................................................... 0.36 0.45
</TABLE>
The fair value of each option is estimated on the date of grant using the
minimum value method with the following assumptions used for grants in fiscal
1996 and 1997: no dividend yield, expected volatility of zero, risk-free
interest rates of approximately 6%, and expected lives of five years.
Because SFAS No. 123's method of accounting has not been applied to options
granted prior to April 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
8. REDEEMABLE SECURITIES
REDEEMABLE CONVERTIBLE CLASS A PREFERRED STOCK
Each share of Class A preferred stock has voting privileges equal to the
number of shares of common stock into which such preferred stock is convertible.
Each share is convertible, at the option of the holder at any time, into fifteen
shares of common stock, subject to the adjustment for certain dilutive effects.
In the event of liquidation, dissolution or winding up of the Company, Class A
preferred shareholders would be entitled to receive $12.00 per share in
preference to the common shareholders. The difference between the redemption
price and the initially recorded amount has been accreted. Upon the consummation
of a qualifying initial public offering of common stock, the preferred stock
will automatically be converted to common stock. The Class A preferred stock is
redeemable, at the option of the holder, for $12.00 per share on September 1 of
each calendar year, from 1993 to and including September 1, 2000, subject to
certain limitations as outlined in the articles of incorporation, including
restrictions on the number of shares which may be redeemed in any year.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
In connection with a subordinated debt financing, the Company issued a
warrant to purchase 472,500 common shares at $2.67 per share. The warrant
provides for adjustment of the warrant exercise price and/or the number of
shares issuable upon the exercise of the warrant in the event of dilutive
F-15
<PAGE> 76
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
8. REDEEMABLE SECURITIES (CONTINUED)
issuances of equity securities and have certain registration rights with respect
to shares issued in connection with the exercise or conversion of the warrants.
The warrant holder also has the right to require the Company to purchase all or
a portion of the common stock issuable upon the exercise of the warrant or
actually issued pursuant to the warrant at any time after March 1998, or upon a
merger or sale of a substantial portion of the Company's assets. The purchase
price, or put value, will be the value of the common stock at the time of
redemption or, in the case of a redemption of the warrant, the value of the
common stock less the warrant exercise price. The put right expires upon the
consummation of a qualifying public offering. The estimated redemption value of
the warrant is being accreted over the period to the redemption date (March
1998). During the year ended March 31, 1997 and three months ended June 30,
1997, the exercise price of the warrant was reduced to $2.21 and $2.03,
respectively, in exchange for the waiver of certain compliance provisions. The
value of the reduction in the exercise of the warrant price of $215,000 in the
year ended March 31, 1997, and $86,000 during the three months ended June 30,
1997, was recorded as interest expense.
During 1994, the Company issued warrants to purchase 8,415 shares of common
stock at $0.07 per share. The warrants are redeemable at $2.05 per warrant and
have been recorded at their redemption price. During the fiscal year ended March
31, 1997 and the three months ended June 30, 1997, 2,625 and 2,100 warrants were
redeemed, respectively. The put right expires in the event of an initial public
offering declared effective by December 23, 1997.
DIVIDENDS
The Company paid dividends of $3,556,264 and $7,565,114 ($0.455 and $0.915
per share) on February 28, 1997 and June 27, 1997, for shareholders of record as
of February 20, 1997 and June 27, 1997, respectively.
9. LEASES
The Company leases office space and office equipment under noncancelable
operating leases expiring through February 2002. Total rent expense for the
years ending March 31, 1995, 1996 and 1997 was approximately $1,120,000,
$1,310,000 and $1,290,000, respectively.
The Company also leases office equipment under capital leases with interest
rates ranging from 10.9% to 15.0% and terms expiring through October 1997. The
equipment has been capitalized at $369,000 with related accumulated amortization
on these assets of $352,000 and $279,000 as of March 31, 1997 and 1996,
respectively, and is included in property and equipment in the accompanying
consolidated financial statements.
F-16
<PAGE> 77
BEST SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997 AND AS OF JUNE 30, 1997 (UNAUDITED) -- (CONTINUED)
9. LEASES (CONTINUED)
Future minimum lease payments as of March 31, due under these leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1998......................................................... $ 56,000 $ 969,000
1999......................................................... -- 607,000
2000......................................................... -- 617,000
2001......................................................... -- 627,000
2002......................................................... -- 577,000
-------- ----------
56,000 $3,397,000
=========
Interest element of lease payment............................ (2,000)
--------
Present value of future lease payments....................... 54,000
Current portion.............................................. (54,000)
--------
Long-term portion............................................ $ --
========
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Retirement Savings Plan (the "Plan") for the
benefit of all employees who meet certain eligibility requirements. The Company
will make a matching contribution in an amount equal to $0.50 for each $1.00
contributed by an employee up to a maximum of 2% of the participant's
compensation as defined in the Plan. Company contributions made to the Plan for
the years ended March 31, 1995, 1996 and 1997 were approximately $178,000,
$141,000 and $159,000, respectively.
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in August 1997. A total of 250,000
shares of common stock have been reserved for issuance under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock through
payroll deductions at a price equal to 85% of the lower of the fair market value
of the common stock on the first day of the offering period or the last day of
the offering period.
F-17
<PAGE> 78
==========================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Supplemental Financial Data for
Ongoing Business.................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 31
Management............................ 42
Certain Transactions.................. 49
Principal and Selling Shareholders.... 50
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 55
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 58
Additional Information................ 58
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
==========================================================
==========================================================
3,650,000 SHARES
[BEST LOGO]
COMMON STOCK
----------
PROSPECTUS
----------
HAMBRECHT & QUIST
WILLIAM BLAIR & COMPANY
, 1997
==========================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission............. $16,536
Filing Fee -- National Association of Securities Dealers, Inc...... 5,957
Listing Fee -- Nasdaq National Market.............................. *
Transfer Agent and Registrar Fees and Expenses..................... *
Blue Sky Fees and Expenses......................................... *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Printing and Engraving Expenses.................................... *
Miscellaneous...................................................... *
-------
Total.............................................................. $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 13.1-696 through 13.1-704 (the "Indemnification Statute") of the
Virginia Stock Corporation Act, as amended, provide a detailed statutory
framework covering indemnification of officers and directors against liabilities
and expenses arising out of legal proceedings brought against them by reason of
their being or having been directors or officers. The Indemnification Statute
generally provides that a director or officer of a corporation (i) shall be
indemnified by the corporation for all reasonable expenses of any such legal
proceeding if he entirely prevails in the defense of such proceeding and (ii)
may be indemnified by the corporation for the reasonable expenses, judgments,
fines, penalties and amounts paid in settlement of any such proceeding (other
than a derivative suit), even if he does not entirely prevail in such
proceeding, if (A) he conducted himself in good faith, (B) he believed, in the
case of conduct in his official capacity with the corporation, that his conduct
was in its best interests, (C) he believed, in all other cases, that his conduct
was at least not opposed to the corporation's best interest and (D) in the case
of any criminal proceeding, he had no reasonable cause to believe his conduct
was unlawful. No indemnification, however, may be made under clause (ii) above
if (A) in the case of a derivative suit (a suit brought in the name of the
corporation by a shareholder), the director or officer is adjudged liable in
such suit, unless a court determines that, despite such adjudication but
considering all the relevant circumstances, he is entitled to indemnification,
or (B) in the case of a proceeding charging improper personal benefit to him,
the director or officer is adjudged liable on the basis that personal benefit
was improperly received by him. In any event, in the case of a derivative suit,
indemnification is limited to reasonable expenses incurred by the officer or
director in connection with the proceeding. The indemnification described in
clause (ii) above may be made only upon a determination that indemnification is
permissible because the applicable standard of conduct has been met. Such a
determination may be made by a majority of a quorum of disinterested directors
(or, if such a quorum cannot be obtained, by a committee of two or more
disinterested directors), by independent legal counsel, by the shareholders or
by a court of competent jurisdiction.
The Indemnification Statute also provides that any corporation shall have
the power to make any further indemnity, including indemnity with respect to a
derivative suit, and including the advancement of expenses, to any director,
officer, employee or agent that may be authorized by the
II-1
<PAGE> 80
articles of incorporation or by any by-law made by the shareholders before or
after the event, except an indemnity against willful misconduct or a knowing
violation of the criminal law.
The indemnification of directors and officers is provided for by Article 5
of the Registrant's Amended and Restated Articles of Incorporation which
provides in substance that each director and officer shall be indemnified
against reasonable costs and expenses, including attorney's fees, and any
liabilities which he may incur in connection with any action to which he may be
made a party by reason of his being or having been a director or officer of the
Registrant, unless he engaged in willful misconduct or a knowing violation of
the criminal law. The indemnification provided by the Registrant's Amended and
Restated Articles of Incorporation is not deemed exclusive of or intended in any
way to limit any other rights to which any person seeking indemnification may be
entitled.
Section 7 of the Underwriting Agreement provides for indemnification by the
Underwriters of directors, officers and controlling persons of the Registrant
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The securities issued by the Registrant since April 1, 1994 which were not
registered under the Securities Act are listed below. All issuances of
securities reflect the three-for-two stock split of the Company's Common Stock
in the form of a stock dividend declared with respect to the Common Stock, to be
effected prior to the closing of the offering of shares to which this
Registration Statement applies.
(a) Issuances of Capital Stock.
Upon the closing of this offering, the Registrant will issue (A) an
aggregate of 625,005 shares of its Common Stock upon the automatic conversion of
all outstanding shares of its Preferred Stock and (B) 55,694 shares of Common
Stock upon the exercise of a warrant, which shares will be sold by a Selling
Shareholder in this offering.
(b) Grants and Exercises of Stock Options and Warrants
The Registrant's Employee Incentive Stock Option Plan was adopted by the
Board of Directors and approved by the shareholders on December 8, 1988. No
options to purchase shares of Common Stock have been granted under such plan
since April 1, 1994. Since April 1, 1994, the Registrant has issued 1,211,250
shares of Common Stock upon the exercise of options granted under this plan for
an aggregate consideration of $205,125.
The Registrant's 1992 Stock Option Plan was adopted by the Board of
Directors on November 13, 1992 and approved by the shareholders on December 11,
1992. Since April 1, 1994, options to purchase 1,060,930 shares have been
granted under such plan. As of July 31, 1997, options to purchase an aggregate
of 762,953 shares of Common Stock were outstanding under this plan and the
Registrant had issued 250,612 shares of Common Stock upon the exercise of
options granted under such Plan for an aggregate consideration of $680,361.
The Registrant's 1997 Employee Stock Purchase Plan was adopted by the Board
of Directors, subject to shareholder approval, on August 6, 1997. No stock has
been issued or options granted under this plan.
The Registrant's 1997 Stock Incentive Plan was adopted by the Board of
Directors, subject to shareholder approval, on August 6, 1997. No stock has been
issued or options granted under this plan.
The Registrant's 1997 Director Stock Option Plan was adopted by the Board
of Directors, subject to shareholder approval, on August 6, 1997. No stock has
been issued or options granted under this plan.
II-2
<PAGE> 81
Since April 1, 1994, the Company has issued 4,725 shares of Common Stock
upon the exercise of warrants for an aggregate consideration of $14,553.
No underwriters were involved in connection with the sales of securities
referred to in paragraph (a) or (b) of this Item 15. The shares of capital stock
issued in the above transactions were offered and sold in reliance upon the
exemption from registration under Section 4(2) of the Act, relative to sales by
an issuer not involving any public offering, or Rule 701 under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
1.1* Proposed form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended.
3.2 Form of Articles of Amendment of Articles of Incorporation of the Registrant.
3.3 Form of Second Amended and Restated Articles of Incorporation of the Registrant to
be filed upon the closing of this offering.
3.4 Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate for shares of the Registrant's Common Stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 Employee Incentive Stock Option Plan of the Registrant, as amended.
10.2 Amended and Restated 1992 Stock Option Plan of the Registrant.
10.3 1997 Employee Stock Purchase Plan of the Registrant.
10.4 1997 Stock Incentive Plan of the Registrant.
10.5 1997 Director Stock Option Plan of the Registrant.
10.6 Loan and Warrant Purchase Agreement dated March 2, 1993 by and between PNC Capital
Corp and the Registrant.
10.7 Common Stock Purchase Warrant dated March 24, 1993 held by PNC Capital Corp.
10.8 Lease dated March 11, 1993, by and between HEM Corporation and the Registrant, as
amended.
10.9 Lease Agreement dated October 28, 1991, by and between Reston Investment Properties
Associates Limited Partnership and the Registrant, as amended.
10.10 Lease dated November 17, 1992 by and between Koger Management, Inc. and Abra
Cadabra Software, Inc., as amended.
10.11 Form of Shareholder Warrant.
10.12 Consolidating Registration Rights Agreement.
10.13** License Agreement dated May 28, 1996 between Best!Ware, Inc. and Data-Tech Software
Pty. Ltd.
10.14** Asset Purchase and Transition Agreement dated May 28, 1996 among Best!Ware, Inc.
(NJ), Best!Ware, Inc. (VA) and the Registrant.
10.15 Employment Agreement dated May 17, 1995 between the Registrant and James F.
Petersen.
10.16 Letter dated May 4, 1995, from the Registrant to Timothy A. Davenport.
10.17 Amendments to Warrant by and among PNC Capital Corp and the Registrant.
10.18 Shareholders Voting Agreement.
10.19* Form of Selling Shareholder's Custody Agreement and Letter of Transmittal
11 Computation of Earnings Per Share.
22 Subsidiaries of the Registrant.
</TABLE>
II-3
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
24.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
24.2 Consent of Arthur Andersen LLP.
25 Power of Attorney (contained on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment requested.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted as the information required is inapplicable
or the information is presented in the financial statements or the related
notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes (1) to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser, (2) that for purposes
of determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
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 Reston, Virginia, on the 8th day of
August, 1997.
BEST SOFTWARE, INC.
By: /s/ TIMOTHY A. DAVENPORT
------------------------------------
Timothy A. Davenport,
President and Chief Executive
Officer
II-5
<PAGE> 84
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Best Software, Inc., hereby
severally constitute and appoint David Bosserman, Shelley W. Reback and Brent B.
Siler, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement on Form S-1 filed herewith and any
and all pre-effective and post-effective amendments to said Registration
Statement, including any registration statement relating to this Registration
Statement under Rule 462, and generally to do all such things in our names and
behalf in our capacities as officers and directors to enable Best Software, Inc.
to comply with the provisions of the Securities Act of 1933, as amended, and the
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- ---------------
<C> <S> <C>
/s/ JAMES F. PETERSEN Chairman of the Board and Director August 8, 1997
- -------------------------------------
James F. Petersen
/s/ TIMOTHY A. DAVENPORT President and Chief Executive Officer August 8, 1997
- ------------------------------------- and Director (Principal Executive
Timothy A. Davenport Officer)
/s/ DAVID N. BOSSERMAN Executive Vice President, Chief August 8, 1997
- ------------------------------------- Financial Officer and Treasurer
David N. Bosserman (Principal Financial and Accounting
Officer)
/s/ HERBERT R. BRINBERG Director August 8, 1997
- -------------------------------------
Herbert R. Brinberg
/s/ PETER V. DEL PRESTO Director August 8, 1997
- -------------------------------------
Peter V. Del Presto
/s/ JOHN H. MARTINSON Director August 8, 1997
- -------------------------------------
John H. Martinson
/s/ DOROTHY T. WEBB Director August 8, 1997
- -------------------------------------
Dorothy T. Webb
/s/ RICHARD LEFEBVRE Director August 8, 1997
- -------------------------------------
Richard Lefebvre
</TABLE>
II-6
<PAGE> 85
The financial statements included in the registration statement have been
adjusted to give effect to the anticipated three-for-two stock split and
increase in the authorized capital of the Company as described in Note 1. We
expect to be in a position to render the following audit report upon the
effectiveness of such events, assuming from August 6, 1997, to the effective
date of such events, no other events will have occurred that would effect the
accompanying financial statements or notes thereto.
ARTHUR ANDERSEN LLP
Washington, D.C.
August 6, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Best Software, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Best Software, Inc., included in this Registration
Statement and have issued our report thereon dated August 6, 1997. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
S-1
<PAGE> 86
SCHEDULE II
BEST SOFTWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND THE THREE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BEGINNING DEDUCTIONS TO ENDING
BALANCE (1) EXPENSE BALANCE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
March 31, 1995
Allowance for accounts receivable......... $ 765,149 $ (103,192) $420,799 $1,082,756
March 31, 1996
Allowance for accounts receivable......... 1,082,756 (313,625) 737,820 1,506,951
March 31, 1997
Allowance for accounts receivable......... 1,506,951 (866,361) 191,469 832,059
June 30, 1997 (unaudited)
Allowance for accounts receivable......... 832,059 (27,952) 541,659 1,345,766
</TABLE>
- ---------------
(1) Represents product returns, trade receivables written off, and credits
applied.
S-2
<PAGE> 87
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ----------------------------------------------------------------------- ------------
<S> <C>
1.1* Proposed form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant, as
amended.
3.2 Form of Articles of Amendment of Articles of Incorporation of the
Registrant.
3.3 Form of Second Amended and Restated Articles of Incorporation of the
Registrant to be filed upon the closing of this offering.
3.4 Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate for shares of the Registrant's Common Stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 Employee Incentive Stock Option Plan of the Registrant, as amended.
10.2 Amended and Restated 1992 Stock Option Plan of the Registrant.
10.3 1997 Employee Stock Purchase Plan of the Registrant.
10.4 1997 Stock Incentive Plan of the Registrant.
10.5 1997 Director Stock Option Plan of the Registrant.
10.6 Loan and Warrant Purchase Agreement dated March 2, 1993 by and between
PNC Capital Corp and the Registrant.
10.7 Common Stock Purchase Warrant dated March 24, 1993 held by PNC Capital
Corp.
10.8 Lease dated March 11, 1993, by and between HEM Corporation and the
Registrant, as amended.
10.9 Lease Agreement dated October 28, 1991, by and between Reston
Investment Properties Associates Limited Partnership and the
Registrant, as amended.
10.10 Lease dated November 17, 1992 by and between Koger Management, Inc. and
Abra Cadabra Software, Inc., as amended.
10.11 Form of Shareholder Warrant
10.12 Consolidating Registration Rights Agreement.
10.13** License Agreement dated May 28, 1996 between Best!Ware, Inc. and Data-
Tech Software Pty. Ltd.
10.14** Asset Purchase and Transition Agreement dated May 28, 1996 among
Best!Ware, Inc. (NJ), Best!Ware, Inc. (VA) and the Registrant.
10.15 Employment Agreement dated May 17, 1995 between the Registrant and
James F. Petersen.
10.1 Letter dated May 4, 1995, from the Registrant to Timothy A. Davenport.
10.17 Amendments to Warrant by and among PNC Capital Corp and the Registrant.
10.18 Shareholders Voting Agreement.
10.19* Form of Selling Shareholder's Custody Agreement and Letter of
Transmittal
11 Computation of Earnings Per Share.
22 Subsidiaries of the Registrant.
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ----------------------------------------------------------------------- ------------
<S> <C>
24.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
24.2 Consent of Arthur Andersen LLP.
25 Power of Attorney (contained on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment requested.
<PAGE> 1
EXHIBIT 3.1
AMENDMENT AND RESTATED
ARTICLES OF INCORPORATION
OF
BEST PROGRAMS, INC.
1. The name of the Corporation is BEST PROGRAMS, INC.
2. The purpose of the Corporation is to create, market, distribute and
otherwise deal in computer software and related products. In
addition, the Corporation shall have the power to carry on business of
any character whatsoever, that is not prohibited by law.
3. The Corporation shall have the power to issue 15,000,000 shares of
Common Stock, having no par value ("Common Stock"), 1,000,000 shares
of Preferred Stock, having a par value of $.01 per share ("Preferred
Stock") and 41,667 shares of Class A Preferred Stock, having a par
value of $.01 per share ("Class A Preferred Stock").
A. COMMON STOCK.
(1) General. The voting, dividend and liquidation rights of
the holders of the Common Stock are subject to and qualified by the
rights of the holders of the Class A Preferred Stock or Preferred
Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
(2) Voting. The holders of the Common Stock are entitled to
one vote for each share held at all meetings of shareholders (and
written actions in lieu of meetings). There shall be no cumulative
voting.
(3) Dividends. Dividends may be declared and paid on the
Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any preferential
dividend rights of any then outstanding Class A Preferred Stock or
Preferred Stock.
(4) Liquidation. Upon the dissolution or liquidation of the
corporation, whether voluntary or involuntary, holders of Common Stock
will be entitled to receive all assets of the corporation available
for distribution to its shareholders, subject to any preferential
rights of any then outstanding Class A Preferred Stock or Preferred
Stock.
<PAGE> 2
B. CLASS A PREFERRED STOCK. The designations, preferences, relative,
participating, optional or other rights, qualifications, limitations and
restrictions of the Class A Preferred Stock shall be as follows:
(1) Dividends. The holder of each share of Class A Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation, out of funds legally available for that purpose,
dividends in cash, stock or otherwise; provided, however, that the per share
amount of any dividend for the Class A Preferred Stock in any fiscal year of
the Corporation shall be at least equal to the per share amount, if any, or any
dividend declared for the Common Stock during such fiscal year. In connection
therewith, each share of Class A Preferred Stock shall be deemed to be
converted into shares of Common Stock as provided in Section A of this Article
3. All dividends declared upon the Class A Preferred Stock shall be declared
pro rata per share.
(2) Rights Upon Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation available for distribution to its shareholders,
shall be distributed in the following order of priority:
(i) The holders of Class A Preferred Stock shall be
entitled to receive, prior and in preference to any
distribution to the holders of Common Stock, an amount equal
to $12.00 per share for each share of Class A Preferred Stock
then outstanding. If the assets and funds of the Corporation
available for distribution to the holders of Class A Preferred
Stock shall be insufficient to permit the payment of the full
preferential amounts set forth in this Article, then all of the
assets of the Corporation available for distribution shall be
distributed to the holders of Class A Preferred Stock pro rata
so that each share receives the same percentage of its
respective liquidation value.
(ii) After distribution of the amount set forth in Section
B(2)(a)(i) of this Article 3, the remaining assets of the
Corporation available for distribution, if any, to the
shareholders of the Corporation shall be distributed to the
holders of
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<PAGE> 3
shares of Common Stock, to the exclusion of the holders of
Class A Preferred Stock, pro rata.
(b) A consolidation or merger of the Corporation with or
into any other corporation or corporations in a transaction in
which the shareholders of the Corporation receive cash,
securities or other consideration in exchange for the shares
of capital stock of the Corporation then held by them, or the
sale of all or substantially all of the assets of the
Corporation, shall, at the option of the holders representing
a majority of the Class A Preferred Stock, be deemed to be
liquidation, dissolution or winding up of the Corporation for
the purposes of Section B(2)(a) of this Article 3 above.
(3) Redemption.
(a) Subject to Section B(3)(d) of this Article 3, on
September 1, 1993, September 1, 1994, September 1, 1995,
September 1, 1996, and thereafter on every September 1 to and
including September 1, 2000 (such dates being hereinafter
referred to as "Redemption Dates"), if any shares of Class A
Preferred Stock shall then be outstanding, the Corporation
shall (unless otherwise prevented by law) redeem, at the
option and upon the written notice of any holder of Class A
Preferred Stock (which notice shall state such holder's
intention to exercise the redemption option set forth herein
and the number of shares of Class A Preferred Stock sought to
be redeemed, up to the maximum number of shares owned by such
holder which are entitled to be redeemed on such Redemption
Date as hereinafter provided, such notice to be delivered at
least 30, but not more than 60, days prior to the Redemption
Date) that number of shares of Class A Preferred Stock then
owned by such holder of Class A Preferred Stock delivering the
aforesaid written notice and so sought to be redeemed;
provided however, that the number of shares which are
requested to be redeemed in the aforesaid written notice and
which shall be redeemed shall in no event exceed, with respect
to such holder on any Redemption Date, the product of (i) 25%
of all shares of Class A Preferred Stock outstanding on July
1, 1993, plus the number of shares, if any, of Class A
Preferred Stock issued after July 1, 1993, and prior to the
applicable Redemption Date, plus the number of shares, in any,
of Class A Preferred Stock eligible to have been redeemed on
any prior Redemption Date but not
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<PAGE> 4
redeemed, and (ii) such holder's Proportionate Percentage (as
hereinafter defined); and further provided that the holders of
Class A Preferred Stock may not, during any twelve-month
period beginning on September 1 and ending on August 31,
redeem in the aggregate more than 25% of the maximum number of
shares of Preferred Stock outstanding at any time after the
Original Issuance Date and prior to the Redemption Date.
The amount per share of Class A Preferred Stock at
which the shares of Class A Preferred Stock are to be redeemed
pursuant to this Section B(3)(a) of this Article 3 shall be
$12.00. The total sum payable per share of Class A Preferred
Stock on any Redemption Date is hereinafter referred to as the
"Redemption Price," and any payment to be made is hereinafter
referred to as the "Redemption Payment."
For purposes of this Section B(3)(a) of this
Article 3, the term "Proportionate Percentage" shall mean, on
any Redemption Date as to any holder of Class A Preferred
Stock, the percentage figure that expresses the ratio between
(x) the number of shares of Class A Preferred Stock owned by
such holder and (y) the aggregate number of all shares of
Class A Preferred Stock outstanding on such Redemption Date.
(b) On and after any Redemption Date (unless
default shall be made by the Corporation in the payment of the
applicable Redemption Price as herein provided, in which event
such rights shall be exercisable until such default is cured),
all rights in respect of the shares of Class A Preferred Stock
to be redeemed pursuant to notices received pursuant to
Section B(3)(a) of this Article 3, except the right to receive
the applicable Redemption Price as herein provided, shall
cease and terminate, and such shares shall no longer be deemed
to be outstanding, whether or not the certificates
representing such shares have been received by the
Corporation.
(c) At any time on or after any Redemption Date,
the holders of record of shares of Class A Preferred Stock to
be redeemed on such Redemption Date in accordance with this
Section B(3) of this Article 3 shall be entitled to receive
the applicable Redemption Price upon actual delivery to the
Corporation or its agents of the certificates representing the
shares to be redeemed. If upon any redemption the assets of
the
-4-
<PAGE> 5
Corporation available for redemption shall be insufficient to
pay the holders of the shares of Class A Preferred Stock the
full amounts to which they shall then be entitled, each holder
of shares of Class A Preferred Stock requesting redemption may
(i) within 10 days after the Redemption Date revoke his or her
redemption request in whole or in part, or (ii) elect to share
ratably in any such redemption according to the respective
amounts which would be payable in respect of such shares
requested to be redeemed by the holders thereof if all amount
payable on or with respect to such shares were paid in full.
As to any holder electing to be covered by clause (ii) above,
no default shall have been made by the Corporation in the
payment of the applicable Redemption Price as herein applied;
the Corporation shall, however, be indebted to such holder for
the balance of the Redemption Price remaining unpaid.
(d) Anything contained in this Section B(3) of
this Article 3 to the contrary notwithstanding, the holders of
shares of Class A Preferred Stock requested by such holders to
be redeemed pursuant to this Section shall have the right,
exercisable at any time up to the close of business on the
requested Redemption Date (unless default shall be made by the
Corporation in the payment of the Redemption Price as herein
provided, in which event such right shall be exercisable with
respect to those shares for which payment is not made until
such default is cured), to convert all or any part of such
shares to be redeemed as herein provided into shares of Common
Stock pursuant to Section B(5) of this Article 3. If, and to
the extent, any shares of Class A Preferred Stock so entitled
to redemption are converted into shares of Common Stock by the
holders thereof prior to the close of business on the
requested Redemption Date, the total number of shares of Class
A Preferred Stock otherwise to be redeemed on such date shall
be reduced by the number of shares of Class A Preferred Stock
so converted.
(4) Voting. In addition to any other rights provided in the
Corporation's Articles of Incorporation, each share of Class A Preferred Stock
shall entitle the holder thereof to a number of votes equal to the number of
shares of Common Stock into which such share is then convertible, and such
holders shall be entitled to vote with the holders of Common Stock, and not as
a separate class, on all matters as to which holders of Common Stock shall be
entitled to vote.
-5-
<PAGE> 6
(5) Conversion.
(a) The holder of any shares of Class A Preferred Stock shall have
the right, at such holder's option, at any time or from time to time to convert
any of such shares of Class A Preferred Stock into shares of Common Stock at
the initial rate of one share of Common Stock for each share of Preferred Stock
(the "Conversion Rate") by surrender of the certificates representing the
shares of Class A Preferred Stock so to be converted in the manner provided in
Section B(5)(c) of this Article 3. The Conversion Rate shall be subject to
adjustment as set forth in Section B(5)(e) of this Article 3. The holder of
any shares of Class A Preferred Stock exercising the aforesaid right to convert
such shares into shares of Common Stock shall be entitled to payment of all
declared but unpaid dividends, if any, on or with respect to such shares of
Class Preferred Stock up to and including the Conversion Date (as hereinafter
defined).
(b) Upon the occurrence of an Event of Conversion (as defined in
Section B(6)(a) of this Article 3), all shares of Class A Preferred Stock then
outstanding shall, by virtue of, and simultaneously with, the occurrence of the
Event of Conversion and without any action on the part of the holder thereof,
be deemed automatically converted into shares of Common Stock at the Conversion
Rate as adjusted and then in effect for the shares of Class A Preferred Stock
being converted. The holder of any shares of Class A Preferred Stock converted
into shares of Common Stock pursuant to this Section B(5)(b) of this Article 3
shall be entitled to payment of all declared but unpaid dividends, if any, on
or with respect to such shares of Class A Preferred Stock up to and including
the Conversion Date.
(c) The holder of any shares of Class A Preferred Stock may
exercise the conversion right pursuant to Section B(5)(a) of this Article 3 as
to any part thereof by delivering to the Corporation during regular business
hours, at the office of any transfer agent of the Corporation for the Class A
Preferred Stock or at such other place as may be designated by the Corporation,
the certificate or certificates for the shares to be converted, duly endorsed
or assigned in blank (or to the Corporation if required by it), accompanied by
written notice stating that the holder elects to convert such
-6-
<PAGE> 7
shares and stating the name or names (with address) in which the certificates
or certificates for the shares of Common Stock are to be issued, provided that
if the holder designates a name other than the holder, the conversion shares
have been registered under applicable federal and state securities laws, or the
holder shall have provided the Corporation with a written opinion of counsel
who is experienced in securities law matters and reasonably acceptable to the
Corporation that the proposed issuance of Common Stock in such name will not in
itself, or when viewed together with the holder's acquisition of the Class A
Preferred Stock from the Corporation, violate any applicable federal or state
securities law registration provisions. Conversion shall be deemed to have
been effected (i) with respect to conversion under Section B(5)(a) of this
Article 3, on the date when the aforesaid delivery is made and (ii) with
respect to conversion under Section B(5)(b) of this Article 3, on the date of
occurrence of the Event of Conversion, and such date, in either case, is
referred to herein as the "Conversion Date." As promptly as practicable
thereafter, the Corporation shall issue and delivery to or upon the written
order of such holder, to the place designated by such holder, a certificate or
certificates for the number of full shares of Common Stock as provided in
Section B(5)(d) of this Article 3 and a check or cash in payment of all
declared but unpaid dividends (to the extent permissible under law), if any,
with respect to the shares of Class A Preferred Stock so converted up to and
including the Conversion Date. The person is whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
shareholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a shareholder of record on the next succeeding date on
which the transfer books are open, but the Class A Preferred Conversion Rate
shall be that in effect on the Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate representing shares of
a Class A Preferred Stock surrendered for conversion, the Corporation shall
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Class A Preferred Stock
representing the unconverted portion of the certificate so surrendered.
-7-
<PAGE> 8
(d) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Class A Preferred Stock. The number of full
shares of Common Stock issuable upon conversion of Class A Preferred Stock
surrendered by a holder thereof for conversion shall be computed on the basis
of the aggregate number of shares of Class A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Class A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the then Current Market Price (as hereinafter defined) of
a share of Common Stock multiplied by such fractional interest. Fractional
interests shall not be entitled to dividends, and the holders of fractional
interests shall not be entitled to any rights as shareholders of the
Corporation in respect of such fractional interests.
(e) The Class A Preferred Conversion Rate shall be subject to
adjustment from time to time as follows:
(i) If, at any time after the Original Issuance Date (as
defined in Section B(6)(b) of this Article 3), 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 Class A Preferred
Conversion Rate shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Class A
Preferred Stock shall be increased in proportion to such increase in
outstanding shares.
(ii) If, at any time after the Original Issuance Date, 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 Class A Preferred Conversion
Rate shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of Class A Preferred
Stock shall be decreased in proportion to such decrease in outstanding
shares.
-8-
<PAGE> 9
(iii) In case, at any time after the Original Issuance Date,
of any capital reorganization, or any reclassification of the stock of
the Corporation (other than a change in par value or from par value to
no par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or
the consolidation or merger of the Corporation with or into another
person (other than a consolidation or merger in which the Corporation
is the continuing corporation and which does not result in any change
in the Common Stock) or of the sale or other disposition of all or
substantially all the properties and assets of the Corporation as an
entirety to any other person, each share of Class A Preferred Stock
shall after such reorganization, reclassification, consolidation,
merger, sale or other disposition be (unless, in the case of a
consolidation, merger, sale or other disposition, payment shall have
been made to the holders of all shares of Class A Preferred Stock of
the full amount to which they shall have been entitled pursuant to
Section B(2) of this Article 3) convertible into the kind and number
of shares of stock and other securities or property of the Corporation
or of the corporation resulting from such consolidation or surviving
such merger or to which such properties and assets shall have been
sold or otherwise disposed to which the holder of the number of shares
of Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or other
disposition) upon conversion of such shares would have been entitled
upon such reorganization, reclassification, consolidation, merger,
sale or other disposition. The provisions of this Section B(5) of
this Article 3 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other
dispositions.
(iv) All calculations under this Section B(5)(e) of this
Article 3 shall be made to the nearest one tenth (1/10) of a share.
(v) For the purpose of any computation pursuant to
Section B(5)(d) of this Article 3, the Current Market Price at any
date of one share of
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<PAGE> 10
Common Stock shall be deemed to be the daily closing price on the day
before the day in question. The closing price 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 if the Common Stock is not at the time listed or admitted
for trading on any such exchange, then such price as shall be equal to
the last reported sales price, or if such price is not reported, the
average of the last reported bid and asked prices, as reported by the
National Association of Securities Dealers Automated Quotations System
("NASDAQ") on such day, or if, on any day in question, the security
shall not be quoted on the NASDAQ, then such price shall be equal to
the average of the last reported bid and asked prices on such day
reported by the National Quotation Bureau, Inc. or similar reputable
quotation and reporting service, if such quotation is not reported by
the National Quotation Bureau, Inc.); provided, however, that if the
Common Stock is not traded in such manner that the quotations referred
to in this clause (v) are available for the period required
thereunder, the Current Market Price shall be determined in good
faith by the Board of Directors of the Corporation.
(vi) In any case in which the provisions of this Section
B(5)(e) of this Article 3 shall require that an adjustment shall
become effective immediately after a record date of an event, the
Corporation may defer until the occurrence of such event (a) issuing
to the holder of any share of Class A Preferred Stock converted after
such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
shares of capital stock issuable upon such conversion before giving
effect to such adjustment and (b) paying to such holder any amount in
cash in lieu of a fractional share of capital stock pursuant to
Section B(5)(d) of this Article 3; provided, however, that the
Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
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<PAGE> 11
additional shares, and such cash, upon the occurrence of the event
requiring such adjustment, provided further that if such event does
not occur, the adjustment required by such event will be revoked,
effective as of such record date, and will have no effect.
(f) Whenever the Class A Preferred Conversion Rate shall be
adjusted as provided in Section B(5)(e) of this Article 3, the Corporation
shall forthwith file, at the office of the transfer agent for the Class A
Preferred Stock or at such other place as may be designated by the Corporation,
a statement, approved by its Board of Directors, showing in detail the facts
requiring such adjustment and the Class A Preferred Conversion Rate that shall
be in effect after such adjustment. The Corporation shall also cause a copy of
such statement to be sent by first class certified mail, return receipt
required and postage prepaid, to each holder of shares of Class A Preferred
Stock at his address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of Section B(5)(g) of this
Article 3.
(g) In the event the Corporation shall propose to take any action
of the types described in clauses (i), (ii) or (iii) of Section B(5)(e) of this
Article 3, the Corporation shall give notice to each holder of shares of Class
A Preferred Stock, in the manner set forth in Section B(5)(f) of this Article
3, which notice shall specify the record date, if any, with respect to any such
action and the date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect may be known
at the date of such notice) on the Class A Preferred Conversion Rate and the
number, kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of shares of Class A Preferred Stock. In the case of any
action which would require the fixing of a record date, such notice shall be
given at least 20 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 30 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any action.
-11-
<PAGE> 12
(h) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Class A
Preferred Stock; provided, however, that the Corporation shall not be required
to pay any taxes which may be payable in respect of any transfer involved in
the issuance or delivery of any certificate for such shares in a name other
than that of the holder of the shares of Class A Preferred Stock in respect of
which such shares are being issued.
(i) The Corporation shall reserve, and at all times from and after
the Original Issuance Date keep reserved, free from preemptive rights, out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Class A Preferred Stock sufficient
shares to provide for the conversion of all outstanding shares of Class A
Preferred Stock.
(j) All shares of Common Stock which may be issued in connection
with the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable.
(6) Definitions.
(a) The term "Event of Conversion" shall mean the consummation of
a firmly underwritten public offering of shares of Common Stock of the
Corporation pursuant to the Securities Act of 1933, as amended, (i) at a net
selling price per share of Common Stock (subject to adjustment for any change
in the capitalization of the Company by reason of stock dividend, subdivision,
combination or exchange of shares, recapitalization, merger in which the
Company is the surviving corporation, consolidation and the like occurring
after the Original Issuance Date) or not less than $25.00 and (ii) which
results in aggregate gross proceeds to the Corporation of not less than
$5,000,000.
(b) The term "Original Issuance Date" shall mean the date of
original issuance of the first share of Class A Preferred Stock.
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<PAGE> 13
C. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more
series, each of such series to have such terms as stated or expressed
herein and in the resolution or resolutions providing for the issue of
such series adopted by the Board of Directors of the Corporation as
hereinafter provided. Any shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise provided by law. Different series of Preferred
Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock in one or
more series, and in connection with the creation of any such series,
by resolution or resolutions providing for the issue of the shares
thereof, to determine and fix such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including without limitation
thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the
Virginia Stock Corporation Act. Without limiting the generality of
the foregoing, the resolutions providing for issuance of any series
of Preferred Stock may provide that such series shall be superior or
rank equally or be junior to the Preferred Stock of any other series
to the extent permitted by law. Except as otherwise provided in
these Articles of Incorporation, no vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred
Stock authorized by and complying with the conditions of these
Articles of Incorporation, the right to have such vote being
expressly waived by all present and future holders of the capital
stock of the Corporation.
4. The number of directors shall be fixed in accordance with the
provisions of the Corporation's By-laws.
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<PAGE> 14
5. Indemnification and Exculpation.
A. In this Article 5:
"applicant" means the person seeking indemnification pursuant
to this Article 5.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment,
settlement, penalty, fine, including any excise tax assessed
with respect to an employee benefit plan, or reasonable
expenses incurred with respect to a proceeding.
"party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative or investigative and whether formal or
informal.
B. In any proceeding brought by or in the right of the
Corporation or brought by or on behalf of shareholders of the
Corporation, no director or officer of the Corporation shall be liable
to the Corporation or its shareholders for monetary damages with
respect to any transaction, occurrence or course of conduct, except
for liability resulting from such person's having engaged in willful
misconduct or a knowing violation of the criminal law or any federal
or state securities law.
C. The Corporation shall indemnify (1) any person who was or is a
party to any proceeding, including a proceeding brought by a
shareholder in the right of the Corporation or brought by or on behalf
of shareholders of the Corporation, by reason of the fact that he is
or was a director, or officer, employee or agent of the Corporation,
or (2) any director or officer who is or was serving at the request of
the Corporation as a director, trustee, partner, employee, agent or
officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability
incurred by him in connection with such proceeding unless he engaged
in willful misconduct or a knowing violation of the criminal law. A
person is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose
duties on, or otherwise involve services by, him to
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<PAGE> 15
the plan or to participants in or beneficiaries of the plan. The
Board of Directors is hereby empowered, by a majority vote of a quorum
of disinterested directors, to enter into a contract to indemnify any
director or officer in respect of any proceedings arising from any act
of omission, whether occurring before or after the execution of such
contract.
D. The provisions of this Article 5 shall be applicable to all
proceedings commenced after the adoption hereof by the shareholders of
the Corporation, arising from any act or omission, whether occurring
before or after such adoption. No amendment or repeal of this Article
5 shall have any effect on the rights provided under this Article 5
with respect to any act or omission occurring prior to such amendment
or repeal. The Corporation shall promptly take all such actions, and
make all such determinations, as shall be necessary or appropriate to
comply with its obligation to make any indemnity under this Article 5
and shall promptly pay or reimburse all reasonable expenses, including
attorneys' fees, incurred by any such director, officer, employee or
agent in connection with such actions and determinations or
proceedings of any kind arising therefrom.
E. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that the
applicant did not meet the standard of conduct described in Section B
or C of this Article 5.
F. Any indemnification under Section C of this Article 5 (unless
ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the applicant is permissible in the circumstances
because he has met the applicable standard of conduct set forth in
Section C of this Article 5.
The determination shall be made:
(1) By the Board of Directors by a majority vote of a
quorum consisting of directors not at the time parties to the
proceeding;
(2) If a quorum cannot be obtained under subsection (1)
of this Section F, by majority vote of a committee duly designated by
the Board of Directors (in which designation directors who are parties
may participate), consisting solely of two or more directors not at
the time parties to the proceeding;
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<PAGE> 16
(3) By special legal counsel:
(a) Selected by the Board of Directors or its
committee in the manner prescribed in subsection (1) or (2) of this
Section F; or
(b) If a quorum of the Board of Directors cannot
be obtained under subsection (1) of this Section F and a committee
cannot be designated under subsection (2) of this Section F, selected
by majority vote of the full Board of Directors, in which selection
directors who are parties may participate; or
(4) By the shareholders, but shares owned by or voted
under the control of Directors who are at the time parties to the
proceeding may not be voted on the determination.
Any evaluation as to reasonableness of expenses shall
be made in the same manner as the determination that indemnification
is appropriate, except that if the determination is made by special
legal counsel, such evaluation as to reasonableness of expenses shall
be made by those entitled under subsection (3) of this Section F of
this Article 5 to select counsel.
Notwithstanding the foregoing, in the event there has
been a change in the composition of a majority of the Board of
Directors after the date of the alleged act of omission with respect
to which indemnification is claimed, any determination as to
indemnification and advancement of expenses with respect to any claim
for indemnification made pursuant to this Article 5 shall be made by
special legal counsel agreed upon by the Board of Directors and the
applicant. If the Board of Directors and the applicant are unable to
agree upon such special legal counsel the Board of Directors and the
applicant each shall select a nominee, and the nominees shall select
such special legal counsel.
G. (1) The Corporation shall pay for or reimburse the
reasonable expenses incurred by any applicant who is a party to a
proceeding in advance of final disposition of the proceeding in
advance of final disposition of the proceeding or the making of any
determination under Section C of this Article 5 if the applicant
furnishes the Corporation:
(a) a written statement of his good faith belief
that he has met the standard of conduct described in Section C of this
Article 5; and
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<PAGE> 17
(b) a written undertaking, executed personally or
on his behalf, to repay the advance if it is ultimately determined
that he did not meet such standard of conduct.
(2) The undertaking required by paragraph (b) of
subsection (1) of this Section shall be an unlimited general
obligation of the applicant but need not be secured and may be
accepted without reference to financial ability to make repayment.
(3) Authorizations of payments under this section shall
be made by the persons specified in Section F of this Article 5 upon a
determination that the facts then known to those making the
determination would not preclude indemnification under this Article 5.
H. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed
by it in accordance with this Article 5 and may also procure
insurance, in such amounts as the Board of Directors may determine, on
behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against any liability asserted against or
incurred by him in any such capacity or arising from his status as
such, whether or not the Corporation would have power to indemnify him
against such liability under the provisions of this Article 5.
I. Every reference herein to directors, officers, employees or
agents shall include former directors, officers, employees and agent
and their respective heirs, executors and administrators. The
indemnification hereby provided and provided hereafter pursuant to the
power hereby conferred by this Article 5 on the Board of Directors
shall not be exclusive of any other rights to which any person may be
entitled, including any right under policies of insurance that may be
purchased and maintained by the Corporation or others, with respect to
claims, issues or matters in relation to which the Corporation would
not have the power to indemnify such person under the provisions of
this Article 5. Such rights shall not prevent or restrict the power
of the Corporation to make or provide for any further indemnity, or
provisions for determining entitlement to indemnity, pursuant to one
or more indemnification agreements, bylaws, or other arrangements
(including, without limitation, creation of trust funds or security
interests funded by letters of credit
-17-
<PAGE> 18
or other means) approved by the Board of Directors (whether or not any
of the directors of the Corporation shall be a party to or beneficiary
of any such agreements, bylaws or arrangements); provided, however,
that any provision of such agreements, bylaws or other arrangements
shall not be effective if and to the extent that it is determined to
be contrary to this Article 5 or applicable laws of the Commonwealth
of Virginia.
J. Each provision of this Article 5 shall be severable, and an
adverse determination as to any such provision shall in no way affect
the validity of any other provision.
6. No holder of (a) stock of any class of the Corporation, whether now or
hereafter authorized, (b) any warrants, rights or options to purchase
such stock, or (c) any securities or obligations convertible into any
such stock or into any warrants, rights or options to purchase any such
stock (the interests referred to in clauses (a) (b) and (c) being
hereinafter referred to as "Equity Interest") shall have (i) any
pre-emptive right to purchase or subscribe to any Equity Interests
that may hereafter be created, issued or sold or (ii) any right of
subscription to any Equity Interest.
7. This Article 7 is inserted for the management of the business and
for the conduct of the affairs of the Corporation, and it is expressly
provided that it is intended to be in furtherance and not in
limitation or exclusion of the powers conferred by the Virginia Stock
Corporation Act.
A. The number of the directors of the Corporation shall consist
of not less than three nor more than eight. The exact number of
directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the entire
Board.
B. The Board of Directors shall be and is divided into three
classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the authorized number
of directors by three, then, if such fraction is one-third, the extra
director shall be a member of Class III and, if such fraction is
two-thirds, one of the extra directors shall be a member of Class II
and the other extra director shall be a member of Class III, unless
otherwise provided for from time to time by resolution adopted by a
majority of the Board of Directors.
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<PAGE> 19
C. Elections of directors need not be by written ballot except as
and to the extent provided in the By-Laws of the Corporation.
D. Each director shall serve for a term ending on the date of the
third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in
Class I shall serve for a term ending on the date of the annual
meeting next following the end of the Corporations' fiscal year ending
March 31, 1993; each initial director in Class II shall serve for a
term ending on the date of the annual meeting next following the end
of the Corporations fiscal year ending March 31, 1994; and each
initial director in Class III shall serve for a term ending on the
date of the annual meeting next following the end of the Corporation's
fiscal year ending March 31, 1995.
E. In the event of any increase or decrease in the authorized
number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a
member until the expiration of this current term or his prior death,
retirement, or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director
more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to
those classes whose terms of office are to expire at the latest dates
following such allocation, unless otherwise provided for from time to
time by resolution adopted by a majority of the directors then in
office, although less than a quorum.
F. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his successor is elected
and qualified, or until his earlier death, resignation or removal.
G. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may be
filled only by vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired
term of his
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<PAGE> 20
predecessor in office, if applicable, and a director chosen to fill a
position resulting from an increase in the number of directors shall
hold office until the next election of the class for which such
director shall have been chosen and until this successor is elected
and qualified, or until his earlier death, resignation or removal.
H. At any meeting of the Board of Directors at which a quorum is
present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law or the
Corporation's Certificate of Incorporation or By-Laws.
I. Any one or more of all of the directors may be removed, with
cause, by the holders of at least sixty-six and two-thirds percent (66
2/3%) of the shares then entitled to vote at an election of directors.
J. Advance notice of shareholder nominations for election of
directors and other business to be brought by shareholders before a
meeting of shareholders shall be given in the manner provided in the
By-Laws of the Corporation.
8. A director may be removed from office only for cause, by a vote of the
holders of two-thirds of the shares outstanding and entitled to vote
thereon, at a special meeting of the shareholders called for that
purpose.
9. A. These Articles of Incorporation may be amended in any manner
now or hereafter prescribed by the Virginia Stock Corporation Act, as
amended, provided that, except as set forth below or otherwise
required by law, shareholders may approve any proposed amendment of
these Articles of Incorporation by vote of the holders of a majority
of shares outstanding and entitled to vote thereon. Notwithstanding
the foregoing, Article 4, Article 5, Article 7, Article 8, this
Section A or Article 9, Section C of Article 3 and the provisions of
Article 3 authorizing 1,000,000 shares of undesignated Preferred
Stock, $.01 par value per share, may only be amended by vote of the
holders of at least two-thirds of the shares outstanding and entitled
to vote thereon.
B. The shareholders may approve a merger, share exchange or sale
of all or substantially all of the Corporation's assets not in the
ordinary course of business by vote of the holders of a majority of
the shares outstanding and entitled to vote thereon; provided,
however, that the foregoing shall not be applicable to an "affiliated
transaction" as defined in
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<PAGE> 21
Section 13.1-725 of the Virginia Stock Corporation Act, as amended, or any
successor provision.
-21-
<PAGE> 22
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
BEST PROGRAMS, INC.
1. The name of the Corporation is Best Programs, Inc. (the "Corporation").
2. The Corporation's Articles of Incorporation are amended and restated and
attached hereto as Exhibit A.
3. The Corporation's Board of Directors on March 31, 1993, found that the
Amendment was in the best interests of the Corporation and directed that
it be submitted to a vote at a special meeting of the shareholders of the
Corporation; notice of such special meeting was duly given in writing on
April 2, 1993; the special meeting of the shareholders was duly held on
April 28, 1993, a lawful and proper quorum being present in person or by
proxy; and the Amendment was adopted by the shareholders at such special
meeting on such date.
4. The Articles of Amendment and Restatement were proposed by the Board of
Directors and submitted to the Shareholders in accordance with Section
13.1-710 of the Virginia Stock Corporation Act. Holders of shares of
Common Stock and Class A Preferred Stock were eligible to vote on the
adoption of the Amendment. At the close of business on March 26, 1993, the
date fixed by the Corporation's Board of Directors as a record date for
the special meeting of shareholders, 431,828 shares of Common Stock were
outstanding and 41,677 shares of Class A Preferred Stock were outstanding.
Of those shares of Common Stock, 425,975 were voted for the Amendment at
the special meeting of shareholders, none were voted against the Amendment
at the special meeting of shareholders, 700 abstained from voting on the
Amendment at the special meeting of the shareholders and 5,153 were absent
from the special of shareholders. Of those shares of Class A Preferred
Stock, 41,667 were voted for the Amendment, none were voted against the
Amendment, and none abstained from voting on the Amendment at the special
meeting of the shareholders. The number of shares of Common Stock and
Class A Preferred Stock voted for the Amendment were sufficient to
approve the Amendment.
<PAGE> 23
5. The Articles of Amendment and Restatement have been adopted by the
Board of Directors of the Corporation as required by Section 13.1-711
of the Virginia Stock Corporation Act.
Dated: April 28, 1993 BEST PROGRAMS, INC.
---------------------------
By: /s/ JAMES F. PETERSEN
--------------------------------
James F. Petersen, President
By: /s/ RONALD J. KOVAL
--------------------------------
Ronald J. Koval, Secretary
<PAGE> 24
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
BEST PROGRAMS, INC.
I, the undersigned Chairman of the Board of Directors of Best
Programs, Inc. (the "Corporation"), a corporation organized pursuant to the
Virginia Stock Corporation Act, do hereby certify that the following Articles
of Amendment were adopted pursuant to the provisions of Section 13.1-707 of the
Virginia Stock Corporation Act:
ONE
The name of the Corporation is Best Programs, Inc.
TWO
That the amendment so adopted is as follows:
(a) That Article First of the Articles of Incorporation shall be,
and hereby is, deleted in its entirety.
(b) That the following Article First be, and hereby is, inserted
in lieu thereof:
FIRST: That the name of the corporation (which is hereinafter
called the "Corporation") is Best Software, Inc.
THREE
The foregoing amendment was adopted on October 10, 1996.
FOUR
The amendment was adopted by majority vote of the shareholders of the
Corporation.
The undersigned Chairman of the Board of Directors declares that the
facts herein stated are true as of October 10, 1996.
Best Programs, Inc.
By: /s/ JAMES F. PETERSEN
---------------------------
James F. Petersen
Chairman of the Board
<PAGE> 1
EXHIBIT 3.2
BEST SOFTWARE, INC.
Articles of Amendment to Articles of Incorporation
1. The name of the Corporation is Best Software, Inc.
2. The text of the amendment to the Corporation's Articles of Incorporation
is a follows:
a) The first paragraph of Article 1 of the Articles of Incorporation
is hereby deleted in its entirety and the following is inserted in
lieu thereof:
The Corporation shall have the power to issue 40,000,000 shares of
Common Stock, having no par value ("Common Stock"), 1,000,000
shares of Preferred Stock, having a par value of $.01 per share
("Preferred Stock") and 41,667 shares of Class A Preferred Stock,
having a par value of $.01 per share ("Class A Preferred Stock").
3. The foregoing amendment was adopted by the Board of Directors of the
Corporation on August 6, 1997 and submitted to the shareholders of the
Corporation for their approval. At a meeting of the shareholders duly held
on ___________, 1997, the voting group consisting of holders of all
outstanding shares of Common Stock and Class A Preferred Stock were
entitled to vote on such amendment. Such voting group consists of _______
shares outstanding and is entitled to cast __________ votes. A total of
__________ votes in favor of the amendment were cast by the voting group
consisting of all holders of Common Stock and Class A Preferred Stock.
This number of votes was sufficient for approval by such voting group.
EXECUTED as of this __ day of _____________, 1997.
BEST SOFTWARE, INC.
By:
-----------------------
Timothy A. Davenport
President
ATTEST:
- --------------------------
Shelley W. Reback
Secretary
<PAGE> 1
EXHIBIT 3.3
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BEST SOFTWARE, INC.
1. The name of the Corporation is BEST SOFTWARE, INC.
2. The purpose of the Corporation is to create, market, distribute
and otherwise deal in computer software and related products. In
addition, the Corporation shall have the power to carry on business of
any character whatsoever, that is not prohibited by law.
3. The Corporation shall have the power to issue 40,000,000 shares of
Common Stock, having no par value ("Common Stock"), and 1,000,000
shares of Preferred Stock, having a par value of $.01 per share
("Preferred Stock").
A. COMMON STOCK.
(1) General. The voting, dividend and liquidation rights of
the holders of the Common Stock are subject to and qualified by the
rights of the holders of the Preferred Stock of any series as may be
designated by the Board of Directors upon any issuance of the
Preferred Stock of any series.
(2) Voting. The holders of the Common Stock are entitled to
one vote for each share held at all meetings of shareholders (and
written actions in lieu of meetings). There shall be no cumulative
voting.
(3) Dividends. Dividends may be declared and paid on the
Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any preferential
dividend rights of any then outstanding Preferred Stock.
(4) Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock
will be entitled to receive all assets of the Corporation available
for distribution to its shareholders, subject to any preferential
rights of any then outstanding Preferred Stock.
<PAGE> 2
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated or
expressed herein and in the resolution or resolutions providing for
the issue of such series adopted by the Board of Directors of the
Corporation as hereinafter provided. Any shares of Preferred Stock
which may be redeemed, purchased or acquired by the Corporation may be
reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes
of shares for the purposes of voting by classes unless expressly
provided.
Authority is hereby expressly granted to the Board of Directors
from time to time to issue the Preferred Stock in one or more series,
and in connection with the creation of any such series, by resolution
or resolutions providing for the issue of the shares thereof, to
determine and fix such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, including without limitation thereof, dividend
rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all
to the full extent now or hereafter permitted by the Virginia Stock
Corporation Act. Without limiting the generality of the foregoing, the
resolutions providing for issuance of any series of Preferred Stock
may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in these Articles of
Incorporation, no vote of the holders of the Preferred Stock or Common
Stock shall be a prerequisite to the designation or issuance of any
shares of any series of the Preferred Stock authorized by and
complying with the conditions of these Articles of Incorporation, the
right to have such vote being expressly waived by all present and
future holders of the capital stock of the Corporation.
4. The number of directors shall be fixed in accordance with the
provisions of the Corporation's By-laws.
5. Indemnification and Exculpation.
A. In this Article 5:
"applicant" means the person seeking indemnification pursuant to
this Article 5.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine, including any excise tax assessed with respect to
an employee benefit plan, or reasonable expenses incurred with
respect to a proceeding.
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<PAGE> 3
"party" includes an individual who was, is, or is threatened to
be made a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
B. In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no
director or officer of the Corporation shall be liable to the
Corporation or its shareholders for monetary damages with respect to
any transaction, occurrence or course of conduct, except for liability
resulting from such person's having engaged in willful misconduct or a
knowing violation of the criminal law or any federal or state
securities law.
C. The Corporation shall indemnify (1) any person who was or is a
party to any proceeding, including a proceeding brought by a
shareholder in the right of the Corporation or brought by or on behalf
of shareholders of the Corporation, by reason of the fact that he is
or was a director, or officer, employee or agent of the Corporation,
or (2) any director or officer who is or was serving at the request of
the Corporation as a director, trustee, partner, employee, agent or
officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability
incurred by him in connection with such proceeding unless he engaged
in willful misconduct or a knowing violation of the criminal law. A
person is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. The Board of Directors
is hereby empowered, by a majority vote of a quorum of disinterested
directors, to enter into a contract to indemnify any director or
officer in respect of any proceedings arising from any act or
omission, whether occurring before or after the execution of such
contract.
D. The provisions of this Article 5 shall be applicable to all
proceedings commenced after the adoption hereof by the shareholders of
the Corporation, arising from any act or omission, whether occurring
before or after such adoption. No amendment or repeal of this Article
5 shall have any effect on the rights provided under this Article 5
with respect to any act or omission occurring prior to such amendment
or repeal. The Corporation shall promptly take all such actions, and
make all such determinations, as shall be necessary or appropriate to
comply with its obligation to make any indemnity under this Article 5
and shall promptly pay or reimburse all reasonable expenses, including
attorneys' fees, incurred by any such director, officer, employee or
agent in connection with such actions and determinations or
proceedings of any kind arising therefrom.
E. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not of itself create a presumption
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<PAGE> 4
that the applicant did not meet the standard of conduct described in
Section B or C of this Article 5.
F. Any indemnification under Section C of this Article 5 (unless
ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the applicant is permissible in the circumstances
because he has met the applicable standard of conduct set forth in
Section C of this Article 5.
The determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subsection (1) of
this Section F, by majority vote of a committee duly designated by the
Board of Directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at the
time parties to the proceeding;
(3) By special legal counsel:
(a) Selected by the Board of Directors or its committee
in the manner prescribed in subsection (1) or (2) of this Section F;
or
(b) If a quorum of the Board of Directors cannot be
obtained under subsection (1) of this Section F and a committee cannot
be designated under subsection (2) of this Section F, selected by
majority vote of the full Board of Directors, in which selection
directors who are parties may participate; or
(4) By the shareholders, but shares owned by or voted under
the control of directors who are at the time parties to the proceeding
may not be voted on the determination.
Any evaluation as to reasonableness of expenses shall be
made in the same manner as the determination that indemnification is
appropriate, except that if the determination is made by special legal
counsel, such evaluation as to reasonableness of expenses shall be
made by those entitled under subsection (3) of this Section F of this
Article 5 to select counsel.
Notwithstanding the foregoing, in the event there has been a
change in the composition of a majority of the Board of Directors
after the date of the alleged act or omission with respect to which
indemnification is claimed, any determination as to indemnification
and advancement of expenses with respect to any claim for
-4-
<PAGE> 5
indemnification made pursuant to this Article 5 shall be made by
special legal counsel agreed upon by the Board of Directors and the
applicant. If the Board of Directors and the applicant are unable to
agree upon such special legal counsel, the Board of Directors and the
applicant each shall select a nominee, and the nominees shall select
such special legal counsel.
G. (1) The Corporation shall pay for or reimburse the reasonable
expenses incurred by any applicant who is a party to a proceeding in
advance of final disposition of the proceeding or the making of any
determination under Section C of this Article 5 if the applicant
furnishes the Corporation:
(a) a written statement of his good faith belief that
he has met the standard of conduct described in Section C of this
Article 5; and
(b) a written undertaking, executed personally or on
his behalf, to repay the advance if it is ultimately determined that
he did not meet such standard of conduct.
(2) The undertaking required by paragraph (b) of subsection
(1) of this Section shall be an unlimited general obligation of the
applicant but need not be secured and may be accepted without
reference to financial ability to make repayment.
(3) Authorizations of payments under this section shall be
made by the persons specified in Section F of this Article 5 upon a
determination that the facts then known to those making the
determination would not preclude indemnification under this Article 5.
H. The Corporation may purchase and maintain insurance to indemnify
it against the whole or any portion of the liability assumed by it in
accordance with this Article 5 and may also procure insurance, in such
amounts as the Board of Directors may determine, on behalf of any
person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by him
in any such capacity or arising from his status as such, whether or
not the Corporation would have power to indemnify him against such
liability under the provisions of this Article 5.
I. Every reference herein to directors, officers, employees or agents
shall include former directors, officers, employees and agents and
their respective heirs, executors and administrators. The
indemnification hereby provided and provided hereafter pursuant to the
power hereby conferred by this Article 5 on the Board of Directors
shall not be exclusive of any other rights to which any person may be
entitled, including any right
-5-
<PAGE> 6
under policies of insurance that may be purchased and maintained by
the Corporation or others, with respect to claims, issues or matters
in relation to which the Corporation would not have the power to
indemnify such person under the provisions of this Article 5. Such
rights shall not prevent or restrict the power of the Corporation to
make or provide for any further indemnity, or provisions for
determining entitlement to indemnity, pursuant to one or more
indemnification agreements, bylaws, or other arrangements (including,
without limitation, creation of trust funds or security interests
funded by letters of credit or other means) approved by the Board of
Directors (whether or not any of the directors of the Corporation
shall be a party to or beneficiary of any such agreements, bylaws or
arrangements); provided, however, that any provision of such
agreements, bylaws or other arrangements shall not be effective if and
to the extent that it is determined to be contrary to this Article or
applicable laws of the Commonwealth of Virginia.
J. Each provision of this Article 5 shall be severable, and an
adverse determination as to any such provision shall in no way affect
the validity of any other provision.
6. No holder of (a) stock of any class of the Corporation, whether now or
hereafter authorized, (b) any warrants, rights or options to purchase
such stock, or (c) any securities or obligations convertible into any
such stock or into any warrants, rights or options to purchase any
such stock (the interests referred to in clauses (a), (b) and (c)
being hereinafter referred to as "Equity Interest") shall have (i) any
pre-emptive right to purchase or subscribe to any Equity Interests
that may hereafter be created, issued or sold or (ii) any right of
subscription to any Equity Interest.
7. This Article 7 is inserted for the management of the business and for
the conduct of the affairs of the Corporation, and it is expressly
provided that it is intended to be in furtherance and not in
limitation or exclusion of the powers conferred by the Virginia Stock
Corporation Act.
A. The number of the directors of the Corporation shall consist of
not less than three nor more than eight. The exact number of directors
within the minimum and maximum limitations specified in the preceding
sentence shall be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority of the entire Board.
B. The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III. No one class shall have more than one
director more than any other class. If a fraction is contained in the
quotient arrived at by dividing the authorized number of directors by
three, then, if such fraction is one-third, the extra director shall
be a member of Class III and, if such fraction is two-thirds, one of
the extra directors shall be a member of Class II and the other extra
director shall be a member of Class III, unless otherwise provided for
from time to time by resolution adopted by a majority of the Board of
Directors.
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C. Elections of directors need not be by written ballot except as and
to the extent provided in the By-Laws of the Corporation.
D. Each director shall serve for a term ending on the date of the
third annual meeting following the annual meeting at which such
director was elected.
E. In the event of any increase or decrease in the authorized number
of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a
member until the expiration of his current term or his prior death,
retirement, or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director
more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to
those classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of office are to
expire at the earliest dates following such allocation, unless
otherwise provided for from time to time by resolution adopted by a
majority of the directors then in office, although less than a quorum.
F. Notwithstanding any provisions to the contrary contained herein,
each director shall hold office until his successor is elected and
qualified, or until his earlier death, resignation or removal.
G. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may be
filled only by vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office, if applicable, and a director
chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for
which such director shall have been chosen and until this successor is
elected and qualified, or until his earlier death, resignation or
removal.
H. At any meeting of the Board of Directors at which a quorum is
present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law or the
Corporation's Articles of Incorporation or By-Laws.
I. Any one or more of all of the directors may be removed, with
cause, by the holders of at least sixty-six and two-thirds percent (66
2/3%) of the shares then entitled to vote at an election of directors.
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J. Advance notice of shareholder nominations for election of
directors and other business to be brought by shareholders before a
meeting of shareholders shall be given in the manner provided in the
By-Laws of the Corporation.
8. A director may be removed from office only for cause, by a vote of the
holders of two-thirds of the shares outstanding and entitled to vote
thereon, at a special meeting of the shareholders called for that
purpose.
9. A. These Articles of Incorporation may be amended in any manner now
or hereafter prescribed by the Virginia Stock Corporation Act, as
amended, provided that, except as set forth below or otherwise
required by law, shareholders may approve any proposed amendment of
these Articles of Incorporation by vote of the holders of a majority
of shares outstanding and entitled to vote thereon. Notwithstanding
the foregoing, Article 4, Article 5, Article 7, Article 8, this
Section A of Article 9, Section B of Article 3 and the provisions of
Article 3 authorizing 1,000,000 shares of undesignated Preferred
Stock, $.01 par value per share, may only be amended by vote of the
holders of at least two-thirds of the shares outstanding and entitled
to vote thereon.
B. The shareholders may approve a merger, share exchange or sale of
all or substantially all of the Corporation's assets not in the
ordinary course of business by vote of the holders of a majority of
the shares outstanding and entitled to vote thereon; provided,
however, that the foregoing shall not be applicable to an "affiliated
transaction" as defined in Section 13.1-725 of the Virginia Stock
Corporation Act, as amended, or any successor provision.
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BEST SOFTWARE, INC.
Articles of Amendment to Articles of Incorporation
1. The name of the Corporation is Best Software, Inc.
2. The text of the amendment to the Corporation's Articles of
Incorporation is as follows:
a) The first paragraph of Article 1 of the Articles of Incorporation
is hereby deleted in its entirety and the following is inserted in
lieu thereof:
The Corporation shall have the power to issue 40,000,000 shares of
Common Stock, having no par value ("Common Stock"), 1,000,000
shares of Preferred Stock, having a par value of $.01 per share
("Preferred Stock") and 41,667 shares of Class A Preferred Stock,
having a par value of $.01 per share ("Class A Preferred Stock").
3. The foregoing amendment was adopted by the Board of Directors of the
Corporation on August 6, 1997 and submitted to the shareholders of the
Corporation for their approval. At a meeting of the shareholders duly
held on __________, 1997, the voting group consisting of holders of
all outstanding shares of Common Stock and Class A Preferred Stock
were entitled to vote on such amendment. Such voting group consists of
_____________ shares outstanding and is entitled to cast ___________
votes. A total of ______________ votes in favor of the amendment were
cast by the voting group consisting of all holders of Common Stock and
Class A Preferred Stock. This number of votes was sufficient for
approval by such voting group.
EXECUTED as of this ___ day of ______________, 1997.
BEST SOFTWARE, INC.
By:
--------------------------
Timothy A. Davenport
President
ATTEST:
- ------------------------
Shelley W. Reback
Secretary
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
BEST PROGRAMS, INC.
ARTICLE 1 - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held at such
time during each year as may be specified by the Board of Directors. Such
meeting shall be held for the purpose of electing directors and transacting such
other business as may properly come before it.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called in accordance with the
provisions of the Virginia Stock Corporation Act, as amended.
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
Section 4 - Notice of Meetings:
(a) Written notice of each meeting of shareholders, whether annual or special,
shall be served and shall contain such information as is required pursuant to
the Virginia Stock Corporation Act, as amended.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
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before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
(c) Except as otherwise provided bylaw, at any annual or special meeting of
shareholders only such business shall be conducted a shall have been properly
brought before the meeting. In order to be properly brought before the meeting,
such business must have been either (A) specified in the written notice of the
meeting (or any supplement thereto) given to shareholders of record on the
record date for such meeting by or at the direction of the Board of Directors,
(B) brought before the meeting at the direction of the Board of Directors or the
chairman of the meeting or (C) specified in a written notice given by or on
behalf of a shareholder of record on the record date for such meeting entitled
to vote thereat or a duly authorized proxy for such shareholder, in accordance
with all of the following requirements. A notice referred to in clause (C)
hereof must be delivered personally to or mailed to and received at the
principal executive office of the corporation, addressed to the attention of the
Secretary, not more than ten (10) days after the date of the initial notice
referred to in clause (A) hereof, in the case of business to be brought before a
special meeting of shareholders, and not less than thirty (30) days prior to the
first anniversary date of the initial notice referred to in clause (A) hereof to
the previous year's annual meeting, in the case of business to be brought before
an annual meeting of shareholders, provided, however, that such notice shall not
be required to be given more than sixty (60) days prior to an annual meeting of
shareholders. Such notice referred to in clause (C) hereof shall set forth (i) a
full description of each such item of business proposed to be brought before the
meeting, (ii) the name and address of the person proposing to bring such
business before the meeting, (iii) the class and number of shares held of
record, held beneficially and represented by proxy by such person as of the
record date for the meeting (if such date has been made publicly available) and
as of the date of such notice, (iv), if any item of such business involves
nomination for director, all information regarding each such nominee that would
be required to be set forth in a definitive proxy statement filed with the
Securities Exchange Commission pursuant to Section 14 of the Securities Act of
1934, as amended, or any successor thereto, and the written consent of each such
nominee to serve if elected, and (v) all other information that would be
required to be filed with the Securities and Exchange Commission if, with
respect to the business proposed to be brought before the meeting, the person
proposed such business was a participant in a solicitation subject to Section 14
of the Securities Exchange Act of 1934, as amended, or any successor thereto. No
business shall
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be brought before any meeting of shareholders of the Corporation otherwise than
as provided in this paragraph.
Notwithstanding the foregoing provisions, the Board of Directors shall
be obligated to include information as to any nominee for director in any proxy
statement or other communication sent to shareholders.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that any proposed item of business was not brought before
the meeting in accordance with the foregoing procedure and, if he should so
determine, he shall so declare to the meeting and the effective item of business
shall be disregarded.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), at all meetings of
shareholders holding of record a majority of the total number of shares of the
Corporation then issued and outstanding and entitled to vote, shall be necessary
and sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum has been established at such
meeting. Shares represented by executed proxies received by the Corporation will
be counted for purposes of establishing a quorum at any meeting of shareholders,
regardless of how or whether such shares are voted on any specific proposal.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called if a quorum
has been present.
Section 6 - Voting:
(a) Except as otherwise provided by subsection (e) of this Section 6, by statute
or by the Articles of Incorporation, any corporate action, other than the
election of directors to be taken by vote of the shareholders, shall be
authorized by a majority of votes cast at a meeting of shareholders by the
holders of shares entitled to vote thereon.
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(b) Except as otherwise provided by statute or by the Articles of Incorporation,
at each meeting of shareholders, each holder of record of shares of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder himself
or by his attorney-in-fact thereunto duly authorized in writing. No proxy shall
be valid after the expiration of eleven months from the date of its execution,
unless the persons executing it shall have specified therein the length of time
it is to continue in force. Such instrument shall be exhibited to the Secretary
at the meeting and shall be filed with the records of the Corporation. In any
proxy, abstentions will be treated as votes cast or shares present and
represented, while votes withheld by nominee recordholders who did not receive
specific instructions from the beneficial owners of such shares will not be
treated as votes cast or as shares present or represented.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
as if the same had been duly passed by unanimous vote at a duly called meeting
of shareholders and such resolution so signed shall be inserted in the Minute
Book of the Corporation under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number. Election and Term of office:
(a) The number of the directors of the Corporation shall consist of not less
than three nor more than eight. The exact number of directors within the minimum
and maximum limitations specified in the preceding sentence shall be fixed from
time to time by the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board.
(b) The Board of Directors shall be and is divided into three classes: Class I,
Class II and Class III. No one class shall have more than one director more than
any other class. If a fraction is contained in the quotient arrived at by
dividing the authorized number of directors by three, then if such fraction is
one-third, the extra director shall be a member of Class III and, if such
fraction is two-thirds, one of the extra directors shall be a member of Class II
and the other extra director shall be a
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member of Class III, unless otherwise provided for from time to time by
resolution adopted by a majority of the Board of Directors.
(c) Each director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall serve for a term
ending on the date of the annual meeting next following the end of the
Corporation's fiscal year ending March 31, 1993; each initial director in Class
II shall serve for a term ending on the date of the annual meeting next
following the end of the Corporation's fiscal year ending March 31, 1994; and
each initial director in Class III shall serve for a term ending on the date of
the annual meeting next following the end of the Corporation's fiscal year
ending March 31, 1995.
(d) In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term or his prior death, retirement or resignation and (ii) the newly
created or eliminated directorships resulting from such increase or decrease
shall be apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of office are to expire at the earliest dates following such allocation,
unless otherwise provided for from time to time by resolution adopted by a
majority of the directors then in office, although less than a quorum.
(e) Notwithstanding any provisions to the contrary contained herein, each
director shall hold office until his successor is elected and qualified, or
until his earlier death, resignation or removal.
(f) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote.
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Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Articles of Incorporation or by
statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
(a) Special Meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the day on
which the meeting is to be held. A notice, or waiver of notice, except as
required by Section 8 of this Article III, need not specify the purpose of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of
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notice to him, or who submits a signed waiver of notice, whether before or after
the meeting. Notice of any adjourned meeting shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
Directors shall preside.
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Articles of
Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Articles of Incorporation,
or by these By-Laws, the action of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
Any action authorized, in writing, by all of the directors entitled to vote
thereon and filed with the minutes of the corporation shall be the act of the
Board of Directors with the same force and effect as if the same had been passed
by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
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be filled for a term expiring at the Annual Meeting of Shareholders at which the
term of the class to which they have been elected expires by a majority vote of
the remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 10 - Removal:
Any director may be removed with cause at any time by the shareholders, at a
special meeting of the shareholders called for that purpose, by vote of the
holders of over two-thirds of the shares outstanding and entitled to vote
thereon.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director, from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of
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any such director) of a majority of a quorum, not withstanding the presence of
any such director at the meeting at which such action is taken. Such director or
directors may be counted in determining the presence of a quorum at such
meeting. This Section shall not be construed to impair or invalidate or in any
way affect any contract or other transaction which would otherwise be valid
under the law (common, statutory or otherwise) applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
Section 14 - Indemnification and Exculpation:
(a) In this Section:
"applicant" means the person seeking indemnification pursuant to this
Section.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine, including any excise tax assessed with respect to an employee
benefit plan, or reasonable expenses incurred with respect to a proceeding.
"party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
(b) In any proceeding brought by or in the right of the Corporation or brought
by or on behalf of shareholders of the Corporation, no director or officer of
the Corporation shall be liable to the Corporation or its shareholders for
monetary damages with respect to any transaction, occurrence or course of
conduct, except for liability resulting from such person's having engaged in
willful misconduct or a knowing violation of the criminal law or any federal or
state securities law.
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(c) The Corporation shall indemnify (1) any person who was or is a party to any
proceeding, including a proceeding brought by a shareholder in the right of the
Corporation or brought by or on behalf of shareholders of the Corporation, by
reason of the fact that he is or was a director, or officer, employee or agent
of the Corporation, or (2) any director or officer who is or was serving at the
request of the Corporation as a director, trustee, partner employee, agent or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any liability incurred by him in
connection with such proceeding unless he engaged in willful misconduct or a
knowing violation of the criminal law. A person is considered to be serving an
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan. The Board of Directors
is hereby empowered, by a majority vote of a quorum of disinterested directors,
to enter into a contract to indemnify any director or officer in respect of any
proceedings arising from any act or omission, whether occurring before or after
the execution of such contract.
(d) The provisions of this Section shall be applicable to all proceedings
commenced after the adoption hereof by the shareholders of the Corporation,
arising from any act or omission, whether occurring before or after such
adoption. No amendment or repeal of this Section shall have any effect on the
rights provided under this Section with respect to any act or omission occurring
prior to such amendment or repeal. The Corporation shall promptly take all such
actions, and make all such determinations, as shall be necessary or appropriate
to comply with its obligation to make any indemnity under this Section and shall
promptly pay or reimburse all reasonable expenses, including attorneys' fees,
incurred by any such director, officer, employee or agent in connection with
such actions and determinations or proceedings of any kind arising therefrom.
(e) The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the applicant did not meet the standard of
conduct described in subsection (b) or (c) of this Section.
(f) Any indemnification under subsection (c) of this Section (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the applicant is permissible
in the circumstances because he has met the applicable standard of conduct set
forth in subsection (c).
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The determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subsection (1) of this
subsection (f), by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding;
(3) By special legal counsel:
(i) Selected by the Board of Directors or its committee in the
manner prescribed in subsection (1) or (2) of this subsection (f); or
(ii) If a quorum of the Board of Directors cannot be obtained
under subsection (1) of this subsection (f) and a committee cannot be designated
under subsection (2) of this subsection (f), selected by majority vote of the
full Board of Directors, in which selection directors who are parties may
participate; or
(4) By the shareholders, but shares owned by or voted under
the control of Directors who are at the time parties to the proceeding
may not be voted on the determination.
Any evaluation as to reasonableness of expenses shall be made
in the same manner as the determination that indemnification is
appropriate, except that if the determination is made by special legal
counsel, such evaluation as to reasonableness of expenses shall be made
by those entitled under subsection (3) of this subsection (f) to select
counsel.
Notwithstanding the foregoing, in the event there has been a
change in the composition of a majority of the Board of Directors after
the date of the alleged act or omission with respect to which
indemnification is claimed, any determination as to indemnification and
advancement of expenses with respect to any claim for indemnification
made pursuant to this Section shall be made by special legal counsel
agreed upon by the Board of Directors and the applicant. If the Board
of Directors and the applicant are unable to agree upon such special
legal counsel the Board of Directors and the applicant each shall
select a nominee, and the nominees shall select such special legal
counsel.
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(g) (1) The Corporation shall pay for or reimburse the reasonable expenses
incurred by any applicant who is a party to a proceeding in advance of final
disposition of the proceeding or the making of any determination under
subsection (c) if the applicant furnishes the Corporation:
(i) a written statement of his good faith belief that he has
met the standard of conduct described in subsection (c); and
(ii) a written undertaking, executed personally or on his
behalf, to repay the advance if it is ultimately determined that he did not meet
such standard of conduct.
(2) The undertaking required by paragraph (ii) of subsection (1) of
this subsection (g) shall be an unlimited general obligation of the applicant
but need not be secured and may be accepted without reference to financial
ability to make repayment.
(3) Authorizations of payments under this subsection (g) shall be made
by the persons specified in subsection (f) upon a determination that the facts
then known to those making the determination would not preclude indemnification
under this Article.
(h) The Corporation may purchase and maintain insurance to indemnify it against
the whole or any portion of the liability assumed by it in accordance with this
Section and may also procure insurance, in such amounts as the Board of
Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by him in any
such capacity or arising from his status as such, whether or not the Corporation
would have power to indemnify him against such liability under the provisions of
this Section.
(i) Every reference herein to directors, officers, employees or agents shall
include former directors, officers, employees and agent and their respective
heirs, executors and administrators. The indemnification hereby provided and
provided hereafter pursuant to the power hereby conferred by this Section on the
Board of Directors shall not be exclusive of any other rights to which any
person may be entitled, including any right under policies of insurance that may
be purchased and maintained by the
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Corporation or others, with respect to claims, issues or matters in relation to
which the Corporation would not have the power to indemnify such person under
the provisions of this Section. Such rights shall not prevent or restrict the
power of the Corporation to make or provide for any further indemnity, or
provisions for determining entitlement to indemnity, pursuant to one or more
indemnification agreements, bylaws, or other arrangements (including, without
limitation, creation of trust funds or security interests funded by letters of
credit or other means) approved by the Board of Directors (whether or not any of
the directors of the Corporation shall be a party to or beneficiary of any such
agreements, bylaws or arrangements); provided, however, that any provision of
such agreements, bylaws or other arrangements shall not be effective if and to
the extent that it is determined to be contrary to this Section, the
Corporation's Articles of Incorporation or applicable laws of the Commonwealth
of Virginia.
(j) Each provision of this Section shall be severable, and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election and Term of Office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person, except the offices of
President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or
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the Secretary of the Corporation. Unless otherwise specified in such written
notice, such resignation shall take effect upon receipt thereof by the Board of
Directors or by such officer, and the acceptance of such resignation shall not
be necessary to make it effective.
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-Laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the Chief Executive Officer of
the Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of the Directors may direct, conditioned
upon the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other corporation,
any right or power of the Corporation as such shareholder (including the
attendance, acting and voting at shareholder's meetings and execution of
waivers, consents, proxies or other instruments) may be exercised on behalf of
the Corporation by the President, any Vice President, or such other person as
the Board of Directors may authorize.
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Section 8 - Limitation of Liability:
The limit of liability of any officer of the Corporation shall be limited in
accordance with the provisions of Section 14 of Article III hereof.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificates of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in the order issued. They shall bear the holder's name and the number
of shares, and shall be signed by (i) the Chairman of the Board or the President
or a Vice President, and (ii) the Secretary, or any Assistant Secretary, and may
bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) The Board of Directors may authorize the issuance of certificates for
fractions of a share shall entitle the holder to exercise voting rights, receive
dividends and participate in liquidating distributions, in proportion to the
fractional holdings; or it may authorize the payment in cash of the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or bearer form
over the signature of an officer or agent of the Corporation, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder, except as therein provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board,
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<PAGE> 16
to indemnify the Corporation against any claims, loss, liability or damage it
may suffer an account of the issuance of the new certificate. A new certificate
may be issued without requiring any such evidence or bond when, in the judgment
of the Board of Directors, it is proper so to do.
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment of power of transfer
endorse thereon or delivered therewith duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, 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 expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, of for the purpose of determining shareholders entitled to
receive payment of dividends, of allotment of any rights, or for the purpose of
any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or if no notice is given, the day on which the meeting
is held; the record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the resolution of the
directors relating thereto is adopted. When a determination of shareholders of
record entitled to notice of or to vote at any meeting of shareholders has been
made as provided for herein, such determination shall apply to any adjournment
thereof, unless the directors fix a new record date for the adjourned meeting.
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ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All By-Laws of the Corporation shall be subject to alteration or repeal, and new
By-Laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors. Notwithstanding the foregoing, Section
4(c) of Article II, Section 6(a) of Article II, Section 1(a) of Article III,
Section 1(b) of Article III, Section 14 of Article III and this Section 1 of
this Article IX may only be amended by vote of the holders of at least
two-thirds of the shares outstanding and entitled to vote thereon.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, By-Laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal By-Laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the By-Laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any By-Laws regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of
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directors, the By-Law so adopted, amended or repealed, together with a concise
statement of the changes made.
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<PAGE> 1
EXHIBIT 10.1
AS AMENDED 5/16/90,
6/18/92
BEST PROGRAMS, INC.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
Article I
Purposes
SECTION 1.01. The Company desires to provide a Nonqualified Stock Option
Plan (the "Plan") by which certain of its key employees will be offered
Nonqualified Stock Options for the acquisition of shares of Company Common Stock
in consideration of services to be rendered prior to the receipt of such shares
and as an incentive to such personnel to remain and to advance in employment of
the Company and its subsidiaries, if any.
SECTION 1.02. The Company believes that such an incentive program will
cause these employees to promote the success of the Company's business, to
increase their proprietary interest in the success of the Company, and to
contribute materially to the achievement of long-term growth in the earnings of
the Company to the benefit of the Company and its shareholders.
SECTION 1.03 The Company intends that Nonqualified Stock Options issued
under the Plan will qualify as "nonqualified stock options" subject to tax in
accordance with the provisions of Section 83 of the Code, and the terms of the
Plan shall be interpreted in accordance with this intention.
Article II
Definitions
For purposes of the Plan, and the Nonqualified Stock Options granted
thereunder, the following definitions shall control:
SECTION 2.01. Plan. The term "Plan" shall mean this Nonqualified Stock
Option Plan.
SECTION 2.02. Board of Directors. The term "Board of Directors" shall mean
the board of directors of BEST PROGRAMS, INC.
SECTION 2.03. Code. The term "Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time, and any such laws which may become
effective in the place and stead of such Code.
SECTION 2.04. Committee. The term "Committee" shall mean the committee
constituted under Section 4.01 to implement the Plan.
<PAGE> 2
SECTION 2.05. Company. The term "Company" shall mean BEST PROGRAMS, INC.
SECTION 2.06. Fair Market Value. The term "Fair Market Value" shall mean
the fair market value of the Common Stock of the Company as shall reasonably be
determined by the Committee.
SECTION 2.07. Key Employee. The term "Key Employee" shall include the
officers, executives, and supervisory personnel of the Company, and such other
employees, or classes of employees, of the Company, as may be designated by the
Board of Directors from time to time.
SECTION 2.08. Nonqualified Stock Option. The term "Nonqualified Stock
Option" shall mean an option granted by the Company to purchase Common Stock
under the terms of the Plan.
SECTION 2.09. Common Stock. The term "Common Stock" shall mean the Common
Stock, no par value, of the Company.
SECTION 2.10. Option Exercise Period. The term "Option Exercise Period"
shall mean the period of time during which, by the terms of a Nonqualified Stock
Option, the Participant has the right to acquire Common Stock.
SECTION 2.11. Option Price. The term "Option Price" shall mean the price
at which the Participant may purchase Common Stock under a Nonqualified Stock
Option.
SECTION 2.12. Participant. The term "Participant" shall mean a Key
Employee who has been granted a Nonqualified Stock Option by the Company.
Article III
Common Stock Subject to the Plan
SECTION 3.01. Aggregate Number of Shares. The aggregate number of shares
of Common Stock which may be reserved by the Board of Directors for purchase by
Participants under the terms of all Nonqualified Stock Options granted under
this Plan shall not exceed 150,000 shares, subject to the provisions of Section
3.03.
SECTION 3.02. Stock Subject to Reserve.
(a) As the Board determines from time to time, the Common
Stock reserved pursuant to Section 3.01 may be, in whole or in part,
either authorized but unissued shares of the Common Stock, or issued
shares of the Common Stock which have been reacquired by the Company. If
any options shall expire or terminate for any reason, without having been
exercised in full, the unpurchased shares subject thereto
<PAGE> 3
shall again be available for further grants of Nonqualified Stock Options
under the Plan.
(b) Each Nonqualified Stock Option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to
such Nonqualified Stock Option upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental or
regulatory body, is necessary as a condition of, or in connection with,
the issuance or purchase of shares thereunder, such Nonqualified Stock
Option may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained on conditions acceptable to the Board of Directors. Nothing
herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification.
SECTION 3.03. Adjustment in Number of Shares.
(a) If a stock dividend or split shall be declared upon the
Common Stock, the number of shares of Common Stock then subject to any
Nonqualified Stock Option, and the number of shares reserved for issuance
pursuant to the Plan but not yet covered by any such option, shall be
adjusted to reflect such stock dividend or split as if such shares had
been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend or split.
(b) If the Common Stock shall be changed into or exchanged for
a different number or kind of shares of stock or other securities of the
Company or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of Common
Stock then subject to any Nonqualified Stock Option, and for each share of
Common Stock reserved for issuance pursuant to the Plan but not yet
covered by any such option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall
be changed into or exchanged for. Notwithstanding the foregoing, Section
5.04 shall govern in the event that the Company shall at any time propose
to merge into, consolidate with, or sell or otherwise transfer all, or
substantially all its assets to another corporation, and provision is not
made pursuant to the terms of such transaction for the adjustment of, or
assumption by the surviving, resulting or acquiring corporation of
outstanding Nonqualified Stock Options under the Plan, or for the
substitution of new Nonqualified Stock Options therefor.
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(c) If there shall be any change, other than as specified
above in this Section, in the number or kind of outstanding shares of
Common Stock, or of any stock or other securities into which such Common
Stock shall have been exchanged, then the Committee shall make such
adjustments, if any, as it determines are appropriate in the number of
shares of Common Stock specified in Section 3.01 and in all Nonqualified
Stock Options granted prior to such event.
In the event of adjustments to Nonqualified Stock Options pursuant to paragraph
(a), (b), or (c) of this Section 3.03, the Company shall give prompt notice of
such adjustments to the Participants. No fractional shares will be issued under
the Plan on account of any such adjustments.
Article IV
Administration of the Plan
SECTION 4.01. The Committee. The Plan shall be administered under the
supervision of the Board of Directors, which may exercise its powers, to the
extent herein provided, through the agency of a stock option committee (the
"Committee") which shall be appointed by the Board of Directors and shall serve
at the pleasure of the Board of Directors. The Committee shall consist of not
less than three (3) members of the Board of Directors. The Board of Directors
may at any time remove any member of the Committee for any reason and shall
promptly fill all vacancies in the Committee, however caused. All references to
the Committee made herein shall mean and relate to the Board of Directors if no
such Committee has been appointed.
SECTION 4.02. Eligibility for the Committee. Any member of the Board of
Directors shall be eligible to serve on the Committee.
SECTION 4.03. Administration by the Committee. The specific duties of the
Committee shall include:
(a) determining the Option Price at which stock subject to
Nonqualified Stock Options is to be purchased;
(b) determining the number of shares to be covered by each
Nonqualified Stock Option granted pursuant to the Plan;
(c) determining the terms and conditions (not inconsistent with
the Plan) of any Nonqualified Stock Option granted hereunder (including
but not limited to restrictions upon the option or the shares of Common
Stock issuable upon exercise thereof);
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(d) determining from time to time the Fair Market Value of the
Common Stock;
(e) adopting rules and regulations for carrying out the
provisions and purposes of the Plan, subject to the express provisions of
the Plan; and
(f) maintaining a written record of the proceedings of the
Committee.
In making determinations under this Section, the Committee may take into
account the nature of the services rendered by respective Key Employees, their
present and potential contributions to the success of the Company and such other
factors as the Board of Directors shall direct or the Committee shall deem
relevant. The interpretation and construction of any provision of the Plan by
the Committee shall, unless otherwise determined by the Board of Directors, be
final and conclusive.
SECTION 4.04. Acts of the Committee. The presence of a majority of the
members of the Committee shall constitute a quorum at any meeting thereof. The
acts of a majority of the members present at any meeting at which a quorum is
present shall be the acts of the Committee. Members of the Committee may
participate in a regular or special meeting of the Committee either in person or
through the use of any means of communication by which all members participating
may simultaneously hear each other during the meeting. A member participating in
a meeting by any such means is deemed to be present in person at the meeting. In
addition to the foregoing, and without the necessity of a meeting of the
Committee, actions approved in writing by all members of the Committee shall be
the acts of the Committee.
SECTION 4.05. Selection of Participants. In order for a Key Employee to be
selected for the grant of a Nonqualified Stock Option pursuant to the Plan, such
employee must be nominated by the President of the Company and the nomination
must be approved by the Board of Directors; provided, however, that any member
of the Board of Directors will recuse himself or herself from the consideration
of any such nomination by the Board of Directors if such member would benefit
from the Nonqualified Stock Option under consideration. The adoption of this
Plan shall not be deemed to give any Key Employee any right to be granted a
Nonqualified Stock Option, except to the extent and upon such terms as may be
determined by the Committee.
Article V
Terms and Conditions of Nonqualified Stock Options
SECTION 5.01. General. Each Nonqualified Stock Option approved for grant
by the Committee pursuant to the Plan shall be
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<PAGE> 6
in writing and shall be signed either manually or by facsimile by the President
or a Vice-President and by the Secretary or an Assistant Secretary of the
Company. The form and terms of the Nonqualified Stock Options granted pursuant
to the Plan need not be uniform, but each shall contain the provisions required
by Section 5.02 and shall be subject to the provisions of the Plan. In addition
to such required provisions, the Nonqualified Stock Option may contain such
other provisions not inconsistent therewith as the Committee shall determine.
SECTION 5.02. Required Provisions of Nonqualified Stock Options. Each
Nonqualified Stock Option granted pursuant to the Plan shall contain the
following provisions:
(a) Number of Shares. A statement of the number of shares of
Common Stock that the Participant may purchase under the Nonqualified
Stock Option.
(b) Option Price. A statement of the purchase price, which shall
be the Fair Market Value on the date the option is granted or such other
price as the Committee shall establish;
(c) Option Exercise Period. A provision defining the Option
Exercise Period as beginning and expiring at a time specified in the
Nonqualified Stock Option, with such provisions for earlier termination as
the Committee deems proper.
SECTION 5.03. Exercise of the Nonqualified Stock Option. A Nonqualified
Stock Option may only be exercised during the Option Exercise Period. Each
Nonqualified Stock Option granted under the Plan shall be exercisable either in
full or in installments at such time or times during such period as shall be set
forth in the agreement evidencing such Option, subject to earlier termination as
provided in this Plan. In order to exercise the Nonqualified Stock Option, the
Participant must submit to the Committee a written notice of an intent to
exercise the option with respect to a specified number of shares of Common
Stock, and must pay to the Company the total amount of the Option Price for that
number of shares. Within 30 days thereafter, the Company shall issue or transfer
to the Participant stock certificates for that number of shares and shall record
such issuance or transfer on the books of the Company. The exercise of a
Nonqualified Stock Option granted pursuant to the Plan is also subject to the
following conditions:
(a) Ownership of Stock. A Participant, before or after exercise of
the Nonqualified Stock Option, shall have no rights as a shareholder of
the Company with respect to any shares covered by such exercise until such
shares are
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<PAGE> 7
issued or transferred to the Participant on the books of the Company;
(b) Termination of Employment. If a Participant ceases to be
employed by the Company, including any subsidiary of the Company, other
than by reason of death, disability or termination for cause which are
addressed in Section (c) below, no further installments of that
Participant's Nonqualified Stock Option(s) shall become exercisable, and
such Nonqualified Stock Option(s) shall terminate after the passage of
ninety (90) days from the date of termination of the Participant's
employment, but in no event later than on each Nonqualified Stock Option's
specified expiration date. For purposes of this Section (b) only,
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 re-employment is guaranteed by statute. A bona fide
leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under this Section (b). Nothing
in this Plan shall be deemed to give any Participant the right to be
retained in employment by the Company for any period of time. The Company
further retains the right to revoke the Nonqualified Stock Option at any
time, upon notice to the Participant, if it becomes contrary to law, or to
modify such Nonqualified Stock Option to bring it into compliance with any
valid and mandatory law or regulation now or hereafter enacted or
promulgated by any government having jurisdiction. The Nonqualified Stock
Option may not be exercised by or transferred to any person other than the
Participant during the lifetime of the Participant.
(c) Death; Disability; Misconduct.
(i) Death. If a Participant ceases to be employed by the Company or its
subsidiaries by reason of death, any Nonqualified Stock Option of that
Participant may be exercised, to the extent of the number of shares with
respect to which the Participant could have exercised it on the date of
death, by the Participant's estate, personal representative or beneficiary
who has acquired the Nonqualified Stock Option by will or by the laws of
descent and distribution, at any time prior to the earlier of the
specified expiration date of the Nonqualified Stock Option or one year
from the date of the Participant's death.
(ii) Disability. If a Participant ceases to be employed by the Company and
all of its subsidiaries by reason of disability, the Participant shall
have the right to
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<PAGE> 8
exercise any Nonqualified Stock Option held on the date of termination due
to such disability, to the extent of the number of shares that were
exercisable on such date, at any time prior to the earlier of the
specified expiration date of the Nonqualified Stock Option or one year
from the date of termination of the Participant's employment due to such
disability. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability," as defined in Section 22(e)(3) of the
Code or successor statute.
(iii) Misconduct. If a Participant's employment with the Company or any
subsidiary is terminated for "cause," that Participant's Nonqualified
Stock Option(s) shall terminate on the date of such termination and shall
thereupon not be exercisable to any extent whatsoever. "Cause" is shall
mean willful misconduct in connection with the Participant's employment or
willful failure to perform his or her employment responsibilities in the
best interests of the Company (including, without limitation, breach by
the Participant of any provision of any employment, nondisclosure,
noncompetition or other similar agreement between the Participant and the
Company), as determined by the Committee or the Company, which
determination shall be conclusive. For purposes of this Section (c),
termination of employment shall be deemed to occur when the Participant
receives notice that his or her employment is terminated."
(d) Acquisition of Stock for Investment Purposes. The Nonqualified
Stock Option may not be exercised if the issuance or transfer of shares of
Common Stock of the Company upon such exercise would constitute a
violation of any applicable federal or state securities or other law or
valid regulation. The Participant, as a condition to the exercise of the
Nonqualified Stock Option, shall represent and warrant to the Company in
any written notice of an intent to exercise the option that the shares of
Common Stock of the Company acquired under the Nonqualified Stock Option
are being acquired for investment and not with a present view to sell or
distribute such shares, unless counsel for the Company is then of the
opinion that such a representation is not required under the Securities
Act of 1933 or any other applicable law, regulation, or rule of any
governmental agency.
(e) Restrictions on Sale or Transfer. Unless the shares shall
become registered for purposes of applicable federal and state securities
laws, the shares shall be subject to such restrictions on sale or transfer
as may be required by law. These restrictions shall be set out in a legend
borne on the face of the certificates.
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SECTION 5.04. Mergers, Consolidations, Etc. In the event the Company shall
at any time propose to merge into, consolidate with, or sell or otherwise
transfer all, or substantially all, of its assets to another corporation, and
provision is not made pursuant to the terms of such transaction for the
adjustment of, or assumption by the surviving, resulting, or acquiring
corporation of, outstanding Nonqualified Stock Options under the Plan, or for
the substitution of new Nonqualified Stock Options therefor, the Board of
Directors shall either (i) upon written notice to the Participants, provide that
all Nonqualified Stock Options must be exercised, to the extent then
exercisable, within a specified number of days of the date of such notice, at
the end of which period the Options shall terminate; or (ii) 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)
over the exercise price thereof.
SECTION 5.05. Rights of First Refusal. The transfer of any shares acquired
pursuant to the exercise of a Nonqualified Stock Option granted under the Plan
by the Participant to a third party is subject to a right of first refusal by
the Company at the price offered by such third party, such right to be exercised
within thirty days after receipt by the Company of formal written notice of such
offer by such third party.
SECTION 5.06. Tax Withholding. The Company may demand, as a condition to
the exercise of the Nonqualified Stock Option, that the Participant authorize
the Company to deduct and withhold in accordance with applicable law from any
regular cash compensation payable to such Participant any taxes required to be
withheld by the Company under federal, state, or local law as a result of the
exercise of the Nonqualified Stock Option. If any such withholding liability
cannot be satisfied from a Participant's regular cash compensation, or the
Participant so elects, the Company may withhold from the shares of Common Stock
acquired pursuant to the exercise of the Nonqualified Stock Option such number
of shares as shall have a Fair Market Value that is just sufficient to satisfy
the applicable federal, state, and local withholding tax liability incurred as a
result of the exercise of the Nonqualified Stock Option; provided, that in the
event the Fair Market Value of such shares is in excess of such liability, the
Company shall pay the amount of such excess to the Participant in cash.
Article VI
Amendment and Termination of Plan
SECTION 6.01. Termination of Plan. The Board of Directors, without
approval of the stockholders of the Company, may terminate the Plan at any time.
In addition, the Plan shall terminate upon the date on which all shares
available for
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issuance under the Plan shall have been issued pursuant to the exercise or
cancellation of options granted under the Plan.
SECTION 6.02. Amendment of the Plan. The Board of Directors of the Company
may at any time make such modifications of the Plan as it shall deem advisable.
SECTION 6.03. Effect of Termination or Amendment of Plan on Outstanding
Nonqualified Stock Options. No termination or amendment of the Plan may, without
the consent of the Participant, adversely affect the rights of such Participant
under a Nonqualified Stock Option granted prior to the date of such termination
or amendment. This provision shall not, however, apply to any amendment or
termination of a Nonqualified Stock Option pursuant to provisions contained
therein.
Article VII
Miscellaneous Provisions
SECTION 7.01. Effective Date of the Plan. The Plan shall become
effective on the date approved by the shareholders.
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EXHIBIT 10.2
AMENDED AND RESTATED
1992 STOCK OPTION PLAN
Adopted by the Board of Directors on November 13, 1992,
Amended by the Board of Directors on
October 10, 1996 and April 24, 1997
Amended and Restated by the Board of Directors on
August 6, 1997 to Reflect the October 10, 1996 and
April 24, 1997 Amendments
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Best Software,
Inc., (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced
from time to time (the "Code"). Those provisions of the Plan which make express
reference to Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
2. Type of Options and Administration, Formula Option Grants for Outside
Directors.
(a) Types of Options. Options granted pursuant to the Plan, other than
Formula Options (as defined below), shall be authorized by action of the Board
of Directors of the Company (or a Committee designated by the Board of
Directors) and may be either incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Code or non-statutory
options which are not intended to meet the requirements of Section 422 of the
Code.
(b) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. Subject to the
provisions of Section 2(d) regarding Formula Options, the Board of Directors
may in its sole discretion grant options to purchase shares of the Company's
Common Stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option
agreements, which need not be identical, and to make all other determinations
in the judgment of the Board of Directors necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any option
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency.
No director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination under the Plan made
in good faith. The Board of Directors may, to the full extent permitted by or
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule l6b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule l6b-3")),
delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
(c) Applicability of Rule l6b-3. Those provisions of the Plan which
make express reference to Rule l6b-3 shall apply only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").
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(d) Formula Grants for Outside Directors. Nonstatutory options
("Formula Options") shall be granted automatically to directors of the Company
who are not employees of the Company or any subsidiary of the Company and are
not serving on the Board of Directors as a representative of an institutional
investor ("outside directors") pursuant to the following provisions:
(i) New Directors Elected for Full Term. Each outside director elected
after April 24, 1997 at the commencement of a three-year term (a
"Full-Term Director"), shall be automatically granted a Formula
Option, effective upon such election, to purchase 15,000 shares.
(ii) Existing Directors and New Directors Elected During the Course of
a Term. Each outside director serving on April 24, 1997 and each
outside director elected or appointed after April 24, 1997 during the
course of a three-year term (for example, to fill a vacancy) (all of
the foregoing being referred to as "Interim Directors") shall be
automatically granted a Formula Option, effective April 24, 1997 or
upon such election, as the case may be, to purchase a number of shares
equal to a pro rata portion of 15,000 reflecting the time remaining in
such director's term, such pro rata portion to be determined by the
Board of Directors in its sole discretion.
(iii) Option Exercise Price. The option exercise price per share for
each Formula Option shall equal (a) the last reported sales price per
share of the Company's Common Stock on the Nasdaq National Market (or,
if the Company is traded on a nationally recognized securities
exchange on the date of the reported closing sales price per share of
the Company's Common Stock by such exchange) on the date of grant (or
if no such price is reported on such date such price as reported on
the nearest preceding day) or (b) if the Common Stock is not traded on
Nasdaq National Market or an exchange, the fair market value per share
on the date of grant as determined by the Board of Directors ($5.75 in
the case of Formula Options granted on April 24, 1997).
(iv) Vesting and Exercise Period. Each Formula Option granted to a
Full-Term Director shall vest as to one-third of the shares subject to
the option immediately prior to the first, second and third annual
shareholders' meetings of the Company held after the date of grant, if
such Full-Time Director is still serving as a director of the Company
at such time. Each Formula Option granted to an Interim Director shall
vest in equal installments immediately prior to each of the annual
shareholders' meetings of the Company held after the date of grant,
ending with the shareholders' meeting marking the end of the term of
such director, if such Interim Director is still serving as a director
of the Company at such time. Each Formula Option may be exercised on a
cumulative basis as to the vested number of shares at any time or from
time to time, in whole or in part; provided that, subject to the
provisions of Section 2(d)(v), no Formula Option may be exercised more
than 90 days after the optionee ceases to serve as a director of the
Company or for a number of shares greater than that which was vested
at the time the optionee ceased to serve as a director of the Company.
No Formula Option shall be exercisable after the expiration of nine
years from the date of grant.
(v) Exercise Period Upon Disability or Death. Notwithstanding the
provisions of Section 2(d)(iv), any Formula Option may be exercised,
to the extent then vested and exercisable, by an optionee who becomes
disabled (within the meaning of Section 22(e)(3) of the Code or any
successor provision thereto) while acting as a director of the
Company, or may be exercised, to the extent then exercisable, upon the
death of such optionee while a director of the Company by the person
to whom it is transferred by will, by the laws of descent and
distribution, or by written notice filed pursuant to Section 2(d)(vi),
in each case within the period of one year after the date the optionee
ceases to be such a director by reason of such disability or death;
provided that no Formula Option shall be exercisable after the
expiration of nine years from the date of grant.
(vi) Exercise by Representative Following Death of Director. A
director, by written notice to the Company, may designate one or more
persons (and from time to time change such designation) including his
legal representative, who, by reason of the director's death, shall
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acquire the right to exercise all or a portion of any Formula Options
held by such director. If the person or persons so designated wish to
exercise any portion of the Formula Option, they must do so within the
term of the option as provided herein. Any exercise by a
representative shall be subject to the provisions of this Plan.
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that the class to whom Incentive Stock Options may be
granted shall be limited to all employees of the Company. A person who has been
granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine.
(b) Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer"
are defined for purposes of Rule l6b-3) as a recipient of an option, the timing
of the option grant, the exercise price of the option and the number of shares
subject to the option, other than with respect to Formula Options, shall be
determined either (i) by the Board of Directors, of which all members shall be
"disinterested persons" (as hereinafter defined), or (ii) by two or more
directors having full authority to act in the matter, each of whom shall be a
"disinterested person." For the purposes of the Plan, a director shall be
deemed to be a "disinterested person" only if such person qualifies as a
"disinterested person" within the meaning of Rule l6b-3, as such term is
interpreted from time to time.
4. Stock Subject to Plan.
Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock of the Company which may be issued and sold
under the Plan is 1,250,000 shares. If an option granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under the Plan. If shares issued upon exercise of an
option under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants under the Plan; provided, that in no
event shall (i) the total number of shares issued pursuant to the exercise of
Incentive Stock Options under the Plan, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence or (ii) shares
made available for issuance pursuant to this sentence shall not be available
for option grants to Reporting Persons.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board of Directors. Such
option agreements may differ among recipients.
6. Purchase Price.
(a) General. Subject to Section 2(d) regarding Formula Options, the
purchase price per share of stock deliverable upon the exercise of an option
shall be determined by the Board of Directors, provided, however, that in the
case of an Incentive Stock Option, the exercise price shall not be less than
100% of the fair market value of such stock, as determined by the Board of
Directors, at the time of grant of such option, or less than 110% of such fair
market value in the case of options described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the
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exercise price of such options, or, to the extent provided in the applicable
option agreement, (i) by delivery to the Company of shares of Common Stock of
the Company already owned by the optionee having a fair market value equal in
amount to the exercise price of the options being exercised, (ii) by any other
means (including, without limitation, by delivery of a promissory note of the
optionee payable on such terms as are specified by the Board of Directors)
which the Board of Directors determines are consistent with the purpose of the
Plan and with applicable laws and regulations (including, without limitation,
the provisions of Rule l6b-3 and Regulation T promulgated by the Federal
Reserve Board) or (iii) by any combination of such methods of payment. The fair
market value of any shares of the Company's Common Stock or other non-cash
consideration which may be delivered upon exercise of an option shall be
determined by the Board of Directors.
7. Option Period.
Subject to Section 2(d) regarding Formula Options, each option and all
rights thereunder shall expire on such date as shall be set forth in the
applicable option agreement, except that, in the case of an Incentive Stock
Option, such date shall not be later than ten years after the date on which the
option is granted and, in all cases, options shall be subject to earlier
termination as provided in the Plan.
8. Exercise of Options.
Subject to Section 2(d) regarding Formula Options, each option granted
under the Plan shall be exercisable either in full or in installments at such
time or times and during such period as shall be set forth in the agreement
evidencing such option, subject to the provisions of the Plan.
9. Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of
descent and distribution, and, during the life of the optionee, shall be
exercisable only by the optionee; provided, however, that non-statutory options
may be transferred pursuant to a qualified domestic relations order (as defined
in Rule l6b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 2(d) regarding Formula Options and
Section 11(d) with respect to Incentive Stock Options, and subject to the
provisions of the Plan, the Board of Directors shall determine the period of
time during which an optionee may exercise an option following (i) the
termination of the optionee's employment or other relationship with the Company
or (ii) the death or disability of the optionee. Such periods shall be the same
as those set forth below in Section 11(d) for Incentive Stock Options unless
alternative periods are set forth in the agreement evidencing such option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and
conditions:
(a) Express Designation. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such option,
the owner of stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (after taking into account the
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attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the fair
market value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years
from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be an employee,
the Incentive Stock Option may be exercised by the person to whom it
is transferred by will or the laws of descent and distribution within
the period of one year after the date of death (or within such lesser
period as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be an employee because of such disability (or within such
lesser period as may be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; provided that such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
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(b) Acceleration, Extension, Etc. the Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised; provided, however, that no such extension
shall be permitted if it would cause the Plan to fail to comply with Section
422 of the Code or with Rule l6b-3.
13. General Restrictions.
(a) Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets
are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (x) the
maximum number and kind of shares reserved for issuance under the Plan, (y) the
number and kind of shares or other securities subject to any then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment would cause the Plan to fail to comply with Section 422 of the Code
or with Rule l6b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
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16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares
of Common Stock are exchanged for securities, cash or other property of any
other corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of
any corporation assuming the obligations of the Company, may, in its
discretion, take any one or more of the following actions, as to outstanding
options: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such options substituted for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options, and (iv) provide that
all or any outstanding options shall become exercisable in full immediately
prior to such event.
(b) Substitute Options. The Company may grant options under the Plan
in substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the
circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time
to terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the
approval of the shareholders of the Company is required under Section 422 of
the Code or any successor provision with respect to Incentive Stock Options, or
under Rule l6b-3, the Board of Directors may not effect such modification or
amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
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manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule l6b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered
or withheld shall have a fair market value equal to such withholding
obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of the date that
the amount of tax to be withheld is to be determined. An optionee who has made
an election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
l6b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
canceled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
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(b) Termination. Unless sooner terminated in accordance with Section
16, the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options granted under the
Plan. Unless sooner terminated in accordance with Section 16, the Plan shall
terminate with respect to options which are not Incentive Stock Options on the
date specified in (ii) above. If the date of termination is determined under
(i) above, then options outstanding on such date shall continue to have force
and effect in accordance with the provisions of the instruments evidencing such
options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards
or options granted to participants who are foreign nationals or employed
outside the United States to recognize differences in laws, rules, regulations
or customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
Adopted by the Board of Directors on November 13, 1992
Approved by the Shareholders on__________, 199_
Amended by the Board of Directors on October 10, 1996
Amended by the Board of Directors on April 24, 1997
Amended and Restated by the Board of Directors on August __, 1997
to reflect the October 10, 1996 and April 24, 1997 Amendments
Amendment and Restatement approved by the Shareholders on August __, 1997
9
<PAGE> 1
EXHIBIT 10.3
BEST SOFTWARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Best Software,
Inc. (the "Company") and certain of its subsidiaries with opportunities to
purchase shares of the Company's common stock, no par value (the "Common
Stock"). Subject to adjustment pursuant to Section 15, the maximum number of
shares of Common Stock which shall be made available for purchase under this
Plan is 250,000.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder. All employees of the Company, including Directors who are
employees, and all employees of any subsidiary of the Company (as defined
in Section 424(f) of the Code) designated by the Board or the Committee
from time to time (a "Designated Subsidiary"), are eligible to participate
in any one or more of the offerings of Options (as defined in Section 9) to
purchase Common Stock under the Plan provided that:
a. they are regularly employed by the Company or a Designated Subsidiary
for more than 20 hours a week and for more than five months in a
calendar year; and,
b. they have been employed by the Company or a Designated Subsidiary for
at least six (6) months prior to enrolling in the Plan, and,
c. they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total
combined voting power or value of the stock of the Company or any
subsidiary. For purposes of the preceding sentence, the attribution rules
of Section 424(d) of the Code shall apply in determining the stock
ownership of an employee, and all stock which the employee has a
contractual right to purchase shall be treated as stock owned by the
employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. The first Offering will
commence on the effective date of the underwritten initial public offering
by the Company and end on December 31st (or the first business day
thereafter if such date is not a business day). Thereafter, Offerings will
begin each January 1st and July 1st (or the first business day thereafter
if such date is not a business day). The date on which each Offering
commences is referred to as an "Offering Commencement Date." Each Offering
Commencement Date will begin a six-month period, except for the initial
Offering that will be less than six months, (a "Plan Period") during which
payroll deductions will be made and held for the purchase of Common Stock
at the end of the Plan Period. The Board or the Committee may, at its
discretion, choose a different Plan Period of twelve months or less for
subsequent Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding
a payroll deduction authorization form to the employee's appropriate
payroll office at least 15 days prior to the applicable Offering
Commencement Date or as soon as practicable in the case of the initial
Offering Commencement Date. The form will authorize a regular payroll
deduction from the Compensation received by the employee during the Plan
Period. Unless an employee files a new form or withdraws from the Plan,
his deductions and purchases will continue at the same rate for future
Offerings under the Plan as long as the Plan
<PAGE> 2
remains in effect. The term "Compensation" means monthly base salary or
wages as of the Offering Commencement date plus, in the case of
commissioned salespersons, the average monthly commissions earned during
the six months immediately preceding the Offering Commencement Date.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this
Plan, an employee may authorize payroll deductions in increments of $10.00
up to a maximum per payroll period of an amount equal to 5% of monthly
Compensation, rounded down to the nearest $10.00. No employee may be
granted an Option (as defined in Section 9) which permits his rights to
purchase Common Stock under this Plan and any other stock purchase plan of
the Company and its subsidiaries, to accrue at a rate which exceeds $25,000
of the fair market value of such Common Stock (determined at the Offering
Commencement Date of the Plan Period) for each calendar year in which the
Option is outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll
deduction during a Plan Period. If an employee elects to discontinue his
payroll deductions during a Plan Period, but does not elect to withdraw his
funds pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise
Date (as defined below).
7. INTEREST. Interest will not be paid on any employee accounts, except to
the extent that the Board or the Committee, in its sole discretion, elects
to credit employee accounts with interest at such per annum rate as it may
from time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals
are not permitted. The employee may not begin participation again during
the remainder of the Plan Period. The employee may participate in any
subsequent Offering in accordance with terms and conditions established by
the Board or the Committee.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan Period,
the Company will grant to each eligible employee who is then a participant
in the Plan an option ("Option") to purchase on the last business day of
such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of
shares determined by dividing the number 25,000 by the number of plan
periods in the year and further dividing the number that is the result of
that calculation by the price determined in accordance with the formula set
forth in the following paragraph but using the closing price on the
Offering Commencement Date of such Plan Period.
a. Purchase price: The purchase price for each share purchased will be
85% of the closing price of the Common Stock on
(1) the first business day of such Plan Period or,
(2) the Exercise Date, whichever closing price shall be less.
b. Closing Price: Such closing price shall be
(1) the closing price on any national securities exchange on which the
Common Stock is listed,
(2) the closing price of the Common Stock on the NASDAQ National
Market or,
(3) the average of the closing bid and asked prices in the over-the-
counter-market, whichever is applicable, as published in The Wall
Street Journal.
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<PAGE> 3
If no sales of Common Stock were made on such a day, the price of the
Common Stock for purposes of clauses (1) and (2) above shall be the
reported price for the next preceding day on which sales were made.
Notwithstanding the foregoing, the closing price of the Common Stock on the
first day of the initial Plan Period shall be the initial price to the
public in the Company's initial public offering. Each employee who
continues to be a participant in the Plan on the Exercise Date shall be
deemed to have exercised his Option at the Option Price on such date and
shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the
formula set forth above (but not in excess of the maximum number determined
in the manner set forth above). Any balance remaining in an employee's
payroll deduction account at the end of a Plan Period will be automatically
refunded to the employee, except that any balance which is less than the
purchase price of one share of Common Stock will be carried forward into
the employee's payroll deduction account for the following Offering, unless
the employee elects not to participate in the following Offering under the
Plan, in which case the balance in the employee's account shall be
refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common Stock
purchased under the Plan may be issued only in the name of the employee, in
the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the
street name of a brokerage firm, bank or other nominee holder designated by
the employee.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event of
a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from
any pay due and owing to an employee at termination and the balance in the
employee's account shall be paid to the employee or, in the event of the
employee's death,
a. to a beneficiary previously designated in a revocable notice signed by
the employee (with any spousal consent required under state law), or,
b. in the absence of such a designated beneficiary, to the executor or
administrator of the employee's estate ,or,
c. if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may,
in its discretion, designate.
If, prior to the last business day of the Plan Period, the Designated
Subsidiary by which an employee is employed shall cease to be a subsidiary
of the Company, or if the employee is transferred to a subsidiary of the
Company that is not a Designated Subsidiary, the employee shall be deemed
to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT SHAREHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
shareholder of the shares of Common Stock covered by an Option under this
Plan until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are eligible to be exercised during the employee's
lifetime by the employee only.
14. APPLICATION OF FUNDS. All funds received or held by the Company under this
Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and
the share limitation set forth in Section 9, shall be increased
proportionately, and such other adjustment shall be made as may be deemed
equitable by the Board
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<PAGE> 4
or the Committee. In the event of any other change affecting the Common
Stock, such adjustment shall be made as may be deemed equitable by the
Board or the Committee to give proper effect to such event.
16. MERGER. If the Company shall at any time merge or consolidate with another
corporation and the holders of the capital stock of the Company immediately
prior to such merger or consolidation continue to hold at least 80% by
voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such
Option for each share as to which such Option shall be exercised the
securities or property which a holder of one share of the Common Stock was
entitled to upon and at the time of such merger, and the Committee shall
take such steps in connection with such merger as the Committee shall deem
necessary to assure that the provisions of Paragraph 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said
securities or property as to which such holder of such Option might
thereafter be entitled to receive thereunder. In the event of a merger or
consolidation of the Company with or into another corporation which does
not involve Continuity of Control, or of a sale of all or substantially all
of the assets of the Company while unexercised Options remain outstanding
under the Plan,
a. subject to the provisions of clauses b. and c., after the effective
date of such transaction, each holder of an outstanding Option shall
be entitled, upon exercise of such Option, to receive in lieu of
shares of Common Stock, shares of such stock or other securities as
the holders of shares of Common Stock received pursuant to the terms
of such transaction; or,
b. all outstanding Options may be canceled by the Board or the Committee
as of a date prior to the effective date of any such transaction and
all payroll deductions shall be paid out to the participating
employees; or,
c. all outstanding Options may be canceled by the Board or the Committee
as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and
each holder of an Option shall have the right to exercise such Option
in full based on payroll deductions then credited to his account as of
a date determined by the Board or the Committee, which date shall not
be less than ten (10) days preceding the effective date of such
transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to time,
amend this Plan in any respect, except that
a. if the approval of any such amendment by the shareholders of the
Company is required by Section 423 of the Code, such amendment shall
not be effected without such approval, and,
b. in no event may any amendment be made which would cause the Plan to
fail to comply with Section 423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan
exceeds the maximum number of shares that may be issued under this Plan,
the Board or the Committee will allot the shares then available on a pro
rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the NASDAQ National Market and the approval of all
governmental authorities required in connection with the authorization,
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<PAGE> 5
issuance or sale of such stock. The Plan shall be governed by Virginia law
except to the extent that such law is preempted by federal law.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within either two
years after the date of grant of the Option pursuant to which such shares
were purchased or one year after the date such shares were purchased.
23. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take effect
upon its approval by the Board, subject to approval by the shareholders of
the Company as required by Section 423 of the Code, which approval must
occur within twelve months of the adoption of the Plan by the Board.
Adopted by the Board of Directors on August __, 1997
Approved by the Shareholders on September __, 1997
5
<PAGE> 1
EXHIBIT 10.4
BEST SOFTWARE, INC.
1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Best
Software, Inc., a Virginia corporation (the "Company"), is to advance the
interests of the Company's shareholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's
shareholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of Best Software,
Inc. as defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be
the sole and final judge of such expediency. All decisions by the Board shall
be made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board
shall be liable for any action or determination relating to or under the Plan
made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum
number of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by
applicable law, the Board may delegate any or all of its powers under the Plan
to one or more committees or subcommittees of the Board (a "Committee"). If
and when the common stock, no par value per share, of the Company (the "Common
Stock") is registered under the Securities Exchange Act of 1934 (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be an "outside director" within the meaning of
Section 162(m) of the Code and a "non- employee director" as defined in Rule
16b-3 promulgated under the Exchange Act." All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
<PAGE> 2
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 4(c),
Awards may be made under the Plan for up to 1,500,000 shares of Common Stock.
If any Award expires or is terminated, surrendered or canceled without having
been fully exercised or is forfeited in whole or in part or results in any
Common Stock not being issued, the unused Common Stock covered by such Award
shall again be available for the grant of Awards under the Plan, subject,
however, in the case of Incentive Stock Options (as hereinafter defined), to
any limitation required under the Code. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) Per-Participant Limit. Subject to adjustment under Section
4(c), for Awards granted after the Common Stock is registered under the
Exchange Act, the maximum number of shares with respect to which an Award may
be granted to any Participant under the Plan shall be [_________] per calendar
year. The per-participant limit described in this Section 4(b) shall be
construed and applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split,
stock dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin- off or other similar change
in capitalization or event, or any distribution to holders of Common Stock
other than a normal cash dividend, (i) the number and class of securities
available under this Plan, (ii) the number and class of security and exercise
price per share subject to each outstanding Option, (iii) the repurchase price
per security subject to each outstanding Restricted Stock Award, and (iv) the
terms of each other outstanding stock-based Award shall be appropriately
adjusted by the Company (or substituted Awards may be made, if applicable) to
the extent the Board shall determine, in good faith, that such an adjustment
(or substitution) is necessary and appropriate. If this Section 4(c) applies
and Section 8(e)(1) also applies to any event, Section 8(e)(1) shall be
applicable to such event, and this Section 4(c) shall not be applicable.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions
and limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to
be an "incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the Company and
shall be subject to and shall be construed consistently with the requirements
of Section 422 of the Code. The Company shall have no liability to a
Participant, or any other party, if an Option (or any part thereof) which is
intended to be an Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price
at the time each Option is granted and specify it in the applicable option
agreement.
(d) Duration of Options. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement. No Option will be granted for a term in excess of
10 years.
(e) Exercise of Option. Options may be exercised only by delivery
to the Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
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(f) Payment Upon Exercise. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the
Company;
(2) except as the Board may otherwise provide in an
Option Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
(3) to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
(4) any combination of the above permitted forms of
payment.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name
of the Participant and, unless otherwise determined by the Board, deposited by
the Participant, together with a stock power endorsed in blank, with the
Company (or its designee). At the expiration of the applicable restriction
periods, the Company (or such designee) shall deliver the certificates no
longer subject to such restrictions to the Participant or if the Participant
has died, to the beneficiary designated, in a manner determined by the Board,
by a Participant to receive amounts due or exercise rights of the Participant
in the event of the Participant's death (the "Designated Beneficiary"). In the
absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant.
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References to a Participant, to the extent relevant in the context, shall
include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced
by a written instrument in such form as the Board shall determine. Each Award
may contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan,
each type of Award may be made alone or in addition or in relation to any other
type of Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect
on an Award of the disability, death, retirement, authorized leave of absence
or other change in the employment or other status of a Participant and the
extent to which, and the period during which, the Participant, the
Participant's legal representative, conservator, guardian or Designated
Beneficiary may exercise rights under the Award.
(e) Acquisition Events
(1) Consequences of Acquisition Events. Upon the
occurrence of an Acquisition Event (as defined below), or the execution by the
Company of any agreement with respect to an Acquisition Event, the Board shall
take any one or more of the following actions with respect to then outstanding
Awards: (i) provide that outstanding Options shall be assumed, or equivalent
Options shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such Options substituted for Incentive
Stock Options shall satisfy, in the determination of the Board, the
requirements of Section 424(a) of the Code; (ii) upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Time and the consummation of such Acquisition Event;
(iii) in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted
Stock Awards then outstanding shall become free of all restrictions prior to
the consummation of the Acquisition Event; and (v) provide that any other
stock-based Awards outstanding (A) shall become exercisable, realizable or
vested in full, or shall be free of all conditions or restrictions, as
applicable to each such Award, prior to the consummation of the Acquisition
Event, or (B), if applicable, shall be assumed, or equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
(2) Assumption of Options Upon Certain Events. The Board
may grant Awards under the Plan in substitution for stock and stock-based
awards held by employees of another corporation who become employees of the
Company as a result of a merger or consolidation of the employing corporation
with the Company or the acquisition by the Company of property or stock of the
employing
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corporation. The substitute Awards shall be granted on such terms and
conditions as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in connection with Awards to such Participant no later than
the date of the event creating the tax liability. The Board may allow
Participants to satisfy such tax obligations in whole or in part in shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
(g) Amendment of Award. The Board may amend, modify or terminate
any outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been
satisfied, including any applicable securities laws and any applicable stock
exchange or stock market rules and regulations, and (iii) the Participant has
executed and delivered to the Company such representations or agreements as the
Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.
(i) Acceleration. The Board may at any time provide that any
Options shall become immediately exercisable in full or in part, that any
Restricted Stock Awards shall be free of all restrictions or that any other
stock-based Awards may become exercisable in full or in part or free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as
the case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have
any claim or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the right
at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any
rights as a shareholder with respect to any shares of Common Stock to be
distributed with respect to an Award until becoming the record holder of such
shares.
(c) Effective Date and Term of Plan. The Plan shall become
effective on the date on which it is adopted by the Board. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of
(i) the date on which the Plan was adopted by the Board or (ii) the date the
Plan was approved by the Company's shareholders, but Awards previously granted
may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time.
5
<PAGE> 6
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Virginia, without regard to any applicable conflicts of
law.
Adopted by the Board of Directors on August ___, 1997
Approved by the Shareholders on September 11, 1997
6
<PAGE> 1
EXHIBIT 10.5
BEST SOFTWARE, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. Purpose
The purpose of this 1997 Director Stock Option Plan (the "Plan") of
Best Software, Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company, whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company
2. Administration
The Board of Directors of the Company (the "Board of Directors") shall
supervise and administer the Plan. Grants of stock options under the Plan and
the amount and nature of the awards to be granted shall be automatic in
accordance with Section 5. However, all questions of interpretation of the
Plan or of any options issued under it shall be determined by the Board of
Directors and such determination shall be final and binding upon all persons
having an interest in the Plan
3. Participation in the Plan
Directors of the Company who are not employees of the Company or any
subsidiary of the Company and are not serving on the Board of Directors as a
representative of an institutional investor ("outside directors") shall be
eligible to participate in the Plan
4. Stock Subject to the Plan
(a) The maximum number of shares of the Company's Common Stock, no
par value per share ("Common Stock"), that may be issued under the Plan shall
be 150,000, subject to adjustment as provided in Section 9 of the Plan.
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in full, the shares
allocable to the unexercised portion of such option shall again become
available for grant pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory
options not entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended to date and as it may be amended from time to
time (the "Code").
5. Terms, Conditions and Form of Options
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grant Dates. Subject to Section 7 of this Plan, an
option to purchase Common Stock shall be granted automatically to each outside
director elected to the Board of Directors after the effective date of this
Plan, effective upon such director's election.
(b) Shares Subject to Option. The number of shares covered by the
option (i) in the case of an outside director elected at the commencement of a
three-year term (a "Full-Term Director"), shall be 22,500 and (ii) in the case
of an outside director elected during the course of a three-year term (for
example, to fill a vacancy) (an "Interim Director"), shall be equal to 22,500
multiplied by a fraction the numerator of which is 36 minus the number of whole
calendar months elapsed between the date of the
<PAGE> 2
commencement of such director's term and the relevant grant date and the
denominator of which is 36. In the case of an Interim Director elected or
appointed to fill a vacancy created by an increase in the number of directors
comprising the entire Board of Directors, the term of such director shall be
treated, for purposes of determining the foregoing fraction, as if it had
commenced on the same date as did the term of the other directors in the class
to which such director was elected or appointed.
(c) Option Exercise Price. The option exercise price per share
for each option granted under the Plan shall equal (i) the last reported sales
price per share of the Company's Common Stock on the Nasdaq National Market
(or, if the Company is traded on a nationally recognized securities exchange on
the date of grant, the reported closing sales price per share of the Company's
Common Stock by such exchange) on the date of grant (or if no such price is
reported on such date such price as reported on the nearest preceding day) or
(ii) if the Common Stock is not traded on Nasdaq National Market or an
exchange, the fair market value per share on the date of grant as determined by
the Board of Directors.
(d) Options Non-Transferable. Each option granted under the Plan
by its terms shall not be transferable by the optionee otherwise than by will,
or by the laws of descent and distribution, and shall be exercised during the
lifetime of the optionee only by him. No option or interest therein may be
transferred, assigned, pledged or hypothecated by the optionee during his
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(e) Vesting and Exercise Period. Each Formula Option granted to a
Full-Term Director shall vest as to one-third of the shares subject to the
option immediately prior to the first, second and third annual shareholders'
meetings of the Company held after the date of grant, if such Full-Time
Director is still serving as a director of the Company at such time. Each
Formula Option granted to an Interim Director shall vest as to an equal
installment of the shares subject to the option immediately prior to each of
the annual shareholders' meetings of the Company held after the date of grant,
ending with the shareholders' meeting marking the end of the term of such
director, if such Interim Director is still serving as a director of the
Company at such time. Each Formula Option may be exercised on a cumulative
basis as to the vested number of shares at any time or from time to time, in
whole or in part; provided that, subject to the provisions of Section 5(f), no
Formula Option may be exercised more than 90 days after the optionee ceases to
serve as a director of the Company or for a number of shares greater than that
which was vested at the time the optionee ceased to serve as a director of the
Company. No Formula Option shall be exercisable after the expiration of nine
years from the date of grant.
(f) Exercise period Upon Disability or Death. Notwithstanding the
provisions of Section 5(e), any option granted under the Plan may be exercised,
to the extent then vested and exercisable, by an optionee who becomes disabled
(within the meaning of Section 22(e)(3) of the Code or any successor provision
thereto) while acting as a director of the Company, or may be exercised, to the
extent then exercisable, upon the death of such optionee while a director of
the Company by the person to whom it is transferred by will, by the laws of
descent and distribution, or by written notice filed pursuant to Section 5(h),
in each case within the period of one year after the date the optionee ceases
to be such a director by reason of such disability or death; provided that no
option shall be exercisable after the expiration of nine years from the date of
grant.
(g) Exercise Procedure. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment in cash of
the full consideration for the shares as to which they are exercised.
(h) Exercise by Representative Following Death of Director. A
director, by written notice to the Company, may designate one or more persons
(and from time to time change such designation) including his legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
2
<PAGE> 3
6. Assignments
The rights and benefits under the Plan may not be assigned except for
the designation of a beneficiary as provided in Section 5
7. Effective Date and Time for Granting Options
(a) The Plan shall become effective on the date of its adoption by
the Board of Directors.
(b) All options for shares subject to the Plan shall be granted,
if at all, not later than ten years after the approval of the Plan by the
Company's shareholders
8. Limitation of Rights
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain a director for any period of time.
(b) No Shareholders' Rights for Options. An optionee shall have
no rights as a shareholder with respect to the shares covered by his options
until the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 9) for which the record date is prior to the date such certificate is
issued
9. Changes in Common Stock
(a) If the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number of kind of shares or other
securities (other than the stock split approved by the Board on the same date
as the initial adoption of this Plan), or if additional shares or new or
different shares or other securities are distributed with respect to such
shares of Common Stock or other securities, through merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect so such shares of Common Stock, or
other securities, an appropriate and proportionate adjustment will be made in
(i) the maximum number and kind of shares reserved for issuance under the Plan,
(ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject
to any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional
shares will be issued under the Plan on account of any such adjustments.
(b) In the event that the Company is merged or consolidated into
or with another corporation (in which consolidation or merger the shareholders
of the Company receive distributions of cash or securities of another issuer as
a result thereof), or in the event that all or substantially all of the assets
of the Company is acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization or liquidations unless exercised by the optionee
within a specified number of days following the date of such notice.
3
<PAGE> 4
10. Amendment of the Plan
The Board of Directors may suspend or discontinue the Plan or review
or amend it in any respect whatsoever; provided, however, that without approval
of the shareholders of the Company no revision or amendment shall change the
number of shares subject to the Plan (except as provided in Section 9), change
the designation of the class of directors eligible to receive options, or
materially increase the benefits accruing to participants under the Plan. The
Plan may not be amended more than once in any six-month period.
11. Notice
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. Governing Law
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the Commonwealth of Virginia.
Adopted by the Board of Directors on August ___, 1997
Approved by the Shareholders on August ___, 1997
4
<PAGE> 1
LOAN AND WARRANT PURCHASE AGREEMENT
THIS LOAN AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
made as of this 2nd day of March, 1993, by and between PNC CAPITAL CORP, a
Delaware corporation ("Lender"), and BEST PROGRAMS, INC., a Virginia corporation
("Borrower").
RECITALS
A. Borrower desires (i) to borrow certain funds from Lender
pursuant to a non-revolving subordinated promissory note of Borrower in the
maximum principal amount of Five Million Dollars ($5,000,000), in the form
attached hereto as Exhibit A-1 (the "Note"), which note shall be secured by a
pledge of all of Borrower's tangible and intangible personal property and by
the guaranties of the Guarantors (as defined in Article IX), and (ii) in
connection therewith, to sell to Lender a warrant for the purchase of certain
shares of Borrower's Common Stock (the number of such shares being determined
as provided therein and being subject to adjustment as provided by the terms of
the warrant), in the form attached hereto as Exhibit B (the "Warrant").
B. The borrowing to be made hereunder is to be used by
Borrower for the purposes of financing the Borrower's working capital needs and
enabling the acquisition by Borrower of other businesses engaged in the
development, production and marketing of computer software programs and related
products and of information services.
<PAGE> 2
C. Subject to the terms and conditions set forth in this Agreement
and each of the other documents executed in connection with this Agreement or
otherwise related to this Agreement, Lender desires to make available to
Borrower the subject funds pursuant to the Note, and to accept the Warrant from
Borrower in connection with such financing.
D. Certain capitalized terms not otherwise defined in this
Agreement shall have the respective meanings set forth in Article IX.
AGREEMENTS
In consideration of the foregoing and the terms and conditions
contained in this Agreement, Lender and Borrower, intending to be legally
bound, hereby agree as follows:
ARTICLE I. LOANS AND TERMS GOVERNING WARRANT
Section 1.1. Loans and Terms Governing Warrant.
(a) Subject to the terms and conditions of this Agreement, and upon
the mutual representations, warranties, covenants and agreements of Lender and
Borrower contained herein, Lender agrees to make available to Borrower a
non-revolving credit facility pursuant to which Borrower will be entitled to
obtain loans from Lender as follows: (a) at the Closing Date, Lender will loan
to Borrower the principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000) and (b) on or before the earlier to occur of a Qualifying Public
Offering or the second anniversary of the Closing Date, Lender
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<PAGE> 3
will loan to Borrower at Borrower's request an additional One Million Five
Hundred Thousand Dollars ($1,500,000) (but not less than One Million Five
Hundred Thousand Dollars ($1,500,000)) (the "Supplemental Loan"). All loans by
Lender to Borrower hereunder (the "Loans") shall constitute one loan secured by
Liens as evidenced by the Security Agreements. Borrower's obligations to repay
the Loans shall be evidenced by the Note. In the event Borrower elects to
proceed with the Supplemental Loan pursuant to Section 1.1(a), Borrower shall
notify Lender pursuant to the Notice of Request for Supplemental Loan attached
hereto as Exhibit A-2 on or before the second anniversary of the Closing Date.
Lender shall provide the Supplemental Loan to Borrower by wire or other
transfer of immediately available funds within five (5) business days of
Borrower's compliance with the conditions to the Supplemental Loan as set forth
in Article IV hereof.
(b) In order to induce Lender to make the Loans and to enter into
this Agreement, Borrower agrees to issue the Warrant to Lender on the Closing
Date, in the form of Exhibit B hereto, representing Lender's right (i) to
purchase Thirty-One Thousand Five Hundred (31,500) shares of Borrower's Common
Stock (the number of such shares being subject to adjustment as provided by the
terms of such Warrant); (ii) in the event the Supplemental Loan is made by
Lender, to purchase an additional Thirteen Thousand Five Hundred (13,500)
shares of Borrower's Common Stock (the number of such shares being subject to
adjustment as provided by the terms of such Warrant); and (iii)
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<PAGE> 4
in the event (w) the Note is not repaid in full on or before the second
anniversary of the Closing Date, or (x) Borrower does not complete a Qualifying
Public Offering of its Common Stock on or before the second anniversary of the
Closing Date, to purchase (y) an additional Ten Thousand Five Hundred (10,500)
shares of Borrower's Common Stock, in the event Borrower has borrowed Three
Million Five Hundred Thousand Dollars ($3,500,000) under the Note and (z) an
additional Fifteen Thousand (15,000) shares of Borrower's Common Stock, in the
event Borrower has borrowed Five Million Dollars ($5,000,000) under the Note,
in each case the number of such shares being subject to adjustment as provided
by the terms of such Warrant.
(d) The Loans made pursuant to the Note shall be used by Borrower
to finance the Borrower's working capital needs and to enable the acquisition
of other businesses, subject to Borrower's continuing compliance with Section
6.5 hereof.
Section 1.2. Principal Payments on the Note. The Note shall provide
for the payment of three consecutive annual installments of principal equal to
one-third of the total principal amount advanced by Lender under the Note, each
due and payable on the anniversary of the Closing Date in the years 1997 and
1998, with a final principal installment due and payable on the anniversary of
the Closing Date in the year 1999.
Section 1.3 Interest Rate on the Note. (a) The Note shall bear
interest computed on the unpaid principal amount thereof outstanding from time
to time at a rate of 12.5 percent (12.5%) per annum.
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<PAGE> 5
(b) Interest shall be computed on the basis of a 365/366-day year
and paid for the actual number of days elapsed. All accrued interest shall be
due and payable quarterly in arrears on the last day of March, June, September
and December of each year, commencing March 31, 1993, and on the date of the
final principal payment due under the Note.
(c) Any principal amount or accrued interest due under the Note not
paid on or before the 15th day after it is due shall bear interest, payable on
demand, from the due date for such amount until such amount is paid in full, at
a rate of seventeen percent (17%) per annum until paid.
Section 1.4. Voluntary and Mandatory Prepayments of the Note. (a)
Borrower may, at its option, prepay the outstanding principal amount of the
Note, in whole or in integral multiples of Two Hundred Fifty Thousand Dollars
($250,000), on any Business Day without premium or penalty.
(b) Except with respect to a merger of Borrower with a Subsidiary
or a merger where Borrower is the surviving corporation (in each case where the
Persons who are stockholders of Borrower immediately prior to any such merger
continue to own at least eighty percent (80%) of the outstanding equity
securities of the surviving corporation immediately after such merger), upon
the occurrence of (i) any merger or consolidation of Borrower with any Person;
(ii) the sale of all or any substantial portion of the assets of Borrower to
any Person; (iii) the voluntary liquidation, dissolution or winding up of
Borrower's business, Borrower shall immediately repay the
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<PAGE> 6
outstanding principal balance of the Note, together with all accrued and unpaid
interest thereon, without premium or penalty.
(c) Subject to the terms of this Section 1.4(c), upon the closing
of a Public Offering which yields aggregate net proceeds to Borrower in excess
of Ten Million Dollars ($10,000,000) and, in the case of Common Stock, at an
offering price equal to or exceeding $50.00 per share of Common Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) (a "Qualifying Public Offering"), Borrower shall repay the entire
outstanding principal amount of the Note, together with all accrued and unpaid
interest thereon (collectively, the "Outstanding Balance"), without premium or
penalty, within one (1) year of the closing date of any such Qualifying Public
Offering (unless the Note shall earlier be repaid under the amortization
schedule as set forth in the Note). As used in this Section 1.4(c), the term
"Public Offering" means a public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of any class of
the Capital Stock of Borrower.
Section 1.5. Payments. All payments made by Borrower under this
Agreement or the Other Documents, including, without limitation, any payment
pursuant to the Note, shall be payable to Lender by wire transfer to an account
designated by Lender or in immediately available funds at Lender's address set
forth in Section 10.9 of this Agreement, or at such other place or places as
Lender may designate from time to time in writing to Borrower.
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<PAGE> 7
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants to Lender that:
Section 2.1. Organization. Each of Borrower and the Guarantors is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia, has the corporate power and authority to
own its properties and to carry on its business as now being conducted, and is
qualified to do business and is in good standing in each jurisdiction in which
the failure to so qualify could have a material adverse effect upon the assets
and properties, operations, condition (financial or otherwise) or business of
Borrower and its Subsidiaries, taken as a whole.
Section 2.2. Authority. Borrower has the right, power and authority
and is duly authorized and empowered to make the borrowing and sale
contemplated hereby and to enter into, execute, deliver and perform this
Agreement and each of the Other Documents to which it is a party, and the
officers of Borrower executing and delivering this Agreement and such Other
Documents are duly authorized and empowered to do so. Each Guarantor has the
right, power and authority and is duly authorized and empowered to enter into,
execute, deliver and perform the Acknowledgment and each of the Other Documents
to which it is a party, and the officers of each Guarantor executing and
delivering the Acknowledgment and such Other Documents are duly authorized and
empowered to do so.
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<PAGE> 8
Section 2.3. No Violation. Except as set forth on Schedule 2.3
attached hereto, the execution, delivery and performance by Borrower of this
Agreement, by each Guarantor of the Acknowledgment and by each of Borrower and
the Guarantors of the Other Documents to which it is a party will not violate
any provision of law, any order, rule or regulation of any Governmental
Authority, the Articles of Incorporation or By-laws of Borrower or the
Guarantors or any agreement, instrument or document to which Borrower or either
Guarantor is a party or by which Borrower or either Guarantor is bound, or be in
conflict with, result in a breach of or constitute (with notice or lapse of
time, or both) a default under any such agreement, instrument or document, or
result in the creation or imposition of any Lien of any nature upon any of the
assets or properties of Borrower or the Guarantors (other than as contemplated
by this Agreement).
Section 2.4. Binding Agreements. Each of the Agreement and the
Other Documents to which Borrower or either Guarantor is a party has been duly
authorized by all requisite corporate action of Borrower and the Guarantors, and
has been executed and delivered and constitutes the legal, valid and binding
obligation of Borrower and the Guarantors, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except as such enforceability may be limited
by principles of equity.
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<PAGE> 9
Section 2.5. Consents. Except as set forth on Schedule 2.5 attached
hereto, no consent or approval of any Person, including, without limitation,
the stockholders of Borrower or any Governmental Authority, is required in
connection with the execution, delivery or performance of this Agreement or the
Other Documents.
Section 2.6. Capitalization. (a) Borrower's authorized capital
stock consists of (i) 1,000,000 shares of Common Stock, no par value ("Common
Stock"), of which 431,728 shares are issued and outstanding; and (ii) 100,000
shares of Class A Preferred Stock, each with a par value of One Cent ($0.01)
("Preferred Stock"), of which 41,667 shares are issued and outstanding. The
Persons set forth on Schedule 2.6(a) attached hereto own beneficially and of
record the number of issued and outstanding shares of the capital stock of
Borrower set forth opposite their respective names and collectively constitute
all the holders of record of such shares. None of such issued and outstanding
shares of capital stock of Borrower are owned or held by or for the account of
Borrower.
(b) Except as set forth on Schedule 2.6(b) attached hereto,
Borrower does not have outstanding any stock or securities convertible into or
exchangeable for its capital stock or rights to subscribe for or to purchase,
or any option for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any kind
or character relating to, its capital stock or any stock or securities
convertible into or
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<PAGE> 10
exchangeable for its capital stock. Except with respect to the Warrant, the
Preferred Stock and the warrants issued pursuant to the Warrant Purchase
Agreement dated as of December 23, 1992 by and among the Company and the
individuals and entities listed on Exhibit A thereto, Borrower is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock. Borrower is not required to file,
and has not filed, a registration statement relating to any class of debt or
equity securities of Borrower. Schedule 2.6(b) sets forth a true, correct and
complete list of all warrants, preferred stock agreements, stockholders'
agreements, co-sale agreements, and registration rights agreements to which
Borrower or (to the best of Borrower's knowledge after inquiry of Edison
Venture Fund, L.P. and James F. Petersen) its stockholders are a party or by
which Borrower or (to the best of Borrower's knowledge after such inquiry) its
stockholders are bound.
(c) Schedule 2.6(c) attached hereto sets forth a true, correct and
complete list of all Senior Indebtedness of Borrower.
Section 2.7. Investment Company Act. Borrower is not an "investment
company," or, to the best of Borrower's knowledge, a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 2.8. Subsidiaries. Schedule 2.8 attached hereto sets forth a
true, correct and complete list of the
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<PAGE> 11
Subsidiaries of Borrower. Except as set forth on Schedule 2.8, Borrower does
not own, legally or beneficially, any debt or equity security of any other
Person, except for securities constituting not more than 5% of the outstanding
debt or equity securities of a Person whose securities are traded on a
nationally recognized stock exchange or in the over-the-counter market.
Section 2.9. Licenses and Permits. Each of Borrower and its
Subsidiaries has obtained, and is current and in good standing with respect to,
all governmental approvals, permits, certificates, inspections, consents and
franchises necessary to continue to conduct its business as presently conducted
and to own or lease and operate the properties now owned or leased by it,
except for the failure to obtain or maintain any approvals, permits,
certificates, inspections, consents and franchises which, individually or in
the aggregate, will not have a material adverse effect upon the assets and
properties, operations, condition (financial or otherwise) or business of
Borrower and its Subsidiaries, taken as a whole.
Section 2.10. Litigation. Except as set forth on Schedule 2.10, there
are no judgments, claims, actions, suits or proceedings pending or, to the
knowledge of Borrower, threatened against or affecting Borrower, its
Subsidiaries or their properties, at law or in equity or before or by any
Governmental Authority, which could have a material adverse effect upon the
assets and properties, operations, condition (financial or otherwise) or
business of Borrower and its Subsidiaries, taken
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<PAGE> 12
as a whole, and Borrower and/or its Subsidiaries are not, to the knowledge of
Borrower, in default with respect to any judgment, order, writ, injunction,
decree, rule or regulation of any Governmental Authority, which could have a
material adverse effect upon the assets and properties, operations, condition
(financial or otherwise) or business of Borrower and its Subsidiaries, taken as
a whole.
Section 2.11. Payment of Taxes. Except as otherwise disclosed in the
Financial Statements, and except for taxes being contested in good faith by
appropriate action and for which adequate reserves have been established,
Borrower has filed all federal, state and local tax returns with respect to
Borrower that are required to be filed, and Borrower has paid or caused to be
paid to the respective taxing authorities all taxes as shown on such returns or
on any assessments received by Borrower to the extent that such taxes have
become due. Except as set forth on Schedule 2.11 hereto, Borrower does not know
of any proposed tax assessment against Borrower, and Borrower is not obligated
by any other agreement, tax treaty, instrument or otherwise to contribute to
the payment of taxes owed by any other Person.
Section 2.12. Title to Assets. Borrower has good title to and
ownership of all of its properties and assets it purports to own, free and
clear of all Liens except those listed on Schedule 2.12 attached hereto and
those in favor of Lender. There are no judgment or federal, state or local tax
liens of record against Borrower or its Subsidiaries.
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Section 2.13. Financial Statements. The Financial Statements and the
Interim Financial Statements presented to Lender by Borrower have each been
prepared in accordance with GAAP and fairly present in all material respects
the assets, liabilities and financial results of operations of Borrower at and
as of the dates thereof. Except as set forth on Schedule 2.13 hereto, there
has been no material adverse change in the assets, properties, liabilities,
operations, condition (financial or otherwise), business or executive
management of Borrower since March 31, 1992.
Section 2.14. Solvency. As of the date of this Agreement, and after
giving effect to the transactions contemplated by this Agreement, in the good
faith opinion of the management of Borrower, the present fair market value
of Borrower's assets is greater than the amount required to pay Borrower's total
liabilities and Borrower is able to pay its debts as they mature.
Section 2.15. Compliance with Laws. Each of Borrower and its
Subsidiaries has duly complied in all material respects with, and its assets,
properties, operations and business are in compliance in all material respects
with, the provisions of all federal, state and local laws, rules, regulations
and other requirements applicable to Borrower or such Subsidiary, its assets,
properties and operations, or the conduct of its business, including, without
limitation, all Environmental Laws and laws, rules, regulations and other
requirements relating to occupational safety and health, labor relations, wage
and hour
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obligations, equal employment practices and ERISA, and there have been no
citations, notices or orders of noncompliance issued to Borrower or any of its
Subsidiaries under any such laws, rules, regulations or other requirements.
Section 2.16. Agreements. Borrower is not in default with respect to
any contract or agreement to which Borrower is a party or by which Borrower is
bound which could have a material adverse effect on the assets and properties,
operations or condition (financial or otherwise) or business of Borrower and
its Subsidiaries, taken as a whole. Borrower is not in default with respect to
any indenture, loan agreement, mortgage, lease, deed or other similar agreement
relating to the borrowing of monies to which Borrower is a party or by which
Borrower is bound which could have a material adverse effect on the assets and
properties, operations or condition (financial or otherwise) or business of
Borrower and its Subsidiaries, taken as a whole.
Section 2.17. The Warrant. Based upon the representations and
warranties of Lender to Borrower contained in Article III of this Agreement, the
issuance of the Warrant will not violate the registration requirements of the
Securities Act, any applicable rule, regulation or requirement under the
Securities Act, any applicable law, rule, regulation or other requirement of
any state or other jurisdiction or the preemptive rights of any Person. The
shares of Common Stock issuable upon exercise of the Warrant, in whole or in
part, have been duly authorized and reserved for issuance, and, when issued and
paid for in accordance with the terms of the Warrant, shall
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be validly issued, fully paid and non-assessable, free of any Lien or other
adverse claim.
Section 2.18. Employee Benefit Plans; ERISA. (a) Except for the
employee plans disclosed on Schedule 2.18 (the "Employee Plans"), neither
Borrower nor any Subsidiary maintains, contributes to or has an obligation to
contribute to any employee benefit plans (as defined in Section 3(3) of ERISA),
or any other severance, bonus, stock option, stock appreciation, stock
purchase, retirement, insurance, health, welfare, vacation, pension,
profit-sharing or deferred compensation plans, agreements or arrangements
providing benefits for employees or former employees of Borrower or any
Subsidiary, nor has Borrower or any Subsidiary or any officer or director of
Borrower or any Subsidiary taken any action directly or indirectly to obligate
Borrower or any Subsidiary to institute any such employee benefit plans.
(b) Neither Borrower nor any Subsidiary has any liability with respect
to any plans, arrangements or practices of the type described in Section 2.18(a)
previously maintained or contributed to by Borrower or any Subsidiary, or to
which Borrower or any Subsidiary previously had an obligation to contribute,
which could have a material adverse effect upon the assets and properties,
operations, condition (financial or otherwise) or business of Borrower and its
Subsidiaries, taken as a whole. Borrower previously has delivered to Lender or
its counsel true, complete and correct copies of each of the Employee Plans,
including all amendments thereto, and any other
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documents, forms or other instruments relating thereto reasonably requested by
Lender or its counsel. All Employee Plans have been maintained in full
compliance with all laws, regulations and orders of all Governmental
Authorities, including, without limitation, ERISA, and such Employee Plans have
been administered in accordance with the terms of the applicable plan
documents, except where such failure to comply could not have a material adverse
effect on the assets and properties, operations, condition (financial or
otherwise) or business of Borrower and its Subsidiaries, taken as a whole.
(c) Neither Borrower nor any Subsidiary has made any promises or
commitments to provide, and is under no obligation or liability to provide, (i)
medical benefits (including through insurance) to retirees of Borrower or any
Subsidiary or their dependents or (ii) life insurance or other death benefits
(including through insurance) to retirees of Borrower or any Subsidiary or
their dependents.
(d) No Employee Plan is funded through a "welfare benefit fund" as defined
in Section 419(e) of the Internal Revenue Code of 1986, as amended (the "Code").
Except for the Subsidiaries, no other trade or business is or, at any time
within the past six years, has been, treated, together with Borrower, as a
single employer under Section 414 of the Code or Section 4001 of ERISA.
(e) Each Employee Plan intended to be qualified under Section 401(a) of the
Code is so qualified and has heretofore been determined by the Internal Revenue
Service ("IRS") to be so
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qualified, and each trust created thereunder has heretofore been determined by
the IRS to be exempt from tax under the provisions of Section 501(a) of the
Code.
(f) With respect to any insurance policy that has, or does, provide
funding for benefits under any Employee Plan, (i) there is no liability of the
Borrower or any Subsidiary, in the nature of a retroactive or retrospective
rate adjustment, loss sharing arrangement, or other actual or contingent
liability, nor would there be any such liability if such insurance policy was
terminated on the date hereof, and (ii) no insurance company issuing any such
policy is in receivership, conservatorship, liquidation or similar proceeding
and, to the knowledge of Borrower, no such proceedings with respect to any
insurer are imminent.
(g) The execution and performance of this Agreement will not (i)
constitute a stated triggering event under any Employee Plan that will result
in any payment (whether of severance pay or otherwise) becoming due from
Borrower or any Subsidiary to any present or former officer, employee,
director, shareholder or consultant, or former employee (or dependents of any
thereof), or (ii) accelerate the time of payment or vesting, or increase the
amount, of compensation due to any employee, officer, director, shareholder or
consultant of Borrower or any Subsidiary.
(h) All contributions, transfers, and payments by Borrower or any
Subsidiary in respect of any Employee Plan have been or are fully deductible
under the Code.
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(i) No Employee Plan provides benefits to any individual who is not
a current or former employee of Borrower or a Subsidiary, or the dependents or
other beneficiaries of any such current or former employee.
Section 2.19. Disclosure. Neither this Agreement nor any of the
Other Documents nor any of the other documents, certificates or written
statements furnished to Lender by or on behalf of Borrower, taken as a whole
and as of their respective dates, contains any untrue statement of a material
fact or omits to state any material fact or any fact necessary in order to make
the statements contained herein or therein not misleading, and there is no fact
known to Borrower which materially and adversely affects, or which Borrower
reasonably believes may in the future so affect, Borrower's assets, properties,
operations, condition (financial or otherwise) or business.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF LENDER
Lender hereby represents and warrants to Borrower that:
Section 3.1. Organization. Lender is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to own its properties and to carry on
its business as now conducted and to carry out the transactions contemplated by
this Agreement.
Section 3.2. Investment Intent. The Warrant is being purchased for
Lender's own account and not with the view to, or for resale in connection
with, any distribution or public
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offering thereof in violation of the registration requirements of the
Securities Act or any applicable state securities laws. Lender understands that
the Warrant has not been registered under the Securities Act or any state
securities law by reason of its contemplated issuance in a transaction exempt
from the registration and prospectus delivery requirements of the Securities
Act and any such law. Lender further represents that it is fully informed as to
the applicable limitations upon any distribution or resale of the Warrant under
the Securities Act or any applicable state securities laws and agrees not to
distribute or resell the Warrant (i) unless either (A) they first shall have
been registered under the Securities Act or (B) Borrower first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to
Borrower, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act, and (ii) for so long as
Borrower's Common Stock is not registered under Section 5 the Act and unless
otherwise agreed by Borrower, to any transferee which is a potential or actual
customer, supplier or competitor of Borrower.
Section 3.3. Authority. Lender has the right, power and authority and
is duly authorized and empowered to enter into, execute, deliver and perform
this Agreement and each of the Other Documents to which it is a party, and the
officers of Lender executing and delivering this Agreement and such Other
Documents are fully authorized and empowered to do so.
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Section 3.4. Binding Agreements. Each of the Agreement and the Other
Documents to which Lender is a party has been duly authorized by all necessary
corporate action of Lender, and has been executed and delivered and constitutes
the valid and binding obligation of Lender, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as such enforceability
may be limited by applicable equitable principles.
Section 3.5. No Violation. The execution, delivery and performance by
Lender of this Agreement and the Other Documents to which it is a party will
not violate any provision of law, any order, rule or regulation of any
Governmental Authority, or the Certificate of Incorporation or By-laws of
Lender.
ARTICLE IV. CONDITIONS PRECEDENT
The obligation of Lender to be bound by this Agreement and to make the
Loans contemplated by the Note and to purchase and acquire the Warrant is
subject to the execution and delivery of this Agreement by Borrower and the
Acknowledgment by the Guarantors and the satisfaction of the following
conditions precedent:
Section 4.1. Representations and Warranties. On the Closing Date and
on the date of the Supplemental Loan, the representations and warranties of
Borrower contained in this
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Agreement, the Other Documents and all other documents to be delivered to
Lender pursuant hereto or thereto shall be true and correct in all material
respects.
Section 4.2. Covenants. All covenants and agreements on the part of
Borrower to be performed hereunder on or prior to the Closing Date (or the date
of any Supplemental Loan) shall have been performed.
Section 4.3. No Material Adverse Change. There shall have been no
material adverse change in Borrower's assets, properties, liabilities,
operations, condition (financial or otherwise), business or executive management
prior to the Closing Date (or the date of any Supplemental Loan).
Section 4.4. No Event of Default. On the Closing Date (and on the date
of any Supplemental Loan), no Event of Default, or event which, with notice or
lapse of time or both, would constitute such an Event of Default, shall have
occurred and be continuing.
Section 4.5. Insurance. Insurance complying with Section 5.7 of this
Agreement shall be in full force and effect and, on or before the Closing Date,
Borrower shall have delivered to Lender one or more certificates of insurance,
setting forth the insurance obtained in accordance with such Section and stating
that such insurance is in full force and effect and that all premiums then due
thereon have been paid.
Section 4.6. Fees and Expenses. Borrower shall have paid in full to
Lender, in immediately available funds, the Financing Fee and the Closing
Expenses on the Closing Date.
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Section 4.7. Closing Date Documentation. Lender shall have received,
on or prior to the Closing Date, the following documents:
(a) the Note, duly executed and delivered;
(b) the Warrant, duly executed and delivered;
(c) the Registration Rights Agreement, duly executed and delivered;
(d) the Stock Transfer Agreement, duly executed and delivered;
(e) the Security Agreements and the Guaranties, duly executed and
delivered, together with acknowledgement copies of the filed UCC-1 Financing
Statements accompanying each Security Agreement;
(f) certified copy of the approval of the preferred stockholders of
Borrower to the transactions contemplated by this Agreement and the Other
Documents;
(g) certified copies of the Articles of Incorporation, By-laws and
evidence of good standing of Borrower and each of the Guarantors in the
Commonwealth of Virginia and in each jurisdiction in which the failure to so
qualify could have a material adverse effect upon the assets and properties,
operations, condition (financial or otherwise) or business of Borrower and its
Subsidiaries, taken as a whole;
(h) certified copies of the resolutions of (i) the Board of
Directors of Borrower authorizing the execution and delivery of the Agreement,
the Note and the Other Documents by Borrower and the performance by Borrower of
all of the terms
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thereof and (ii) the Board of Directors of each Guarantor authorizing the
execution and delivery of the Acknowledgment and of the Guaranty and Security
Agreement to which it is a party;
(i) a certificate of the Secretary of Borrower and of each
Guarantor, dated the Closing Date, certifying to Lender the names of Borrower's
and each Guarantor's officers, the offices that each holds and the authenticity
of their signatures;
(j) a certificate of the Borrower, dated the Closing Date,
certifying to Lender that the conditions specified in Sections 4.1, 4.2 and 4.4
of this Agreement have been fulfilled;
(k) the opinion of counsel for Borrower, dated the Closing Date, in
the form attached hereto as Exhibit C;
(l) SBA Forms 480 (Size Status Declaration) and 652-D (Declaration
of Non-Discrimination), properly completed and executed by the Borrower; and
(m) such other items, instruments, documents and certificates as to
the transactions contemplated by this Agreement and the Other Documents as
Lender may reasonably request.
Section 4.8. Supplemental Loan Documentation. Lender shall have
received, on or prior to the date of any Supplemental Loan, the following
documents:
(a) a certificate of the Secretary of Borrower, dated the date of
the Supplemental Loan, certifying the names of Borrower's officers, the offices
that each holds and the authenticity of their signatures;
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(b) a certificate of Borrower, dated the date of the Supplemental
Loan, confirming that the conditions specified in Sections 4.1, 4.2 and 4.4 of
this Agreement have been fulfilled; and
(c) such other items, instruments, documents and certificates as to
the transactions contemplated by this Agreement and the Other Documents as
Lender may reasonably request.
The obligation of Borrower to be bound by this Agreement and to issue
the Warrant is subject to the execution and delivery of this Agreement by
Lender and the satisfaction of the following conditions precedent:
Section 4.9 Representations and Warranties. On the Closing Date, the
representations and warranties of Lender contained in this Agreement, the Other
Documents and all other documents to be delivered to Borrower pursuant hereto
or thereto shall be true and correct in all material respects.
Section 4.10 Closing Date Documentation. Borrower shall have received,
on or prior to the Closing Date, the following documents:
(a) a certificate of the Secretary of Lender, dated the Closing Date,
certifying to Borrower the names of Lender's officers, the offices that each
holds and the authenticity of their signatures;
(b) a certificate of the Lender, dated the Closing Date, certifying to
Borrower that the conditions specified in Section 4.9 of this Agreement have
been fulfilled; and
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(c) the opinion of Lender's legal department, dated the Closing Date, in
the form attached hereto as Exhibit D.
ARTICLE V. AFFIRMATIVE COVENANTS
From the date of this Agreement until (i) all amounts due and payable under
the Note have been paid and (ii) Lender is no longer a holder of the Warrant or
any shares of Common Stock issued pursuant thereto, Borrower covenants and
agrees that it and its Subsidiaries shall:
Section 5.1. Financial Reporting Requirements.
Furnish to Lender:
(a) As soon as available, but in no event more than thirty (30) days after
the end of each monthly accounting period of Borrower: (i) a consolidating and
consolidated statement of income and an accompanying balance sheet and cash
flow statement of Borrower and its Subsidiaries for such period and for the
period from the beginning of the current year of Borrower to the end of such
period, setting forth in each case comparative form figures for (A) the
corresponding periods in the preceding fiscal year of Borrower and (B) the
corresponding periods in the budget of Borrower, all in form and format
customarily provided to the Board of Directors of Borrower, which fairly
presents the financial condition of the Borrower, certified on behalf
of Borrower by the principal financial officer of Borrower and stating whether
any action, event or condition of any nature has occurred which constitutes an
Event of Default or which could
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constitute an Event of Default with the giving of notice, the lapse of time or
both and, if so, stating the facts with respect thereto (the "Interim Financial
Statements");
(b) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of Borrower, (i) audited consolidated
statements of income and retained earnings, stockholders equity and cash flows
of Borrower and its Subsidiaries for such year, and (ii) an audited
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such year, setting forth in each case in comparative form corresponding figures
for the preceding fiscal year of Borrower, prepared in accordance with GAAP by
independent certified public accountants whose selection has been ratified by
the Board of Directors of Borrower and accompanied by a certificate of the
principal financial officer of Borrower stating whether any action, event or
condition of any nature has occurred which constitutes an Event of Default or
which could constitute an Event of Default with the giving of notice, the lapse
of time or both and, if so, stating the facts with respect thereto ("Financial
Statements"); and
(c) Such other information, reports or statements concerning the
operations, business affairs and/or financial condition of Borrower and its
Subsidiaries as Lender may reasonably request from time to time.
Section 5.2. Tax Returns and Payment of Taxes. File all lawful
foreign, federal, state and local tax returns and other reports which it is
required by law to file, maintain
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adequate reserves for the payment of all taxes imposed upon it, its income, or
its profits, or upon any assets or properties belonging to it and pay and
discharge all such taxes prior to the date on which penalties attached thereto,
except where such taxes are being contested in good faith by appropriate
proceedings and adequate book reserves have been established with respect to
each such claim being contested.
Section 5.3. Compliance With Laws. Comply with all laws,
rules, regulations and other requirements of any Governmental Authorities to
which it or any of its assets or properties is subject and obtain and maintain
all licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its assets and properties, or to the conduct of
its business.
Section 5.4. Books and Records. Keep and maintain proper
and current books and records which fairly present in all material respects the
financial condition of the Borrower and, upon reasonable notice, permit Lender
and its representatives to visit its properties, examine and copy (at
Borrower's expense) its books and records and to conduct an annual audit of its
books and records.
Section 5.5. Maintenance of Properties. Maintain all
properties and improvements necessary to the conduct of Borrower's or its
Subsidiaries' business in good working order and condition, ordinary wear and
tear excepted, and cause replacements and repairs to be made when necessary for
the proper conduct of its business.
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Section 5.6. Patents, Franchises. Maintain, preserve and protect all
licenses, patents, franchises, trademarks and trade names of Borrower and its
Subsidiaries, or licenses by Borrower or any Subsidiary, which are necessary to
the conduct of the business of Borrower or its Subsidiaries as now conducted,
free of any conflict with the rights of any other Person, except where the
failure to do so could have no material adverse effect upon the assets,
properties, operation, condition (financial or otherwise) or business of
Borrower and any of its Subsidiaries, taken as a whole.
Section 5.7. Insurance. Maintain insurance coverage by financially sound
and reputable insurers in such forms and amounts and against such risks as are
customary for corporations of established reputation engaged in the same or
similar lines of business as Borrower and owning and operating properties
similar to those owned and operated by Borrower.
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From the date of this Agreement until the closing of a Qualifying
Public Offering, Borrower covenants and agrees that it and its Subsidiaries
shall:
Section 5.11. Business and Existence. Preserve and maintain its legal
existence and all rights, privileges, and franchises in connection therewith,
and maintain its qualification and good standing in all states or other
jurisdictions in which the failure to so maintain qualification and good
standing could have a material adverse effect upon the assets and properties,
operations, condition (financial or otherwise) or business of Borrower and its
Subsidiaries, taken as a whole.
Section 5.12. Annual Budget and Business Plan.
(a) Establish an annual budget within thirty (30) days after the
commencement of each fiscal year of Borrower for the operation of Borrower and
its Subsidiaries, which annual budget shall include calculations for each month
of Borrower's fiscal
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year and a capital expenditure budget and shall be approved by a majority of
the members of the Board of Directors of Borrower, and provide Lender with a
copy of each such annual budget promptly upon, but in no event later than ten
(10) Business Days after, its approval by the Board of Directors of Borrower.
(b) Prepare and deliver to Lender an annual business plan at the
commencement of each fiscal year of Borrower, which plan shall be delivered to
Lender with the budget referred to in the preceding subsection (a). The
business plan shall reflect: (i) sales, net income and capital expenditures
forecasts; (ii) Borrower's expansion, growth and acquisition strategy for the
relevant fiscal year; (iii) payroll and total expense budgets for each of the
Borrower's departments; and (iv) Borrower's projected capital needs for the
coming fiscal year.
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Section 6.3. Dividends. From the date of this Agreement until the
closing date of a Qualifying Public Offering, Borrower shall not declare or pay
dividends upon any of Borrower's capital stock or make any distributions in
respect of Borrower's capital stock of Borrower's assets or properties to any
Person except for stock dividends or splits in contemplation of a Qualifying
Public Offering.
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Section 6.5. Change of Business. From the date of this Agreement until
the closing date of a Qualifying Public Offering, Borrower and its Subsidiaries
shall not directly or indirectly engage in any line of business unrelated to
software, payroll, benefit or tax processing services or information services.
Section 6.6. Affiliates. From the date of this Agreement until the
closing date of a Qualifying Public Offering, Borrower shall not enter into any
agreement or arrangement with any Affiliate of Borrower whereby Borrower agrees
to pay management fees, service fees, licensing fees, consulting fees, research
and development fees, royalties or any other form of compensation to such
Affiliate, except for fees or compensation for services rendered where such
fees or compensation are comparable to similar fees which would be paid to
unrelated third parties for the same or similar services.
Section 6.7. Compensation. From the date of this Agreement until the
closing date of a Qualifying Public Offering, Borrower shall not make any
material change in the compensation of any officer or director of Borrower,
except for (a) reasonable merit adjustments to compensation consistent with
prevailing market conditions in the software and information services
industries and (b) reasonable adjustments related to changes in the
responsibilities or duties of the relevant officer or director.
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ARTICLE VII. ADDITIONAL COVENANTS
Section 7.1. Registration Rights. Lender and Borrower desire to
provide for certain registration rights for the shares of Common Stock issuable
upon exercise of the Warrant. Accordingly, Lender and Borrower shall enter
into a Registration Rights Agreement, in the form attached hereto as Exhibit E
(the "Registration Rights Agreement"), on or prior to the Closing Date.
Section 7.2. Right of First Refusal. From the date of this Agreement
until the closing date of a Qualifying Public Offering, Borrower covenants and
agrees that Lender shall have the following rights of first refusal:
(a) In the event Borrower, at any time or times hereafter, desires to
obtain new Subordinated Debt financing (other than a debt financing described
in Section 7.2(b) hereof), Borrower shall provide Lender with written notice
thereof,
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together with the proposed terms and conditions of such new Subordinated Debt
financing (the "Notice"). Upon receipt of the Notice from Borrower, Lender
shall have the exclusive right and option, exercisable at any time during the
period of fifteen (15) days from the date of the receipt of the Notice, to
elect to provide such new Subordinated Debt financing on the proposed terms and
conditions described in the Notice. In the event Lender does not elect to
provide such new Subordinated Debt financing, Borrower will have the right to
obtain such new Subordinated Debt from another Person on terms and subject to
conditions substantively no more favorable than those offered to Lender. In the
event that another Person fails to provide such Subordinated Debt financing on
the proposed terms and conditions described in the Notice within a period of
one hundred eighty (180) days from the expiration of the fifteen (15) day
exercise period described in this Section 7.2(a), any proposed Subordinated
Debt financing must again be initiated and consummated pursuant to the terms of
this Section 7.2(a).
(b) In the event Borrower, at any time or times hereafter, desires to
obtain other than through a Qualifying Public Offering new equity financing or
debt financing providing for the issuance of debt or equity securities (other
than a Senior Indebtedness financing, a Subordinated Debt financing described
in Section 7.2(a) hereof or the issuance of debt or equity securities in
conjunction with an acquisition) (an "Equity Financing"), Borrower shall
provide Lender with written notice thereof, together with the proposed terms
and conditions of such
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new Equity Financing (the "Equity Notice"). Upon receipt of the Equity Notice
from Borrower, Lender shall have the right and option, exercisable at any time
during the period of fifteen (15) days from the date of the receipt of the
Equity Notice, to elect to provide that portion of such Equity Financing that
the number of shares of Common Stock held by Lender (including the maximum
number of such shares that may be issued upon exercise of the Warrant) bears to
the total number of shares of Common Stock outstanding at the time. In the
event Lender does not elect to provide its pro rata portion of such Equity
Financing, Borrower will have the right to obtain such new Equity Financing from
another Person on terms and subject to conditions not substantively more
favorable than those offered to Lender. In the event that such new Equity
Financing is not provided by third Persons within a period of one hundred
twenty (120) days from the expiration of the fifteen (15)-day exercise period
described in this Section 7.2(b), any proposed Equity Financing must again be
initiated and consummated pursuant to the terms of this Section 7.2(b).
Section 7.3. Cure of Senior Indebtedness Defaults. Borrower shall
promptly, but in no event later than the earlier of the commencement of any cure
period relating thereto or three (3) Business Days after Borrower's knowledge
thereof, advise Lender of the occurrence or existence of any events,
conditions, acts or omissions that constitute an event of default under any
Senior Indebtedness. Upon receipt of such notice of default and after
confirming with Borrower that Borrower is unable or does
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not intend to cure such default or is not contesting such default in good
faith, Lender may, without waiving or releasing any obligation or liability of
Borrower under this Agreement or any Event of Default, in its sole discretion,
at any time or times thereafter, cure such default, including, without
limitation, any payment default. All sums so paid by Lender shall bear
interest at a rate of seventeen percent (17%) per annum, shall be due and
payable by Borrower upon demand by Lender and shall be evidenced by a
promissory note of Borrower in favor of Lender (the "Senior Default Note").
All fees (including reasonable attorneys' fees), court costs, expenses and
other charges relating to all sums so paid by Lender shall be due and payable
by Borrower upon demand by Lender.
Section 7.4. Board Representation. Until such time as
Lender is the holder of less than two percent (2%) of the Common Stock, as
calculated on a fully diluted basis, including all shares issuable upon
conversion of Preferred Stock and upon exercise of the Warrant and all other
warrants and granted options, Lender shall have the right to designate one
member of the Board of Directors of Borrower, which Board of Directors shall
not exceed eight (8) members in total. Lender initially designates Peter Del
Presto as its nominee to the Board of Directors pursuant to this Section 7.4.
The member of the Board of Directors designated by Lender shall be entitled to
receive Director's fees equal to those fees paid to other non-management
Directors, and shall be entitled to reimbursement of all reasonable
out-of-pocket expenses incurred in connection with
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<PAGE> 37
attendance at such meeting. If Borrower reasonably objects to any successor to
succeed Peter Del Presto, designated by Lender pursuant to this Section 7.4,
Lender shall designate another individual to serve on Borrower's Board of
Directors.
7.5. Confidentiality. Lender agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which Lender may obtain from Borrower pursuant to financial
statements, reports and other materials submitted by Borrower to Lender
pursuant to this Agreement, or pursuant to the board representation rights
granted hereunder, unless such information is known, or until such information
becomes known, to the public; provided, however, that Lender may disclose such
information to its Affiliates and to its attorneys, accountants, consultants
and other professionals to the extent necessary to obtain their services in
connection with its loan to and investment in Borrower and to any prospective
permitted assignee of the Note or the Warrant as long as such prospective
assignee agrees in writing to be bound by the provisions of this section.
7.6. Amendment of Articles of Incorporation.
Borrower has called a special meeting of its shareholders to be held on March
23, 1993 to approve amendments to its articles of incorporation to eliminate
the preemptive rights provided by Article Four of such articles. The Company
covenants and agrees that promptly following receipt of the approval of such
amendments at such meeting it shall file appropriate articles of amendment with
the State Corporation Commission of the Commonwealth of Virginia and shall
promptly issue the Warrant.
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<PAGE> 38
ARTICLE VIII. EVENTS OF DEFAULT; REMEDIES ON DEFAULT
8.1. Events of Default. The occurrence or existence of any
of the following events, conditions, acts or omissions (including, if and to
the extent expressly specified, the passage of time, the giving of notice, or
the happening of any further event, condition, act or omission) shall
constitute an "Event of Default" hereunder:
(a) Borrower fails to make payment of principal or interest
on the Note or any Senior Default Note as and when due, whether by acceleration
or otherwise, and such failure to pay is not cured and continues for a period
of fifteen (15) days after the date due;
(b) Borrower fails to pay any other Obligations requiring
payment of funds as and when due (other than such other Obligations being
contested in good faith by Borrower), and such failure to pay is not cured and
continues for a period of thirty (30) days after the date when due;
(c) Borrower defaults in the payment when due (whether by
acceleration or otherwise) of principal or interest or premium on any other
Indebtedness for the payment of borrowed money (whether evidenced by a bond,
note, debenture, book entry or otherwise), or Borrower defaults in the
performance of any agreement under which any such Indebtedness is created, if
as a result of such default the holders of such Indebtedness (or any Person on
behalf of such holders) have declared such Indebtedness due prior to its
expressed maturity;
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<PAGE> 39
(d) Borrower breaches any material representation or warranty
contained in this Agreement or in the Other Agreements, or fails to perform,
keep or observe any other material term, provision, condition or covenant
contained in this Agreement or in any of the Other Agreements, and such failure
is not cured to Lender's reasonable satisfaction within thirty (30) days after
Lender gives Borrower written notice identifying such failure;
(e) A default shall occur under any other agreement, document or
instrument other than this Agreement or the Other Agreements, to which Borrower
is a party or by which Borrower is bound, the consequences of which are
reasonably expected to have a material adverse effect on the assets and
properties, liabilities, operations, condition (financial or otherwise) or
business of Borrower and its Subsidiaries, taken as a whole;
(f) Any statement, report, financial statement or certificate made or
delivered to Lender by Borrower, or any of its officers, employees or agents,
is not true, correct and complete in all respects; provided, that such
misstatements or omissions must, individually or in the aggregate, involve
facts or circumstances which would have a material adverse effect upon the
assets and properties, operations, condition (financial or otherwise) or
business of Borrower and its Subsidiaries, taken as a whole;
(g) There shall occur any material uninsured damage to or loss, theft
or destruction of any of the assets or properties of Borrower;
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<PAGE> 40
(h) Any judgment, decree or order for the payment of money
in excess of Two Hundred Thousand Dollars ($200,000) shall be entered
against Borrower and such judgment, decree or order shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days
without being vacated, discharged, satisfied, stayed or bonded pending
appeal;
(i) A notice of lien, levy or assessment is filed of record
with respect to all or any of Borrower's assets by the United States,
or any Governmental Authority, or if any taxes or debts owing at any
time or times hereafter to any of the foregoing becomes payable (which
in the aggregate with other such claims or taxes outstanding at the
same time are in excess of Two Hundred Thousand Dollars ($200,000)),
and the same is not paid within thirty (30) days after the same becomes
payable; provided, however, that such notice of lien, levy or
assessment or failure to pay taxes shall not be an Event of Default
if being contested in good faith by Borrower;
(j) Borrower admits in writing its inability to pay its
debts as they mature;
(k) Any of Borrower's assets are attached, seized, levied
upon or subjected to a writ or distress warrant and such attachment,
seizure, levy or writ or distress warrant could have a material adverse
effect upon the assets and properties, operations, condition (financial
or otherwise) or business and Borrower and its Subsidiaries, taken as a
whole; or any of Borrower's assets come within the possession of any
receiver, trustee, custodian or assignee for the benefit of
creditors and
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<PAGE> 41
the same is not cured within sixty (60) days thereafter; or an application is
made by any Person other than Borrower for the appointment of a receiver,
trustee or custodian for any of Borrower's assets and the same is not dismissed
within sixty (60) days after the application therefor;
(l) An application is made by Borrower for the appointment of a
receiver, trustee or custodian for any of Borrower's assets; or a petition
under any section or chapter of the federal Bankruptcy Code or any similar law
or regulation shall be filed by Borrower; or Borrower makes an assignment for
the benefit of its creditors or any case or proceeding is filed by Borrower for
its dissolution, liquidation or termination;
(m) Borrower ceases to conduct all or any material part of its
business; or Borrower is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business affairs and such
injunction, restraint or other preventative order is not dismissed within
thirty (30) days after the entry thereof; or a petition under any section or
chapter of the federal Bankruptcy Code or any similar law or regulation is
filed against Borrower or any case or proceeding is filed against Borrower for
its dissolution or liquidation, and such petition, case or proceeding is not
dismissed within thirty (30) days after the filing thereof;
(n) The designee of Lender is not (i) elected to the Board of
Directors of Borrower, pursuant to Section 7.4 hereof, at any time prior to the
closing of a Qualifying Public Offering or (ii) nominated by the Company for
election to the Board of
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<PAGE> 42
Directors of Borrower at any time after the closing of a Qualifying Public
Offering; or
(o) The Shareholders' Agreement among Borrower, James F. Petersen,
Dorothy Webb and Edison Venture Fund, L.P. dated as of October 26, 1988 is not
amended as contemplated by Section 7 of the Stock Transfer Agreement within
thirty (30) days of the date of this Agreement.
Section 8.2 Remedies. Upon the occurrence and during the continuance
of any such Event of Default, Lender shall be entitled upon notice to Borrower
to take any action to enforce any and all of the rights of Lender under this
Agreement or the Other Documents and to declare the Obligations and all other
payments required to be made under this Agreement and the Other Documents to
be immediately due and payable, both as to principal and interest, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained in this Agreement or the Other
Documents to the contrary notwithstanding; provided, however, that the
occurrence of any of the events set forth in Subsections 8.1(k), (l) or (m)
shall cause the immediate acceleration of the Obligations and all other
payments required to be made under this Agreement and the Other Documents.
ARTICLE IX. DEFINITIONS
Section 9.1. Certain Defined Terms. As used in this Agreement,
including the exhibits and schedules hereto, the following terms shall have the
following meanings unless the context otherwise requires:
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"Acknowledgment" shall mean the Acknowledgment by Guarantors of Payment
attached to this Agreement.
"Affiliate" of a Person shall mean any officer, director or record or
beneficial owner of ten percent (10%) or more of the equity securities of any
Person, or any Person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, such Person.
"Agreement" shall have the meaning set forth in the preamble hereto.
"Borrower" shall have the meaning set forth in the preamble hereto.
"Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday in the Commonwealth of Pennsylvania.
"Common Stock" shall have the meaning set forth in Section 2.6 hereof.
"Closing Date" shall mean the date on which the Conditions to Closing
set forth in Sections 4.1 through 4.7 and Sections 4.9 and 4.10 have been
fulfilled.
"Closing Expenses" shall have the meaning set forth in Section 10.3(b)
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Deposits" shall mean liabilities to Borrower's customers for advance
payments, prepayments and deposits received by Borrower in the ordinary course
of business in respect of software and other products and services of Borrower
to be delivered to such customers.
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<PAGE> 44
"Environmental Laws" shall mean any and all statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions, controls, sanctions or remedies relating to the environment or
the placement or release of any materials into the environment.
"Employee Plans" shall have the meaning set forth in Section 2.18(a)
hereof.
"Equity Financing" shall have the meaning set forth in Section 7.2(b)
hereof.
"Equity Notice" shall have the meaning set forth in Section 7.2(b)
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and all rules and regulations promulgated thereunder.
"Event of Default" shall have the meaning set forth in Section 8.1
hereof.
"Financial Statements" shall mean (a) audited consolidating and
consolidated statements of income and retained earnings, stockholders equity and
cash flows of Borrower and its Subsidiaries for fiscal years ended March 31,
1991 and 1992, and (b) an audited consolidating and consolidated balance sheet
of Borrower and its Subsidiaries as at March 31, 1991 and March 31, 1992.
"Financing Fee" shall have the meaning set forth in Section 10.3(a)
hereof.
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<PAGE> 45
"GAAP" shall mean generally accepted accounting principles set forth
in the Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial Accounting
Standards Board and/or in such other statement by such other entity as the
parties hereto may mutually agree, which are applicable as of the date in
question. The requirement that such principles be applied on a consistent basis
shall mean that the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period
except as otherwise permitted by GAAP.
"Governmental Authorities" shall mean all governmental authorities,
regulatory agencies and courts, whether foreign, federal, state, local or
other, at law or in equity.
"Guaranties" shall mean the guaranties to be executed and delivered by
the Guarantors in the form attached hereto as Exhibit H.
"Guarantors" shall mean Master Tax and Accounting, Inc. and Abra
Cadabra Software, Inc., Virginia corporations and Subsidiaries of Borrower.
"Indebtedness" with respect to any Person means, as of the date of
determination thereof, (a) all of such Person's indebtedness for borrowed
money, (b) all indebtedness for borrowed money of such Person or any other
Person secured by any Lien with respect to any property or asset owned or held
by such Person, regardless whether the indebtedness secured thereby shall have
been assumed by such Person, (c) all indebtedness for
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<PAGE> 46
borrowed money of other Persons which such Person has directly or indirectly
guaranteed (whether by discount or otherwise), endorsed (otherwise than for
collection or deposit in the ordinary course of business), discounted with
recourse to such Person or with respect to which such Person is otherwise
directly or indirectly liable, and (d) all actual or contingent reimbursement
obligations with respect to letters of credit issued for such Person's account.
"Interim Financial Statements" shall have the meaning set forth in
Section 5.1(a) hereof.
"IRS" shall mean the Internal Revenue Service.
"Lender" shall have the meaning set forth in the preamble hereto.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including without limitation, any
agreement to give or not to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the
filing of or agreement to give any financing statement or other similar form
of public notice under the laws of any jurisdiction.
"Loans" shall have the meaning set forth in Section 1.1(a) hereof.
"Net Worth" shall have the meaning set forth in Section 5.10(a) hereof.
"Note" shall have the meaning set forth in the recitals hereto, and
shall be in the form of Exhibit A attached hereto.
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<PAGE> 47
"Notice" shall have the meaning set forth in Section 7.2(a) hereof.
"Obligations" shall mean the loans, advances, debts, liabilities,
obligations, covenants and duties owed by the Borrower to Lender, pursuant to
this Agreement, the Note, the Other Documents or any other document ancillary
hereto or thereto of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, arising under this
Agreement, the Note, the Other Documents or under any of the other aforesaid
agreements or documents, whether or not for the payment of money, whether
arising by reason of an extension of credit, loan, guaranty, indemnification or
other transaction or in any other manner, whether direct or indirect
(including, without limitation, those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however
acquired, including, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements and any other sum chargeable to Borrower under
this Agreement, the Note, the Other Documents or any other agreement or
document referenced in this definition.
"Other Documents" shall mean the Note, the Warrant, the Registration
Rights Agreement, the Stock Transfer Agreement, the Security Agreements, the
Guaranties, any Senior Default Note, and all other agreements, instruments and
documents heretofore, now or hereafter executed by Borrower or any other Person
and/or delivered to Lender with respect to the transactions contemplated by
this Agreement, in each instance as
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the foregoing may be amended, modified or supplemented from time to time.
"Outstanding Balance" shall have the meaning set forth in Section
1.4(c) hereof.
"Permitted Indebtedness" shall mean all that Indebtedness of Borrower
identified in subsections (i)-(vi) of Section 6.1(c) hereof.
"Person" shall mean an individual, corporation, business trust,
association, company, partnership, joint venture, trust, unincorporated
organization or other entity, or a government or any agency or political
subdivision thereof.
"Preferred Stock" shall have the meaning set forth in Section 2.6(a)
hereof.
"Qualifying Public Offering" and "Public Offering" shall have the
meanings set forth in Section 1.4(c) hereof.
"Registration Rights Agreement" shall have the meaning set forth in
Section 7.1 hereof, and shall be in the form attached hereto as Exhibit E.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Agreements" shall mean the Security Agreements, dated the
Closing Date, between Lender and Borrower and between Lender and the Guarantors
in the forms attached hereto as Exhibits F-1, and F-2.
"Senior Indebtedness" shall have the meaning set forth in the Note.
"Senior Default Note" shall have the meaning set forth in Section 7.3
hereof.
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"Stock Transfer Agreement" shall mean the Stock Transfer Agreement
dated the Closing Date, by and among Lender, Borrower and certain of Borrower's
shareholders, in the form attached hereto as Exhibit G.
"Subordinated Debt" shall mean Indebtedness for borrowed money of
Borrower subordinate in right of payment to or pari passu with the Obligations.
"Subsidiary" or "Subsidiaries" shall mean any corporation at least a
majority of the outstanding Voting Stock of which is owned, now or in the
future, by Borrower, or by Borrower and one or more of its subsidiaries.
"Supplemental Loan" shall have the meaning set forth in Section 1.1(b)
hereof.
"Voting Stock" shall mean the shares of any class of capital stock of a
corporation having ordinary voting power to elect the directors, officers or
trustees thereof, including such shares that shall or might have voting power
by reason of the occurrence of one or more conditions or contingencies.
"Warrant" shall have the meaning set forth in the recital hereto, and
shall be in the form attached hereto as Exhibit B.
Section 9.2. Form and Interpretation. Words of the masculine gender
are to be construed to include correlative words of the feminine and neuter
genders. Words in the singular number include words of the plural number and
words in the plural number include words of the singular number. Accounting
terms used, but not otherwise defined, in this Agreement will
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have the respective meanings given to them under, and are to be construed in
accordance with GAAP.
ARTICLE X. MISCELLANEOUS
Section 10.1. Survival of Obligations Upon Termination of Agreement.
Except as otherwise expressly provided for in this Agreement and in any of the
Other Documents, no termination or cancellation (regardless of cause or
procedure) of this Agreement or any of the Other Documents shall in any way
affect or impair the powers, obligations, duties, rights, and liabilities of
Borrower or Lender in any way or respect relating to any transaction or event
occurring prior to such termination or cancellation.
Section 10.2. Modification of Agreement; Sale of Interest. This
Agreement and the Other Agreements may not be modified, altered or amended,
except by an agreement in writing signed by Borrower and Lender. Borrower may
not sell, assign or transfer this Agreement, the Note or the Other Documents or
any portion hereof or thereof, including, without limitation, Borrower's
rights, title, interests, remedies, powers and/or duties hereunder or
thereunder. Borrower hereby consents to Lender's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement, the Note or the Other Documents or of any portion hereof or
thereof, including, without limitation, Lender's rights, title, interests,
remedies, powers and/or duties hereunder or thereunder; provided, however, that
(a) Lender shall make no
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such participation, sale, assignment, transfer or other disposition before the
earlier of (i) the date of the Supplemental Loan and (ii) the earlier to occur
of a Qualifying Public Offering or the second anniversary of the Closing Date
and (b) any such participation, sale, assignment, transfer or other disposition
by Lender shall be subject to and in compliance with the transfer restrictions
of the Warrant and the Stock Transfer Agreement; and provided further, that the
rights of Lender under Section 7.4 hereof shall be non-transferable except to
an Affiliate of Lender.
Section 10.3. Fees and Expenses. (a) On the Closing Date, Borrower
shall pay to Lender a financing fee of One Hundred Thousand Dollars ($100,000)
(the "Financing Fee").
(b) On the Closing Date, Borrower shall pay or reimburse Lender for
all of its reasonable out-of-pocket expenses (including, without limitation,
reasonable attorneys' fees) incurred in connection with the negotiation and
preparation of this Agreement and the Other Documents and the transactions
contemplated hereby and thereby (the "Closing Expenses").
(c) After the Closing Date, Borrower shall pay or reimburse Lender on
demand for all of its reasonable costs and expenses (including, but not limited
to, reasonable attorneys' fees and legal expenses) incurred in connection with
the Supplemental Loan and Lender's enforcement of the payment of principal
and/or interest under the Note or any Senior Default Note.
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Section 10.4. Waiver by Lender. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance. Any suspension or waiver by Lender
of an Event of Default by Borrower under this Agreement or the Other Documents
shall not suspend, waive or affect any other Event of Default by Borrower under
this Agreement or the Other Documents, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or the Other Documents and no Event of Default by
Borrower under this Agreement or the Other Documents shall be deemed to have
been suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing signed by an officer of Lender and directed to Borrower
specifying such suspension or waiver.
Section 10.5. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If, however, any provision of this Agreement shall be
prohibited by or be invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, unless the ineffectiveness of such provision materially and
adversely alters the benefits accruing to either party hereunder.
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Section 10.6. Parties. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of the successors and assigns of
Borrower and Lender.
Section 10.7. Conflict Regarding Terms. All of the Other Documents
and all Schedules and Exhibits referred to in this Agreement shall be and be
deemed to be incorporated herein by reference for all purposes, notwithstanding
that any one or more of such Other Documents, Exhibits and/or Schedules may not
be physically attached to or otherwise accompany any counterpart or copy of
this Agreement. Except as otherwise provided in this Agreement and except as
otherwise provided in the Other Documents by specific reference to the
applicable provision of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in the Other
Documents, the provisions contained in this Agreement shall govern and control.
Section 10.8. Governing Law; Submission to Jurisdiction. THIS
AGREEMENT AND THE NOTE SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF
THE PARTIES TO THIS AGREEMENT AND THE NOTE SHALL FOR ALL PURPOSES BE GOVERNED
BY AND CONSTRUED AND ENFORCED, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAWS, IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS EXECUTED, DELIVERED AND PERFORMED WITHIN
SUCH COMMONWEALTH. AS PART OF THE CONSIDERATION FOR VALUE RECEIVED, BORROWER
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE CITY OF PITTSBURGH, COMMONWEALTH OF PENNSYLVANIA, AND
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<PAGE> 54
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED
TO BORROWER AT THE ADDRESS STATED IN SECTION 10.9 HEREOF (OR SUCH OTHER ADDRESS
AS MAY BE DULY DESIGNATED BY BORROWER PURSUANT TO SECTION 10.9 HEREOF) AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
BORROWER WAIVES ANY OBJECTION TO VENUE OF PENNSYLVANIA OF ANY ACTION INSTITUTED
UNDER THIS AGREEMENT OR THE NOTE BY BUYER.
Section 10.9. Notice. Except as otherwise provided herein, any notice
or other written communication required hereunder shall be in writing, and shall
be deemed to have been validly served, given or delivered (a) upon deposit in
the United States mails, with proper postage prepaid, (b) by hand delivery, (c)
by overnight express mail courier, or (d) by telecopier, and addressed to the
party to be notified at the address set forth below or at such other address as
each party may designate for itself in writing by like notice.
To the Lender:
PNC Capital Corp
Pittsburgh National Bank
19th Floor
Fifth Avenue and Wood Street
Pittsburgh, PA 15222
Attention: Peter V. Del Presto
Vice President
To the Borrower:
Best Programs, Inc.
11413 Isaac Newton Square
Reston, VA 22090
Attention: Melody S. Ranelli
Executive Vice President and
Chief Financial Officer
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<PAGE> 55
With a copy to:
David Sylvester, Esq.
Hale and Dorr
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Section 10.10. Materiality. As used herein, the terms "material
adverse change" and "material adverse effect" shall mean a material adverse
change or effect in the financial condition, results of operations or business
of Borrower and its Subsidiaries taken as a whole. "Material" shall mean,
with respect to any matter, item or event, any matter, item or event which is
material to the financial condition, results of operations or business of
Borrower and its Subsidiaries taken as a whole.
Section 10.11. Section Titles. The article and section titles
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties thereto.
Section 10.12. Prior Understanding. This Agreement supersedes all
prior understanding and agreements, whether written or oral, between the
parties hereto and thereto relating to the transaction provided for herein or
therein.
Section 10.13. Exceptions to Covenants. Borrower shall not be deemed
to be permitted to take any action or fail to take any action under any
exception to any covenant contained herein or by reason of permissible limits
contained in any covenant contained herein if such action or omission would
result in the violation of any other covenant herein.
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Section 10.14. Holiday Payments. If any payment to be made to
Lender hereunder shall become due on a date not a Business Day, such payment
shall be made on the next succeeding Business Day and interest shall accrue on
any principal amount of such payment until the date on which such principal
amount is paid to Lender.
Section 10.15. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument.
Section 10.16. Preamble. The recitals to this Agreement form
an integral part hereof and are incorporated herein by reference as if fully
set forth herein.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
this Agreement has been duly signed, sealed and delivered by the undersigned as
of the day and year specified at the beginning hereof.
ATTEST: BEST PROGRAMS, INC.
/s/ Shelley Reback By: /s/ Melody S. Ranelli
- ------------------------- --------------------------------
Name: Shelley Reback Name: Melody S. Ranelli
----------------- Title: Executive Vice President
Title: Asst. Secretary and Chief Financial Officer
----------------
PNC CAPITAL CORP
By: /s/ Peter V. Del Presto
---------------------------------
Name: Peter V. Del Presto
Title: Vice President
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<PAGE> 57
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibit Title
- ------- -----
<S> <C>
A-1 Promissory Note
A-2 Notice of Request for Supplemental Loan
B Warrant
C Opinion of Counsel for Borrower
D Opinion of Legal Department of Lender
E Registration Rights Agreement
F-1, F-2 Security Agreements
G Stock Transfer Agreement
H Guaranty
<CAPTION>
Schedule Title
- ------- -----
<S> <C>
2.3 Violation of Agreements
2.5 Consents
2.6(a) Record Stockholders
2.6(b) Warrants, Preferred Stock Agreements,
Stockholders' Agreements, Co-Sale
Agreements and Registration Rights
Agreements
2.6(c) Senior Indebtedness
2.8 Subsidiaries
2.10 Litigation
2.11 Taxes
2.12 Liens
2.13 Material Adverse Changes
2.18 Employee Plans
6.1(c) Permitted Indebtedness
</TABLE>
<PAGE> 58
SCHEDULE 2.3
VIOLATION OF AGREEMENTS
Shareholders Agreement dated October 26, 1988, as amended by and among Best
Programs. Inc., James F. Petersen, Dorothy Webb, and Edison Venture Fund, L.P.
(the "Edison Agreement") which contains certain rights of first refusal and
purchase rights. The terms of this Agreement and the Stock Transfer Agreement
may be deemed to be inconsistent with these and other provisions of the Edison
Agreement. However, the parties to the Edison Agreement have agreed in the
Stock Transfer Agreement (1) to amend the Edison Agreement to remove
inconsistencies and (2) to waive conflicting provisions.
The terms of this Agreement could be deemed inconsistent with the registration
rights provisions in the Edison Agreement and in the Warrant Purchase Agreement
and related Warrants dated December 23, 1992, by and between Best Programs,
Inc. and certain individuals and entities listed on Exhibit A thereto (the
"Warrant Agreement"). However, the Registration Rights Agreement contemplates
that the Company and all holders of registration rights will enter into a
single consolidating registration rights agreement.
Although the Company does not believe that this Agreement or the transactions
contemplated by the Agreement breach the terms of the Edison Agreement or the
Warrant Agreement, it is taking action to remove the inconsistencies described
above.
<PAGE> 59
SCHEDULE 2.5
CONSENTS
The Edison Agreement
The Reston Lease for 11413 Isaac Newton Square dated October 1992
<PAGE> 60
SCHEDULE 2.6(a)
RECORD STOCKHOLDERS
James F. Petersen 118,875
Joseph Schmelzeis 2,250
Ervin Jackson, Jr. 3,000
Patsy H. Sampson 1,125
Mavis D. Fowler 4,500
Richard C. Fowler 1,125
Robert K. Pattison 1,125
Dr. Dino E. Flores 1,125
Evelyn H. Oliver 1,125
Linda Dybiec 1,125
Joanne G. Miley, Executrix for the
Estate of John A. Graham, III 4,200
Antoinette P. Bradlee 600
Roger E. Chagnon 450
Frances R. Seeley 900
Peter B. Stifel 900
Louanne T. Husk 75
Dorothy T. Webb Family Trust 35,200
Edison Venture Fund L.P. 222,301
Paul Offenbacher 1,000
Herbert R. Brinberg 1,000
Steven R. Smith 100
Dorothy C. Schrodt 753
A. Saskia Orizondo 100
Jorges R. Forgues 2,574
Sarah Richmond 1,000
Avo Reid 200
Petersen Irrevocable Trust for Nieces
and Nephews 5,000
Petersen Irrevocable Trust for
James Mitchell Petersen 20,000
Mark Posluszny 100
-------
TOTAL COMMON STOCK 431,828
PREFERRED STOCK:
Edison Venture Fund, L.P. 41,667
TOTAL STOCK 473,395
<PAGE> 61
SCHEDULE 2.6(b)
WARRANTS, ETC.
1. Warrants - the Warrant Agreement (12/23/92)
2. Preferred Stock Agreements - the Edison Agreement
3. Stockholder Agreements - the Edison Agreement
4. Registration Rights - the Warrant Agreement, the Edison Agreement
5. Article 4 of the Articles of Incorporation of the Company contain
preemptive rights. The Company has called a special meeting of its
shareholders to be held on March 23, 1993 to approve amendments to its
Articles of Incorporation to eliminate the preemptive rights provided
by Article Four.
<PAGE> 62
SCHEDULE 2.6(c)
SENIOR INDEBTEDNESS
None
<PAGE> 63
SCHEDULE 2.8
SUBSIDIARIES
1) Abra Cadabra Software, Inc. (d/b/a Abra Cadabra, Inc.), St.
Petersburg, Florida
2) Master Tax and Accounting, Inc. (d/b/a CPAid, Inc.), Kent, Ohio
3) TBU, Inc. (shell corporation for the acquisition of Teleware, Inc. in
New Jersey)
All subsidiaries are incorporated in Virginia
<PAGE> 64
SCHEDULE 2.10
LITIGATION
None
<PAGE> 65
SCHEDULE 2.11
TAXES OWED
None
<PAGE> 66
SCHEDULE 2.12
LIENS
1. Arlington County, Virginia
File Number 42689, 4/11/88, Dominion Leasing Corporation (lien on
Jarvis Telephone System)
File Number 43398, 8/11/88, Dominion Leasing Corporation (lien on
Jarvis Telephone System)
File Number 43862, 11/17/88, United Micro Systems, Inc. (lien on
royalties from Tax Cut and Tax Planner programs)
2. State of Virginia
File Number 880830188, 8/22/88, Dominion Leasing Corporation (lien on
Jarvis Telephone System)
File Number 880411161, 4/6/88, Dominion Leasing Corporation (lien on
Jarvis Telephone System)
File Number 890231312, 2/28/89, Bell Atlantic Systems Leasing
International, Inc. (lien on specified computer equipment)
File Number 9212120428, 12/01/92, Bell Atlantic Systems Leasing (lien
on office furniture)
3. Security interest granted under a real property lease between Reston
Associates and the Company dated October 1992.
4. Liens of carriers, warehousemen, materialmen and mechanics incurred in
the ordinary course of business for sums not yet due or being contested
in good faith and by appropriate proceedings diligently conducted, if
appropriate reservations and other provisions, if any, as shall be
required by GAAP shall have been made therefor.
5. Landlords' and lessors' liens in respect of rent or liens in respect of
pledges or deposits under workmen's compensation, unemployment
insurance, social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to
litigation; mechanics', laborers' and materialmen's and similar liens,
if the obligations secured by such liens are not then delinquent; liens
securing the performance of bids, tenders contracts (other than for
payment of money); and statutory obligations incidental to the conduct
of its business and that do not in the aggregate materially detract from
the value of its property or materially impair the use thereof in the
operation of its business.
<PAGE> 67
SCHEDULE 2.13
MATERIAL ADVERSE CHANGES
None.
<PAGE> 68
SCHEDULE 2.18
BENEFITS
401K Plan - Best matches 50% of first 4% of compensation deferred.
Employer contribution vests in full after four years of
employment.
Severance - No established plan for Best employees, though some employee
agreements, one with an executive officer.
- Required to pay two weeks severance to any CPAid employees
terminated after acquisition. In addition, some special
employee agreements currently exist. A transition plan is
being developed whereby certain functions currently handled by
CPAid shall be discontinued. This transition plan will result
in a severance program. The related liability has not been
calculated but should not exceed $500,000.
- Severance agreement with COO of Abra
Bonus - Management Incentive Plan
Stock Options - two formal plans:
1988 Nonqualified Plan (approx. 98,000 options outstanding, no
further options to be issued under plan)
1992 ISO/Nonqualified Plan (75,000 options reserved for issuance)
Insurance - medical coverage, 100% coverage with $5 copays; or 80%
coverage with deductibles of $200 person/$600 family
- dental coverage, 100% coverage preventive services;
$50 deductible, 50-80% coverage
- annual limit $1,000
Life Insurance 1.5 times salary to $100,000 maximum, supplemental insurance
available at employee cost
Short Term
Disability - 65% of base salary for up to 180 days after 10 day waiting
period.
Long Term
Disability - 60% of salary after 180 day waiting period.
<PAGE> 69
Vacation - 3 weeks per year for first 5 years, then 4 weeks per year.
Sick Leave 6 days per year.
Tuition - 1 college course per semester reimbursed up to $1,000
tuition
<PAGE> 70
SCHEDULE 6.1(c)
PERMITTED INDEBTEDNESS
Two promissory notes to be issued in connection with the acquisition of
Teleware, Inc., a New Jersey Corporation, one in the principal amount of
$2,700,000 (subject to upward adjustment based on the market value of Best's
Common Stock on the occurrence of a public offering), and secured by the assets
of Teleware, and the other in an amount not to exceed $300,000.
<PAGE> 71
EXHIBIT A-1
NON-REVOLVING SUBORDINATED PROMISSORY NOTE
$5,000,000 Pittsburgh, Pennsylvania
March 3, 1993
FOR VALUE RECEIVED, AND INTENDING TO BE LEGALLY BOUND, the undersigned,
BEST PROGRAMS, INC. ("Maker"), a Virginia corporation having its principal
place of business at 11413 Isaac Newton Square, Reston, Virginia 22090, hereby
promises to pay to the order of PNC CAPITAL CORP, a Delaware corporation
("Payee"), in lawful money of the United States of America in immediately
available funds at the principal office of Payee at Fifth Avenue and Wood
Street, Pittsburgh, Pennsylvania 15222, or at such other location as Payee may
designate from time to time, the lesser of (i) the principal sum of Five
Million Dollars ($5,000,000) and (ii) the aggregate principal balance as of
March 3, 1997 of all Loans made by Payee to Maker pursuant to the Loan and
Warrant Purchase Agreement dated the date hereof by and between Payee and Maker
(the "Loan Agreement"), such sum to be payable to Payee in three principal
installments equal to one-third (1/3) of the sum payable, with the first such
payment to be made on March 3, 1997, the second on March 3, 1998 and one final
installment equal to the remaining outstanding principal balance hereof on
March 3, 1999.
This Note shall bear interest on the average daily outstanding
principal balance hereof from time to time outstanding from the date hereof at a
rate of 12.5 percent per annum. Interest shall be computed on the basis of a
365/366-day year and paid for the actual number of days elapsed. All accrued
interest shall be due and payable quarterly in arrears on the last day of
March, June, September and December of each year, commencing March 31, 1993,
and on the date of the final principal payment under this Note.
This Note is the Note issued pursuant to, and is entitled to the
benefits of, the Loan Agreement and the Security Agreement dated the date
hereof by and between Payee and Maker, and the Security Agreements and
Guaranties dated the date hereof by and between Payee and Borrower's
Subsidiaries, including the representations, warranties, covenants, agreements,
and conditions contained or granted therein, the terms and conditions of which
are incorporated herein by reference. The Loan Agreement, among other things,
contains provisions for the voluntary and mandatory prepayment of principal and
interest under this Note and the acceleration of the maturity hereof upon the
happening of certain stated events. This Note is subject to certain transfer
restrictions under the Loan Agreement. All capitalized terms used herein
shall, unless otherwise defined herein, have the same meanings assigned to such
terms in the Loan Agreement.
<PAGE> 72
2
Any principal amount or accrued interest under this Note not paid when
due shall bear interest, payable on demand, from the due date for such amount
until such amount is paid in full, at a rate of seventeen percent (17%) per
annum until paid. Notwithstanding the foregoing, in no event shall the
interest rate charged under this Note exceed the maximum rate of interest
which, under applicable law, Payee is permitted to charge.
Subject to the Subordination Provisions contained below, in case an
Event of Default (as defined in the Loan Agreement) shall occur, the full
amount of the unpaid principal hereunder, plus any accrued interest on such
unpaid principal amount, shall immediately become due and payable. Upon an
Event of Default, Payee may exercise all of its rights and remedies under this
Note, the Loan Agreement and the Other Documents and any other remedies
provided by law.
If any payment or action to be made or taken hereunder shall be stated
to be or become due on a day which is not a Business Day, such payment or
action shall be made or taken on the next following Business Day and such
extension of time shall be included in computing interest or fees, if any, in
connection with such payment.
The Indebtedness of Maker represented by this Note, and any renewals or
extensions thereof, shall at all times be wholly subordinate and junior in
right of payment to all Senior Indebtedness (as hereinafter defined) in
accordance with the following provisions (the "Subordination Provisions"):
(a) "Senior Indebtedness" shall mean (i) all future Indebtedness of
the Maker for money borrowed from any bank, trust company, insurance
company or other private, commercial or governmental lending institution,
including, without limitation, commercial paper, credit lines and accounts
receivable sold or assigned by the Maker to such institutions up to a limit
of $1,500,000, on terms and conditions satisfactory to Payee, regardless of
whether such Indebtedness is secured by assets of the Maker as long as such
Indebtedness is not by its express terms subordinated to or on parity with
this Note, and to which Indebtedness this Note is expressly subordinated in
writing, and (ii) all deferrals, renewals, extensions and refundings of
such Indebtedness that do not cause the $1,500,000 limit described above to
be exceeded.
(b) In the event of any liquidation, dissolution or winding up of
Maker, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization or other similar proceeding
relative to Maker or its property (each, a "Proceeding"), all Senior
<PAGE> 73
3
Indebtedness shall first be paid in full before any payment or
distribution of any kind or character is made upon the Indebtedness
evidenced by the Note; and in any such event any payment or
distribution of any kind or character, whether in cash, property or
securities which shall be made upon or in respect to the Note shall be
paid over to the holders of such Senior Indebtedness, pro rata,
pursuant to the provisions of paragraph (f) below for application in
payment thereof unless and until such Senior Indebtedness shall have
been paid or satisfied in full.
(c) During the continuance of any default with respect to
any Senior Indebtedness permitting the holders thereof to accelerate
the maturity of such Senior Indebtedness, no payment of principal,
premium or interest shall be made on this Note, if either (i) notice of
such default in writing or by telecopy has been given to Maker by any
holder or holders of any Senior Indebtedness; provided, however, that
judicial proceedings shall be commenced with respect to such default
(A) within ninety (90) days thereafter in the case such default relates
to the nonpayment of principal, interest or premium on such Senior
Indebtedness or to any default by the Company under any financial
covenant contained in any agreement pursuant to which any such Senior
Indebtedness has been issued, or (B) within 90 days after the giving of
such notice in the case of any other event or condition causing such
default, or (ii) judicial proceedings shall be pending in respect of
such default. The holders of Senior Indebtedness shall not be entitled
to give notice pursuant to this paragraph (c) more than once with
respect to any default which was specified in such a notice and which
has continued without interruption since the date such notice was
given, nor shall such holders be entitled to give a separate notice
with respect to any default not so specified which (to the knowledge of
any holder giving such notice) was existing on the date notice shall
have been given pursuant to this paragraph (c) and which has continued
without interruption from the date such notice was given. Upon receipt
of any notice from the holders of Senior Indebtedness pursuant to this
paragraph (c), Maker shall forthwith send a copy thereof to Payee.
(d) Notwithstanding the foregoing, Payee may receive from
Maker and Maker may make to Payee payments of principal or interest
under the Note at any time except during the pendency of any Proceeding
referred to in paragraph (b) above or under the conditions described in
paragraph (c) above.
(e) To the extent that any holder of Senior Indebtedness
receives payments on, or proceeds of collateral for, Senior
Indebtedness which are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or
<PAGE> 74
4
required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such payment or proceeds received, the
Senior Indebtedness, or part thereof, intended to be satisfied shall be
revived and continue in full force and effect as if such payments or
proceeds had not been received by such holder of Senior Indebtedness.
(f) In the event any payment, transfer of collateral or
distribution of any kind or character, whether in cash, property or
securities, shall be made upon or in respect of the Note in
contravention of any of the provisions of paragraphs (a) through (c)
above, such payment or distribution shall be held in trust by the
recipient, shall not be commingled with other funds or property of the
recipient and shall be delivered forthwith to the holders of Senior
Indebtedness for application thereto, in the form received except for
the addition of any endorsement or assignment necessary to effect the
transfer of all rights therein to the holders of the Senior
Indebtedness, unless and until all Senior Indebtedness shall have been
paid or satisfied in full. In the event that such endorsement or
assignment is omitted, the holders of the Senior Indebtedness are
hereby irrevocably authorized to make the same.
(g) Upon the payment of all amounts of Senior Indebtedness as
provided in these Subordination Provisions, or provision having been
made for such payment in cash, Payee will be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or
distributions of assets of Maker applicable to the Senior Indebtedness
until the principal of, and interest on, this Note shall be paid in
full; and no payments or distributions, direct or indirect, to the
holders of the Senior Indebtedness of cash, property or securities to
which Payee would be entitled except for the provisions of this Note
shall, as between Maker, its creditors (other than the holders of
Senior Indebtedness) and Payee, be deemed to be a payment by Maker to
Payee under this Note.
(h) The provisions of this Note shall constitute a continuing
offer to all persons who become the holders of Senior Indebtedness and
are made for the benefit of the holders of Senior Indebtedness. Such
holders are hereby made obligees hereunder the same as if their names
were written hereinafter as such, and such holders or any of them may
proceed to enforce such provisions against Maker or any holder of this
Note. Payee shall execute and deliver to any holder of Senior
Indebtedness (i) any such instrument as such holder of Senior
Indebtedness may request in order to confirm the subordination of this
Note to such Senior Indebtedness upon the terms set forth in this Note,
and (ii)
<PAGE> 75
5
any powers of attorney specifically confirming the rights of holders of
Senior Indebtedness to enforce such subordination and all such proofs of
claim, assignments of claim and other instruments as may be requested by
the holders of Senior Indebtedness or their representatives to enforce
all claims upon or in respect of this Note.
(i) Maker agrees, for the benefit of the holders of Senior
Indebtedness, that in the event that this Note is declared due and
payable before its expressed maturity because of the occurrence of a
payment Event of Default, (i) Maker will give prompt notice in writing
of such happening to the holders of Senior Indebtedness and (ii) all
Senior Indebtedness shall forthwith become immediately due and payable
upon demand, regardless of the expressed maturity thereof.
(j) The foregoing provisions are solely for the purpose of
defining the relative rights of the holders of Senior Indebtedness on
the one hand, and Payee on the other hand, and nothing herein shall
impair, as between Maker and Payee, the unconditional and absolute
obligation of Maker to pay the principal and interest on this Note in
accordance with its terms, nor shall anything herein prevent Payee from
exercising all remedies otherwise permitted by applicable law or
hereunder following an Event of Default, subject to the rights of the
holders of Senior Indebtedness as herein provided.
Except as otherwise provided in the Loan Agreement, Maker
waives presentment, demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Loan Agreement. Upon an Event of Default,
Maker shall reimburse Payee on demand for all of its costs of collection and
reasonable attorneys' fees (whether or not suit is commenced) incurred in
connection with the enforcement of Payee's rights under this Note, including,
without limitation, reasonable attorneys' fees and legal expenses incurred in
connection with any appeal of a lower court's judgment or order, all as
provided in the Loan Agreement.
All loans made to Maker hereunder and all payments and
prepayments of principal and interest thereon shall be recorded by Payee on its
records and, absent manifest error, Payee's records shall be conclusive and
binding on Maker; provided, however, that the failure of Payee to record any
such loans shall not affect Maker's obligations hereunder.
This Note shall bind Maker and its successors and assigns, and
the benefits hereof shall inure to the benefit of Payee and its successors and
assigns. All reference herein to "Maker" and "Payee" shall be deemed to apply
to Maker and Payee, respectively, and their respective successors and assigns.
<PAGE> 76
6
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO
SHALL, FOR ALL PURPOSES, BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS. AS PART OF THE
CONSIDERATION THIS DAY RECEIVED, MAKER HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN THE CITY OF PITTSBURGH, COMMONWEALTH
OF PENNSYLVANIA, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO MAKER AT THE ADDRESS STATED HEREIN (OR SUCH OTHER
ADDRESS AS MAY BE DULY DESIGNATED BY MAKER IN WRITING TO PAYEE) AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. MAKER WAIVES
ANY OBJECTION TO VENUE IN PENNSYLVANIA OF ANY ACTION INSTITUTED HEREUNDER BY
PAYEE.
WITNESS the due execution hereof on and as of the date first
above written.
ATTEST: BEST PROGRAMS, INC.
By:
- ------------------------ -------------------------
Name: Name: Melody S. Ranelli
------------------- Title: Executive Vice President
Title: and Chief Financial Officer
------------------
<PAGE> 77
EXHIBIT A-2
NOTICE OF REQUEST FOR SUPPLEMENTAL LOAN
[date]
PNC Capital Corp
Pittsburgh National Bank, 19th Floor
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15222
Attention: Peter V. Del Presto, Vice President
Re: Loan and Warrant Purchase Agreement
Dear Mr. Del Presto:
Pursuant to Section 1.1(a) of the Loan and Warrant Purchase Agreement
(the "Loan Agreement") dated as of March 2, 1993 between PNC Capital Corp, a
Delaware corporation, and Best Programs, Inc., a Virginia corporation (the
"Company"), the Company hereby notifies you of its election to proceed with the
Supplemental Loan, as such term is defined in the Loan Agreement.
Very truly yours,
BEST PROGRAMS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE> 78
EXHIBIT B
WARRANT
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES WHICH MAY BE ACQUIRED UPON
THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE
HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.
THIS WARRANT AND THE STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT
TO RESTRICTIONS ON TRANSFER SET FORTH IN THIS WARRANT AND IN A CERTAIN LOAN AND
WARRANT PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE REGISTERED OWNER OF THIS
WARRANT (OR SUCH OWNER'S PREDECESSOR IN INTEREST), AND SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE OFFICE OF THE SECRETARY OF THE ISSUER DURING
NORMAL BUSINESS HOURS.
<TABLE>
<CAPTION>
Issued March 24, 1993
<S> <C>
Void after the later of (a) March 24, Right to Purchase up to 60,000 Shares
2003, or (b) the fourth anniversary of of Common Stock of Best Programs, Inc.
the repayment in full of the Note (as (subject to conversion and adjustment
defined below) as provided herein), at the election
of the holder hereof
</TABLE>
BEST PROGRAMS, INC. COMMON STOCK PURCHASE WARRANT
BEST PROGRAMS, INC., a Virginia corporation (the "Company"), for value
received and subject to the terms set forth below, hereby grants to PNC CAPITAL
CORP, a Delaware corporation, its registered successors and assigns (the
"Holder"), the right to purchase from the Company, at the purchase price of
$40.00 per share (as it may be adjusted from time to time as provided herein,
the "Exercise Price"), at any time or from time to time after the Issue Date
(as defined in Section 1 hereof) and prior to the later of (a) 3:00 p.m.,
Eastern time, on the fourth anniversary of the repayment in full of the Note
(as defined below), or (b) 3:00 p.m., Eastern time, on March 24, 2003, up to
an aggregate of Sixty Thousand (60,000) fully paid and non-assessable shares of
Common Stock, no par value, of the Company (the "Common Stock"), the actual
number of such shares to be calculated as follows: This Warrant shall
initially be exercisable for Thirty-One Thousand Five Hundred (31,500) shares
<PAGE> 79
of Common Stock. In the event the aggregate principal amount borrowed by the
Company under the Note (as defined below) from time to time reaches $5,000,000
(calculated without taking into consideration repayments or prepayments made by
the Company), this Warrant shall be exercisable (i) for an additional Thirteen
Thousand Five Hundred (13,500) shares of Common Stock and (ii) in the event (a)
the Note is not paid in full in accordance with its terms before March 24, 1995
or (b) the Company does not complete a Qualifying Public Offering (as defined
below) on or before March 24, 1995, this Warrant shall be exercisable for (x)
an additional Ten Thousand Five Hundred (10,500) shares of Common Stock if
$3,500,000 was borrowed by the Company under the Note or (y) an additional
Fifteen Thousand (15,000) shares of Common Stock if $5,000,000 was borrowed by
the Company under the Note (in each case, calculated as specified above). The
Exercise Price and the number and character of such shares of Common Stock
purchasable pursuant to the rights granted under this Warrant are subject to
adjustment as provided in Section 3, below.
This Warrant and the Non-Revolving Subordinated Promissory Note of the
Company in favor of Holder dated as of March 3, 1993 in the maximum principal
amount of $5,000,000 (the "Note") have been issued to Holder pursuant to the
Loan and Warrant Purchase Agreement dated as of March 2, 1993 (the "Loan
Agreement"), by and between the Company and Holder, in consideration of the
credit facilities provided to the Company by Holder as provided therein.
This Warrant is subject to the following provisions:
1. Definitions. Unless otherwise defined herein, all capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto by the
Loan Agreement. As used herein, the following terms have the meanings ascribed
to them below:
(a) "Business Day" means any day other than a Saturday, Sunday or
legal holiday in the Commonwealth of Pennsylvania.
(b) "Capital Stock" shall have the meaning set forth in Section
3.1(a) hereof.
(c) "Cash Items" shall mean cash as the same is presented in the
Company's audited consolidated financial statements for its most recently
completed fiscal year.
(d) "Common Stock" shall mean the common stock, no par value, of
the Company.
(e) "Equity Stock" means all stock of any class or classes
(however designated) of the Company, including, without limitation, the Common
Stock, no par value, of the Company, authorized upon the Issue Date or
thereafter, the holders of
-2-
<PAGE> 80
which shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating dividends after
the payment of dividends and distributions on any shares entitled to
preference.
(f) "Issue Date" means the date of issuance of this Warrant as
specified on the first page hereof.
(g) "Person" means, without limitation, an individual, a
partnership, a corporation, a trust, a joint venture, an unincorporated
organization or a government or any department or agency thereof.
(h) "Permitted Issuance" shall mean (a) any issuance of Common
Stock upon a conversion of Preferred Stock issued and outstanding on March 24,
1993, provided such conversion is effected in accordance with the terms
governing such Preferred Stock on March 24, 1993; (b) any issuance of Common
Stock upon the exercise of employee options issued or to be issued by the
Company for the purchase of up to 175,000 shares of Common Stock in the
aggregate; or (c) any issuance of Common Stock upon an exercise of this Warrant
or the warrants originally issued pursuant to the Warrant Purchase Agreement
dated as of December 23, 1992 by and among the Company and the individuals and
entities listed on Exhibit A thereto.
(i) "Preferred Stock" means the redeemable, convertible, Class
A Preferred Stock, par value $0.01 per share, of the Company.
(j) "Public Offering" means a public offering pursuant to an
effective registration statement under the Act covering the offer and sale of
Common Stock for the account of the Company.
(k) "Purchaser" shall have the meaning set forth in Section
2.2(a)(i) hereof.
(l) "Qualifying Public Offering" shall have the meaning set
forth in Section 2.1 hereof.
(m) "Warrant" means, collectively, this Warrant and all other
stock purchase warrants issued in exchange therefor or in replacement of this
Warrant.
2. Exercise of Warrant.
2.1. Exercise Period. The Holder may exercise this Warrant, in whole
or in part (but not as to a fractional share of Common Stock), at any time and
time to time after the Issue Date and prior to the later of (a) 3:00 p.m.,
Eastern time, on the fourth anniversary of the repayment in full of the Note,
or (b) 3:00 p.m., Eastern time, on March 24, 2003 (the "Exercise Period").
During the Exercise Period, the Holder shall
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have the right (i) to exercise this Warrant or (ii) at the election of the
Holder, to convert this Warrant into registered Common Stock pursuant to
Section 4 hereof, in whole, but not in part, upon the completion of a Public
Offering by the Company in which the aggregate net proceeds received by the
Company exceeds $10,000,000 at a Public Offering price equal to or exceeding
$50.00 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (a "Qualifying Public
Offering").
2.2. Exercise Procedure.
(a) This Warrant will be deemed to have been exercised, in whole
or in part, at such time as the Company has received all of the following items
from the Holder of this Warrant (the "Exercise Date"):
(i) a completed Subscription Agreement as described in Section 2.4
hereof, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the "Purchaser");
(ii) this Warrant;
(iii) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in
Exhibit B attached hereto (an "Assignment"), evidencing the assignment
of this Warrant to the Purchaser together with any documentation
required pursuant to Section 9(a) hereof; and
(iv) a check payable to the Company in an amount equal to the
product of the then current Exercise Price multiplied by the number of
shares of Common Stock being purchased upon such exercise; provided,
however, that in the event the Purchaser is the holder of the Note, in
lieu of delivering a check to the Company, the Purchaser may convert a
portion of the principal balance then outstanding under the Note equal
to the Exercise Price multiplied by the number of shares of Common Stock
to be acquired by the Purchaser under the Warrant. To exercise such
conversion right, the Purchaser shall surrender the Note at the
principal office of the Company, together with written instructions to
the Company as to the portion of the Note which the Purchaser elects to
convert. The Company shall issue a replacement note of like tenor to the
Purchaser in an amount of the unconverted principal balance of the Note,
if any. Any such conversion of a portion of the Note to pay the Exercise
Price shall be subject to the confirmation by any holder of Senior
Indebtedness to the effect that the Company is not in default in its
obligations with respect to the Senior Indebtedness.
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(b) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within fifteen (15) days after the
Exercise Date, the Company at its expense will cause to be issued in the name
of and delivered to the Holder hereof, or as the Holder (upon payment by the
Holder of any applicable transfer taxes) may direct (subject to the transfer
restrictions set forth herein), a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which the Holder shall
be entitled upon such exercise, together with any other stock or other
securities and property (including cash, where applicable) to which the Holder
is entitled upon exercise.
(c) Unless this Warrant has expired or all of the purchase
rights represented hereby have been exercised, the Company at its expense will,
within fifteen (15) days after the Exercise Date, issue and deliver to or upon
the order of the Holder hereof a new warrant or warrants of like tenor, in the
name of the Holder or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock remaining issuable under
this Warrant.
(d) The Common Stock issuable upon the exercise of this
Warrant will be deemed to have been issued to the Purchaser on the Exercise
Date, and the Purchaser will be deemed for all purposes to have become the
record holder of such Common Stock on the Exercise Date.
(e) The issuance of certificates for shares of Common Stock
upon exercise of this Warrant will be made without charge to the Holder or the
Purchaser for any issuance tax in respect thereof or any other cost (other than
the Exercise Price) incurred by the Company in connection with such exercise
and the related issuance of shares of Common Stock.
2.3. Acknowledgment of Continuing Obligations. The Company will, at
the time of the exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to the
Holder any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant; provided, however,
that if the Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to the Holder any
such rights.
2.4. Subscription Agreement. The Subscription Agreement shall be
substantially in the form set forth in Exhibit A attached hereto (a
"Subscription Agreement"), except that if the shares of Common Stock issuable
upon exercise of this Warrant are not to be issued in the name of the Holder
hereof, the Subscription Agreement will also state the name of the Person to
whom the certificates for the shares of Common Stock are to be
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issued (subject to the transfer restrictions set forth herein), and if the
number of shares of Common Stock to be issued does not include all the shares
of Common Stock issuable hereunder, it will also state the name of the Person
to whom a new Warrant for the unexercised portion of the rights hereunder is to
be delivered.
2.5. Fractional Shares. If a fractional share of Common Stock would,
but for the provisions of Section 2.1 hereof, be issuable upon exercise of the
rights represented by this Warrant, the Company will, within fifteen (15) days
after the Exercise Date, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share, in an amount equal to the Fair
Market Value (as defined by Section 5.4 hereof) of such fractional share as of
the close of business on the Exercise Date.
3. Antidilution Provisions.
3.1. Adjustment of Number of Shares Purchasable and Exercise Price.
Subject to the provisions of this Section 3, the Exercise Price and the number
of shares of Common Stock issuable upon exercise of this Warrant shall be
subject to adjustment from time to time.
(a) Issuance of Additional Shares of Common Stock, In the event
the Company shall issue or sell (or in accordance with Subsection 3.2 below is
deemed to have issued or sold) any shares of its Common Stock, or stock having
a preference or sharing on an equal basis as to dividends or distributions in
liquidation with the Common Stock, pursuant to any stock split, dividend or
recapitalization of the Company ("Capital Stock"), or shall issue or sell (or
in accordance with Subsection 3.2 below be deemed to have issued or sold)
shares of Capital Stock at a price per share less than the greater of (i)
$40.00 and (ii) the Fair Market Value thereof, as defined by Section 5.4 hereof
(the "Reference Price"), the then prevailing Exercise Price shall be reduced by
multiplying the then prevailing Exercise Price by the factor obtained by
dividing (A) an amount equal to the sum of (1) the number of shares of Capital
Stock outstanding (or deemed outstanding pursuant to the provisions of
Subsection 3.2) immediately prior to such issuance or sale multiplied by the
then prevailing Exercise Price plus (2) the aggregate consideration, if any,
received or to be received by the Company upon such issuance or sale, by
(B) the total number of shares of Capital Stock outstanding immediately after
such issuance or sale (or deemed issuance pursuant to the provisions of
Subsection 3.2) multiplied by the then prevailing Exercise Price.
(b) Adjustment of Number of Shares Purchasable. Upon any
adjustment of the Exercise Price as provided in this Section 3.1, the Holder
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the
nearest 1/100th of a
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share) obtained by multiplying the Exercise Price by the number of shares of
Common Stock purchasable hereunder immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
3.2. Provisions Applicable To Section 3.1. For purposes of Section 3.1
hereof, the following provisions shall be applicable:
(a) Minimum Adjustment. In the event any adjustment of the Exercise
Price pursuant to Section 3.1 hereof shall result in an adjustment of less than
$0.01 per share of Common Stock, no such adjustment shall be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to $0.01 or more per share of
Common Stock.
(b) Reorganization, Reclassification Or Recapitalization Of Company.
In the event of any capital reorganization, reclassification or recapitalization
of the capital stock of the Company (other than a change in par value, or
from par value to no par value or from no par value to par value), there shall
thereafter be deliverable upon the exercise of this Warrant or any portion
thereof (in lieu of or in addition to the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which the holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the exercise of this Warrant or any portion
thereof at the time would have been entitled upon such capital reorganization,
reclassification or recapitalization of capital stock, and at the Exercise Price
as adjusted pursuant to the provisions of Section 3.1(a) hereof. Prior to and as
a condition of the consummation of any transaction described in the preceding
sentence, the Company shall make appropriate, written adjustments in the
application of the provisions herein set forth satisfactory to the Holders of
this Warrant so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares of stock or other
securities or other property thereafter deliverable upon exercise of this
Warrant. Any such adjustment shall be made by and set forth in a supplemental
agreement between the Company and the successor entity and be approved by the
Holder of this Warrant.
(c) Issuance Of Warrants, Rights Or Options. If the Company in any
manner grants any warrants, rights or options to subscribe for or to purchase
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock, other than pursuant to a Permitted Issuance (such rights or
options being herein called "Options" and such convertible or exchangeable stock
or securities being herein called "Convertible Securities") or in any manner
issues or sells any Convertible
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Securities and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Reference Price, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issued issuable upon the exercise of such Options will be deemed to
be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of this paragraph, the "price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" will be determined by dividing (A) the
total amount, if any, received or receivable by the Company as consideration
for the granting of such Options or the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Options, plus, in the case of
Convertible Securities or Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon issuance or sale of such Convertible Securities and the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the exercises of such Options or upon the conversion or exchange
of all Convertible Securities issued or issuable upon the exercise of such
Options. No additional adjustment of the Exercise Price will be made when
Convertible Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options or upon
the conversion or exchange of such Convertible Securities.
(d) Change In Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
change at any time (other than under or by reason or provisions designed to
protect against dilution of the type set forth in this Section 3 and which have
no more favorable effect on the holders of such Options or Convertible
Securities than this Section 3 would have if this Section 3 were included in
such Options or Convertible Securities), the Exercise Price in effect at the
time of such change will be readjusted to the Exercise Price which would have
been in effect at such time had such options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any Option, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or the rate at which any convertible Securities are
convertible into or exchangeable for Common Stock, is reduced at any time under
or by reason of provisions with respect thereto designed to protect
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against dilution of the type set forth herein and which have no more favorable
effect on the holders of such Options or Convertible Securities than the
provisions hereof would have if the provisions of this Warrant were included in
such Options or Convertible Securities, then in the case of the delivery of
Common Stock upon the exercise of any such Option or upon the conversion or
exchange of any such Convertible Security, the Exercise Price then in effect
under this Warrant will forthwith be adjusted to such respective amount as
would have been obtained had such Option or Convertible Security never been
made in accordance with paragraph (c) above upon the issuance of the shares of
Common Stock delivered upon such exercise or conversion.
(e) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect hereunder will be adjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities never been
issued.
(f) Calculation of Consideration Received. In case any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for consideration part or all of which is cash, the amount of
cash consideration received therefor will be deemed to be the net amount
received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for a consideration part or all of which is other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the Fair
Market Value thereof (as defined in Section 5.4 hereof) as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be.
(g) Integrated Transactions. In case any Option is issued in connection
with the issuance or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option will be deemed to
have been issued without consideration.
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3.3. Certificates.
(a) Upon any adjustment of the Exercise Price pursuant to section
3.1 hereof, a certificate signed by the Treasurer or Chief Financial Officer of
the Company, setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated, shall be
mailed (by first class mail, postage prepaid or by recognized overnight
delivery service) to the Holder of this Warrant specifying the adjusted
Exercise Price and the number of shares of Common Stock purchasable upon
exercise of this Warrant after giving effect to the adjustment of such number
pursuant to Section 3.1 hereof. In the event the Holder disputes the matters
set forth in such certificate, the Holder shall have the right to request a
calculation by an independent firm of certified public accountants of
recognized national standing, to be selected by the Company and the Holder. The
certified public accounting firm shall deliver to the Holder a certificate
setting forth its calculation of the matters set forth in the Company's
certificate, which certificate shall be conclusive evidence of the accuracy or
inaccuracy of any computation made by the Company under Section 3.1 hereof. The
Holder shall bear the expense of any such calculation performed; provided,
however, that in the event that the adjusted Exercise Price calculated by the
accounting firm varies from the adjusted Exercise Price calculated by the
Company by 10% or more, the Company shall bear the expense thereof.
(b) Failure to file any certificate or notice or to mail any
notice, or any defect in any certificate or notice, pursuant to this Section
3.3, shall not affect the legality or validity of the adjustment of the
Exercise Price, the number of shares purchasable upon exercise of this Warrant,
or any transaction giving rise thereto.
3.4. No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment.
4. Right to Convert Warrant into Registered Common Stock.
4.1. Right to Convert. The Holder shall have the right to require the
Company to convert this Warrant (the "Conversion Right") into shares of Common
Stock registered for public sale under the Act, and any applicable state blue
sky laws
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("Registered Shares") in connection with or at any time following the
completion of a Public Offering by the Company, at the election of the Holder,
as provided in this Section 4. Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any
Exercise Price) that number of Registered Shares of Common Stock equal to the
maximum number of shares issuable upon exercise of this Warrant at the time of
exercise of the Conversion Right times the quotient obtained by dividing (a)
the value of this Warrant at the time the Conversion Right is exercised
(determined by subtracting the Exercise Price in effect immediately prior to
the exercise of the Conversion Right from the Fair Market Value of one share of
Common Stock issuable upon exercise of this Warrant immediately prior to the
exercise of the Conversion Right) by (b) the Fair Market Value of one share of
Common Stock immediately prior to the exercise of the Conversion Right;
provided, however, that there shall be no Conversion Right at any time when the
Exercise Price is greater than the Fair Market Value of one share of Common
Stock. The Holder hereof agrees that the Company may, in lieu of registering
additional shares of Common Stock to fulfill its obligations hereunder, acquire
registered shares listed on any national securities exchange or quoted on
NASDAQ NMS (as defined below) or on NASDAQ (as defined below) to provide to the
Holder on any conversion.
4.2 Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the principal office of the Company.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right shall be delivered to the Holder within thirty (30) days
following the Company's receipt of this Warrant together with the aforesaid
written statement.
4.3. Determination of Fair Market Value. For purposes of this
Section 4, the term "Fair Market Value" of a share of Common Stock as of a
specific date (the "Determination Date") shall mean the following:
(a) if shares of Common Stock are listed on any national
securities exchange or quoted on the National Association of Security
Dealers, Inc. Automated Quotation System ("NASDAQ"), National Market
System ("NMS"), the daily closing price on the Business Day preceding
the Determination Date (the "Closing Price");
(b) if shares of Common Stock are not listed on any national
securities exchange or quoted on NASDAQ/NMS but otherwise are quoted on
NASDAQ, the average of the high and low bids as reported by NASDAQ for
the Business Day preceding the Determination Date; or
(c) if the Holder elects to convert this Warrant in connection
with the completion of a Public Offering of the
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Company, the net price per share at which such Public Offering was
underwritten.
5. RIGHT TO REQUIRE PURCHASE OF WARRANT AND COMMON STOCK.
5.1. RIGHT TO REQUIRE PURCHASE. The Holder shall have the right to
require the Company to purchase all or a portion (but not less than half) of the
shares of Common Stock (a) issuable upon exercise of the Warrant or (b) actually
issued pursuant to the Warrant and owned by the Holder (the "Put Right") at any
time after March 24, 1998 or, except with respect to a merger of the Company
with a subsidiary or a merger where the Company is the surviving corporation (in
each case where the stockholders of the Company immediately prior to any such
merger continue to own 90% of the equity securities of the surviving corporation
immediately after such merger), upon the merger or consolidation of the Company
with, or the sale of all or a substantial portion of the assets or capital stock
of the Company to, any Person. Upon exercise of the Put Right, the Company shall
deliver to the Holder immediately available funds equal to the Put Value (the
"Put Proceeds"). For purposes of this Section 5, the term "Put Value" shall mean
an amount equal to the Fair Market Value of a share of Common Stock as of the
Determination Date (as defined below), multiplied by the maximum number of
shares of Common Stock potentially issuable upon exercise of the
Warrant or actually issued pursuant to the Warrant and owned by the Holder
which the Holder is requiring the Company to purchase. In the case of an
exercise of the Put Right as to shares not yet issued but issuable upon
exercise of this Warrant, there shall be subtracted therefrom an amount equal
to the product of the Exercise Price and the number of shares not yet issued
but issuable upon exercise of this Warrant as to which the Put Right is being
exercised.
5.2. TERMINATION OF PUT RIGHT. The Put Right shall terminate upon the
consummation of a Qualifying Public Offering by the Company.
5.3. METHOD OF EXERCISE. The Put Right may be exercised by the Holder by
the surrender of this Warrant at the principal office of the Company together
with a written statement specifying that the Holder thereby intends to exercise
the Put Right. The Put Proceeds shall be delivered to the Holder on the day the
Company receives this Warrant together with such written statement.
5.4. DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section 5,
the term "Fair Market Value" of a share of Common Stock as of the Determination
Date shall mean the Closing Price if shares of Common Stock are listed on any
national securities exchange or quoted on NASDAQ/NMS. In the event that shares
of Common Stock are not listed on any national securities exchange or quoted on
NASDAQ/NMS, the term "Fair Market Value" of a share
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of Common Stock as of the Determination Date shall mean the greater of the
following:
(a) if shares of Common Stock are not listed on any national
securities exchange or quoted on NASDAQ/NMS but otherwise are
quoted ON NASDAQ, the average of the high and low bids are reported by
NASDAQ for the Business Date preceding the Determination Date;
(b) the price per share of Common Stock received by the
stockholders of the Company in a merger, consolidation or sale
of Common Stock to a Person other than the stockholders of the Company
on March 24, 1993 involving greater than eighty percent (80%) of the
outstanding shares of Common Stock, or the price per share of Common
Stock received by the Company upon the sale of all or substantially all
of the assets of the Company to a Person other than the stockholders of
the Company on March 24, 1993; or
(c) The Fair Market Value as determined in accordance with the
following appraisal procedure (the "Appraisal Procedure"). The
Company and the Holder each shall engage (at their own expense) an
independent, professional appraiser to determine the Fair Market Value
of a share of Common Stock as of the Determination Date. In the event
the two appraisals are qual to or less than ten percent (10%) apart in
value, the two appraisals shall be averaged to obtain the Fair Market
Value. In the event the two appraisals are greater than ten percent
(10%) apart in value, the Company and the Holder shall select a third
independent, professional appraiser acceptable to both parties to
determine the Fair Market Value of a share of Common Stock as of the
Determination Date. In the event a third appraiser is selected, the
Fair Market Value shall be equal to the value of a share of Common
Stock as determined by such third appraiser. The costs of the third
appraiser shall be borne by the Company.
6. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of
determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for,
purchase, or otherwise acquire any shares of stock of any class of the
Company or any other securities or property, or to receive any other
right; or
(b) except with respect to a merger of the Company with a
subsidiary or a merger where the Company is the surviving
corporation (in each case where the stockholders of the Company
immediately prior to any such merger are the
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stockholders of the surviving corporation immediately after such
merger), any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer
of all or substantially all of the assets of the Company to or merger or
consolidation of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities of the Company, or any right
or option to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities of the Company (other than
(i) the issue of Common Stock upon the exercise of this Warrant or any
other Warrant (as defined by the Purchase Agreement), or the conversion
of the Preferred Stock, and (ii) stock options to purchase shares of
Common Stock which may be granted to employees, directors or consultants
of the Company or the issuance of such shares pursuant to the exercise
of such options, (iii) any shares issued in transactions to which
Section 3.2(b) applies, and (iv) a stock split in connection with a
Qualifying Public Offering);
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
(B) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (C) the amount and character
of any stock of any class or other securities of the Company, or rights or
options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the Persons or class of Persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed
at least twenty (20) days prior to the date therein specified.
7. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available solely for issuance and
delivery upon the exercise of this Warrant, all shares of Common Stock from
time to time issuable upon the exercise of this Warrant.
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8. Purchase Rights. If at any time the Company grants, issues or
sells any rights or options to subscribe for or to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
capital stock of Company (the "Purchase Rights"), then the Holder of this
Warrant will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have acquired if
such Holder had held the number of shares of Common Stock acquirable upon
exercise of this Warrant had such Warrants been fully exercised immediately
prior to the date on which a record was taken for the grant, issuance or sale
of such Purchase Rights (whether or not such Warrants have been issued).
9. Disposition of This Warrant, Common Stock, Etc.
(a) The Warrants and the Common Stock issued in respect of the
Warrants shall not be sold or transferred (i) unless either (A) they first
shall have been registered under the Securities Act or (B) the Company first
shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities Act, and (ii) for so long
as the Company's Common Stock is not registered under Section 5 of the Act and
unless otherwise agreed by the Company, to any transferee which is a potential
or actual customer, supplier or competitor of the Company. It shall be a
condition to the transfer of this Warrant that any transferee thereof deliver
to the Company its written agreement to accept and be bound by the terms and
conditions of this Warrant.
(b) The stock certificates of the Company that will evidence
the shares of Common Stock with respect to which this Warrant may be
exercisable will be imprinted with conspicuous legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER
OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER SET FORTH IN A CERTAIN LOAN AND WARRANT PURCHASE AGREEMENT
BETWEEN THE ISSUER AND THE REGISTERED OWNER OF THIS WARRANT (OR SUCH
OWNER'S PREDECESSOR IN INTEREST), AND SUCH AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE OFFICE OF THE SECRETARY OF THE ISSUER DURING NORMAL
BUSINESS HOURS."
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10. Rights and Obligations of Warrant Holder. The Holder of this
Warrant shall not, by virtue hereof, be entitled to any voting rights or other
rights as a stockholder of the Company. No provision of this Warrant, in the
absence of affirmative actions by the Holder to purchase Common Stock of the
Company by exercising this Warrant and no enumeration in this Warrant of the
rights or privileges of the Holder, will give rise to any liability of such
Holder for the Exercise Price of Common Stock acquirable by exercise hereof or
as a stockholder of the Company.
11. Transfer of Warrants. Subject to compliance with the restrictions
on transfer applicable to this Warrant referred to in Section 9 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the registered Holder, upon surrender of this Warrant with a properly
executed Assignment to the Company, and the Company at its expense will issue
and deliver to or upon the order of the Holder hereof a new Warrant or Warrants
in such denomination or denominations as may be requested but otherwise of like
tenor, in the name of the Holder or as the Holder (upon payment of any
applicable transfer taxes) may direct.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. Company Records. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
15. Compliance with Laws. The holder of this Warrant hereby agrees
that it shall not elect to receive shares of Common Stock of the Company upon
exercise of the Warrant so long as such election to receive such shares of
Common Stock would violate any statute, law, rule, regulation or requirement of
any governmental authority, regulatory agency or court, whether foreign,
federal, state, local or other, at law or in equity, including, without
limitation, the Bank Holding Company Act of 1956, as amended.
-16-
<PAGE> 94
16. Miscellaneous.
16.1. Notices. All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by first class mail, postage
prepaid, or sent by a recognized overnight delivery service to such address as
may have been furnished to the Company in writing by such Holder, or until an
address is so furnished, to and at the address of the last Holder of this
Warrant who has so furnished an address to the Company. All communications
from the Holder of this Warrant to the Company shall be mailed by first class
mail, postage prepaid, or sent by a recognized overnight delivery service to
the Company at 11413 Isaac Newton Square, Reston, Virginia 22090, Attn:
President, or such other address as may have been furnished to the Holder in
writing by the Company.
16.2. Amendment; Waiver. Except as otherwise provided herein, this
Warrant and any term hereof may be amended, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such amendment, waiver, discharge or termination is sought.
16.3. Governing Law; Descriptive Headings. This Warrant shall be
construed and enforced in accordance with and governed by the internal laws of
the Commonwealth of Pennsylvania, without giving effect to the conflict of laws
principles thereof. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, and intending to be legally bound hereby, this
Agreement has been duly signed, sealed and delivered by the undersigned as of
the day and year specified at the beginning hereof.
CORPORATE SEAL BEST PROGRAMS, INC.
ATTEST:
/s/ Shelley Reback By: /s/ Melody S. Ranelli
- -------------------------------- -------------------------------
Name: Shelley Reback Name: Melody S. Ranelli
--------------------------- Title: Executive Vice President
Title: Asst. Secretary and Chief Financial Officer
--------------------------
-17-
<PAGE> 95
EXHIBIT A
SUBSCRIPTION AGREEMENT
[To be signed only upon exercise of Warrant]
To: BEST PROGRAMS, INC. Date:
The undersigned, the Holder of the within Warrant, pursuant to the
provisions set forth in the within Warrant, hereby irrevocably elects to
exercise the purchase rights represented by such Warrant for, and agrees to
subscribe for and purchase thereunder, ______ shares of Common Stock covered by
such Warrant and herewith makes payment of $_________ therefor, and requests
that the certificates for such shares be issued in the amount of and delivered
to ___________________________________ whose address is: ____________________
and whose federal tax identification number is: ______________. If said number
of shares is less than all the shares covered by such Warrant, a new Warrant
shall be registered in the name of the undersigned and delivered to the address
stated below.
Signature _________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the Warrant
or on the form of Assignment
attached as Exhibit B thereto.)
Address ___________________________________
___________________________________
Federal Tax Identification No. _____________
Signature Guarantee:
<PAGE> 96
EXHIBIT B
ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant with respect to
the number of shares of the Common Stock covered thereby set forth below, unto:
Federal Tax
Name of Assignee Address identify. No. No. of Shares
- ---------------- ------- ------------- -------------
Dated:
Signature______________________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of the
Warrant.)
Address ______________________________________________
______________________________________________
Federal Tax Identification No. ________________________
Signature Guarantees:
<PAGE> 97
EXHIBIT D
[LETTERHEAD OF PNC LEGAL DEPARTMENT]
March ___, 1993
Best Programs, Inc.
11413 Isaac Newton Square
Reston, Virginia 22090
Re: Loan and Warrant Purchase Agreement
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 4.10(c) of the
Loan and Warrant Purchase Agreement dated March 2, 1993 (the "Loan Agreement")
between you and PNC Capital Corp, a Delaware corporation (the "Company"),
pursuant to which the Company is purchasing a Non-Revolving Subordinated
Promissory Note dated March 3, 1993 in the maximum principal amount of
$5,000,000 (the "Note") and a Warrant (the "Warrant") representing the right to
purchase certain shares of the Common Stock of Best Programs, Inc., subject to
adjustment as provided therein. Capitalized terms defined in the Loan Agreement
or the Warrant and not otherwise defined herein are used herein with the
meanings so defined.
I have acted as counsel to the Company in connection with its internal
affairs and render this opinion in connection with the transactions contemplated
by the Loan Agreement. In this regard, I have examined an executed counterpart
of the Loan Agreement and such other documents, records and matters of law as I
have deemed necessary for purposes of this opinion. Based upon the foregoing,
and subject to the qualifications set forth herein, it is my opinion that:
1. The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power adequate to own its property and carry on its business
as presently conducted.
2. The execution and delivery of the Loan Agreement and the Other
Documents to which the Company is a party and the performance by the
Company of its obligations thereunder and of the transactions
contemplated therby are within its corporate power and authority,
have been authorized by proper corporate proceedings and do not
contravene any provision of its Certificate of Incorporation or
By-Laws or, to my knowledge, contravene any provision of, or
constitute an event of default under, any other material agreement,
instrument or undertaking binding on the Company.
<PAGE> 98
Best Programs, Inc.
March __, 1993
Page #
3. The Loan Agreement and the other Documents to which the Company is a
party have been duly authorized, executed and delivered by the Company,
and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable
bankruptcy, moratorium, fraudulent conveyance, insolvency or other
similar laws affecting the rights of creditors generally and by general
principles of equity (whether enforcement is sought by proceedings in
equity or at law).
I am admitted to practice law only in the Commonwealth of Pennsylvania
and do not hold myself out as being an expert on the laws of any other
jurisdiction. The foregoing opinions are limited to the laws of the
Commonwealth of Pennsylvania, the corporation law of the State of Delaware and
the federal laws of the United States of America as such federal laws pertain
to small business investment companies and banking generally.
This opinion speaks only as of today's date, and is limited to present
statutes, regulations and judicial interpretations. In rendering this opinion,
I assume no obligation to revise or supplement this opinion should the present
laws be changed by legislative or regulatory action, judicial decision or
otherwise. This opinion is furnished to you solely in connection with the
Company's purchase of the Note and the Warrant pursuant to the Loan Agreement
and may not be relied upon by any other person or entity or by you in any other
context.
Very truly yours,
<PAGE> 99
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of the ____ day of March, 1993
(the "Agreement"), by and between BEST PROGRAMS, INC., a Virginia corporation
(the "Company") and PNC CAPITAL CORP, a Delaware corporation (the
"Stockholder");
WITNESSETH:
WHEREAS, the Company and Stockholder are parties to a certain Loan and
Warrant Purchase Agreement dated as of March 2, 1993 (the "Purchase Agreement");
and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company
issued to the Stockholder a certain Non-Revolving Subordinated Promissory Note
dated March 2, 1993 (the "Note") and a certain warrant for the purchase of
shares of Common Stock of the Company dated as of the date hereof (the
"Warrant"); and
WHEREAS, the Stockholder and the Company desire to provide for certain
registration rights for the shares of the Common Stock of the Company issuable
upon exercise of the Warrant;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, and intending to be legally bound, the parties
hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, without stated par value,
of the Company.
"Conversion Stock" shall mean the Common Stock issued or issuable
pursuant to exercise of the Warrant.
"Holder" shall mean the Stockholder, so long as it holds Registrable
Securities, and any person holding Registrable Securities to whom the
rights under this Agreement have been transferred in accordance with
Section 9 hereof.
<PAGE> 100
"Registrable Securities" shall mean the Conversion Stock and any Common
Stock of the Company issued or issuable in respect of the Conversion Stock,
upon any stock split, stock dividend, recapitalization, or similar event;
provided, however, that shares of Common Stock or other securities shall no
longer be treated as Registrable Securities if (A) they have been sold to or
through a broker, dealer, or underwriter in a public distribution or a public
securities transaction, (B) they have been sold in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act so
that all transfer restrictions and restrictive legends with respect thereto
were or could have been removed upon the consummation of such sale, or (C) in
the case of a holder who then holds less than 1% of the outstanding Common
Stock of the Company (assuming conversion of all securities convertible into
Common Stock of the Company), such shares are, in the reasonable opinion of
counsel for the Company, available for sale in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto may be
removed upon the consummation of such sale.
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.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with Section
2 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, 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), and the reasonable fees and disbursements of one counsel
for all Holders.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions, and stock transfer taxes applicable to the securities registered
by the Holders.
-2-
<PAGE> 101
2. Company Registration.
(a) Notice of Registration. If at any time or from time to
time 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 (i)
a registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction or (iii) any other
registration that is not in the reasonable determination of the Company
appropriate for the registration of Registrable Securities, the Company will:
(A) promptly give to each Holder written notice thereof; and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), in accordance with the
Company's intended method of distribution of Common Stock pursuant to
the registration statement relating thereto, and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made within 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 2(a). In such event the right of any Holder to registration
pursuant to Section 2 shall be conditioned upon such Holder's participation in
such underwriting, and the inclusion of Registrable Securities in the
underwriting shall be limited 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 selected in
customary form with the managing underwriter for such underwriting by the
Company. Notwithstanding any other provision of this Section 2, if 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 Company shall
so advise all Holders and the other holders distributing their securities
through such underwriting and the number of shares of Registrable Securities
and other securities that may be included in the registration and underwriting
shall be allocated among all holders thereof pro rata based on their total
ownership of shares of Common Stock (giving effect to the conversion into
Common Stock of all securities convertible thereto). If any Holder or holders
would thus be entitled to include more securities than such
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<PAGE> 102
Holder or holder requested to be registered, the excess shall be allocated
among other requesting Holders and holders pro rata in the manner described in
the preceding sentence. 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 any other holder proposing to distribute these securities
through such underwriting to the nearest 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 of Company to Terminate Registration. The Company shall
have the right to terminate or withdraw without liability or penalty any
registration initiated by it under this Section 2 prior to the effectiveness of
such registration whether or not any Holder (or other holder of securities
entitled to inclusion in such registration has elected to include securities in
such registration.
3. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless (i) such new registration rights,
including standoff obligations, are on a pari passu basis with those rights of
the Holders hereunder; or (ii) such new registration rights, including standoff
obligations, are subordinate to the registration rights granted Holders
hereunder.
4. Expense of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Section 2 shall be borne by the
Company. All Selling Expenses relating to securities registered on behalf
of the Holders or other holders registering securities shall be borne by the
Holders or holders of such securities pro rata on the basis of the number of
shares so registered.
5. Registration Procedures. In the case of each registration effected
by the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and exercise reasonable efforts to cause such
registration statement to become and remain effective for at least 120 days
or until the distribution described in the registration statement has been
completed; and
-4-
<PAGE> 1
EXHIBIT 10.7
WARRANT
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES WHICH MAY BE ACQUIRED UPON
THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE
HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.
THIS WARRANT AND THE STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT
TO RESTRICTIONS ON TRANSFER SET FORTH IN THIS WARRANT AND IN A CERTAIN LOAN AND
WARRANT PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE REGISTERED OWNER OF THIS
WARRANT (OR SUCH OWNER'S PREDECESSOR IN INTEREST), AND SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE OFFICE OF THE SECRETARY OF THE ISSUER DURING
NORMAL BUSINESS HOURS.
<TABLE>
<CAPTION>
Issued March 24, 1993
<S> <C>
Void after the later of (a) March 24, Right to Purchase up to 60,000 Shares
2003, or (b) the fourth anniversary of of Common Stock of Best Programs, Inc.
the repayment in full of the Note (as (subject to conversion and adjustment
defined below) as provided herein), at the election
of the holder hereof
</TABLE>
BEST PROGRAMS, INC. COMMON STOCK PURCHASE WARRANT
BEST PROGRAMS, INC., a Virginia corporation (the "Company"), for value
received and subject to the terms set forth below, hereby grants to PNC CAPITAL
CORP, a Delaware corporation, its registered successors and assigns (the
"Holder"), the right to purchase from the Company, at the purchase price of
$40.00 per share (as it may be adjusted from time to time as provided herein,
the "Exercise Price"), at any time or from time to time after the Issue Date
(as defined in Section 1 hereof) and prior to the later of (a) 3:00 p.m.,
Eastern time, on the fourth anniversary of the repayment in full of the Note
(as defined below), or (b) 3:00 p.m., Eastern time, on March 24, 2003, up to
an aggregate of Sixty Thousand (60,000) fully paid and non-assessable shares of
Common Stock, no par value, of the Company (the "Common Stock"), the actual
number of such shares to be calculated as follows: This Warrant shall
initially be exercisable for Thirty-One Thousand Five Hundred (31,500) shares
<PAGE> 2
of Common Stock. In the event the aggregate principal amount borrowed by the
Company under the Note (as defined below) from time to time reaches $5,000,000
(calculated without taking into consideration repayments or prepayments made by
the Company), this Warrant shall be exercisable (i) for an additional Thirteen
Thousand Five Hundred (13,500) shares of Common Stock and (ii) in the event (a)
the Note is not paid in full in accordance with its terms before March 24, 1995
or (b) the Company does not complete a Qualifying Public Offering (as defined
below) on or before March 24, 1995, this Warrant shall be exercisable for (x)
an additional Ten Thousand Five Hundred (10,500) shares of Common Stock if
$3,500,000 was borrowed by the Company under the Note or (y) an additional
Fifteen Thousand (15,000) shares of Common Stock if $5,000,000 was borrowed by
the Company under the Note (in each case, calculated as specified above). The
Exercise Price and the number and character of such shares of Common Stock
purchasable pursuant to the rights granted under this Warrant are subject to
adjustment as provided in Section 3, below.
This Warrant and the Non-Revolving Subordinated Promissory Note of the
Company in favor of Holder dated as of March 3, 1993 in the maximum principal
amount of $5,000,000 (the "Note") have been issued to Holder pursuant to the
Loan and Warrant Purchase Agreement dated as of March 2, 1993 (the "Loan
Agreement"), by and between the Company and Holder, in consideration of the
credit facilities provided to the Company by Holder as provided therein.
This Warrant is subject to the following provisions:
1. Definitions. Unless otherwise defined herein, all capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto by the
Loan Agreement. As used herein, the following terms have the meanings ascribed
to them below:
(a) "Business Day" means any day other than a Saturday, Sunday or
legal holiday in the Commonwealth of Pennsylvania.
(b) "Capital Stock" shall have the meaning set forth in Section
3.1(a) hereof.
(c) "Cash Items" shall mean cash as the same is presented in the
Company's audited consolidated financial statements for its most recently
completed fiscal year.
(d) "Common Stock" shall mean the common stock, no par value, of
the Company.
(e) "Equity Stock" means all stock of any class or classes
(however designated) of the Company, including, without limitation, the Common
Stock, no par value, of the Company, authorized upon the Issue Date or
thereafter, the holders of
-2-
<PAGE> 3
which shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating dividends after
the payment of dividends and distributions on any shares entitled to
preference.
(f) "Issue Date" means the date of issuance of this Warrant as
specified on the first page hereof.
(g) "Person" means, without limitation, an individual, a
partnership, a corporation, a trust, a joint venture, an unincorporated
organization or a government or any department or agency thereof.
(h) "Permitted Issuance" shall mean (a) any issuance of Common
Stock upon a conversion of Preferred Stock issued and outstanding on March 24,
1993, provided such conversion is effected in accordance with the terms
governing such Preferred Stock on March 24, 1993; (b) any issuance of Common
Stock upon the exercise of employee options issued or to be issued by the
Company for the purchase of up to 175,000 shares of Common Stock in the
aggregate; or (c) any issuance of Common Stock upon an exercise of this Warrant
or the warrants originally issued pursuant to the Warrant Purchase Agreement
dated as of December 23, 1992 by and among the Company and the individuals and
entities listed on Exhibit A thereto.
(i) "Preferred Stock" means the redeemable, convertible, Class
A Preferred Stock, par value $0.01 per share, of the Company.
(j) "Public Offering" means a public offering pursuant to an
effective registration statement under the Act covering the offer and sale of
Common Stock for the account of the Company.
(k) "Purchaser" shall have the meaning set forth in Section
2.2(a)(i) hereof.
(l) "Qualifying Public Offering" shall have the meaning set
forth in Section 2.1 hereof.
(m) "Warrant" means, collectively, this Warrant and all other
stock purchase warrants issued in exchange therefor or in replacement of this
Warrant.
2. Exercise of Warrant.
2.1. Exercise Period. The Holder may exercise this Warrant, in whole
or in part (but not as to a fractional share of Common Stock), at any time and
time to time after the Issue Date and prior to the later of (a) 3:00 p.m.,
Eastern time, on the fourth anniversary of the repayment in full of the Note,
or (b) 3:00 p.m., Eastern time, on March 24, 2003 (the "Exercise Period").
During the Exercise Period, the Holder shall
-3-
<PAGE> 4
have the right (i) to exercise this Warrant or (ii) at the election of the
Holder, to convert this Warrant into registered Common Stock pursuant to
Section 4 hereof, in whole, but not in part, upon the completion of a Public
Offering by the Company in which the aggregate net proceeds received by the
Company exceeds $10,000,000 at a Public Offering price equal to or exceeding
$50.00 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (a "Qualifying Public
Offering").
2.2. Exercise Procedure.
(a) This Warrant will be deemed to have been exercised, in whole
or in part, at such time as the Company has received all of the following items
from the Holder of this Warrant (the "Exercise Date"):
(i) a completed Subscription Agreement as described in Section 2.4
hereof, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the "Purchaser");
(ii) this Warrant;
(iii) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in
Exhibit B attached hereto (an "Assignment"), evidencing the assignment
of this Warrant to the Purchaser together with any documentation
required pursuant to Section 9(a) hereof; and
(iv) a check payable to the Company in an amount equal to the
product of the then current Exercise Price multiplied by the number of
shares of Common Stock being purchased upon such exercise; provided,
however, that in the event the Purchaser is the holder of the Note, in
lieu of delivering a check to the Company, the Purchaser may convert a
portion of the principal balance then outstanding under the Note equal
to the Exercise Price multiplied by the number of shares of Common Stock
to be acquired by the Purchaser under the Warrant. To exercise such
conversion right, the Purchaser shall surrender the Note at the
principal office of the Company, together with written instructions to
the Company as to the portion of the Note which the Purchaser elects to
convert. The Company shall issue a replacement note of like tenor to the
Purchaser in an amount of the unconverted principal balance of the Note,
if any. Any such conversion of a portion of the Note to pay the Exercise
Price shall be subject to the confirmation by any holder of Senior
Indebtedness to the effect that the Company is not in default in its
obligations with respect to the Senior Indebtedness.
-4-
<PAGE> 5
(b) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within fifteen (15) days after the
Exercise Date, the Company at its expense will cause to be issued in the name
of and delivered to the Holder hereof, or as the Holder (upon payment by the
Holder of any applicable transfer taxes) may direct (subject to the transfer
restrictions set forth herein), a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which the Holder shall
be entitled upon such exercise, together with any other stock or other
securities and property (including cash, where applicable) to which the Holder
is entitled upon exercise.
(c) Unless this Warrant has expired or all of the purchase
rights represented hereby have been exercised, the Company at its expense will,
within fifteen (15) days after the Exercise Date, issue and deliver to or upon
the order of the Holder hereof a new warrant or warrants of like tenor, in the
name of the Holder or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock remaining issuable under
this Warrant.
(d) The Common Stock issuable upon the exercise of this
Warrant will be deemed to have been issued to the Purchaser on the Exercise
Date, and the Purchaser will be deemed for all purposes to have become the
record holder of such Common Stock on the Exercise Date.
(e) The issuance of certificates for shares of Common Stock
upon exercise of this Warrant will be made without charge to the Holder or the
Purchaser for any issuance tax in respect thereof or any other cost (other than
the Exercise Price) incurred by the Company in connection with such exercise
and the related issuance of shares of Common Stock.
2.3. Acknowledgment of Continuing Obligations. The Company will, at
the time of the exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to the
Holder any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant; provided, however,
that if the Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to the Holder any
such rights.
2.4. Subscription Agreement. The Subscription Agreement shall be
substantially in the form set forth in Exhibit A attached hereto (a
"Subscription Agreement"), except that if the shares of Common Stock issuable
upon exercise of this Warrant are not to be issued in the name of the Holder
hereof, the Subscription Agreement will also state the name of the Person to
whom the certificates for the shares of Common Stock are to be
-5-
<PAGE> 6
issued (subject to the transfer restrictions set forth herein), and if the
number of shares of Common Stock to be issued does not include all the shares
of Common Stock issuable hereunder, it will also state the name of the Person
to whom a new Warrant for the unexercised portion of the rights hereunder is to
be delivered.
2.5. Fractional Shares. If a fractional share of Common Stock would,
but for the provisions of Section 2.1 hereof, be issuable upon exercise of the
rights represented by this Warrant, the Company will, within fifteen (15) days
after the Exercise Date, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share, in an amount equal to the Fair
Market Value (as defined by Section 5.4 hereof) of such fractional share as of
the close of business on the Exercise Date.
3. Antidilution Provisions.
3.1. Adjustment of Number of Shares Purchasable and Exercise Price.
Subject to the provisions of this Section 3, the Exercise Price and the number
of shares of Common Stock issuable upon exercise of this Warrant shall be
subject to adjustment from time to time.
(a) Issuance of Additional Shares of Common Stock, In the event
the Company shall issue or sell (or in accordance with Subsection 3.2 below is
deemed to have issued or sold) any shares of its Common Stock, or stock having
a preference or sharing on an equal basis as to dividends or distributions in
liquidation with the Common Stock, pursuant to any stock split, dividend or
recapitalization of the Company ("Capital Stock"), or shall issue or sell (or
in accordance with Subsection 3.2 below be deemed to have issued or sold)
shares of Capital Stock at a price per share less than the greater of (i)
$40.00 and (ii) the Fair Market Value thereof, as defined by Section 5.4 hereof
(the "Reference Price"), the then prevailing Exercise Price shall be reduced by
multiplying the then prevailing Exercise Price by the factor obtained by
dividing (A) an amount equal to the sum of (1) the number of shares of Capital
Stock outstanding (or deemed outstanding pursuant to the provisions of
Subsection 3.2) immediately prior to such issuance or sale multiplied by the
then prevailing Exercise Price plus (2) the aggregate consideration, if any,
received or to be received by the Company upon such issuance or sale, by
(B) the total number of shares of Capital Stock outstanding immediately after
such issuance or sale (or deemed issuance pursuant to the provisions of
Subsection 3.2) multiplied by the then prevailing Exercise Price.
(b) Adjustment of Number of Shares Purchasable. Upon any
adjustment of the Exercise Price as provided in this Section 3.1, the Holder
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the
nearest 1/100th of a
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<PAGE> 7
share) obtained by multiplying the Exercise Price by the number of shares of
Common Stock purchasable hereunder immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
3.2. Provisions Applicable To Section 3.1. For purposes of Section 3.1
hereof, the following provisions shall be applicable:
(a) Minimum Adjustment. In the event any adjustment of the Exercise
Price pursuant to Section 3.1 hereof shall result in an adjustment of less than
$0.01 per share of Common Stock, no such adjustment shall be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to $0.01 or more per share of
Common Stock.
(b) Reorganization, Reclassification Or Recapitalization Of Company.
In the event of any capital reorganization, reclassification or recapitalization
of the capital stock of the Company (other than a change in par value, or
from par value to no par value or from no par value to par value), there shall
thereafter be deliverable upon the exercise of this Warrant or any portion
thereof (in lieu of or in addition to the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which the holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the exercise of this Warrant or any portion
thereof at the time would have been entitled upon such capital reorganization,
reclassification or recapitalization of capital stock, and at the Exercise Price
as adjusted pursuant to the provisions of Section 3.1(a) hereof. Prior to and as
a condition of the consummation of any transaction described in the preceding
sentence, the Company shall make appropriate, written adjustments in the
application of the provisions herein set forth satisfactory to the Holders of
this Warrant so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares of stock or other
securities or other property thereafter deliverable upon exercise of this
Warrant. Any such adjustment shall be made by and set forth in a supplemental
agreement between the Company and the successor entity and be approved by the
Holder of this Warrant.
(c) Issuance Of Warrants, Rights Or Options. If the Company in any
manner grants any warrants, rights or options to subscribe for or to purchase
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock, other than pursuant to a Permitted Issuance (such rights or
options being herein called "Options" and such convertible or exchangeable stock
or securities being herein called "Convertible Securities") or in any manner
issues or sells any Convertible
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<PAGE> 8
Securities and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Reference Price, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issued issuable upon the exercise of such Options will be deemed to
be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of this paragraph, the "price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" will be determined by dividing (A) the
total amount, if any, received or receivable by the Company as consideration
for the granting of such Options or the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Options, plus, in the case of
Convertible Securities or Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon issuance or sale of such Convertible Securities and the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the exercises of such Options or upon the conversion or exchange
of all Convertible Securities issued or issuable upon the exercise of such
Options. No additional adjustment of the Exercise Price will be made when
Convertible Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options or upon
the conversion or exchange of such Convertible Securities.
(d) Change In Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
change at any time (other than under or by reason or provisions designed to
protect against dilution of the type set forth in this Section 3 and which have
no more favorable effect on the holders of such Options or Convertible
Securities than this Section 3 would have if this Section 3 were included in
such Options or Convertible Securities), the Exercise Price in effect at the
time of such change will be readjusted to the Exercise Price which would have
been in effect at such time had such options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any Option, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or the rate at which any convertible Securities are
convertible into or exchangeable for Common Stock, is reduced at any time under
or by reason of provisions with respect thereto designed to protect
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<PAGE> 9
against dilution of the type set forth herein and which have no more favorable
effect on the holders of such Options or Convertible Securities than the
provisions hereof would have if the provisions of this Warrant were included in
such Options or Convertible Securities, then in the case of the delivery of
Common Stock upon the exercise of any such Option or upon the conversion or
exchange of any such Convertible Security, the Exercise Price then in effect
under this Warrant will forthwith be adjusted to such respective amount as
would have been obtained had such Option or Convertible Security never been
made in accordance with paragraph (c) above upon the issuance of the shares of
Common Stock delivered upon such exercise or conversion.
(e) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect hereunder will be adjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities never been
issued.
(f) Calculation of Consideration Received. In case any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for consideration part or all of which is cash, the amount of
cash consideration received therefor will be deemed to be the net amount
received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for a consideration part or all of which is other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the Fair
Market Value thereof (as defined in Section 5.4 hereof) as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be.
(g) Integrated Transactions. In case any Option is issued in connection
with the issuance or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option will be deemed to
have been issued without consideration.
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<PAGE> 10
3.3. Certificates.
(a) Upon any adjustment of the Exercise Price pursuant to section
3.1 hereof, a certificate signed by the Treasurer or Chief Financial Officer of
the Company, setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated, shall be
mailed (by first class mail, postage prepaid or by recognized overnight
delivery service) to the Holder of this Warrant specifying the adjusted
Exercise Price and the number of shares of Common Stock purchasable upon
exercise of this Warrant after giving effect to the adjustment of such number
pursuant to Section 3.1 hereof. In the event the Holder disputes the matters
set forth in such certificate, the Holder shall have the right to request a
calculation by an independent firm of certified public accountants of
recognized national standing, to be selected by the Company and the Holder. The
certified public accounting firm shall deliver to the Holder a certificate
setting forth its calculation of the matters set forth in the Company's
certificate, which certificate shall be conclusive evidence of the accuracy or
inaccuracy of any computation made by the Company under Section 3.1 hereof. The
Holder shall bear the expense of any such calculation performed; provided,
however, that in the event that the adjusted Exercise Price calculated by the
accounting firm varies from the adjusted Exercise Price calculated by the
Company by 10% or more, the Company shall bear the expense thereof.
(b) Failure to file any certificate or notice or to mail any
notice, or any defect in any certificate or notice, pursuant to this Section
3.3, shall not affect the legality or validity of the adjustment of the
Exercise Price, the number of shares purchasable upon exercise of this Warrant,
or any transaction giving rise thereto.
3.4. No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment.
4. Right to Convert Warrant into Registered Common Stock.
4.1. Right to Convert. The Holder shall have the right to require the
Company to convert this Warrant (the "Conversion Right") into shares of Common
Stock registered for public sale under the Act, and any applicable state blue
sky laws
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<PAGE> 11
("Registered Shares") in connection with or at any time following the
completion of a Public Offering by the Company, at the election of the Holder,
as provided in this Section 4. Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any
Exercise Price) that number of Registered Shares of Common Stock equal to the
maximum number of shares issuable upon exercise of this Warrant at the time of
exercise of the Conversion Right times the quotient obtained by dividing (a)
the value of this Warrant at the time the Conversion Right is exercised
(determined by subtracting the Exercise Price in effect immediately prior to
the exercise of the Conversion Right from the Fair Market Value of one share of
Common Stock issuable upon exercise of this Warrant immediately prior to the
exercise of the Conversion Right) by (b) the Fair Market Value of one share of
Common Stock immediately prior to the exercise of the Conversion Right;
provided, however, that there shall be no Conversion Right at any time when the
Exercise Price is greater than the Fair Market Value of one share of Common
Stock. The Holder hereof agrees that the Company may, in lieu of registering
additional shares of Common Stock to fulfill its obligations hereunder, acquire
registered shares listed on any national securities exchange or quoted on
NASDAQ NMS (as defined below) or on NASDAQ (as defined below) to provide to the
Holder on any conversion.
4.2 Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the principal office of the Company.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right shall be delivered to the Holder within thirty (30) days
following the Company's receipt of this Warrant together with the aforesaid
written statement.
4.3. Determination of Fair Market Value. For purposes of this
Section 4, the term "Fair Market Value" of a share of Common Stock as of a
specific date (the "Determination Date") shall mean the following:
(a) if shares of Common Stock are listed on any national
securities exchange or quoted on the National Association of Security
Dealers, Inc. Automated Quotation System ("NASDAQ"), National Market
System ("NMS"), the daily closing price on the Business Day preceding
the Determination Date (the "Closing Price");
(b) if shares of Common Stock are not listed on any national
securities exchange or quoted on NASDAQ/NMS but otherwise are quoted on
NASDAQ, the average of the high and low bids as reported by NASDAQ for
the Business Day preceding the Determination Date; or
(c) if the Holder elects to convert this Warrant in connection
with the completion of a Public Offering of the
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<PAGE> 12
Company, the net price per share at which such Public Offering was
underwritten.
5. RIGHT TO REQUIRE PURCHASE OF WARRANT AND COMMON STOCK.
5.1. RIGHT TO REQUIRE PURCHASE. The Holder shall have the right to
require the Company to purchase all or a portion (but not less than half) of the
shares of Common Stock (a) issuable upon exercise of the Warrant or (b) actually
issued pursuant to the Warrant and owned by the Holder (the "Put Right") at any
time after March 24, 1998 or, except with respect to a merger of the Company
with a subsidiary or a merger where the Company is the surviving corporation (in
each case where the stockholders of the Company immediately prior to any such
merger continue to own 90% of the equity securities of the surviving corporation
immediately after such merger), upon the merger or consolidation of the Company
with, or the sale of all or a substantial portion of the assets or capital stock
of the Company to, any Person. Upon exercise of the Put Right, the Company shall
deliver to the Holder immediately available funds equal to the Put Value (the
"Put Proceeds"). For purposes of this Section 5, the term "Put Value" shall mean
an amount equal to the Fair Market Value of a share of Common Stock as of the
Determination Date (as defined below), multiplied by the maximum number of
shares of Common Stock potentially issuable upon exercise of the
Warrant or actually issued pursuant to the Warrant and owned by the Holder
which the Holder is requiring the Company to purchase. In the case of an
exercise of the Put Right as to shares not yet issued but issuable upon
exercise of this Warrant, there shall be subtracted therefrom an amount equal
to the product of the Exercise Price and the number of shares not yet issued
but issuable upon exercise of this Warrant as to which the Put Right is being
exercised.
5.2. TERMINATION OF PUT RIGHT. The Put Right shall terminate upon the
consummation of a Qualifying Public Offering by the Company.
5.3. METHOD OF EXERCISE. The Put Right may be exercised by the Holder by
the surrender of this Warrant at the principal office of the Company together
with a written statement specifying that the Holder thereby intends to exercise
the Put Right. The Put Proceeds shall be delivered to the Holder on the day the
Company receives this Warrant together with such written statement.
5.4. DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section 5,
the term "Fair Market Value" of a share of Common Stock as of the Determination
Date shall mean the Closing Price if shares of Common Stock are listed on any
national securities exchange or quoted on NASDAQ/NMS. In the event that shares
of Common Stock are not listed on any national securities exchange or quoted on
NASDAQ/NMS, the term "Fair Market Value" of a share
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<PAGE> 13
of Common Stock as of the Determination Date shall mean the greater of the
following:
(a) if shares of Common Stock are not listed on any national
securities exchange or quoted on NASDAQ/NMS but otherwise are
quoted ON NASDAQ, the average of the high and low bids are reported by
NASDAQ for the Business Date preceding the Determination Date;
(b) the price per share of Common Stock received by the
stockholders of the Company in a merger, consolidation or sale
of Common Stock to a Person other than the stockholders of the Company
on March 24, 1993 involving greater than eighty percent (80%) of the
outstanding shares of Common Stock, or the price per share of Common
Stock received by the Company upon the sale of all or substantially all
of the assets of the Company to a Person other than the stockholders of
the Company on March 24, 1993; or
(c) The Fair Market Value as determined in accordance with the
following appraisal procedure (the "Appraisal Procedure"). The
Company and the Holder each shall engage (at their own expense) an
independent, professional appraiser to determine the Fair Market Value
of a share of Common Stock as of the Determination Date. In the event
the two appraisals are qual to or less than ten percent (10%) apart in
value, the two appraisals shall be averaged to obtain the Fair Market
Value. In the event the two appraisals are greater than ten percent
(10%) apart in value, the Company and the Holder shall select a third
independent, professional appraiser acceptable to both parties to
determine the Fair Market Value of a share of Common Stock as of the
Determination Date. In the event a third appraiser is selected, the
Fair Market Value shall be equal to the value of a share of Common
Stock as determined by such third appraiser. The costs of the third
appraiser shall be borne by the Company.
6. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of
determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for,
purchase, or otherwise acquire any shares of stock of any class of the
Company or any other securities or property, or to receive any other
right; or
(b) except with respect to a merger of the Company with a
subsidiary or a merger where the Company is the surviving
corporation (in each case where the stockholders of the Company
immediately prior to any such merger are the
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<PAGE> 14
stockholders of the surviving corporation immediately after such
merger), any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer
of all or substantially all of the assets of the Company to or merger or
consolidation of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities of the Company, or any right
or option to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities of the Company (other than
(i) the issue of Common Stock upon the exercise of this Warrant or any
other Warrant (as defined by the Purchase Agreement), or the conversion
of the Preferred Stock, and (ii) stock options to purchase shares of
Common Stock which may be granted to employees, directors or consultants
of the Company or the issuance of such shares pursuant to the exercise
of such options, (iii) any shares issued in transactions to which
Section 3.2(b) applies, and (iv) a stock split in connection with a
Qualifying Public Offering);
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
(B) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (C) the amount and character
of any stock of any class or other securities of the Company, or rights or
options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the Persons or class of Persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed
at least twenty (20) days prior to the date therein specified.
7. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available solely for issuance and
delivery upon the exercise of this Warrant, all shares of Common Stock from
time to time issuable upon the exercise of this Warrant.
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<PAGE> 15
8. Purchase Rights. If at any time the Company grants, issues or
sells any rights or options to subscribe for or to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
capital stock of Company (the "Purchase Rights"), then the Holder of this
Warrant will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have acquired if
such Holder had held the number of shares of Common Stock acquirable upon
exercise of this Warrant had such Warrants been fully exercised immediately
prior to the date on which a record was taken for the grant, issuance or sale
of such Purchase Rights (whether or not such Warrants have been issued).
9. Disposition of This Warrant, Common Stock, Etc.
(a) The Warrants and the Common Stock issued in respect of the
Warrants shall not be sold or transferred (i) unless either (A) they first
shall have been registered under the Securities Act or (B) the Company first
shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities Act, and (ii) for so long
as the Company's Common Stock is not registered under Section 5 of the Act and
unless otherwise agreed by the Company, to any transferee which is a potential
or actual customer, supplier or competitor of the Company. It shall be a
condition to the transfer of this Warrant that any transferee thereof deliver
to the Company its written agreement to accept and be bound by the terms and
conditions of this Warrant.
(b) The stock certificates of the Company that will evidence
the shares of Common Stock with respect to which this Warrant may be
exercisable will be imprinted with conspicuous legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER
OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER SET FORTH IN A CERTAIN LOAN AND WARRANT PURCHASE AGREEMENT
BETWEEN THE ISSUER AND THE REGISTERED OWNER OF THIS WARRANT (OR SUCH
OWNER'S PREDECESSOR IN INTEREST), AND SUCH AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE OFFICE OF THE SECRETARY OF THE ISSUER DURING NORMAL
BUSINESS HOURS."
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<PAGE> 16
10. Rights and Obligations of Warrant Holder. The Holder of this
Warrant shall not, by virtue hereof, be entitled to any voting rights or other
rights as a stockholder of the Company. No provision of this Warrant, in the
absence of affirmative actions by the Holder to purchase Common Stock of the
Company by exercising this Warrant and no enumeration in this Warrant of the
rights or privileges of the Holder, will give rise to any liability of such
Holder for the Exercise Price of Common Stock acquirable by exercise hereof or
as a stockholder of the Company.
11. Transfer of Warrants. Subject to compliance with the restrictions
on transfer applicable to this Warrant referred to in Section 9 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the registered Holder, upon surrender of this Warrant with a properly
executed Assignment to the Company, and the Company at its expense will issue
and deliver to or upon the order of the Holder hereof a new Warrant or Warrants
in such denomination or denominations as may be requested but otherwise of like
tenor, in the name of the Holder or as the Holder (upon payment of any
applicable transfer taxes) may direct.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. Company Records. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
15. Compliance with Laws. The holder of this Warrant hereby agrees
that it shall not elect to receive shares of Common Stock of the Company upon
exercise of the Warrant so long as such election to receive such shares of
Common Stock would violate any statute, law, rule, regulation or requirement of
any governmental authority, regulatory agency or court, whether foreign,
federal, state, local or other, at law or in equity, including, without
limitation, the Bank Holding Company Act of 1956, as amended.
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<PAGE> 17
16. Miscellaneous.
16.1. Notices. All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by first class mail, postage
prepaid, or sent by a recognized overnight delivery service to such address as
may have been furnished to the Company in writing by such Holder, or until an
address is so furnished, to and at the address of the last Holder of this
Warrant who has so furnished an address to the Company. All communications
from the Holder of this Warrant to the Company shall be mailed by first class
mail, postage prepaid, or sent by a recognized overnight delivery service to
the Company at 11413 Isaac Newton Square, Reston, Virginia 22090, Attn:
President, or such other address as may have been furnished to the Holder in
writing by the Company.
16.2. Amendment; Waiver. Except as otherwise provided herein, this
Warrant and any term hereof may be amended, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such amendment, waiver, discharge or termination is sought.
16.3. Governing Law; Descriptive Headings. This Warrant shall be
construed and enforced in accordance with and governed by the internal laws of
the Commonwealth of Pennsylvania, without giving effect to the conflict of laws
principles thereof. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, and intending to be legally bound hereby, this
Agreement has been duly signed, sealed and delivered by the undersigned as of
the day and year specified at the beginning hereof.
CORPORATE SEAL BEST PROGRAMS, INC.
ATTEST:
/s/ Shelley Reback By: /s/ Melody S. Ranelli
- -------------------------------- -------------------------------
Name: Shelley Reback Name: Melody S. Ranelli
--------------------------- Title: Executive Vice President
Title: Asst. Secretary and Chief Financial Officer
--------------------------
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<PAGE> 18
EXHIBIT A
SUBSCRIPTION AGREEMENT
[To be signed only upon exercise of Warrant]
To: BEST PROGRAMS, INC. Date:
The undersigned, the Holder of the within Warrant, pursuant to the
provisions set forth in the within Warrant, hereby irrevocably elects to
exercise the purchase rights represented by such Warrant for, and agrees to
subscribe for and purchase thereunder, ______ shares of Common Stock covered by
such Warrant and herewith makes payment of $_________ therefor, and requests
that the certificates for such shares be issued in the amount of and delivered
to ___________________________________ whose address is: ____________________
and whose federal tax identification number is: ______________. If said number
of shares is less than all the shares covered by such Warrant, a new Warrant
shall be registered in the name of the undersigned and delivered to the address
stated below.
Signature _________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the Warrant
or on the form of Assignment
attached as Exhibit B thereto.)
Address ___________________________________
___________________________________
Federal Tax Identification No. _____________
Signature Guarantee:
<PAGE> 19
EXHIBIT B
ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant with respect to
the number of shares of the Common Stock covered thereby set forth below, unto:
Federal Tax
Name of Assignee Address identify. No. No. of Shares
- ---------------- ------- ------------- -------------
Dated:
Signature______________________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of the
Warrant.)
Address ______________________________________________
______________________________________________
Federal Tax Identification No. ________________________
Signature Guarantees:
<PAGE> 20
EXHIBIT D
[LETTERHEAD OF PNC LEGAL DEPARTMENT]
March ___, 1993
Best Programs, Inc.
11413 Isaac Newton Square
Reston, Virginia 22090
Re: Loan and Warrant Purchase Agreement
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 4.10(c) of the
Loan and Warrant Purchase Agreement dated March 2, 1993 (the "Loan Agreement")
between you and PNC Capital Corp, a Delaware corporation (the "Company"),
pursuant to which the Company is purchasing a Non-Revolving Subordinated
Promissory Note dated March 3, 1993 in the maximum principal amount of
$5,000,000 (the "Note") and a Warrant (the "Warrant") representing the right to
purchase certain shares of the Common Stock of Best Programs, Inc., subject to
adjustment as provided therein. Capitalized terms defined in the Loan Agreement
or the Warrant and not otherwise defined herein are used herein with the
meanings so defined.
I have acted as counsel to the Company in connection with its internal
affairs and render this opinion in connection with the transactions contemplated
by the Loan Agreement. In this regard, I have examined an executed counterpart
of the Loan Agreement and such other documents, records and matters of law as I
have deemed necessary for purposes of this opinion. Based upon the foregoing,
and subject to the qualifications set forth herein, it is my opinion that:
1. The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power adequate to own its property and carry on its business
as presently conducted.
2. The execution and delivery of the Loan Agreement and the Other
Documents to which the Company is a party and the performance by the
Company of its obligations thereunder and of the transactions
contemplated therby are within its corporate power and authority,
have been authorized by proper corporate proceedings and do not
contravene any provision of its Certificate of Incorporation or
By-Laws or, to my knowledge, contravene any provision of, or
constitute an event of default under, any other material agreement,
instrument or undertaking binding on the Company.
<PAGE> 21
Best Programs, Inc.
March __, 1993
Page #
3. The Loan Agreement and the other Documents to which the Company is a
party have been duly authorized, executed and delivered by the Company,
and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable
bankruptcy, moratorium, fraudulent conveyance, insolvency or other
similar laws affecting the rights of creditors generally and by general
principles of equity (whether enforcement is sought by proceedings in
equity or at law).
I am admitted to practice law only in the Commonwealth of Pennsylvania
and do not hold myself out as being an expert on the laws of any other
jurisdiction. The foregoing opinions are limited to the laws of the
Commonwealth of Pennsylvania, the corporation law of the State of Delaware and
the federal laws of the United States of America as such federal laws pertain
to small business investment companies and banking generally.
This opinion speaks only as of today's date, and is limited to present
statutes, regulations and judicial interpretations. In rendering this opinion,
I assume no obligation to revise or supplement this opinion should the present
laws be changed by legislative or regulatory action, judicial decision or
otherwise. This opinion is furnished to you solely in connection with the
Company's purchase of the Note and the Warrant pursuant to the Loan Agreement
and may not be relied upon by any other person or entity or by you in any other
context.
Very truly yours,
<PAGE> 22
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of the ____ day of March, 1993
(the "Agreement"), by and between BEST PROGRAMS, INC., a Virginia corporation
(the "Company") and PNC CAPITAL CORP, a Delaware corporation (the
"Stockholder");
WITNESSETH:
WHEREAS, the Company and Stockholder are parties to a certain Loan and
Warrant Purchase Agreement dated as of March 2, 1993 (the "Purchase Agreement");
and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company
issued to the Stockholder a certain Non-Revolving Subordinated Promissory Note
dated March 2, 1993 (the "Note") and a certain warrant for the purchase of
shares of Common Stock of the Company dated as of the date hereof (the
"Warrant"); and
WHEREAS, the Stockholder and the Company desire to provide for certain
registration rights for the shares of the Common Stock of the Company issuable
upon exercise of the Warrant;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, and intending to be legally bound, the parties
hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, without stated par value,
of the Company.
"Conversion Stock" shall mean the Common Stock issued or issuable
pursuant to exercise of the Warrant.
"Holder" shall mean the Stockholder, so long as it holds Registrable
Securities, and any person holding Registrable Securities to whom the
rights under this Agreement have been transferred in accordance with
Section 9 hereof.
<PAGE> 23
"Registrable Securities" shall mean the Conversion Stock and any Common
Stock of the Company issued or issuable in respect of the Conversion Stock,
upon any stock split, stock dividend, recapitalization, or similar event;
provided, however, that shares of Common Stock or other securities shall no
longer be treated as Registrable Securities if (A) they have been sold to or
through a broker, dealer, or underwriter in a public distribution or a public
securities transaction, (B) they have been sold in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act so
that all transfer restrictions and restrictive legends with respect thereto
were or could have been removed upon the consummation of such sale, or (C) in
the case of a holder who then holds less than 1% of the outstanding Common
Stock of the Company (assuming conversion of all securities convertible into
Common Stock of the Company), such shares are, in the reasonable opinion of
counsel for the Company, available for sale in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto may be
removed upon the consummation of such sale.
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.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with Section
2 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, 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), and the reasonable fees and disbursements of one counsel
for all Holders.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions, and stock transfer taxes applicable to the securities registered
by the Holders.
-2-
<PAGE> 24
2. Company Registration.
(a) Notice of Registration. If at any time or from time to
time 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 (i)
a registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction or (iii) any other
registration that is not in the reasonable determination of the Company
appropriate for the registration of Registrable Securities, the Company will:
(A) promptly give to each Holder written notice thereof; and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), in accordance with the
Company's intended method of distribution of Common Stock pursuant to
the registration statement relating thereto, and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made within 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 2(a). In such event the right of any Holder to registration
pursuant to Section 2 shall be conditioned upon such Holder's participation in
such underwriting, and the inclusion of Registrable Securities in the
underwriting shall be limited 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 selected in
customary form with the managing underwriter for such underwriting by the
Company. Notwithstanding any other provision of this Section 2, if 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 Company shall
so advise all Holders and the other holders distributing their securities
through such underwriting and the number of shares of Registrable Securities
and other securities that may be included in the registration and underwriting
shall be allocated among all holders thereof pro rata based on their total
ownership of shares of Common Stock (giving effect to the conversion into
Common Stock of all securities convertible thereto). If any Holder or holders
would thus be entitled to include more securities than such
-3-
<PAGE> 25
Holder or holder requested to be registered, the excess shall be allocated
among other requesting Holders and holders pro rata in the manner described in
the preceding sentence. 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 any other holder proposing to distribute these securities
through such underwriting to the nearest 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 of Company to Terminate Registration. The Company shall
have the right to terminate or withdraw without liability or penalty any
registration initiated by it under this Section 2 prior to the effectiveness of
such registration whether or not any Holder (or other holder of securities
entitled to inclusion in such registration has elected to include securities in
such registration.
3. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless (i) such new registration rights,
including standoff obligations, are on a pari passu basis with those rights of
the Holders hereunder; or (ii) such new registration rights, including standoff
obligations, are subordinate to the registration rights granted Holders
hereunder.
4. Expense of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Section 2 shall be borne by the
Company. All Selling Expenses relating to securities registered on behalf
of the Holders or other holders registering securities shall be borne by the
Holders or holders of such securities pro rata on the basis of the number of
shares so registered.
5. Registration Procedures. In the case of each registration effected
by the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and exercise reasonable efforts to cause such
registration statement to become and remain effective for at least 120 days
or until the distribution described in the registration statement has been
completed; and
-4-
<PAGE> 26
(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 Holders or
underwriters may reasonably request in order to facilitate the public offering
of such securities.
6. Indemnification.
(a) To the extent permitted by law, the Company will
indemnify each Holder and other holder participating in a registration pursuant
to this Agreement, each of its officers and directors and partners, and each
person controlling such Holder or holder within the meaning of Section 15 of
the Securities Act, with respect to which registration 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 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, and the Company will reimburse each such Holder or holder, each
of its officers and directors, and each person controlling such Holder or
holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing 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 or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed or certified to be correct by or on behalf of such Holder or holder,
controlling person, or underwriter and stated to be specifically for use
therein.
(b) To the extent permitted by law, each Holder or holder
will, if Registrable Securities or other securities held by such Holder or
holder are included in the securities as to which such registration is being
effected, indemnify the
- 5 -
<PAGE> 27
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 or holder, each of its officers
and directors and partners, and each person controlling such Holder or 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, of 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
or holders, such directors, officers, persons, underwriters or control persons
for any legal or any other expenses reasonably 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 an instrument duly executed by or on behalf of such Holder or holder
and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 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 litigation,
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. The failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action. The Indemnifying Party shall not assume the defense for matters as to
which there is a conflict of interest between, or separate and different
defenses to be relied upon by, the Indemnified Party and Indemnifying Party.
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 that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
-6-
<PAGE> 28
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or
enter into any settlement without the consent of each Indemnifying Party.
7. Information by Holder. The Holder of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder and the Registrable Securities or other securities held
by it as the Company may request in writing and as shall be required in
connection with any registration pursuant to this Agreement.
8. Rules 144 and 144A Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission that may at any
time permit the sale of the Registrable 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 exercise reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rules 144 and 144A respectively under the
Securities Act, at all times after the date that the Company becomes
subject to the reporting requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended;
(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 (at any time after it has
become subject to such reporting requirements); and
(c) So long as the Stockholder owns any Registrable Securities,
furnish to the Stockholder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of
Rules 144 and 144A respectively (at any time after 90 days after the
effective date of the first registration statement filed by the Company for
any offering of its securities to the general public), and of the
Securities Act and the Securities Exchange Act of 1934, as amended (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 the Stockholder
may reasonably request in availing itself of any rule or regulation of the
Commission allowing the Stockholder to sell any such securities without
registration.
-7-
<PAGE> 29
9. Transfer of Registration Rights. The right to cause the Company to
register securities granted to the Stockholder under Section 2 may be assigned
to a transferee or assignee in connection with any transfer or assignment of
Registrable Securities by the Stockholder provided that: (a) such transfer may
otherwise be effected in accordance with applicable securities laws, (b) such
assignee or transferee acquires at least 30% of the Registrable Securities
(subject to appropriate adjustment for stock splits, dividends, subdivisions,
combinations, recapitalizations, and the like), (c) prompt written notice of
the assignment or transfer is given to the Company, and (d) such assignee or
transferee agrees to be bound by the obligations of the Stockholder under this
Agreement.
10. Consolidating Agreement. The Stockholder agrees to negotiate in
good faith with the Company and with the other stockholders to whom the Company
has granted registration rights for the purpose of entering into a single
registration rights agreement on terms substantially similar to the terms of
this agreement. It is anticipated that such agreement shall also include an
agreement by the Stockholder and the other stockholders to refrain from selling
their Common Stock for a reasonable period of time following a registered
public offering involving an underwriting, if the underwriters of such offering
determine that such an agreement is necessary or desirable.
11. Notices. All notices, requests, demands or other communications
to or upon the respective parties hereto shall be in writing and shall be
deemed to have been given or made when delivered by hand or by messenger, or
three days after deposited in the mails, registered or certified with postage
prepaid, addressed to the Company at 11413 Isaac Newton Square, Reston,
Virginia 22090, to the attention of the Chairman of the Board, and to the
Stockholder at its address as set forth in the stock records of the Company, or
to such other address as either of them shall specify in writing to the other
by notice made in compliance herewith.
12. Amendment, Modification and Waiver. This Agreement may not be
amended or modified, or any provision hereof waived except by a writing duly
executed by the parties hereto, except that, in the case of a waiver, such
writing need be executed only by the waiving party.
13. Governing Law. This Agreement, and the rights and obligations of
the parties hereunder, shall be construed and interpreted in accordance with
and governed by the internal laws of the Commonwealth of Pennsylvania, without
giving effect to the conflict of laws principles thereof.
-8-
<PAGE> 30
14. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
15. Captions. The descriptive headings of the Sections of this Agreement
are inserted for convenience only and shall not affect the meaning, construction
or interpretation of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ATTEST: BEST PROGRAMS, INC.
__________________________________ By:_________________________________
Name: ____________________________ Name: Melody S. Ranelli
Title:____________________________ Title: Executive Vice President and
Chief Financial Officer
PNC CAPITAL CORP
By:_________________________________
Name: Peter V. Del Presto
Title: Vice President
-9-
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE (this "Amendment") is made as of the 28th day of
February, 1997, by and between HEM CORPORATION, a Maryland corporation
(hereinafter referred to as "Landlord"), and BEST SOFTWARE, INC., a Virginia
corporation (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant are parities to that certain Lease dated
March 11, 1993, a First Amendment dated 28th day of February, 1995 (the
"Lease"), with respect to certain premises located at 11425 Isaac Newton Square,
Reston, Virginia (the "Building"); and
WHEREAS, the premises leased by Tenant consists of approximately Sixteen
Thousand Eight Hundred Thirty-Seven (16,837) square feet of space located on the
first floor of the Building (the "Premises").
WHEREAS, the parties now desire to supplement and/or modify the terms of
the Lease in the manner set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises and agreement herein contained, Landlord and Tenant agree that the
Lease is hereby modified, amended, and/or supplemented as hereinafter set forth,
and any language of, or provision in said Lease which is inconsistent or is in
conflict with the following, and not hereinafter referred to, shall be deemed
appropriately amended or modified:
1. TERM
Provided Tenant is not in default under any of the terms, conditions,
covenants or agreements of the Lease, Tenant is hereby granted an extension of
the Term (the "Extension Term") for an additional Five (5) year period
commencing on March 1, 1997 (the "Commencement Date") and expiring February 28,
2002 (the "Expiration Date").
2. EARLY LEASE TERMINATION
Provided Tenant is not in default at the time Tenant is to exercise
this option under any of the terms, conditions, covenants or agreements of the
Lease, Tenant shall have the right to terminate this Lease under the following
conditions:
a. Tenant may exercise the right to terminate this Lease upon delivery
of a written notice to Landlord in the Thirtieth (30) month of the Extension
Term.
b. As a result of said notice the Lease will terminate at the end of
the 36th month of the Term.
c. No less than ninety (90) days before the effective date of
termination of this Lease, Tenant shall pay Landlord fifty percent (50%) of the
unamortized cost of the Leasehold improvements provided by Landlord pursuant to
this Lease with the balance to be paid upon termination. These costs shall be
amortized on a straight line basis over the sixty (60) month term.
1
<PAGE> 2
3. RENT
Tenant covenants and agrees to pay to Landlord as rental for the
Premises during the Extension Term the following amounts:
a. For the first year of the Extension Term period it is agreed that
the annual minimum rental rate shall be Two Hundred Twenty-Three Thousand Ninety
and 25/100 Dollars ($223,090.25), calculated at $13.25 per square foot, payable
in equal monthly installment of Eighteen Thousand Five Hundred Ninety and 86/100
Dollars ($18,590.86). Rent shall be based on a fullservice lease inclusive of
building standard services and utilities as included in the Lease. The Minimum
Rent shall be increased on each anniversary of the Commencement Date as follows:
<TABLE>
<CAPTION>
Annual Monthly
------ -------
<S> <C> <C>
Year 2 $229,782.96 $19,148.58
Year 3 $236,676.45 $19,723.04
Year 4 $243,776.74 $20,314.73
Year 5 $251,090.04 $20,924.17
</TABLE>
b. Operating Cost Increases
Commencing with the installment of rent due on the thirteenth (13th)
month of the Extension Term, and thereafter with each monthly installment
of rent due and payable during the Extension Term and any renewal or extension
hereof, Tenant shall pay to Landlord, as additional rent hereunder, one-twelfth
(1/12th) of Tenant's proportionate share (as defined in the Lease) of any
increase in the "Operating Costs" (as defined in the Lease) of the Building for
each "Cost Year" (as defined in the Lease) over the Operating Costs incurred by
Landlord during the "Base Year" (which is defined as July 1, 1993 to June 30,
1994). The "Base Year" amount is Ninety-One Thousand Four Hundred Forty-Seven
Dollars ($91,447.00).
Landlord agrees that the "Operating Costs" for the building
(excluding, however utilities, insurance, and real estate taxes) shall not
increase at a rate greater than five percent (5%) over the previous year's
"Operating Costs".
4. TENANT IMPROVEMENT ALLOWANCE
Landlord agrees to provide Tenant an improvement allowance fund of
Fifty-Two Thousand One Hundred Ninety-Four and 70/100 Dollars ($52,194.70) for
Tenant Improvements, including but not limited to, space design, permits and
construction. Note: this amount includes $0.10 per square foot for test fits.
Any unused allowance will be paid to Tenant directly upon receipt of invoice
from Tenant.
5. RIGHT TO RENEW
Tenant shall have a right to renew the Extension Term of the Lease
for either (a) one (1) period of two (2) years or (b) one (1) period of five
(5) years, provided that Tenant give Landlord written notification six (6)
months prior to the expiration of the Extension Term. The minimum annual rental
rate on the renewal shall be either the lesser of the Tenant's current rent as
escalated or 100% of the market rents on a two (2) year term or 95% of market
rents on a five (5) year term. Market rents shall include market concessions.
2
<PAGE> 3
6. BROKER COMMISSION
Landlord shall not pay any outside broker commission in connection
with this transaction.
7. ALTERATIONS
Upon the expiration of the Lease, Tenant shall have no obligation to
remove any improvements or alterations made to the Premises. However, Tenant may
remove alterations, including fixtures, which can be removed without causing
material damage to the Premises or the Building.
8. PARKING
Tenant shall have the right to continue to use parking spaces in the
building lot at a ratio of four (4) per 1,000 rentable square feet of leased
space.
9. MECHANICAL SYSTEMS
Landlord warrants that the Building's mechanical systems are in good
working order as of the Commencement Date.
10. NON-MODIFICATION
The Lease Agreement of March 11, 1993 and the First Amendment to the
Lease dated February 28, 1995, shall be and remain in full force and effect,
except as modified by Second Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
WITNESS/ATTEST: HEM CORPORATION
/s/ John Janke
- ----------------------- By:/s/ Erwin Gudelsky
-------------------------
Name: Erwin Gudelsky
----------------------
Title: President
----------------------
BEST SOFTWARE, INC.
/s/ Jackie Welch
- ------------------------ By: /s/ David N. Bossermann
Executive Assistant ------------------------
Name: David N. Bossermann
------------------------
Title: Chief Financial Officer
------------------------
3
<PAGE> 4
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE (this "Amendment") is made as of the
28th day of February, 1995, by and between HEM CORPORATION, a Maryland
corporation (hereinafter referred to as "Landlord"), and BEST PROGRAMS, INC., a
Virginia corporation (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant are parties to that certain Lease
dated March 11, 1993 (the "Lease") with respect to certain premises located at
11425 Isaac Newton Square, Reston, Virginia (the "Building"); and
WHEREAS, the original premises leased by Tenant consists of
approximately Twenty-One Thousand Three Hundred Sixty-Five (21,365) square feet
of space located on the first floor of the Building (the "Original Premises");
and
WHEREAS, Tenant has agreed to vacate a total of Four Thousand
Five Hundred (4,500) square feet of area as shown on Exhibit A-1 attached to
this Amendment and made a part hereof (the "Relinquished Premises"), upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1 . Premises.
(a) Section 1 of the Lease is hereby amended by deleting
the first two (2) sentences in their entirety and inserting the following in
lieu thereof.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, subject to all of the terms and conditions
hereinafter set forth, that certain area containing
approximately Sixteen Thousand Eight Hundred Sixty-Five
(16,865) square feet of space, designated as Suite No. F-1,
located on the first floor of the building located at 11425
Isaac Newton Square, Reston, Virginia (the "Building"), which
area is cross-hatched on the floor plan labeled Exhibit A
attached to the Lease, and by this reference made a part
hereof, less the Relinquished Premises which is shown on the
floor plan labeled Exhibit A-1 attached to this Amendment and
by this reference made a part hereof (the "Premises"). The
exact area of the Premises will be determined after completion
of the improvements set forth in Section 3 of this Amendment,
and the measurement of the Premises shall be in accordance
with the Washington, D.C. Association of Realtor's method for
measurement.
(b) Tenant agrees that as of the effective date of this
Amendment, Tenant will surrender the Relinquished Premises broom clean and free
of all furniture, fixtures and equipment. Tenant waives notice to remove and
agrees that Landlord shall be entitled to the benefit of all laws respecting the
summary recovery of possession from a tenant holding over to the same extent as
if statutory notice were given.
2. Rent
(a) Section 4(a) of the Lease is hereby amended by
deleting the chart in its entirety and inserting the following chart in lieu
thereof:
4
<PAGE> 5
<TABLE>
<CAPTION>
Basic Rent
Lease Year Basic Annual Rent Basic Monthly Rent Per Square Foot
- ---------- ----------------- ------------------ ---------------
<S> <C> <C> <C>
2/28/95-6/30/95 $224,726.12 $18,727.18 $13.325
7/01/95-6/30/96 $230,375.90 $19,197.99 $13.66
7/01/96-6/30/97 $236,110.00 $19,675.83 $14.00
</TABLE>
The Basic Annual Rent shall be adjusted based on the square footage rentals set
forth above after the Premises has been measured.
(b) Section 4(b)(4) of the Lease is hereby deleted in
its entirety and the following is inserted in lieu thereof:
As used herein, Tenant's "proportionate share" shall be
.4505 (45.05%), which share is determined by
dividing Sixteen Thousand Eight Hundred Sixty-Five
(16,865) square feet (the number of rentable square
feet in the Premises), by Thirty-Seven Thousand Four
Hundred Forty (37,440) square feet (the total rentable
area of gross floor space in the Building).
3. Redemising of Premises.
Landlord agrees to perform the following work to accomplish
the partitioning of the Original Premises:
(i) Erect new demising partition in
accordance with building codes, to be
delivered in painted condition;
(ii) Install new access doors and new
security door and remove wall in the
locations shown on Exhibit A-1
attached hereto and made a part
hereof; and
(iii) Provide access to the electric and
telecom rooms shown on Exhibit A-1
upon request by Tenant, which access
may be provided by Landlord's agent
during normal business hours and
outside normal business hours in the
event of an emergency or, in the
alternative in Landlord's sole
discretion, by the installation of an
access door.
4. Right of First Refusal. Section 34 of the Lease is
hereby amended by the addition of the following at the end thereof:
If at any time during the term of this Lease, Ideal
Electronic Security Co., Inc. ("Ideal") vacates the
Relinquished Premises or any portion thereof, Landlord will
deliver written notice to Tenant of the amount of the
Relinquished Premises available to be leased, rental rate
term and other significant terms. Tenant shall have the
right, to be exercised by written notice within ten (10)
days after receipt of Landlord's notice to lease such
space upon the terms and conditions contained in Landlord's
notice. Notwithstanding the foregoing, the rental rate
shall not exceed the market rate for comparable space then
being offered in Isaac Newton Square. If Tenant fails to
respond within (10) days after receipt of Landlord's
notice or fails to execute an amendment to this Lease
adding the Relinquished Premises available, upon the terms
in the
<PAGE> 6
EXHIBIT A-1
[FLOOR PLAN]
FIRST
FLOOR
NOTES:
- ------
(1) Landlord to install new door or relocate
existing door as indicated
(2) Landlord to install new security door
with push-button combination lock
(3) Remove wall
<PAGE> 7
notice, Landlord may thereafter lease such space to
such third party on substantially the terms presented
to Tenant free and clear of any then-existing or future
interest of Tenant.
5. Access to Restrooms. Tenant shall, during all times that
business is being conducted on the Premises provide Ideal or the then-current
occupant of Suite F-2 with unlimited reasonable access to and use of the men's
and women's restroom facilities located in the Premises, at no cost or expense
to Ideal, or the other occupant or Landlord.
6. Miscellaneous. Except to the extent modified by this
Amendment, the Lease shall remain in full force and effect and the parties
hereby ratify and confirm the same. In the event of a conflict between a term or
provision of this Amendment and a term or provision of the Lease, the term or
provision of this Amendment shall control. Any capitalized term used herein
shall have the meaning given to it in the Lease, unless otherwise defined in
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment of Lease to be executed as of the date first written above.
WITNESS/ATTEST: HEM CORPORATION
- -------------------------- By:
-------------------------------
Name
Title:
-----------------------------
BEST PROGRAMS, INC.
/s/ Jacqueline Welch By: /s/ Melody Ranelli
- -------------------------- -----------------------------
Name
Title: Executive VP, CFO
-----------------------------
<PAGE> 8
LEASE
This Lease is made this day 11th of March, 1993, by and between HEM CORPORATION,
a Maryland corporation (the "Landlord"), c/o Percontco, Inc., 11900 Tech Road,
Silver Spring, Maryland 20904 and BEST PROGRAMS, INC. a Virginia corporation
(the "Tenant").
WITNESSETH:
In consideration of the mutual covenants and promises herein contained,
the parties hereto agree as follows:
1. PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
subject to all of the terms and conditions hereinafter set forth, that certain
area containing approximately 21,365 square feet of space, designated as Suite
No. F-1, located on the first floor of the building and associated parking area
(the "Building"), located at 11425 Isaac Newton Square, Reston, Virginia, which
area is crosshatched on the floor plan labeled Exhibit A, attached hereto and by
this reference made a part hereof (the "Premises"). The exact area of the
Premises will be determined after completion of all work shown on Tenant's final
space plan, and the measurement of the Premises shall be in accordance with the
Washington, D.C. Association of Realtors' method for measurement. Minimum Rent
and all additional rent and other charges calculated on a per-square-foot basis
shall be adjusted to the actual number of square feet in the Premises.
2. TERM.
(a) The term of this Lease (the "Term") shall be four (4) years, adjusted
as provided below. The Term shall commence (the "Commencement Date") on the
earlier of the date that is (i) the date as Tenant takes possession or commences
use of the Premises for any purpose whatsoever, or (ii) the date of substantial
completion of the Premises, as reasonably determined by Landlord's
representative, and shall terminate at midnight on the fourth (4th) anniversary
thereof (the "Expiration Date"). The actual Commencement Date and Expiration
Date shall be as set forth in and confirmed by Landlord and Tenant by their
execution of an "Acceptance of Premises Memorandum" in the form attached hereto
as Exhibit B and by this reference made a part hereof.
(b) Tenant shall have the right, as an option appurtenant to the Lease, to
be exercised as hereinafter provided, to renew the Term of the Lease for one (1)
successive period of five (5) years, upon the following terms and conditions
(the "Renewal Term"):
(1) At the time of the exercise of each such right and for the remainder
of the then current Term, Tenant shall not be in default in the performance of
any of the agreements contained in the Lease under section 17(a), beyond the
expiration of stated cure period.
(2) Each extension shall be upon the same terms, covenants, and
conditions as in the Lease provided, except that:
(i) there will be no further privilege of extension of the Term of
this Lease beyond the periods referred to above;
(ii) the Minimum Rent during each such Renewal Term shall be as
follows and shall otherwise be payable in accordance with Section 4 of the
Lease: for the first lease year of Renewal Term an amount equal to ninety-five
percent (95%) of the Then Prevailing Rate (as hereinafter defined);
(iii) The "Then Prevailing Rate" shall mean the prevailing rental
rate for space similar in quality to the Premises, quoted to prospective tenants
of other buildings in the Reston, Virginia, office park known as "Isaac Newton
Square" (taking into account concessions, including rent abatements and building
allowances), and, as of the date seven (7) months prior to the expiration of the
then current Term, per square foot of leasable area, multiplied by the number of
square feet in the Premises. Landlord will give Tenant written notice of the
"Then Prevailing Rate" at least seven (7) months prior to the expiration of the
then-current Term, and
(iv) commencing with the second Lease Year of the Renewal Term and
for each Lease Year thereafter, the Minimum Rent shall be increased annually
during the Renewal Term to an amount equal to the Minimum Rent for the prior
lease year multiplied by One Hundred Two and one-half percent (1.025%).
(3) Tenant shall exercise its right to any renewal of the Term of this
Lease by notifying Landlord of Tenant's election to exercise such right at
least six (6) months prior to the expiration of the then-existing Term of this
Lease; provided, however, if Landlord is late in delivering to Tenant the
notice referred to in Section 2(b)(2)(iii), the time for Tenant's renewal
notice will be extended for the same period of delay. Upon the giving of
Tenant's renewal notice, this Lease shall be deemed renewed for the specific
period, subject to the provisions of this Lease, without execution of any
further instrument.
1
<PAGE> 9
3. CONSTRUCTION OF LEASE SPACE IMPROVEMENTS.
In accordance with the final space plan prepared by Tenant and approved by
Landlord, which will not be unreasonably withheld or delayed, Tenant will
perform or cause to be performed the work described therein. Landlord will
tender the Premises to Tenant upon execution of this Lease. Tenant's acceptance
of possession of the Premises shall mean that Tenant has accepted the Premises
and their condition, and that the Premises are satisfactory as delivered. Tenant
shall be responsible for obtaining all use and occupancy permits and
certificates and agrees to promptly apply for and diligently pursue their
issuance. Landlord agrees to provide Tenant with an allowance of up to $256,380
toward improvements, working drawings, permits and construction management on
the premises (the "Improvement Allowance"), and an additional allowance of up to
$10,682.50 toward space planning (the "Space Planning Allowance"). Landlord will
advance funds on account of the improvement allowance as work has been
completed, as reasonably determined by Landlord's representative, provided,
however, that Landlord may retain the last ten percent (10%) of the Improvement
Allowance until Tenant has delivered lien waivers from all laborers and
suppliers and Landlord's representative has determined that the Premises are
substantially complete. Landlord will advance funds on account of the Space
Planning Allowance upon receipt of invoices for such services. Any unused
portion of the Improvement Allowance and Space Planning Allowance may be applied
as a credit against monthly installments) of minimum rent, as designated by
Tenant.
4. RENT.
Tenant covenants and agrees to pay to Landlord as rental for the Premises
during the Term the following amounts:
(a) For the first lease year, as minimum annual rental (the "Minimum
Rent"), at the rate of $13.00 per square foot, Two Hundred Seventy-Seven
Thousand Seven Hundred Forty-Five Dollars ($277,745) payable in advance in equal
monthly installments of Twenty-Three Thousand One Hundred Forty-Five Dollars and
42/100 ($23,145.42), each on the first day of each month without notice, demand,
offset, deduction or abatement except as expressly set forth in this Lease. If
the Term commences on any day of the month other than the first, the Minimum
Rent for the unexpired portion of such month shall be prorated and shall be due
on the first day of the Term. The Minimum Rent shall be increased on each
anniversary of the Commencement Date as follows:
<TABLE>
<CAPTION>
Annual Monthly
------ -------
<S> <C> <C>
Year 2 $284,688.63 $23,724.06
Year 3 $291,805.85 $24,317.16
Year 4 $299,101.00 $24,925.09
</TABLE>
(b) Operating Cost Increases
(1) Commencing with the installment of rent due on the thirteenth
(13th) month of the Term, and thereafter with each monthly installment of rent
due and payable during the Term and any renewal or extension hereof, Tenant
shall pay to Landlord, as additional rent hereunder, one-twelfth (1/12th) of
Tenant's proportionate share (as hereinafter defined) of any increase in the
"Operating Costs" (as hereinafter defined) of the Building for each "Cost Year"
(as hereinafter defined) over the Operating Costs incurred by Landlord during
the "Base Year" (as hereinafter defined).
(2) As used herein, the term "Operating Costs" shall mean all
expenses and costs (but not specific costs which are separately billed to and
paid by specific tenants) of every kind and nature which Landlord shall pay or
become obligated to pay because of or in connection with owning, operating,
managing, painting, repairing, insuring and cleaning the Building and the
parking area. The term "Operating Costs" shall include any and all general real
estate taxes, including assessments, as valorem charges, special benefit
assessments, gross foot benefits charges, water and sewer rights and all other
governmental or public charges or impositions of every kind and nature
whatsoever, general and special, extraordinary as well as ordinary, foreseen and
unforeseen, which may be levied, assessed or imposed upon the land, Building,
all improvements located upon the tax parcel or parcels of which the Premises or
the Building are a part during any year or partial year during the Term or on
the rents received from the Building if in the nature of a capital levy, and all
expenses and fees, including attorneys' fees, incurred by Landlord in
contesting, appealing and/or negotiating with the public authorities as to any
of the above. Operating costs shall include a management fee that is consistent
with management fees paid to independent property managers on a good faith,
arm's length basis for the management of first-class office buildings of size
and location similar to those of the Building; provided, however, that during
the initial Lease Term such management fee payable to any affiliate of Landlord
shall not exceed in any Lease Year (but for purposes of calculating Operating
Charges under this Lease only) an amount equal to four percent (4%) of the
gross rents or receipts received by Landlord from tenants or occupants in the
Building. The provisions of this clause shall not be construed as a limit on
any management fee actually payable by Landlord to any affiliate of Landlord.
(3) As used herein, the term "Base Year" shall mean the initial
twelve (12) months of occupancy beginning with the Commencement Date, and the
term "Cost Year" shall mean each twelve (12) months commencing with January 1
and ending on December 31.
2
<PAGE> 10
(4) As used herein, Tenant's "proportionate share" shall be
fifty-four and three-tenths of a percent (54.3%), which share is determined by
dividing 21,365 square feet, the number of square feet in the Premises, by
39,393 square feet, the total area of gross leasable floor space in the
Building, inclusive of common areas inside the Building.
(5) Within ninety (90) days after the end of each Cost Year during
the Term and the Cost Year following the year in which this Lease terminates,
Landlord shall deliver to Tenant a statement setting forth the amount of
operating Costs paid or incurred by Landlord during the immediately preceding
Cost Year and comparable figures for the Base Year, together with a full
itemized statement thereof. Tenant's liability for payment of such additional
rent shall commence with the said thirteenth (13th) month of the Term, even
though the aforesaid statement of such increase shall be delivered on a date
subsequent to when the additional rent shall accrue. Operating Costs shall not
include legal fees relating to the enforcement of any particular lease; legal
fees, brokers' commissions, marketing expenses and similar costs incurred by
Landlord in connection with the leasing of space in the Building; legal fees and
court costs incurred by Landlord in enforcing any lease of space in the
Building; legal fees and other professional fees not related to the management,
operation, repair and maintenance of the Building; income taxes, estate taxes
and similar taxes for which Landlord or any affiliate is liable; fines, finance
charges, late charges, penalties or similar charges arising from the act or
omission of Landlord or its agent imposed upon Landlord or any affiliate of
Landlord for nonpayment or delay in the payment of any obligation of any kind
including, without limitation, utility company charges, service contract
installment payments and taxes (unless such charges or penalties relate to
payments not made or delayed because of Tenant's failure to pay when due any
payment of Tenant's proportionate share of operating Costs as required pursuant
to this Lease or unless due to a good faith dispute between Landlord and the
supplier of any such services); depreciation of the Building; advertising and
promotional expenditures; financing costs and debt service payments; ground
rents; premium costs incurred in performing work or furnishing services for any
tenant of space in the Building to the extent such work either is paid for by
such tenant or amounts for "premium" work that exceeds the work or service that
Landlord is obligated to furnish at Landlord's expense or that Landlord is
offering to perform for all tenants within the Building; capital expenditures
for correcting construction defects or equipment defects to the extent warranty
coverage for such work is available; costs of any curative action required for
any repair, replacement or alteration made by Landlord to remedy damage caused
by or resulting from its negligence or the negligence of its affiliates,
employees, agents or servants and not covered by insurance policies required to
be obtained by Landlord or its affiliates, employees, agents or servants or by
Tenant or other tenants of the Building; costs of any special services or
utilities charged to and paid for by a particular tenant of space in the
Building; or expenditures for any alteration, renovation, redecoration,
subdivision, layout or finish of any tenant space in the Building performed in
connection with the readying of such space for occupancy thereof by a tenant or
in connection with the renewal of any lease by an existing tenant. If Tenant
timely gives such notice to Landlord (and pays the amount due from Tenant, if
any, or receives the credit against Minimum Rent due from Landlord, if any, all
as set forth in such statement), then for a period of sixty (60) days following
the date of such notice Tenant shall have the right to either (1) begin an
inspection and/or audit of Landlord's books and records relating to Operating
Costs and the information set forth in such statement (with such inspection
and/or audit to take place during regular business hours, at Landlord's place of
business and following reasonable advance notice to Landlord), or (2) have an
independent certified public accountant designated by Tenant and approved by
Landlord (which approval shall not be unreasonably withheld, conditioned or
delayed) do so for Tenant. Landlord shall cooperate in providing at Tenant's
reasonable cost any photocopies of such books and records that might be
requested during the course of such inspection and/or audit. Any such inspection
and/or audit, once begun, shall be pursued to completion in a reasonably
diligent and expeditious manner. Tenant shall give Landlord a copy of the audit
report. Tenant agrees to keep all information confidential. If the audit
discloses an overpayment by Tenant, the excess shall be credited to the next
payment of rent. If the audit discloses an underpayment by Tenant, Tenant shall
pay the amount due with the next installment of rent.
3
<PAGE> 11
(6) Anything contained in the foregoing provisions of this Section 4
to the contrary notwithstanding, the Landlord shall be entitled, at its
discretion, to make from time to time during the Term a reasonable estimate of
the increase in Operating Costs which may become due hereunder with respect to
any Cost Year or partial Cost Year, and to require Tenant to pay to the Landlord
on the account of the increase in Operating Costs for such Cost Year or partial
Cost Year, without offset or deduction, such estimated increase in Operating
Costs in equal monthly installments. In the event that the total of these
estimated monthly installments (if any) paid by Tenant is less than Tenant's
share of the increase in Operating Costs as shown by Landlord's statement of
Operating Costs, Tenant shall pay the balance due and owing to Landlord within
ten (10) days of receipt by Tenant of said statement. In the event that the
total of these estimated monthly installments paid by Tenant exceeds Tenant's
share of the increase in Operating Costs for such Cost Year or partial Cost Year
as shown by said statement, Landlord shall apply any such excess to Tenant's
next accruing monthly installment(s) of Tenant's additional rent, or, if in the
event of a partial Lease Year at the end of the Term hereof, provided Tenant is
not in default hereunder, Landlord shall pay any such excess promptly to Tenant.
(c) Utilities
Landlord will submeter gas, electricity, water and sewer at
Landlord's expense. Tenant shall pay Landlord, as additional rent, the cost of
all gas, electricity, water and sewer services used or consumed at the Premises
in excess of $38,457 per Lease Year, which amount shall be increased 1.025% each
Lease Year. The term "Lease Year" shall be the twelve (12) month period
commencing on the Commencement Date, if the Term begins on the first day of a
month, or if the Term does not begin on the first day of a month, on the first
day of the first month following the Commencement Date and each successive
twelve (12) month period thereafter during the Term. Landlord shall bill Tenant
periodically (and expects to bill Tenant quarterly) and Tenant shall pay
Landlord the cost of all utilities in excess of a prorated portion of the
$38,457 base utility cost, based on the time period covered by such bill.
(d) All sums other than Minimum Rent payable under any provision of this
Lease shall be deemed and shall constitute additional rent, and upon failure of
Tenant to pay any such sum, Landlord shall be entitled to exercise any and all
rights and remedies contained herein for failure to pay Minimum Rent.
(e) Late Charges
If Tenant shall fail to pay any installment of Minimum Rent, additional
rent, or other charges after the same becomes due and payable, such unpaid
amounts shall bear interest from the due date thereof to the date of payment at
the annual rate of two percent (2%) over the fluctuating and floating prime rate
as published in The Wall Street Journal on the date the Minimum Rent payment was
initially due and will not accrue until the expiration of the grace period and
paragraph 17(a)(1). In addition, if Tenant shall fail to pay any installment of
Minimum Rent, additional rent or other charges, within ten (10) days after the
same becomes due and payable, more than two (2) times in any twelve (12) month
period, then Tenant shall also pay to Landlord a late payment service charge
(covering administrative and overhead expense) equal to the greater of (i) One
Hundred Dollars ($100.00), or (ii) one half of one percent (0.5%) of such unpaid
sum per day for each calendar day or part thereof after the due date of such
payment that such payment has not been received by Landlord. The provisions
herein for late payment service charges 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.
5. USE OF PREMISES.
(a)Tenant may use and occupy the Premises for office, warehouse, and/or
assembling computer software products, and for no other purpose, except with the
prior written consent of Landlord. Tenant shall not at any time leave the
Premises vacant, but shall, in good faith, continuously throughout the Term
actively conduct and carry on in the entire Premises, in an efficient, dignified
and reputable manner, in accordance with high standards of operation, the use
stated herein.
4
<PAGE> 12
(b)Tenant will not use, occupy or permit the use or occupancy of the
Premises for any purpose which is, directly or indirectly, forbidden by law,
ordinance, or governmental or municipal regulation or order, or which may be
dangerous to life, limb, or property; or permit the maintenance of any public or
private nuisance; or do or permit any other thing which may be against policy or
disturb policy or disturb the quiet enjoyment of any other tenant of the
Building or in any way injure or annoy any other tenant or those having business
with any other tenant of the Building; or keep any substance or carry on or
permit any operation which might emit offensive odors or conditions into other
portions of the Building; or use any apparatus which might make undue noise or
set up vibrations in the Building; and will not commit any act which might, in
the exclusive judgment of Landlord, damage Landlord's goodwill or reputation, or
tend to injure or depreciate the Building.
6. SERVICES.
(a)Provided Tenant is not in default beyond applicable period of cure as
described in Section 17 hereof, Landlord shall furnish or cause public utilities
to furnish the following services during the Term:
(1) Air conditioning and heating, in season, and at such
temperatures and in such amounts as reasonably required for general office
purposes, in Landlord's judgment, to achieve a temperature of approximately 75
degree F when the outside temperature is higher than 90 degrees F, and to
achieve a temperature of approximately 68 degrees F when the outside temperature
is no less than 30 degrees F.
(2) Adequate tempered water, for normal and customary drinking,
lavatory and cleaning purposes.
(3) Proper facilities to furnish sufficient electrical power in
accordance with Tenant's final space plan.
(4) Daily janitorial service (weekdays only), excluding Federal
holidays.
(b)Landlord shall not be liable for any failure to furnish, or any delay
or suspension in furnishing, any of the utilities or the services above if such
failure is attributable to breakdown, maintenance, a shortage of materials,
supplies, labor services or from any other cause whatsoever, including heat
generated by Tenant's equipment or machinery. Landlord reserves the right to
interrupt, curtail, reduce or suspend the services required to be furnished by
Landlord hereunder when the necessity therefor arises by reason of accident,
emergency, mechanical breakdown, maintenance or when required by any law, order
or regulation of any federal, state, county, or municipal authority, or for any
other cause beyond the control of Landlord. Landlord shall use due diligence to
complete all repairs required of Landlord hereunder. No diminution or abatement
of rent or other compensation shall be claimed by Tenant as a result therefrom,
nor shall this Lease or any of the obligations of Tenant hereunder be affected
or reduced by reason of such interruption, curtailment, reduction or suspension,
except as set forth below. Landlord reserves the right to curtail or suspend any
utility, service or Building system when necessary or desirable in the
reasonable judgment or Landlord, by reason of accident, emergency, repairs,
alterations, replacements or improvements or any other reason whatsoever, until
such cause has been removed or remedied. With respect to a nonemergency
curtailment or suspension, Landlord shall provide Tenant, to the extent
practicable, with reasonable prior notice of such curtailment or suspension. If
Tenant requests in writing that Landlord reschedule any such nonemergency
curtailment or suspension to minimize the impact thereof on Tenant's work
schedule, then Landlord shall reschedule such nonemergency curtailment or
suspension to the extent practicable; provided, however, that if Tenant refuses
entry to any party attempting to remove or remedy the situation notwithstanding
that Tenant had theretofore approved such entry time, Tenant shall be
responsible to Landlord (and shall reimburse Landlord promptly upon demand) for
any costs (including any increase in service charges) resulting from such action
of Tenant. In the event of Landlord's failure or inability to furnish any of the
utilities or services required to be furnished by Landlord hereunder, Landlord
shall not have any liability to Tenant; provided, however, that landlord shall
use good faith efforts to restore such failure or inability so long as such
failure or inability is within Landlord's reasonable control and to expend
reasonable sums to minimize the period of time over which any interruption of a
utility, service or Building system extends; and provided further, however, that
if any utility, service or Building system is interrupted on account of a cause
within Landlord's reasonable control and such interruption continues for more
than one (1) business day after Landlord's receipt of written notice from Tenant
identifying such interruption and as a result thereof all or a portion of the
Premises become uninhabitable, then Tenant shall be entitled to a pro rata
abatement of rent for the portion of the Premises that becomes uninhabitable and
actually is not occupied by Tenant. Such abatement of rent shall be retroactive
to the first business day of the interruption and shall remain in effect until
the utility, service or Building system is restored in a manner that renders the
uninhabitable portion of the Premises habitable, or Tenant recommences use,
whichever first occurs. Any interruption in any utility, service or Building
system that might give rise to a claim by Tenant for abatement of rent pursuant
to this Section shall be deemed an emergency for purposes of this Lease allowing
Landlord immediate access to the Premises. If any public utility or governmental
body requires Landlord or Tenant to restrict the consumption of any utility or
reduce any service to the Premises or the Building, Landlord and Tenant shall
comply with such requirements whether or not the utilities and services referred
to in this Section 6 are thereby reduced or otherwise affected, without any
abatement, deduction, set-off, rebate or adjustment to the Base Rent or
additional rent payable hereunder. Landlord shall recalculate its estimate of
increases in Operating Costs in accordance with Section 4 above in the event of
any such action, however.
5
<PAGE> 13
7. REPAIRS.
(a)Tenant shall at all times, at its own expense, keep and maintain the
Premises, its fixtures, furnishings, equipment and decorations in good order,
and in the condition and repair required for the proper conduct of its business.
Tenant shall make all necessary repairs and replacements to the Premises, as and
when needed to preserve the Premises in good working order and condition, in
accordance with and subject to the provisions of Section 9 of this Lease. All
damage or injury to the Premises and to its fixtures, appurtenances or equipment
or to the Building, or to its fixtures, appurtenances or equipment caused by
Tenant shall be repaired, restored, or replaced promptly by Tenant, subject to
the provisions of Section 9, at Tenant's sole cost and expense. All repairs,
restorations, and replacements shall be in quality and type, at least equal to
the original work or installations.
(b)Landlord shall keep the exterior walls, load bearing elements,
foundations, pipes and conduits, roof and common areas that form a part of the
Building and the building standard mechanical, electrical (including building
standard light fixtures and building standard light bulbs), HVAC and plumbing
systems that are provided by Landlord in the operation of the Building, clean
and in good operating condition and shall make all required repairs thereto.
Notwithstanding any of the foregoing to the contrary, maintenance and repair of
special tenant areas , facilities, finishes and equipment (including, but not
limited to, any special fire protection equipment, telecommunications and
computer equipment, kitchen/galley/coffee equipment, supplementary
air-conditioning equipment (including, but not limited to, the computer room
HVAC unit) and all other furniture, furnishings and equipment of Tenant and any
Alterations (as hereinafter defined) made by Tenant) shall be the sole
responsibility of Tenant. Landlord may, at its option and at the sole cost and
expense of Tenant, make any repair or replacement which Tenant is obligated to
make pursuant to subparagraph (a) above, and which after due notice Tenant
refuses to make, and Tenant shall pay the cost hereof, which shall include an
administrative fee of fifteen percent (15%) , to Landlord upon demand.
Landlord's sole obligation is to maintain the roof, structural walls and
existing mechanical and electrical equipment in "as is" condition.
8. SURRENDER OF PREMISES.
Tenant shall surrender the Premises to Landlord at the termination of this
Lease broom clean and in substantially the same condition as existed at the
Commencement Date, reasonable wear and tear and unavoidable damage by the
elements, fire or other insured casualty excepted. At the end of this Lease,
Tenant shall have the right to and shall remove its personal property and
movable trade fixtures and shall restore any damage to the Premises caused by
the removal.
9. ALTERATIONS.
(a)The original improvement of the Premises shall be in accordance with
Tenant's plans and specifications approved by Landlord. Tenant shall not make or
permit anyone to make any interior alterations, decorations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent Landlord may not unreasonably withhold. In no event shall any
structural or exterior repair change or modification to the Building, the
Premises, or the heating, electrical or plumbing services be made by Tenant or
employees or agents of Tenant without Landlord's prior written consent, which
Landlord may withhold in its sole and absolute discretion. Any approved repairs,
alterations, decorations, additions or improvements shall be made by licensed
contractors and mechanics approved by Landlord, in accordance with the
applicable laws and ordinances of any public authority having jurisdiction over
the Building and with the building code and zoning regulations of any such
authority and with any rules and regulations established from time to time by
the Underwriters Association of the local area.
(b)All alterations, improvements, additions or fixtures whether installed
after the execution of this Lease, shall remain upon the Premises at the
termination of this Lease and upon such termination shall become the property of
Landlord, unless Landlord shall, no later than ten (10) days after the
termination of this Lease, have given written notice to Tenant to remove the
same, in which event Tenant will remove such alterations, improvements and
additions and restore the Premises -- in the same good order and condition in
which they were prior to the installation of such alterations, improvements,
additions or fixtures. Should Tenant fail to do so, Landlord may do so,
collecting, at Landlord's option, the reasonable cost and expense thereof from
Tenant as additional rent.
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(c)In making any approved alterations, additions or improvements, Tenant
shall promptly pay all contractors, materialmen and laborers, so as to minimize
the possibility of a lien attaching to the Building, or attaching to any portion
of the real property on which said Building is located. Should any such lien be
made or suit be filed therefor, Tenant shall bond against or discharge the same
within ten (10) days after the said filing of suit.
(d)Tenant will defend, indemnify and hold Landlord harmless from and
against, any and all expenses, liens, claims or damages, including attorneys'
fees, to person or property which may or might arise, directly or indirectly, by
reason of the making of any repairs, alterations, decorations, additions or
improvements by Tenant, including without limitation, the installation or
operation of equipment or machinery requiring Landlord's consent under
subparagraph (d) of this Section 9. If any repair, alteration, decoration,
addition, installation or improvement is effected without the prior written
consent of Landlord, Landlord may remove or correct the same and Tenant shall be
liable for any and all reasonable expenses of this work. All rights given to
Landlord herein shall be in addition to any other right or remedy of Landlord
contained in this Lease.
10. ASSIGNMENT AND SUBLETTING.
(a)Tenant shall not assign, mortgage, encumber, or in any manner transfer
this Lease or any estate or interest therein or sublet or permit the Premises or
any part thereof to be used by others without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
subjective discretion. Notwithstanding any of the foregoing to the contrary, and
provided that no event of default exists and is continuing hereunder, Landlord
shall not unreasonably withhold or delay its consent to any proposed assignment
or subletting of the Premises if (i) the use of the Premises pursuant to such
assignment or sublease is in compliance with Section 5(a) hereof; (ii) the
proposed assignee or subtenant is of a type and quality consistent and
compatible with a first-class office building and with the Building and its
tenants; (iii) Landlord is reasonably satisfied with the financial condition and
liquidity of the assignee under any such assignment or the sublessee under any
such sublease; (iv) the initial Tenant remains fully liable as a primary obligor
for the payment of all rent and other charges payable hereunder and for the
performance of all its other obligations hereunder; and (v) the proposed
assignee and subtenant assumes the obligation of Tenant under this Lease in a
written instrument reasonably satisfactory to Landlord. No assignment or
transfer of this Lease may be effected by operation of law or otherwise without
Landlord's prior written consent. Consent by Landlord to one or more assignments
or sublettings shall not operate as a waiver of Landlord's rights as to any
subsequent assignments or sublettings. Any attempted transfer, assignment or
subletting in violation of the foregoing sentence shall be void and confer no
rights upon any third person, and the acceptance of rent by Landlord from any
such assignee or sublessee shall not operate as a waiver of Landlord's rights
hereunder or as a consent to any such assignment or subletting, notwithstanding
any assignment or subletting to which Landlord may consent. Tenant shall at all
times remain fully responsible and liable for the payment of the rent herein
specified and for compliance with all of its other obligations under this Lease.
The term "sublet" shall be deemed to include the granting of licenses,
concessions, and any other rights of occupancy of any portion of the Premises.
(b)It is expressly understood and agreed that this Lease and all rights of
Landlord hereunder shall be fully and freely assignable by Landlord without
notice to, or consent of, Tenant.
(c)In the event of the transfer and assignment by Landlord of its interest
in this Lease, Landlord shall thereby be released from any further
responsibility hereunder, and Tenant agrees to look solely to such successor in
interest of the Landlord for performance of such obligations. Any security given
by Tenant to Landlord to secure performance of Tenant's obligations hereunder
may be assigned and transferred by Landlord to such successor in interest of
Landlord; and, upon receipt of such security, Landlord shall thereby be
discharged of any further obligation relating thereto. The term "Landlord" as
used in this Lease shall mean the owner of the Building, at the time in
question, and in the event of the transfer (whether voluntary or involuntary) by
such owner of its interest in the Building, such owner shall thereupon be
released and discharged from all covenants and obligations of the Lease
thereafter accruing, but such covenants and obligations shall be binding during
the Term upon each new owner for the duration of such owner's ownership.
11. INSURANCE.
(a) Tenant shall not do, suffer to be done, keep or suffer to be kept,
anything in, upon or about the Premises which will contravene or invalidate any
insurance policy insuring against loss or damage by fire or other hazards,
including but not limited to public liability, or which will prevent such
policies from being procured or renewed upon terms and with companies
acceptable to Landlord, in Landlord's sole discretion. If anything is done,
omitted to be done or suffered to be done by Tenant, or kept or suffered by
Tenant to be kept in, upon or about the Premises, which shall cause the rate of
fire or other insurance on the Premises or the Building in companies acceptable
to Landlord to be increased, Tenant shall pay the entire amount of such
increase, as additional rent hereunder, promptly upon Landlord's demand
therefor.
(b) Tenant shall procure and maintain throughout the Term a policy or
policies of insurance, at its sole cost and expense, insuring Tenant, and
naming Landlord as an additional insured, as its interests may appear, and any
other persons designated by Landlord, against any and all liability for injury
to or death of a person or persons, and for damage to or destruction of
property occasioned by or arising out of or in connection with the use or
occupancy of the Premises, or by the condition of the Premises, and including
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contractual indemnity coverage, the limits of such policy or policies to be in
an amount not less than One Million Dollars ($1,000,000.00) on a single
occurrence basis, or such other amount as Landlord may require (if a higher
amount of coverage is commercially reasonable for prudent business engaged in
activities similar to Tenant's business activity), such coverage to be written
by an insurance company or companies licensed to do business in the commonwealth
of Virginia and satisfactory to Landlord. Such policies shall be
non-surrenderable and non-cancelable except after thirty (30) days' written
notice to Landlord and any mortgagee designated by Landlord, and shall contain
an endorsement that such policy shall remain in full force and effect
notwithstanding that the insured has waived its right of action against any
party prior to the occurrence of a loss. Such policies or duly executed
certificates of insurance shall be delivered to Landlord prior to the
Commencement Date and evidence of renewal shall be delivered to Landlord at
least thirty (30) days prior to the expiration of the respective policy term.
(c)Tenant agrees at all times at its expense to keep all personal property
including furnishings, merchandise and inventory, situated within the Premises
insured against fire, with extended coverage, including vandalism and malicious
mischief endorsements with sprinkler leakage coverage, in an amount equal to
full insurable value and sufficient to avoid Landlord's becoming a co-insurer on
partial losses thereof, with such reasonable deductibles as Landlord shall
approve. Such insurance shall be carried with an insurance company or companies
licensed to do business in the Commonwealth of Virginia and satisfactory to
Landlord, and shall be in a form satisfactory to Landlord and shall name
Landlord and any other persons designated by Landlord as additional insurers
thereunder. Such insurance shall be non-surrenderable and non-cancelable except
after thirty (30) days' notice to Landlord and any mortgagee designated by
Landlord. Such policies or duly executed certificates of insurance shall be
delivered to Landlord prior to the Commencement Date, and renewals thereof as
required shall be delivered to Landlord at least thirty (30) days prior to the
expiration of the respective policy term. Tenant shall have the right to
self-insure.
(d)Landlord shall maintain fire insurance with extended coverage insuring
the base Building (but not any alterations or any personal property or other
property of any tenant, including Tenant) through either (a) a "master" or
"blanket" policy covering the Building and other properties of Landlord and
affiliates of landlord providing coverage for the Building in an amount not less
than ninety percent (90%) of estimated replacement cost (when the value of the
base Building is averaged with the values of the other properties covered by
such master policy) but permitting the payment of the full replacement cost of
the base building of any single property covered thereby (up to such policy's
maximum amount) or (b) a policy covering the Building providing coverage for the
Building in an amount not less than one hundred percent (100%) of estimated
replacement cost.
12. LIABILITY OF LANDLORD.
(a)Any provision in this Lease to the contrary notwithstanding, except for
injury to property or person caused by Landlord's negligence or misconduct,
Landlord shall not be liable to Tenant or to Tenant's employees, sub-tenants,
agents, licensees, concessionaires, guests, or invites, or to any other person
whomsoever, for any injury to person or damage to property on or about the
Building or the Premises caused by or arising out of Tenant's use or occupancy
of the Premises and the conduct of its business therein or arising out of any
breach or default by Tenant in the performance of its obligations hereunder; and
Tenant hereby agrees to defend and indemnify Landlord and hold it harmless from
any loss, cost, or expense (including attorneys' fees) arising out of any such
claimed damage or injury.
(b)Unless caused by Landlord's negligence or misconduct, or Landlord's
failure to perform its obligations under the Lease, Landlord and Landlord's
agents and employees shall not be liable to Tenant for any injury to person or
damages to property sustained (including loss or interruption of business and/or
the use of the Building and/or the Premises) by Tenant or any person or entity
claiming through Tenant resulting from or arising out of any accident or
occurrence, fire, explosion, robbery, theft, bomb threat, mysterious
disappearance and/or any other casualty, or from conditions in the Premises or
any other portion of the Building, including but not limited to, injury or
damage caused by the Premises or other portions of the Building becoming out of
repair or by defect in or failure of elevators, equipment, pipes, wiring, or by
broken glass, or by the backing up of drains, or by gas, steam, electricity, or
oil leaking, escaping or flowing into the Premises, or from water, rain, snow or
dampness which may flow or leak into the Building or the Premises from any
source whatsoever, nor shall Landlord be liable to Tenant or any person or
entity claiming through Tenant for any loss or damage that may be occasioned by
or through the act or omissions of other tenants of the Building or of any other
persons whomsoever.
(c)All property kept, stored or maintained within the Premises or the
Building by Tenant shall be so at Tenant's sole risk and Landlord shall not in
any manner be responsible therefor.
13. MUTUAL WAIVER OF SUBROGATION.
Neither Landlord nor Tenant shall be liable (by way of subrogation or
otherwise) to the other party (or to any insurance company insuring the other
party) for any loss or damage to the Premises or to the property of either
party covered by insurance to the extent of such insurance (but such waiver
shall not extend to the deductible amount under any such policies or any loss
in excess of coverage) and all fire and extended coverage insurance, boiler
insurance, and other insurance carried either by Landlord or Tenant covering
losses arising out of destruction or damage to the Premises or its contents or
to other portions of the Building shall provide for a waiver of subrogation
against Landlord and Tenant respectively on the part of the insurance carrier.
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14. DAMAGE BY CASUALTY.
(a)Tenant shall give immediate written notice to Landlord of any damage
caused to the Premises by fire or other casualty, and if Landlord does not elect
to terminate this Lease as hereinafter provided, Landlord shall proceed with
reasonable diligence and at its sole cost and expense to rebuild and repair the
Premises to the extent originally delivered to Tenant, but Landlord shall not be
obligated to expend for such rebuilding and repair any amount in excess of the
amount of the insurance proceeds actually recovered by Landlord and made
available to Landlord for such purpose by any mortgagee as a result of such
loss. If the Building shall be destroyed or substantially damaged by a casualty
not covered by Landlord's insurance, or if twenty-five percent (25%) or more of
the floor area of the Premises is damaged or rendered untenantable by a
casualty, or if the Premises are not affected but twenty-five percent (25%) of
the floor area of the Building is damaged or rendered untenantable, or if any
mortgagee should require that the insurance proceeds payable as a result of any
casualty be used to reduce the indebtedness secured by such mortgage, then in
any such event Landlord may elect either to terminate this Lease or to proceed
to rebuild and repair the Premises or that portion of the Building so damaged.
Landlord shall give written notice to Tenant of such election within ninety (90)
days after the occurrence of such casualty, or within thirty (30) days after the
adjustment of the insurance settlement, whichever is later. If the Premises are
damaged and repair and restoration cannot be completed within one hundred twenty
(120) days after the casualty or other damage as certified within 30 days after
the casualty by an appropriately qualified engineer engaged by Landlord, then
Tenant may elect to terminate this Lease by written notice given to Landlord
within thirty (30) days after receipt of said certification or if not received
before the end of the 120-day period.
(b)Landlord's obligation to rebuild and repair under this Section 14 shall
be limited to restoring the Building to substantially the condition in which the
same existed prior to the delivery to Tenant, and Tenant at Tenant's sole cost
and expense, shall rebuild, repair and restore Tenant's fixtures, any additional
alterations or improvements made by Tenant, or at Tenant's expense, during the
Term, all to substantially the condition existing prior to such casualty.
(c)In case of such damage to the Premises, during the period from the
occurrence of the casualty until Landlord's repairs are completed, the Minimum
Rent shall be abated in that proportion which the Tenant's square footage
rendered untenantable bears to the square footage contained within the Premises;
however, there shall be no abatement of any other charges or items of additional
rent provided for herein to be paid by Tenant.
15. CONDEMNATION.
(a)If the whole of the Building shall be acquired or condemned by eminent
domain for any public or quasi-public use or purpose, then the Term shall cease
and this Lease shall terminate as of the date of the title vesting in such
public or quasi-public body and all sums due hereunder shall be paid up to that
date and Tenant shall have no claim against Landlord or the condemning authority
in respect to any compensation for such taking awarded to Landlord, whether
through a negotiated settlement or through formal condemnation proceedings. All
compensation awarded for any taking (or the proceeds of sale under threat
thereof) whether for the whole or a part of the Premises, shall be the property
of Landlord, whether such award is compensation for damages to Landlord's or
Tenant's interest in the Premises, and Tenant hereby assigns all of its
interests in any such award to Landlord; provided, however, that Tenant may, if
allowed by statute, seek an award for relocation expenses, if applicable, or for
the taking of Tenant's personal property within the Premises including fixtures
and equipment which do not become Landlord's property upon termination of this
Lease and, if a separate award for such is made to Tenant and if the Term ceases
as above, the award shall be paid over to Tenant but if the Term continues and
Tenant rebuilds in accordance with subparagraph (b) hereinafter, any such award
which is expressly set forth as compensation for such damages to Tenant's
personal property shall be held by Landlord in trust for application to the cost
of such rebuilding, repairing and restoring of the Premises and shall be paid
over to Tenant, without interest, upon completion of such work and provision to
Landlord of a validly executed waiver of liens.
(b)If any part of the Building shall be acquired or condemned as
aforesaid, then at Landlord's option, the Term shall cease and this Lease shall
terminate as of the date of title vesting in such proceeding. Tenant shall have
no claim against Landlord or the condemning authority in respect to any
compensation for such taking except as provided in subparagraph (a) above.
Minimum Rent and additional rent shall be adjusted to the date of such
termination. In the event of a partial taking or condemnation, and this Lease is
not terminated, Landlord shall promptly restore the remaining portion of the
Premises, exclusive of Tenant's leasehold improvements and personal property, to
its condition as nearly as possible as existed at the time of such condemnation
less the portion lost in the taking and this Lease shall continue in full force
and effect and rent shall be adjusted on the basis of the number of square feet
taken on a pro rata basis. Tenant shall, at its sole cost and expense, rebuild,
repair and restore Tenant's fixtures, any additional alterations or
improvements made by Tenants, or at Tenant's expense, during the term, all to
substantially the condition existing prior to such taking.
(c) If thirty percent (30%) or more of the Premises or occupancy
thereof shall be taken or condemned by any governmental authority for any public
or quasi-public use or purpose or sold under threat of such a taking or
condemnation (collectively, "condemned"), then this Lease shall terminate on the
date title vests in such authority and rent shall be apportioned as of such
date. If less than thirty percent (30%) of the Premises or occupancy thereof is
condemned, then this Lease shall continue in full force and effect as to the
part of the Premises not condemned, except that as of the date title vests in
such authority Tenant shall not be required to pay the Base Rent and additional
rent with respect to the part of the Premises condemned.
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16. LANDLORD'S RIGHT OF ENTRY.
Landlord and persons designated by it have the right to enter the
Premises at all reasonable hours to examine and inspect the same, however,
Landlord shall comply with Tenant's security regulations. Landlord shall have
the right, after notice of either party of intention to terminate this Lease, or
at any time within six (6) months prior to the expiration of this Lease, to
display a "For Rent" sign; and the said sign may be placed upon such part of the
Premises and/or Building as Landlord may elect and may contain such matter as
Landlord shall require. Prospective purchasers authorized by Landlord may
inspect the Premises at reasonable hours with reasonable notice to Tenant.
Prospective tenants shall be shown the Premises in accordance with the Rules and
Regulations.
17. DEFAULTS AND REMEDIES.
(a) The happening of any one or more of the following shall be deemed
to be events of default under this Lease, unless cured within 30 days after
written notice from landlord in the case of any obligation of Tenant hereunder
other than that specified in Section 17(a)(1).
(1) Failure of Tenant to pay any installment of rent or other charge
or money obligation herein required to be paid by Tenant when due, or the
failure to cure a default in any other of its covenants or obligations under
this Lease within ten (10) days after written notice from Landlord. Failure of
Tenant to perform any other obligation of Tenant hereunder within thirty (30)
days after written notice from Landlord.
(2) The making by Tenant of an assignment for the benefit of its
creditors, or if Tenant becomes insolvent;
(3) The levying of a writ of execution or attachment on or against
the property of Tenant and the same is not released or discharged within ten
(10) days thereafter;
(4) In the event proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
Tenant, or for the appointment of a receiver of the property of Tenant, and said
proceedings are not dismissed, and any receiver, trustee or liquidator appointed
therein discharged within thirty (30) days after the institution of said
proceedings;
(5) The doing, or permitting to be done, by Tenant of any act which
creates a lien or claim therefor against the land or Building of which the
Premises are a part and the same is not released or otherwise provided for by
indemnification bond satisfactory to Landlord within ten (10) days thereafter,
(6) The Tenant's filing a petition under any section or chapter of
the Federal Bankruptcy Code, as amended, or under any similar law or statute of
the United States or any state thereof, or the Tenant's adjudication as a
bankrupt or insolvent in proceedings filed against Tenant thereunder;
(b) Upon the Tenant's filing a petition under any section of the Federal
Bankruptcy Code, as amended, or under any similar law or statute of the United
States or any state thereof, or the Tenant's adjudication as a bankrupt or
insolvent in proceedings filed against Tenant thereunder, this Lease shall
automatically terminate. Upon the occurrence of any other events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying said Premises or any
part thereof, by force if necessary, without being liable for prosecution or any
claim of damages therefor; and Tenant agrees to pay to Landlord on demand the
amount of all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Premises on satisfactory
terms or otherwise;
(2) Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying said Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and if Landlord so elects, relet the Premises on
such terms as Landlord may deem advisable and receive the rent therefor,
provided no such reentry or taking possession of the Premises by Landlord shall
be construed as an election on its part to terminate this Lease unless a written
notice of termination be given to Tenant; and Tenant agrees to pay Landlord on,
demand any deficiency that may arise by reason of such reletting and in the
event of a failure by Tenant to pay such deficiency, Landlord may periodically
sue for such sum, and any such action shall not bar a subsequent action by
Landlord to recover deficiencies accruing thereafter;
(3) Whether Landlord terminates this Lease or enters and takes
possession of the Premises, Tenant agrees to pay a sum which at the time of
such termination of this Lease or at the time of such reentry by Landlord, as
the case may be, represents the then excess, if any, of (i) the aggregate
amount of the Minimum Rent and additional rent which would have been payable by
Tenant (conclusively presuming the average monthly additional rent to be the
same as payable for the current Lease Year) for the period commencing with such
early termination of this Lease or the date of any such reentry, as the case
may be, and ending with the date contemplated as the termination date of this
Lease if it had not so terminated or if Landlord had not so reentered the
Premises, over (ii) the aggregate fair market rental value of the Premises for
the same period;
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(4) Enter upon the Premises, by force if necessary, without being
liable for prosecution or any claim for damages therefor, and do whatever Tenant
is obligated to do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action, whether caused by the negligence of Landlord or otherwise;
(5) Institute any appropriate action or actions against Tenant to
enforce any term, covenant or provision of this Lease, to restrain violation
thereof or to recover any rent due or other damages sustained through breach of
this Lease; or
(6) Distrain for rent and other charges due as rent and/or additional
rent and be entitled to the benefit of all laws now or hereafter made applicable
to distrain or any action in the nature of distraint.
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any Minimum Rent or additional rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
provisions and covenants herein contained. Forbearance by Landlord to enforce
one or more of the remedies herein provided upon an event of default shall not
be deemed or construed to constitute a waiver of such default. In determining
the amount of loss or damage which Landlord may suffer by reason of termination
of this Lease or the deficiency arising by reason of any reletting of the
Premises by Landlord as above provided, allowance shall be made for the expense
of repossession, eviction and any repairs or remodeling undertaken by Landlord
following repossession, brokers' commissions, legal fees, advertising expenses
and all other expenses incurred by Landlord which are properly chargeable to
said reletting.
(d) If, on account of any breach or default by Tenant in Tenant's
obligations hereunder, it shall become necessary for Landlord to employ an
attorney to enforce or defend any of Landlord's rights or remedies hereunder,
Tenant agrees to pay all reasonable and documented attorneys' fees incurred by
Landlord in connection therewith provided Landlord prevails in the litigation.
(e) Both Landlord and Tenant agree hereby to waive and do hereby waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto under or in connection with the Lease.
18. NO WAIVER OF PERFORMANCE.
The failure of Landlord or Tenant to insist upon a strict performance of
any of the terms, conditions, covenants herein, shall not be deemed a waiver of
any rights or remedies that Landlord or Tenant may have and shall not be deemed
a waiver of any subsequent breach or default in the terms, conditions, and
covenants herein contained.
19. SUBORDINATION.
This Lease shall be subject and subordinate at all times to all underlying
leases and to the lien of any mortgage and/or other encumbrances which may now
or hereafter affect such leases or the Premises (collectively "Mortgage" or
"Mortgages"), and also to all renewals, modifications, consolidations, and
replacements of said Mortgage, without the necessity of any further instrument
or act by Tenant to effect such subordination, provided Landlord delivers to
Tenant a reasonably acceptable non-disturbance agreement from Landlord's lender.
Tenant agrees, at the election of the mortgagee, to attorney to any holder of
any Mortgage to which this Lease is subordinate. Although no instrument or act
on the part of Tenant shall be necessary to effectuate the foregoing
subordination and attornment, Tenant shall, nevertheless, execute and deliver
upon demand such further instrument or instruments confirming such
subordination of this Lease to all Mortgages as shall be desired by any
mortgagee or proposed mortgagee or any other person. Tenant hereby appoints
Landlord the attorney-in-fact of Tenant irrevocably (such power of attorney
being coupled with an interest) to execute and deliver any such instrument or
instruments for and in the name of Tenant. Notwithstanding the foregoing, any
holder of any Mortgage may at any time subordinate its Mortgage to this Lease,
without Tenant's consent, by notice in writing to Tenant, and thereupon this
Lease shall be deemed prior to such Mortgage without regard to their
respective dates of execution and delivery.
20. NOTICES.
Any notice or payment by either party to the other shall be in writing
and shall be delivered personally or mailed by certified mail in a postpaid
envelope, return receipt requested, addressed (a) if to Tenant, to Attn: Chief
Financial Officer, 11413 Isaac Newton Square, Reston, Virginia 22090, and (b)
if to Landlord, to c/o Percontec, Inc., 11900 Tech Road, Silver Spring, Maryland
20904, or to such other address as Tenant or Landlord may designate in writing.
Notice shall be deemed to have been duly given upon receipt if delivered
personally, and if mailed as aforesaid, upon the day of such mailing.
21. ESTOPPEL CERTIFICATE.
Tenant agrees at any time and from time to time, within five (5) days
after Landlord's written request, to execute, acknowledge and deliver to
Landlord a written instrument in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that it is in full force and effect as modified and stating the modifications),
and the dates to which Minimum Rent, additional rent and other charges have
been paid in advance, if any, and
11
<PAGE> 19
stating whether or not Landlord is in default in the performance of any
covenants, agreement or condition contained in this Lease and, if so, specifying
each such default and any additional information requested by Landlord, any
purchaser of the Building or any interest therein, including partnership
interests, or mortgagee, it being intended that any such statement delivered
pursuant to this Section may be relied upon by any such prospective purchaser or
any mortgagee or any assignee of Landlord's interest in this Lease or of any
mortgage upon the fee of the Premises, or any part thereof.
22. HOLDING OVER.
In the event that Tenant shall not immediately surrender the Premises on
the date of expiration of the Term hereof, Tenant shall, by virtue of the
provisions hereof, become a month-to-month tenant at 150% the monthly rent
including Minimum Rent and all additional rent and other charges in effect
during the last month of the Term, which said monthly tenancy shall commence
with the first day following the expiration of the Term. Tenant, as a
month-to-month tenant, shall be subject to all of the terms, conditions,
covenants and agreements of this Lease. Tenant shall give to Landlord at least
thirty (30) days' written notice of any intention to quit the Premises, and
Tenant shall be entitled to thirty (30) days' written notice to quit the
Premises if Landlord accepts rent for such period, unless Tenant is in default
hereunder, in which event Tenant shall not be entitled to any notice to quit,
the usual thirty (30) days' notice to quit being hereby expressly waived.
Notwithstanding the foregoing provisions of this Section 22, in the event that
Tenant shall hold over after the expiration of the Term of this Lease, and if
Landlord shall desire to regain possession of the Premises promptly at the
expiration of the Term of this Lease, then at any time prior to Landlord's
acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its
option, may forthwith reenter and take possession of the Premises without
process, or by any legal process.
23. BINDING EFFECT AND LIMITATION OF RECOURSE.
The terms, provisions and covenants contained in this Lease shall apply
to, inure to the benefit of, and be binding upon the parties hereto and their
respective heirs, successors in interest, legal representatives and assigns,
except as otherwise herein expressly provided. All claims, demands or causes OF
action which Tenant may have against Landlord under any provisions of, or with
respect to this Lease, or on account of any matter, condition or circumstance
arising out of the relationship of the parties under this Lease. Tenant's
occupancy of the Premises or Landlord's ownership of the Premises or the
Building, shall be enforceable solely against the Building and no other property
of Landlord or any of its principals, its or their successors or assigns, shall
be subject to any such claim, demand, or cause of action.
24. MORTGAGEE'S RIGHTS.
Tenant agrees that upon receiving written notice by registered mail from
any mortgagee, or any mortgagee's authorized representative, of Landlord's
default in the performance of any one of the terms, provisions and obligations
of Landlord to said mortgagee, together with a demand for the payment of rents
then due or to become due under this Lease, and together with notice that such
service of said demand was given to Landlord, Tenant shall make all future
payments under this Lease to said mortgagee or its authorized representatives
without necessity of receiving further consent from Landlord.
25. AGENCY.
Tenant warrants that it has had no dealings directly or indirectly with
any broker or agent in connection with the negotiation or execution of this
Lease other than Grady Management, Inc. and Landlord is solely responsible for
any and all commissions due Grady Management, Inc.
26. QUIET ENJOYMENT.
Landlord hereby covenants and agrees that, if Tenant shall perform all of
the covenants and agreements herein required to be performed on the part of
Tenant, Tenant and parties claiming by, through or under Tenant, shall, subject
to the terms of this Lease, at all times during the continuance of this lease,
have the peaceable and quiet enjoyment and possession of the Premises.
27. GOVERNING LAW.
The laws of the Commonwealth of Virginia shall govern the interpretation,
validity, performance, and enforcement of this Lease. If any provision of this
Lease should be held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions of this Lease shall not be affected
thereby.
28. CAPTIONS.
The captions and headings used herein are for convenience and reference
only and shall not constitute a part of this Lease, nor shall they affect the
meaning, construction or effect of this Lease.
12
<PAGE> 20
IN WITNESS WHEREOF the parties hereto have caused their names to be signed
and their seals affixed by their proper officers the day and year first above
set forth.
WITNESS/ATTEST: HEM CORPORATION
/S./ Jonathan M. Genoa
- --------------------------- By: /s/ Martin Seldeen (SEAL)
--------------------------
WITNESS/ATTEST: BEST PROGRAMS, INC.
/s/ John Ent By: /s/ Melody Ranelli (SEAL)
- --------------------------- --------------------------
TENANT
STATE OF Maryland, County of Montgomery, to wit:
I HEREBY CERTIFY that on this 11th day of March, 1993 before me, the
subscriber, a Notary Public for State aforesaid, personally appeared Martin S.
Seldeen, who acknowledged himself to be the Vice President of HEM Corporation,
and that he, as such Vice President, being authorized to do so, executed the
foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and Notarial Seal.
/s/ Victoria S. Berghel NOTARY PUBLIC
----------------------
My Commission expires:
10/1/95
- -----------------
STATE OF Maryland, County OF Montgomery, to wit:
I HEREBY CERTIFY that on this 5th day of March, 1993 before me, the
subscriber, a Notary Public for the _______________ and State aforesaid,
personally appeared Melody Ranelli, who acknowledged herself to be the Executive
Vice President and that she, as such Executive Vice President, being authorized
to do so, executed the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and Notarial Seal.
/s/ Shirley Spotswood Lewis
-----------------------------
Notary Public
My Commission expires:
Sept. 1, 1993
- --------------
14
<PAGE> 21
EXHIBIT B
ACCEPTANCE OF PREMISES MEMORANDUM
This Memorandum is an amendment to the Lease for space in 11425 Isaac Newton
Square, Reston, Virginia, executed on the____________day of ________________,
19__, between HEM CORPORATION, INC., as Landlord, and BEST PROGRAMS, INC., as
Tenant.
Landlord and Tenant hereby agree that:
1. Landlord has completed the construction work required of Landlord under
the terms of the Lease and the Agreement for Construction attached thereto.
2. The Premises are tenantable; the Landlord has no further obligation for
construction, and Tenant acknowledges that the Premises are satisfactory in all
respects.
3. The Commencement Date of the Lease is hereby agreed to be the ________
day of _______________________, 19__.
4. The Expiration Date of the Lease is hereby agreed to be the __________
day of ______________________, 19__.
All other terms and conditions of the Lease are hereby ratified and
acknowledged to be unchanged.
Agreed and Executed this__________ day of _________________, 19__.
WITNESS/ATTEST: HEM CORPORATION, INC.
By: (SEAL)
- ----------------------------------- ----------------------------
LANDLORD
WITNESS/ATTEST: BEST PROGRAMS, INC.
By: (SEAL)
- ----------------------------------- ----------------------------
15
<PAGE> 22
EXHIBIT C
RULES AND REGULATIONS
1. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of their regular duties, unless under special
instructions from the office of the Landlord.
2. Tenants, their clerks or employees, agents, visitors or licensees shall
at no time bring or keep upon their Premises any flammable, combustible or
explosive fluid, chemical or substance without written consent of Landlord.
3. No animals or birds shall be kept in the Building, and the use of
Premises as sleeping quarters is absolutely prohibited.
4. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside or inside
of its Premises or the Building without the written consent of Landlord.
However, Tenant shall have the right to place an appropriate door sign and a
sign on the exterior of the Building, subject to Landlord's reasonable approval
and subject to applicable restrictive covenants. Landlord agrees to process the
sign specifications through the necessary parties for compliance with said
restrictive covenants. In the event of tenant's violation of this Rule, Landlord
may, without liability, remove same, and may charge the expense incurred in such
removal to the tenant violating this Rule. Corridor signs on doors shall be
inscribed, painted or affixed for each tenant by Landlord at the expense of such
tenant, and shall be of a size, color and style acceptable to Landlord. Interior
door identification shall be affixed by the tenant to the wall next to the door.
A building directory will be placed in the lobby by Landlord. Landlord shall
have the right to prohibit any advertising by any tenant which, in Landlord's
opinion, tends to impair the reputation of the Building or its desirability as a
high-quality office building and upon written notice from Landlord, tenant shall
refrain from or discontinue such advertising.
6. If a tenant desires telegraphic or telephonic connections or the
installation of any other electric wiring which will be installed at tenant's
expense, the Landlord will, upon receiving a written request from tenant, direct
the electricians as to where and how the wires are to be introduced and run, and
without such direction, no boring, cutting or installation or wires will be
permitted. No tenant shall install any radio or television antenna connected to
the Building, either inside or outside its Premises.
7. No significant furniture or other material shall be moved into or out
of the Building without first notifying the superintendent and the moving
thereof shall be under his direction and control. In order to minimize
inconvenience to other tenants, safes, furniture, boxes or other bulky articles
shall be delivered into a tenant's Premises only with the written consent of
Landlord, and then only by means of the elevators or the stairways at such times
and in such manner as Landlord may in writing direct. Safes and other heavy
articles shall be placed by tenants in such places only as are first approved in
writing by Landlord and any damage done to the Building, tenants, or to other
persons by taking safes or other heavy articles in or out of the Premises or the
Building, from overloading a floor, or in any other manner, shall be paid by
tenant causing such damage. Landlord reserves the right to inspect all freight
being brought into the Building, and to exclude from the Building all freight
which violates any of these Rules and Regulations or the Lease of which these
Rules and Regulations are a part.
8. No tenant shall install or furnish any equipment which causes noise or
vibration which may be transmitted to the structure of the Building or to any
space therein, and vibration eliminators or other devices sufficient to
eliminate such noise and vibrations or furniture having a weight in excess of
eighty (80) pounds per square foot of floor area, shall be installed and
maintained by tenants at their expense.
9. Vibration eliminators or other devices sufficient to eliminate noise
and vibration caused by the installation by tenant of business machines and
mechanical equipment which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein, shall be installed and
maintained by tenants at their expense.
10. No hand trucks shall be used in any space, or in the public halls of
the Building except those equipped with pneumatic rubber tires and side guards.
11. Tenant shall have a separate entrance and will have 24-hour per day
access.
12. Tenant shall be responsible for its own security; Landlord does not
provide security for the Building.
13. Landlord reserves the following rights:
(a) To decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy
16
<PAGE> 23
during the last ninety (90) days of the term of any lease, if during or prior to
that time tenant vacates the Premises;
(b) To have pass keys to the Premises;
(c) To show the Premises to prospective tenants or brokers during the
last twelve (12) months of the term of any lease, provided prior notice is given
to tenant in each case and tenant's use and occupancy of the Premises shall not
be materially inconvenienced by any such action of Landlord;
(d) To change the name by which the Building is commonly known and/or
its mailing address, at any time;
(e) To enter upon the Premises and exercise any or all of the
foregoing rights hereby served without being deemed guilty of an eviction or
disturbance of a tenant's use or possession and without being liable in any
manner to any tenant; and
(f) To make such other and further reasonable rules and regulations,
as in Landlord's judgment, may from time to time be needful for the safety, care
and cleanliness of the Premises or the Building, and for the preservation of
good order therein, and any such other or further rules and regulations shall be
binding upon all tenants with the same force and effect as if they had been
inserted herein at the time of the execution hereof.
AGREED AND ACCEPTED THIS _________________day of__________________19__,
WITNESS/ATTEST: BEST PROGRAMS, INC.
By: /s/ Melody Ranelli
- ----------------------------- -------------------------------(SEAL)
17
<PAGE> 24
EXHIBIT B
ACCEPTANCE OF PREMISES MEMORANDUM
This Memorandum is an amendment to the Lease for space in 11425 Isaac Newton
Square, Reston, Virginia, executed on the 11th day of March, 1993, between HEM
CORPORATION, INC., as Landlord, and BEST PROGRAMS, INC., as Tenant.
Landlord and Tenant hereby agree that:
1. Landlord has completed the construction work required of Landlord under
the terms of the Lease and the Agreement for Construction attached thereto.
2. The Premises are tenantable; the Landlord has no further obligation for
construction, and Tenant acknowledges that the Premises are satisfactory in all
respects.
3. The Commencement Date of the Lease is hereby agreed to be the 25th day of
June, 1993.
4. The Expiration Date of the Lease is hereby agreed to be the 30th day of
June, 1997.
All other terms and conditions of the Lease are hereby ratified and
acknowledged to be unchanged.
Agreed and Executed this 25th day of June, 1993.
WITNESS/ATTEST: HEM CORPORATION, INC.
/s/ Victoria S. Berqhel By: /s/ Martin Seldesar
- -------------------------------- ---------------------------
LANDLORD
WITNESS/ATTEST: BEST PROGRAMS, INC.
/s/ John Ent By: /s/ Melody Ranelli
- -------------------------------- ---------------------------
<PAGE> 25
11425 ISAAC NEWTON SQUARE
RESTON, VIRGINIA
COMPLETELY BUILT-OUT
OFFICE/LIGHT MANUFACTURING/FLEX SPACE
An ideal address in the Isaac Newton Square Office Park. Two minutes to Dulles
Access Road. 10 minutes to Dulles Airport, I-495 and the shops, restaurants and
theaters of Tysons Corner.
THE TWO-STORY SECTION FEATURES:
- - A two-story atrium entry
- - Fully built-out perimeter offices with full-height windows
- - Conference and meeting rooms
- - A 23' X 36' raised-floor computer room
- - Passenger elevator
- - Wet bar and two bathrooms on first floor
- - Full kitchen, men's room with shower, women's room and executive office with
wet bar on second floor
EXHIBIT A
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.9
THIRD AMENDMENT
TO
AGREEMENT OF LEASE
BETWEEN
APA PROPERTIES #6, LP
AND
BEST PROGRAMS, INC.
<PAGE> 2
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and
entered into as of 1st day of March, 1997 by and between APA PROPERTIES NO. 6
L.P., a Delaware limited partnership ("Landlord") successor in interest to
RESTON INVESTMENT PROPERTIES ASSOCIATES LIMITED PARTNERSHIP and BEST SOFTWARE
INC., a Virginia corporation, formerly known as BEST PROGRAMS, INC. ("Tenant").
RECITALS:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated October 28, 1991, as amended by that certain First Amendment to Lease
Agreement dated June 1, 1992, and as amended by that certain Second Amendment to
Lease Agreement dated September 29, 1993, (the "Lease") for the use and
occupancy of twenty-two thousand four hundred one (22,401) rentable square feet
(the "Premises"), in the building located at 11413 Isaac Newton Square, Reston,
Virginia (the "Building") all as more fully set forth in the Lease; and
WHEREAS, the term of the Lease (the "Term") is currently scheduled to
expire as of April 30, 1997 and Landlord and Tenant desire to extend the Term
through February 28, 2002 subject to and in accordance with the terms and
conditions set forth in this Amendment; and
WHEREAS, Landlord and Tenant desire to make certain modifications to the
Lease as more particularly set forth hereinbelow.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, Landlord and
Tenant, intending legally to be bound, hereby agree as follows:
1. The recitals contained above are true to the best of the parties'
knowledge and are incorporated by reference herein.
2. Any term herein that is defined in the Lease shall have the same
meaning as specified in the Lease unless otherwise specifically provided herein.
3. The Term of the Lease, is hereby extended, for the Premises, unless
earlier terminated on the basis provided in the Lease or this Amendment, for a
period of five (5) years from the Extension Commencement Date, to end and expire
on the last day of February, 2002 (the "Extension Term").
4a. Effective March 1, 1997 (the "Extension Commencement Date"), as base
rent for the Premises, Tenant shall pay to Landlord the sum of Three Hundred,
Thirty-six Thousand, Fifteen and 00/100 dollars (336,015.00) per annum for the
first lease year, and on the first day of each lease year subsequent to the
expiration of the first lease year throughout the term of this Lease, the base
rent shall, as of the first day of each such lease year, be increased by the
amount equal to the product obtained by multiplying (i) the base rent payable
for the preceding lease year times (ii) three (3%) percent, which modifies
Article 4.2 of the Lease.
b. Base rent stipulated for each of the applicable lease years shall be
paid in equal one-twelfth (1/12th) installments in advance on the first day of
each calendar month for the applicable lease year. Base rent and all other items
of rent or payments due Landlord under this Lease shall be paid to Landlord at
the address of Landlord at such address and/or to such other party as Lessor
may, from time to time, designate by written notice to Tenant in the manner
hereafter set forth. The base rent for the Extension Term is outlined in the
following rent schedule:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Period Base Annual Rent Monthly Installment
-------------------------------------------------------------------
<S> <C> <C>
03/01/97 - 2/28/98 $336,015.00 $28,001.25
-------------------------------------------------------------------
03/01/98 - 2/28/99 $346,095.45 $28,841.29
-------------------------------------------------------------------
03/01/99 - 2/28/00 $356,478.31 $29,706.53
-------------------------------------------------------------------
03/01/00 - 2/28/01 $367,172.66 $30,597.72
-------------------------------------------------------------------
03/01/01 - 2/28/02 $378,187.84 $31,515.65
-------------------------------------------------------------------
</TABLE>
5. Tenant agrees to accept the Premises in its present "as is" condition
and Tenant further agrees that Landlord has no obligation to do any work in, on
or to the Premises to make the same ready for Tenant's use, however Tenant or
Landlord, at Tenant's election, may perform the work described in the Exhibit to
be attached hereto and made a part of ("Tenant Improvements") hereof subject to
Paragraph 6 (a-c).
6a. Landlord and Tenant each hereby acknowledge that the plans and
specifications for the Tenant Improvements to be done in the Premises shall be
drawn by Landlord's architect and approved by Landlord and Tenant prior to the
commencement of such Tenant Improvements. Said plans shall be attached hereto as
an Exhibit after such approval.
1
<PAGE> 3
b. Tenant or Landlord, at Tenant's election, may perform the Tenant
Improvements shown on the attached Exhibit.
c. Landlord shall provide Tenant with an allowance not to exceed One
Hundred Twelve Thousand, Five and 00/100 Dollars ($112,005.00)("Tenant
Improvement Allowance"). Such Tenant Improvement Allowance shall be utilized
prior to February 28, 1998, and for the purpose of performing Tenant
Improvements to and within the Premises including costs and fees for
architectural plans, engineering, permits and a five percent (5%) construction
management fee (provided however that the construction management fee shall not
be charged against). In the event Tenant elects to perform the Tenant
Improvements, Landlord shall contribute up to the Tenant Improvement Allowance
stipulated herein upon the completion of the Tenant Improvements performed by
Tenant in accordance with the Exhibit. The Tenant shall provide Landlord with
copies of receipts for work performed in the Premises and Landlord shall
reimburse Tenant up to the Tenant Improvement Allowance, subject to the
following:
(1) Landlord shall approve the plans prior to construction.
(2) Tenant shall supply a copy of Certificate of Insurance from the
contractor naming Landlord "Additional Insured" with notice provision.
(3) Tenant shall supply Landlord with a copy of the building permit
taken out by Tenant's contractor.
(4) Landlord reserves the right to inspect the work.
(5) Tenant shall use Landlord's roofing contractor for any roof
penetrations.
(6) Tenant shall supply a final lien waiver from Tenant's
contractor.
(7) Payment shall be made from Landlord to Tenant within 45 days
after the completion of item 6 plus verification that Tenant spent at least an
amount equal to the Tenant Improvement Allowance towards Tenant Improvements per
approved plans.
7. Effective upon the Extension Commencement Date, the Operating Charges
Base Amount shall be adjusted based upon the actual 1997 calendar year operating
charges. According, Tenant shall not pay any Operating Charges during the first
Lease Year of the Extension Term and shall pay its proportionate share of the
Operating Charges in each subsequent Lease Year.
8. Landlord hereby grants to Tenant the conditional right, exercisable at
Tenant's option, to renew the term of this Lease for one (1) term of two(2)
years (the "Renewal Term"). If exercised, and if the conditions applicable
thereto have been satisfied, the Renewal Term shall commence immediately
following the end of the initial Lease Term of this Lease. The rights of renewal
herein granted to Tenant shall be subject to, and shall be exercised in
accordance with, the following terms and conditions:
(a) Tenant shall exercise its right of renewal with respect to the
Renewal Term by giving Landlord written notice six (6) months prior to the
expiration of the Extension Term of this Lease ("Renewal Notice"). The parties
shall have thirty (30) days after Landlord's timely receipt of the Renewal
Notice in which to negotiate in order to agree on the existing "market rate"
base rent, escalation factor, and additional rent (collectively, the "Market
Rent"). Among the factors to be considered by the parties during such
negotiations shall be the general office rental market in the Northern Virginia
area for renewal tenants and the rental rates (and any concessions, including
rent abatements and building allowances) then being quoted by Landlord (or other
landlords) to comparable renewal tenants for comparable space in the Complex (or
elsewhere in the Northern Virginia market). If Landlord and Tenant are able to
agree on the Market Rent, then the base rent, escalation factor, and additional
rent which shall be payable during the Renewal Term shall be the lesser of (1);
one hundred (100%) percent of such Market Rent or (2) the current base rent in
effect under this Lease during the Lease Year immediately preceding the
commencement of the Renewal Term times 103% ($378,187.84 X 103% = $389,533.48).
If during such thirty (30) day period the parties agree on such base rent,
escalation factor, and additional rent payable during each year of the Renewal
Term, and all other terms and conditions, then they shall promptly execute an
amendment to this Lease stating the rent and charges and other terms and
conditions so agreed upon. If during such thirty (30) day period the parties are
unable, for any reason whatsoever, to agree on such base rent, escalation
factor, and additional rent payable and all other terms and conditions, then
Tenant's rights with respect to such Renewal Term shall lapse and be of no
further force or effect.
(b) If any Renewal Notice is not given timely, then Tenant's rights
of renewal with respect to the Renewal Term shall lapse and be of no further
force or effect.
(c) If Tenant is in default of this Lease beyond any applicable
cure periods on the date the Renewal Notice is given to Landlord or at any time
thereafter prior to commencement of the Renewal Term or if there exists a
material adverse change in Tenant's financial condition, then, at Landlord's
option, the Renewal Term shall not commence and the term of this Lease shall
expire at the expiration of the then-current term of this Lease.
(d) If at any time thirty percent (30%) or more of the rentable
square feet of the Premises has been subleased or assigned, then Tenant's rights
pursuant to this Section shall lapse and be of no further force or
2
<PAGE> 4
effect.
(e) Tenant's right of renewal under this Section may be exercised
by Tenant only and may not be exercised by any transferee, sublessee or assignee
of Tenant.
9. Tenant represents that the sole brokers involved in the consummation of
this Agreement were The Mark Winkler Company and The Rome Group, Inc. and that
no dealings or prior negotiations were had with any other broker concerning this
Agreement. Tenant agrees to hold Landlord harmless against any claims for
brokerage commissions other than those made by The Mark Winkler Company and The
Rome Group, Inc. arising out of any conversations had by Tenant with any other
broker.
10. Ratification. Except as otherwise expressly modified by the terms of
this Amendment, the Lease shall remain unchanged and continue in full force and
effect. All terms, covenants and conditions of the Lease not expressly modified
herein are hereby confirmed and ratified and remain in full force and effect,
and, as further amended hereby constitute valid and binding obligations of
Landlord and Tenant enforceable against each party according to the terms
thereof. Each party hereby acknowledges that to its actual knowledge as of this
date, the other party is not in default under the Lease as of the date hereof,
and that it is not actually aware of any condition or circumstances which, but
for the passage of time or delivery of notice, or both, would constitute an
event of default by the other party under the Lease. Each party also
acknowledges that, to its actual knowledge as of this date, it has no claims,
defense or set-offs of any kind to the payment or performance of its obligations
under the Lease. Nothing contained herein shall be deemed to waive any sums due
from either party to the other party or to waive any default or event which,
with the passage of time or delivery of notice, or both, would constitute a
default by any party under the Lease as of the date hereof.
11. Authority. Tenant and each of the persons executing this Amendment on
behalf of Tenant hereby covenants and warrants that Tenant is duly organized,
authorized and existing corporation and is in good standing under the laws of
the Commonwealth of Virginia and is duly qualified to transact business in the
Commonwealth of Virginia, that Tenant has full right and authority to enter into
this Amendment, and that the person signing on behalf of Tenant is authorized to
do so.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Third
Amendment to Lease Agreement under seal on the date first above written.
LANDLORD:
ATTEST: APA PROPERTIES NO. 6 L.P.,
By its Managing Agent,
PETER LAWRENCE OF VIRGINIA, INC.
/s/ Tammy Harris By: /s/ JAMES J. SHAPIRO
- ---------------- -------------------------------
James J. Shapiro, President
Date: 3/18/97
------------------------------
TENANT:
ATTEST: BEST SOFTWARE, INC.
By: /s/ DAVID N. BOSSERMAN
- ---------------- -------------------------------
DAVID N. BOSSERMAN
Title: Chief Financial Officer
Date: 3/13/97
------------------------------
3
<PAGE> 5
EXHIBIT
(PLANS TO BE ATTACHED)
4
<PAGE> 6
LEASE AGREEMENT
BY AND BETWEEN
RESTON INVESTMENT PROPERTIES ASSOCIATES
LIMITED PARTNERSHIP
AND
BEST PROGRAMS, INC.
<PAGE> 7
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS ......................................................... 1
ARTICLE II
PREMISES ............................................................ 1
ARTICLE III
TERM ................................................................ 8
ARTICLE IV
BASE RENT ........................................................... 11
ARTICLE V
OPERATING CHARGES ................................................... 12
ARTICLE VI
USE OF PREMISES ..................................................... 17
ARTICLE VII
ASSIGNMENT AND SUBLETTING ........................................... 18
ARTICLE VIII
MAINTENANCE AND REPAIRS ............................................. 21
ARTICLE IX
ALTERATIONS ......................................................... 22
ARTICLE X
SIGNS ............................................................... 25
ARTICLE XI
[INTENTIONALLY DELETED] ............................................. 25
ARTICLE XII
HOLDING OVER ........................................................ 25
ARTICLE XIII
INSURANCE ........................................................... 26
ARTICLE XIV
SERVICES AND UTILITIES .............................................. 28
ARTICLE XV
LIABILITY OF LANDLORD ............................................... 30
ARTICLE XVI
RULES AND REGULATIONS ............................................... 31
ARTICLE XVII
DAMAGE OR DESTRUCTION ............................................... 31
ARTICLE XVIII
CONDEMNATION ........................................................ 33
ARTICLE XIX
DEFAULT ............................................................. 34
ARTICLE XX
BANKRUPTCY .......................................................... 37
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ARTICLE XXI
SUBORDINATION ....................................................... 38
ARTICLE XXII
COVENANTS OF LANDLORD ............................................... 38
ARTICLE XXIII
ADDITIONAL OBLIGATIONS OF LANDLORD .................................. 39
ARTICLE XXIV
PARKING ............................................................. 41
ARTICLE XXV
GENERAL PROVISIONS .................................................. 41
EXHIBIT A -- Plan Showing Premises
EXHIBIT B -- Plan Showing First Expansion Space
EXHIBIT C -- Plan Showing Second Expansion Space
EXHIBIT D -- Measurement of Rentable Area
EXHIBIT E -- Work Agreement
EXHIBIT F -- Form of Certificate Affirming
Lease Commencement Date
EXHIBIT G -- Plan Showing Picnic and Recreational Area
and Parking in Rear of Building
EXHIBIT H -- Janitorial Specifications
EXHIBIT I -- Rules and Regulations
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<PAGE> 9
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is dated as of October 28, 1991, by and
between RESTON INVESTMENT PROPERTIES ASSOCIATES LIMITED PARTNERSHIP, a Virginia
limited partnership ("Landlord"), and BEST PROGRAMS, INC., a Virginia
corporation ("Tenant").
ARTICLE I
DEFINITIONS
1.1 Building: a one (1) story office building containing forty-one
thousand seven hundred thirty-nine (41,739) square feet of rentable area, known
as 11413 Isaac Newton Square and located on certain land (the "Land") at 11413
Isaac Newton Square, Reston, Virginia, together with related parking areas and
facilities (whether in or near the Building), roadways and driveways and other
amenities.
1.2 Premises: twenty-two thousand four hundred one (22,401) square feet of
rentable area located on the first (1st) floor of the Building and outlined on
Exhibit A attached hereto (of which Premises twenty-two thousand one hundred
twenty-three (22,123) square feet constitute usable area).
1.3 Tenant's Proportionate Share: 53.67%.
1.4 Lease Term: Sixty (60) months.
1.5 Anticipated Occupancy Date: May 1, 1992.
1.6 Base Rent and Base Rent Rate: three hundred ten thousand two hundred
fifty-three dollars and eighty-eight cents ($310,253.88) for the first Lease
Year (which amount is based on a base rent rate of thirteen dollars and
eighty-five cents ($13.85) per square foot of rentable area), divided into
twelve (12) equal monthly installments of twenty-five thousand eight hundred
fifty-four dollars and forty-nine cents ($25,854.49) for the first Lease Year.
1.7 Brokers: Priest, Taylor and Associates (as successor in interest to
Priest and Associates) and Cox, Lehman Associates.
1.8 Tenant Address for Notices: 2700 South Quincy Street, Arlington,
Virginia 22206 (Attn: Mr. Jorge R. Forgues, Vice President-Finance and
Administration), until Tenant has commenced beneficial use of the Premises, and
the Premises (Attn: Mr. Jorge R. Forgues, Vice President-Finance and
Administration) after Tenant has commenced beneficial use of the Premises.
1.9 Complex: That portion of the development known as Isaac Newton Square
that is owned by Landlord, and including all easements, rights and appurtenances
thereto (including private streets, storm detention facilities and any other
service facilities).
1.10 Landlord Address for Notices: c/o The Mark Winkler Company, Suite
900, 4900 Seminary Road, Alexandria, Virginia 22311.
ARTICLE II
PREMISES
2.1 Tenant leases the Premises from Landlord upon the terms stated herein.
Tenant will have the non-exclusive right to use for their intended purpose the
areas of the Building outside of the Premises designated by Landlord from time
to time as common and public space.
2.2 If the space outlined on Exhibit B attached hereto (the "First
Expansion Space"), which First Expansion Space contains nine thousand five
hundred forty-five (9,545) square feet of rentable area, becomes available after
its current leasing (which current lease is anticipated to expire on or
<PAGE> 10
about January 1, 1992), then Tenant shall have a first right to lease such space
on the following terms and conditions:
(a) Promptly after Landlord is aware that the First Expansion Space
will become available (but prior to Landlord's entering into any subsequent
lease for the First Expansion Space with a third party), Landlord shall notify
Tenant in writing of the expected availability of the First Expansion Space.
Tenant shall have until 5:00 p.m. on August 15, 1992 to notify Landlord in
writing of its election to lease all (but not part) of the First Expansion
Space. If Landlord does not timely receive a written notice from Tenant duly
exercising such right to lease the First Expansion Space, then such right under
this Section 2.2 shall lapse and be of no further force or effect, except as
specifically provided otherwise in Paragraph 2.2(b) below.
(b) Notwithstanding the provisions of Paragraph 2.2(a) above, Landlord
agrees that it shall notify Tenant in writing if at any time after the
expiration of Tenant's rights under Paragraph 2.2(a) above but prior to the
expiration of the initial Lease Term Landlord has identified a prospective
tenant for the leasing of all or a part of the First Expansion Space. Tenant
shall have the right, within five (5) business days of such notice from Landlord
(with respect to any notice from Landlord received on or before December 31,
1992) or three (3) business days of such notice (with respect to any notice from
Landlord received on or after January 1, 1993), to elect by written notice to
Landlord to lease all (but not a part) of the First Expansion Space. If Landlord
does not receive a written notice from Tenant duly exercising such right to
lease the First Expansion Space, then Landlord shall have the right to lease all
or a part of the First Expansion Space to the prospective tenant identified by
Landlord free of any right of Tenant to lease such space. If Landlord does not
lease all or any part of the First Expansion Space to the prospective tenant so
identified, then Tenant's rights with respect to any unleased portion of the
First Expansion Space shall remain in effect until the earlier of (1) the date
on which all of the First Expansion Space is leased or (2) the expiration of the
initial Lease Term, after which time all of Tenant's rights under this Paragraph
shall lapse and be of no further force or effect.
(c) If an Event of Default (as hereinafter defined) has occurred under
this Lease and is continuing on the date written notice is given to Tenant by
Landlord or at any time thereafter prior to the date the First Expansion Space
is occupied by Tenant, then, at Landlord's option, Tenant's rights pursuant to
this Section shall lapse and be of no further force or effect upon notice from
Landlord to Tenant.
(d) Tenant's rights under this Section may be exercised by Tenant or a
Permitted Transferee (as hereinafter defined) only and may not be exercised by
any other transferee, sublessee or assignee of Tenant.
(e) If at any time twenty-five percent (25%) or more of the square feet
of rentable area of the initial Premises has been subleased or assigned (except
to a Permitted Transferee), then Tenant's rights pursuant to this Section shall
lapse and be of no further force or effect.
(f) The Base Rent for the First Expansion Space shall be calculated
based upon the then-current Base Rent under this Lease (as such Base Rent is
reduced to a per square foot rate of Base Rent), Tenant's Proportionate Share
set forth in Section 1.3 above shall be adjusted accordingly to reflect the
expansion of the Premises and (except as specifically provided otherwise in this
Lease) all other terms and conditions of this Lease shall apply to the First
Expansion Space as if the First Expansion Space were an integral part of the
Premises as of the execution of this Lease. Notwithstanding the foregoing,
Tenant shall have no rights whatsoever under Article XXIII of this Lease with
respect to the First Expansion Space, and all rights
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of Tenant with respect to construction of the First Expansion Space are set
forth in Section 2.5 below (rather than Section 9.1 below).
(g) Promptly after Tenant's exercise of its rights pursuant to this
Section, Landlord and Tenant shall enter into an amendment (or amendments) to
this Lease incorporating the terms and conditions of this Section with respect
to the First Expansion Space and any other terms or conditions deemed reasonably
necessary by Landlord, which amendment (or amendments) shall contain (among
other items) a provision requiring Landlord and Tenant to proceed diligently and
in good faith to undertake any and all activities (including, without
limitation, approval of plans and specifications for the tenant improvements to
be installed in the First Expansion Space) necessary or appropriate to insure
that the Expansion Space Commencement Date (as hereinafter defined) with respect
to the First Expansion Space occurs as soon as is practicable after Tenant's
exercise of its rights pursuant to, this Section.
2.3 If the space outlined on Exhibit C attached hereto (the "Second
Expansion Space"), which Second Expansion Space contains nine thousand seven
hundred ninety-three (9,793) square feet of rentable area, becomes available
after its current leasing during the Lease Term (which current lease is
anticipated to expire (subject to its renewal rights) on or about December 12,
1993), then Tenant shall have a first right to lease such space on the following
terms and conditions:
(a) Tenant shall have until no later than 5:00 p.m. on June 18, 1993
to notify Landlord in writing of its election to lease at least five thousand
(5,000) square feet within the Second Expansion Space, which election shall be
subject only to the right of the current tenant to exercise its right to renew
the current lease for the Second Expansion Space (as more particularly set forth
in the first sentence of Paragraph 2.3(c) below). If Landlord does not timely
receive a written notice from Tenant duly exercising such right to lease the
Second Expansion Space, then such right under this Section shall lapse and be of
no further force or effect (except as specifically provided otherwise in
Paragraph 2.3(b) below). Landlord shall notify Tenant promptly should the
current tenant of the Second Expansion Space exercise its right to renew the
current lease for the Second Expansion Space or if the current tenant of the
Second Expansion Space elects not to exercise its right to renew the current
lease for the Second Expansion Space.
(b) Notwithstanding the provisions of Paragraph 2.3(a) above, Landlord
agrees that it shall notify Tenant in writing if at any time after the
expiration of Tenant's rights under Paragraph 2.3(a) above but prior to the
expiration of the initial Lease Term Landlord has identified a prospective
tenant for the leasing of all or a part of the Second Expansion Space (subject,
however, to Landlord's rights under Paragraph 2.3(c) below). Tenant shall have
the right, within five (5) business days of such notice from Landlord (with
respect to any notice from Landlord received on or before December 31, 1993) or
three (3) business days of such notice (with respect to any notice from Landlord
received on or after January 1, 1994), to elect by written notice to Landlord to
lease all (but not a part) of the Second Expansion Space. If Landlord does not
receive a written notice from Tenant duly exercising such right to lease the
Second Expansion Space, then Landlord shall have the right to lease all or a
part of the Second Expansion Space to the prospective tenant identified by
Landlord free of any right of Tenant to lease such space. If Landlord does not
lease all or any part of the Second Expansion Space to the prospective tenant so
identified, then Tenant's-rights with respect to any unleased portion of the
Second Expansion Space shall remain in effect until the earlier of (1) the date
on which all of the Second Expansion Space is leased or (2) the expiration of
the initial Lease Term, after which time all of Tenant's rights under this
Paragraph shall lapse and be of no further force or effect.
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<PAGE> 12
(c) Tenant's rights under this Section are subject to and subordinate
to Landlord's right to renew the current lease with the current tenant of the
Second Expansion Space pursuant to the renewal option contained in such tenant's
lease with Landlord. Without limiting the generality of the foregoing, Tenant
acknowledges and agrees that its rights under Paragraph 2.3(b) above also are
subject to and subordinate to Landlord's right to renew the current lease with
the current tenant of the Second Expansion Space on terms other than those set
forth in its renewal option and that Landlord shall have no obligation
whatsoever to provide Tenant an opportunity to lease the Second Expansion Space
pursuant to Paragraph 2.3(b) above with respect to any proposal that Landlord
might decide to issue to the current tenant of the Second Expansion Space or any
negotiation that Landlord might undertake with the current tenant of the Second
Expansion Space for the renewal of the current lease of the Second Expansion
Space (after Tenant's rights under Paragraph 2.3(a) above lapse).
(d) If an Event of Default has occurred under this Lease and is
continuing on the date written notice is given to Tenant by Landlord or at any
time thereafter prior to the date the Second Expansion Space is occupied by
Tenant, then, at Landlord's option, Tenant's rights pursuant to this Section
shall lapse and be of no further force or effect upon notice from Landlord to
Tenant.
(e) Tenant's rights under this Section may be exercised by Tenant or a
Permitted Transferee only and may not be exercised by any other transferee,
sublessee or assignee of Tenant.
(f) If at any time twenty-five percent (25%) or more of the square feet
of rentable area of the initial Premises has been subleased or assigned (except
to a Permitted Transferee), then Tenant's rights pursuant to this Section shall
lapse and be of no further force or effect.
(g) Tenant has no right to lease less than five thousand (5,000) square
feet within the Second Expansion Space. If Tenant timely notifies Landlord that
it intends to lease less than the entire Second Expansion Space (but in no event
less than five thousand (5,000) square feet of rentable area), then Landlord
shall have the right to designate by written notice to Tenant the exact portion
of the Second Expansion Space that is to become part of the Premises pursuant to
this Section (which portion is to be of a size and configuration that shall
allow the remaining portion of the Second Expansion Space to be, in Landlord's
reasonable judgment, of a size and configuration that is marketable to
commercial tenants as a separate suite). Landlord agrees that if it designates
to Tenant a portion of the Second Expansion Space that is constructed for
warehouse use, and if the remaining portion of the Lease Term is at least
thirty-six (36) months, Landlord shall (at Tenant's option) either (1) install
in such warehouse space, at Landlord's sole cost and expense, a building
standard ceiling to provide a nine-foot (9') ceiling throughout such space
(constituting a portion of the Second Expansion Space) or (2) provide to Tenant,
in addition to the tenant improvements allowance described in Section 2.5 below,
an allowance equal to the product obtained by multiplying (A) one dollar and
twenty cents ($1.20) and (B) the number of square feet in the designated portion
of the Second Expansion Space; provided, however, that the amount of such
additional allowance shall not exceed six thousand dollars ($6,000) in any
event. If Tenant initially elects to lease only a portion of the Second
Expansion Space, Tenant shall have the right to elect to lease all of the
balance of the Second Expansion Space by delivering a written notice of such
election to Landlord prior to January 3, 1994. If Landlord does not receive by
5:00 p.m. on January 3, 1994 a written notice from Tenant duly exercising this
aforesaid right to lease the balance of the Second Expansion Space, then such
right shall lapse and be of no further force or effect.
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<PAGE> 13
(h) If Tenant fails to offer to lease at least five thousand (5,000)
square feet of rentable area in the Second Expansion Space pursuant to this
Section, then the right of Tenant to lease the Second Expansion Space shall
lapse and expire immediately (except as specifically provided otherwise in
Paragraph 2.3(b) above), and Tenant shall have no rights under this Section with
respect to such space (except as specifically provided otherwise in Paragraph
2.3(b) above).
(i) The Base Rent for the portion of the Second Expansion Space that
Tenant elects to lease pursuant to this Section shall be calculated based upon
the then-current Base Rent under this Lease (as such Base Rent is reduced to a
per square foot rate of Base Rent), Tenant's Proportionate Share set forth in
Section 1.3 above shall be adjusted accordingly to reflect the expansion of the
Premises and (except as specifically provided otherwise in this Lease) all other
terms and conditions of this Lease shall apply to such portion of the Second
Expansion Space as if such portion of the Second Expansion Space were an
integral part of the Premises as of the Lease Commencement Date. Notwithstanding
the foregoing, Tenant shall have no rights whatsoever under Article XXIII of
this Lease with respect to the Second Expansion Space, and all rights of Tenant
with respect to construction of the Second Expansion Space are set forth in
Paragraph 2.3(g) above and Section 2.5 below (rather than Section 9.1 below).
(j) Promptly after Tenant's exercise of its rights pursuant to this
Section, Landlord and Tenant shall enter into an amendment (or amendments) to
this Lease incorporating the terms and conditions of this Section with respect
to the Second Expansion Space and any other terms or conditions deemed
reasonably necessary by Landlord, which amendment (or amendments) shall contain
(among other items) a provision requiring Landlord and Tenant to proceed
diligently and in good faith to undertake any and all activities (including,
without limitation, approval of plans and specifications for the tenant
improvements to be installed in the Second Expansion Space) necessary or
appropriate to insure that the Expansion Space Commencement Date with respect to
the Second Expansion Space occurs as soon as is practicable after Tenant's
exercise of its rights pursuant to this Section.
2.4 If any space in the Building (the "Additional Expansion Space")
becomes available for leasing during the initial Lease Term, then Tenant shall
have a first right to lease such space on the following terms and conditions:
(a) Promptly after Landlord is aware that any Additional Expansion
Space will become available (but prior to Landlord's entering into any
subsequent lease for such Additional Expansion Space with a third party),
Landlord shall notify Tenant in writing of the expected availability of such
Additional Expansion Space. Tenant shall have a period of twenty (20) days
following receipt of such notice to notify Landlord in writing of its intention
to lease all (but not part) of such Additional Expansion Space. If Landlord does
not timely receive a written notice from Tenant duly exercising such right to
lease such Additional Expansion Space, then such right under this Section with
respect to such Additional Expansion Space shall lapse and be of no further
force or effect unless and until such Additional Expansion Space is leased and
again becomes available for leasing.
(b) Tenant's rights under this Section are subject to and subordinate
to Landlord's right to renew the current lease with the current tenant of any
Additional Expansion Space.
(c) If an Event of Default has occurred under this Lease and is
continuing on the date written notice is given to Tenant by Landlord or at any
time thereafter prior to the date such Additional Expansion Space is occupied by
Tenant, then, at Landlord's option, Tenant's rights pursuant to this Section
shall lapse and be of no further force or effect upon notice from Landlord to
Tenant.
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<PAGE> 14
(d) Tenant's rights under this Section may be exercised by Tenant or a
Permitted Transferee only and may not be exercised by any other transferee,
sublessee or assignee of Tenant.
(e) If at any time twenty-five percent (25%) or more of the square feet
of rentable area of the initial Premises has been subleased or assigned (except
to a Permitted Transferee), then Tenant's rights pursuant to this Section shall
lapse and be of no further force or effect.
(f) If such Additional Expansion Space is offered to Tenant hereunder
and Tenant fails to lease such Additional Expansion Space, then the right of
Tenant to lease such Additional Expansion Space immediately shall lapse and
expire, and Tenant shall have no rights hereunder with respect to such space.
(g) The Base Rent for the Additional Expansion Space that Tenant elects
to lease pursuant to this Section shall be calculated based upon the
then-current Base Rent under this Lease (as such Base Rent is reduced to a per
square foot rate of Base Rent), Tenant's Proportionate Share set forth in
Section 1.3 above shall be adjusted accordingly to reflect the expansion of the
Premises and (except as specifically provided otherwise in this Lease) all other
terms and conditions of this Lease shall apply to such Additional Expansion
Space as if such Additional Expansion Space were an integral part of the
Premises as of the Lease Commencement Date. Notwithstanding the foregoing,
Tenant shall have no rights whatsoever under Article XXIII of this Lease with
respect to such Additional Expansion Space, and all rights of Tenant with
respect to construction of such Additional Expansion Space are set forth in
Section 2.5 below (rather than Section 9.1 below).
(h) Promptly after Tenant's exercise of its rights pursuant to this
Section, Landlord and Tenant shall enter into an amendment (or amendments) to
this Lease incorporating the terms and conditions of this Section with respect
to the Additional Expansion Space that Tenant elects to lease pursuant to this
Section and any other terms or conditions deemed reasonably necessary by
Landlord, which amendment (or amendments) shall contain (among other items) a
provision requiring Landlord and Tenant to proceed diligently and in good faith
to undertake any and all activities (including, without limitation, approval of
plans and specifications for the tenant improvements to be installed in such
Additional Expansion Space) necessary or appropriate to insure that the
Expansion Space Commencement Date with respect to such Additional Expansion
Space occurs as soon as is practicable after Tenant's exercise of its rights
pursuant to this Section.
(i) In the event of any conflict between Section 2.2 or Section 2.3 and
this Section 2.4, or in the event that Section 2.2 or Section 2.3 and Section
2.4 apply in any particular instance, the provisions of Section 2.2 or 2.3 shall
apply instead of the provisions of Section 2.4.
2.5 If Tenant exercises any right set forth in this Article II to lease
any Expansion Space, Landlord shall improve such Expansion Space pursuant to the
following terms and conditions:
(a) Tenant acknowledges and agrees that it shall lease each and every
portion of the Expansion Space that it leases pursuant to Sections 2.2, 2.3 and
2.4 in its "as is" condition. Landlord shall be responsible for improving any
such portion of the Expansion Space in accordance with mutually agreed-upon
plans and specifications, and Tenant shall be responsible for all of the costs
and expenses that Landlord incurs in connection with such improvements (other
than the costs and expenses for planning and designing such improvements and for
cleaning and maintaining in good operating condition the building standard
mechanical, electrical, HVAC and plumbing systems, but not for modifying or
adjusting any such system to accommodate Tenant's space plan for such Expansion
Space, which costs and expenses shall be Landlord's
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<PAGE> 15
responsibility), including (without limitation) all costs and expenses for
obtaining permits for, installing, equipping and constructing such improvements
and supervising the aforesaid activities (and further including, without
limitation, a ten percent (10%) construction management fee payable to Landlord
if Landlord acts as general contractor with respect to such improvements or a
five percent (5%) construction management fee payable to Landlord if another
party acts as general contractor with respect to such improvements); provided,
however, that Tenant shall be entitled to an allowance from Landlord against
such costs and expenses equal to the product of (1) the number of square feet of
rentable area in the portion of the Expansion Space that Tenant leases pursuant
to Section 2.2, 2.3 or 2.4 and (2) the product obtained by multiplying (A)
thirty-six and two-thirds cents (36-2/3 cents) and (B) the number of months
remaining in the original Lease Term at the appropriate Expansion Space
Commencement Date. If Landlord and Tenant agree in writing at the time of
Tenant's election to lease all or a portion of the Expansion Space to extend the
Lease Term for the entire Premises, and if the remaining portion of the Lease
Term (as extended) exceeds or is equal to five (5) years, then Landlord shall
pay any unspent portion of Tenant's allowance described above to Tenant to
reimburse Tenant for its moving expenses within twenty (20) days of the
appropriate Expansion Space Commencement Date (or as soon thereafter as Landlord
is able to reconcile the accounting for such allowance). In all other instances,
Landlord shall credit the unspent portion of Tenant's allowance described above
against Base Rent due under the Lease after the appropriate Expansion Space
Commencement Date, with such credit to be applied in equal amounts against each
payment of Base Rent due for the remainder of the Lease Term. Any costs and
expenses that Landlord reasonably anticipates incurring in connection with such
improvements in excess of Tenant's allowance described above shall be paid by
Tenant in advance from time to time as additional rent within twenty (20) days
of Landlord's delivery to Tenant of an estimate of such anticipated excess costs
and expenses. If at the completion of installation of such improvements Landlord
shall not have collected in advance from Tenant the entire amount by which the
costs and expenses incurred in connection with such improvements exceed the
allowance amount, then Tenant shall reimburse that amount (the "Excess Amount")
to Landlord as additional rent within twenty (20) days of Landlord's delivery to
Tenant of an invoice for such excess costs and expenses (together with
reasonably detailed supporting information); provided, however, that Tenant may
elect to repay the Excess Amount over the remainder of the initial Lease Term
pursuant to an amortization schedule designated by Landlord; and provided
further, however, that the portion of the Excess Amount to be so amortized does
not exceed the product of (1) two dollars ($2.00) and (2) the number of square
feet of rentable area in the portion of the Expansion Space in which such
improvements have been installed and that such Excess Amount is directly
incurred in connection with the cost of improvements to such space (and not,
without limitation, moving expenses). The Excess Amount so amortized shall bear
interest at a rate per annum that is two (2) whole percentage points above the
prime rate at the time the Excess Amount is determined as published in the
"Money Rates" section of the Wall Street Journal, and monthly installments of
the Excess Amount so amortized (plus interest calculated as aforesaid) shall be
due and payable at the time and in the manner as are monthly installments of
Base Rent. Promptly upon Tenant's election to repay the Excess Amount (or a
permitted portion thereof) through monthly amortization, Tenant shall execute
and deliver to Landlord (at Landlord's option) a promissory note or other
instrument evidencing its repayment obligations, in form and substance
reasonably acceptable to Landlord (and in principal amount equal to the Excess
Amount so amortized). A default under such promissory note or other instrument
shall constitute an Event of Default under this Lease, and an Event of Default
under this Lease shall constitute a default under such promissory note or other
instrument. If at the completion of such improvements Landlord shall have
collected in advance from Tenant an amount greater than the actual amount by
which the costs and expenses incurred in connection with such improvements
exceed the allowance amount, Landlord shall credit that amount to the next Base
Rent
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<PAGE> 16
payments due from Tenant to Landlord upon Landlord's final reconciliation of the
accounting for such costs and expenses.
(b) Notwithstanding any provision of Paragraph 2.5(a) above to the
contrary, if Landlord acts as general contractor with respect to the
installation of such improvements (subject to the last sentence of this
Paragraph 2.5(b)), then Tenant shall have the right to require Landlord to bid
competitively all subcontracts for any construction components having a value in
excess of two thousand five hundred dollars ($2,500). In the conduct of any such
competitive bidding, Landlord shall solicit bids from at least three (3)
subcontractors whom Landlord believes qualified. Further, Tenant shall have the
right to select the general contractor to construct the improvements described
in Paragraph 2.5(a) above from a list of recommended general contractors that
Landlord shall supply to Tenant upon request (which list might or might not
include Landlord).
(c) Any portion of the Expansion Space that Tenant elects to lease
pursuant to this Article II shall become, immediately upon substantial
completion of the tenant improvements described in Paragraph 2.5(a) above (each
an "Expansion Space Commencement Date"), as certified by Landlord (or, if
Landlord's certification is disputed in good faith and on a reasonable basis by
Tenant, by a licensed and appropriately qualified independent architect selected
by Landlord and approved by Tenant, which approval Tenant shall not withhold,
delay or condition unreasonably), an integral part of the Premises. Landlord and
Tenant each shall pay one-half (1/2) of the costs and expenses for the services
of the independent architect. Notwithstanding the provisions of the preceding
sentences, if Landlord shall be delayed in completing the work and materials to
be provided pursuant to Paragraph 2.5(a) above as a direct or indirect result of
(1) Tenant's failure to comply with any of its duties and obligations hereunder
or with any deadlines established with respect to the construction of the
applicable Expansion Space, (2) Tenant's request for modifications to plans or
working drawings subsequent to the date such plans or working drawings are
approved by Landlord, (3) Tenant's failure to pay when due any amount required
pursuant to Paragraph 2.5(a) above, (4) Tenant's request for materials, finishes
or installations not deemed by Landlord to be building standard materials,
finishes or installations, (5) Tenant's request for materials, finishes or
installations provided by Landlord at its cost and expense in the construction
of the tenant improvements in the initial Premises with an installation lead
time of thirty (30) days or more, (6) Tenant's request for materials, finishes
or installations not required pursuant to Paragraph 2.5(a) above or (7) the
performance of any work by any person or firm employed or retained by Tenant,
then, for purposes of determining the Expansion Space Commencement Date, the
work and materials to be provided pursuant to Paragraph 2.5(a) above with
respect to such portion of the Expansion Space shall be deemed to have been
substantially complete on the date that a licensed and appropriately qualified
independent architect selected by Landlord and approved by Tenant (which
approval Tenant shall not withhold, delay or condition unreasonably) determines
in its sole judgment that such work and materials would have been substantially
complete if such delays had not occurred.
2.6 The standard of measurement set forth on Exhibit D attached hereto
governs and controls all calculations in this Lease relating to the rentable
area of the Premises.
ARTICLE III
TERM
3.1 The terms and conditions of this Lease shall be effective from the
date of execution of this Lease by Landlord and Tenant. The Lease Term shall
commence on the Lease Commencement Date specified in Section 3.2 below. If the
Lease Commencement Date is not the first day of a month, then the Lease
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Term shall be the period set forth in Section 1.4 above plus the partial month
in which the Lease Commencement Date occurs.
3.2 (a) The Lease Commencement Date shall be the earlier of the date (i)
the work and materials to be provided by Landlord pursuant to Exhibit E attached
hereto are substantially complete, as determined pursuant to Paragraph 3.2(b)
herein (but not earlier than May 1, 1992), or (ii) Tenant commences beneficial
use of the Premises, as determined pursuant to Paragraph 3.2(c) below.
(b) The Premises shall be deemed to be substantially complete when the
work and materials to be provided by Landlord pursuant to Exhibit E attached
hereto (except for items of work and adjustment of equipment and fixtures that
can be completed after the Premises are occupied without causing substantial
interference with Tenant's use of the Premises, (i.e., the "punch list" items))
have been completed, as determined by Landlord (or, if Landlord's determination
is disputed in good faith and on a reasonable basis by Tenant, by a licensed and
appropriately qualified independent architect selected by Landlord and approved
by Tenant, which approval Tenant shall not withhold, delay or condition
unreasonably). Landlord and Tenant each shall pay one-half (1/2) of the costs
and expenses for the services of the independent architect. Notwithstanding the
provisions of the preceding sentences, if Landlord shall be delayed in
completing the work and materials to be provided pursuant to Exhibit E as a
direct or indirect result of (1) Tenant's failure to comply with any of its
duties and obligations hereunder or with any deadlines specified in Exhibit E,
(2) Tenant's request for modifications to plans or working drawings subsequent
to the date such plans or working drawings are approved by Landlord, (3)
Tenant's failure to pay when due any amount required pursuant to Exhibit E or
Section 9.2 below, (4) Tenant's request for materials, finishes or installations
not deemed by Landlord to be building standard materials, finishes or
installations or not required pursuant to Exhibit E or (5) the performance of
any work by any person or firm employed or retained by Tenant, then, for
purposes of determining the Lease Commencement Date, the work and materials to
be provided pursuant to Exhibit E shall be deemed to have been substantially
complete on the date that such work and materials would have been substantially
complete if such delays had not occurred, as determined by Landlord (or, if
Landlord's determination is disputed in good faith and on a reasonable basis by
Tenant, by a licensed and appropriately qualified independent architect selected
by Landlord and approved by Tenant, which approval Tenant shall not withhold,
delay or condition unreasonably). Landlord and Tenant each shall pay one-half
(1/2) of the costs and expenses for the services of the independent architect.
(c) Tenant shall be deemed to have commenced beneficial use of the
Premises when Tenant begins to move furniture, furnishings, inventory, equipment
or trade fixtures into the Premises or any portion thereof. Notwithstanding the
foregoing, Tenant shall have the right to enter the Premises during buildout of
the Premises (pursuant to a schedule to be mutually agreed upon with Landlord,
but in no event earlier than thirty (30) days prior to the anticipated Lease
Commencement Date) without commencing the Lease Term for the installation of
Tenant's equipment, trade fixtures, systems furniture and cabling on the express
conditions that (1) Tenant shall have obtained Landlord's prior consent (which
consent may be written or oral); (2) Tenant shall not interfere with Landlord's
buildout of the Premises; (3) Tenant will make no use of the Premises other than
the installation and initial testing of equipment, trade fixtures, systems
furniture and cabling; and (4) Tenant shall indemnify Landlord from any cost,
loss, damage, delay or expense that Landlord might suffer on account of Tenant's
early entry into the Premises pursuant to this provision. Any equipment, trade
fixtures, systems furniture or cabling that Tenant installs in the Premises is
installed at Tenant's sole risk; Landlord expressly disclaims any liability
whatsoever for any of such equipment, trade fixtures, systems furniture and
cabling.
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(d) Promptly after the Lease Commencement Date is ascertained,
Landlord shall provide Tenant with a certificate (in the form of Exhibit F
attached hereto) confirming the Lease Commencement Date.
3.3 It is presently anticipated that the Premises will be delivered to
Tenant on or about the Anticipated Occupancy Date. If Landlord has not achieved
substantial completion of the Premises by such date, then (provided that such
delay in substantial completion of construction of the Premises is not caused by
Tenant or any person or firm employed or retained by Tenant (including, without
limitation, those items referenced in Paragraph 3.2(b) above), and provided
further that the cause of the delay is under the reasonable control of Landlord)
Tenant shall be entitled to an abatement of Base Rent at the rate of two (2)
days' abatement of Base Rent effective from the Lease Commencement Date for each
day that substantial completion of construction of the Premises is delayed
beyond the Anticipated Occupancy Date in the manner described above in this
Section. Notwithstanding the foregoing, if substantial completion of
construction of the Leased Premises is delayed for more than forty (40) days
after the Anticipated Occupancy Date, then (provided that such delay in
substantial completion of construction of the Premises is not caused by Tenant
or any person or firm employed or retained by Tenant (including, without
limitation, those items referenced in Paragraph 3.2(b) above), and provided
further that the cause of the delay is under the reasonable control of Landlord)
Tenant shall have the right, at any time thereafter during which the
construction of the Leased Premises is not substantially complete, to terminate
this Lease upon twenty (20) days' prior written notice from Tenant to Landlord,
which notice shall be rendered null, void and of no force or effect if within
such twenty (20) day period Landlord achieves substantial construction of the
Leased Premises, to the extent that the same is under Landlord's reasonable
control. In no event whatsoever shall Landlord have any liability to Tenant for
damages with respect to any delay in the completion of construction of the
Leased Premises.
3.4 Lease Year shall mean a period of twelve (12) consecutive months
commencing on the Lease Commencement Date and each successive twelve (12) month
period thereafter; provided, however, that if the Lease Commencement Date is not
the first day of a month, then the second Lease Year shall commence on the first
day of the month immediately following the month in which the first anniversary
of the Lease Commencement Date occurs.
3.5 Landlord hereby grants to Tenant the conditional right, exercisable at
Tenant's option, to renew the Lease Term of this Lease for one (1) five (5) year
term (the "Renewal Term"). If Tenant exercises its conditional right, and if the
conditions applicable to such conditional right have been satisfied, the Renewal
Term shall commence immediately following the end of the initial Lease Term
provided in Section 1.4 of this Lease. The conditional right of renewal granted
to Tenant pursuant to this Section shall be subject to, and shall be exercised
in accordance with, the following terms and conditions:
(a) Tenant shall exercise its right of renewal by giving Landlord
written notice of such election not later than nine (9) months prior to the
expiration of the initial Lease Term. The parties shall have thirty (30) days
after Landlord's timely receipt of such notice in which to negotiate to agree on
the existing market rent rate then prevailing, including base rent, escalation
factor, additional rent and other charges then applicable to renewals of
existing leases for spaces comparable to the Premises (collectively, the "Market
Rent"). Among the factors to be considered by the parties during such
negotiations shall be the general office rental market in the Northern Virginia
area for renewal tenants and the rental rates (and any concessions, including
rent abatements and building allowances) then being quoted by Landlord (or other
landlords) to comparable renewal tenants for comparable space in the Complex (or
elsewhere in the Northern Virginia market). If, based upon the above factors,
Landlord and Tenant are able to agree on the Market Rent,
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then the base rent, escalation factor and additional rent that shall be payable
during the Renewal Term shall be ninety-five percent (95%) of such Market Rent.
In no event, however, shall Landlord be under any obligation to agree to a base
rent, escalation factor or additional rent for the Renewal Term that is less
than the base rent, escalation factor or additional rent in effect under this
Lease during the Lease Year immediately preceding the commencement of the
Renewal Term. If during such thirty (30) day period the parties agree on such
base rent, escalation factor and additional rent payable during each year of the
Renewal Term, then they promptly shall execute an amendment to this Lease
stating the terms so agreed upon. If during such thirty (30) day period the
parties are unable, for any reason whatsoever, to agree on such Market Rent,
then Tenant's rights with respect to the Renewal Term shall lapse and be of no
further force or effect.
(b) If Tenant's renewal notice is not given timely, then Tenant's right
of renewal shall lapse and be of no further force or effect.
(c) If any Event of Default has occurred under this Lease and is
continuing on the date Tenant sends a renewal notice or at any time thereafter
until the Renewal Term is to commence, then, at Landlord's option, the Renewal
Term shall not commence and the Lease Term shall expire at the expiration of the
initial Lease Term upon notice from Landlord to Tenant.
(d) Tenant's right of renewal under this Section may be exercised by
Tenant or a Permitted Transferee only and may not be exercised by any other
transferee, sublessee or assignee of Tenant.
(e) If at any time twenty-five percent (25%) or more of the square feet
of rentable area of the initial Premises has been subleased or assigned (except
to a Permitted Transferee), then Tenant's rights pursuant to this Section shall
lapse and be of no further force or effect.
ARTICLE IV
BASE RENT
4.1 During each Lease Year during the Lease Term, Tenant shall pay to
Landlord as annual base rent for the Premises, without set-off, deduction or
demand, the Base Rent, which amount is subject to upward adjustment from time to
time as provided in Section 4.2 below. The Base Rent shall be divided into
twelve (12) equal monthly installments, and each such monthly installment shall
be due and payable in advance on the first (lst) day of each month during each
Lease Year. Concurrently with Tenant's execution of this Lease, Tenant shall pay
an amount equal to one (1) monthly installment of the Base Rent payable during
the first Lease Year, which amount Landlord shall deposit in an interest-bearing
deposit account in a federally insured financial institution in the Northern
Virginia area selected by Tenant in its reasonable discretion and which amount
(plus any interest thereon) shall be credited toward the first monthly
installments of Base Rent due and payable hereunder. If the Lease Commencement
Date is not the first day of a month, then the Base Rent from the Lease
Commencement Date until the first day of the following month shall be prorated
on a per diem basis at the rate of one-thirtieth (1/30th) of the monthly
installment of the Base Rent payable during the first Lease Year, and Tenant
shall pay such prorated installment in advance on the Lease Commencement Date.
4.2 Commencing on the first (1st) day of the second (2nd) Lease Year and
on the first day of every Lease Year thereafter during the Lease Term, the Base
Rent described in Section 1.6 above (as such Base Rent shall have been increased
previously) shall be increased to the amount equal to one hundred two and
one-half percent (102-1/2%) of the Base Rent in effect under this Lease
immediately prior to the commencement of such Lease Year. The calculations of
adjustments to Base Rent shall be made without regard to any abatement of rent
provided in this Lease. The monthly installments of Base Rent
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shall be adjusted accordingly. Promptly after the adjustment in the Base Rent is
determined for each Lease Year, Landlord shall submit to Tenant a statement
setting forth the amount of such adjustment and the computations by which it was
determined.
4.3 All sums payable by Tenant shall be paid to Landlord in legal
tender of the United States, at the address to which notices to Landlord are to
be given or to such other party or such other address as Landlord may designate
in writing. Landlord's acceptance of rent after it shall have become due and
payable shall not excuse a delay upon subsequent occasions nor constitute a
waiver of rights, notwithstanding any endorsement or restriction that Tenant may
include with such payment. If an Event of Default (as hereinafter defined) shall
have occurred, Landlord at any time thereafter may require that Base Rent and
additional rent due hereunder be paid by certified check.
ARTICLE V
OPERATING CHARGES
5.1 Tenant shall pay as additional rent to Landlord, Tenant's
Proportionate Share (as defined in Section 1.3 above) of the amount by which
Operating Charges (as defined in Section 5.2 below) during each Lease Year
falling entirely or partly within the Lease Term exceed a base amount (the
"Operating Charges Base Amount") equal to the actual Operating Charges for the
first Lease Year (as adjusted pursuant to Section 5.4 below). Tenant's
Proportionate Share is that percentage that is equal to a fraction, the
numerator of which is the number of square feet of rentable area in the
Premises, and the denominator of which is the number of square feet of rentable
area in the Building, excluding the number of square feet of rentable area of
any storage, roof or garage space.
5.2 (a) "Operating Charges" means all expenses, costs and disbursements
of every kind that Landlord incurs in connection with the management, operation,
repair and maintenance of the Building and the common areas within the Complex,
which types of expenses are consistent with the management, operation, repair
and maintenance of first-class office buildings of size and location similar to
those of the Building, including but not limited to the following:
(1) Wages, salaries, employment and/or unemployment taxes
and insurance and employee benefits of all personnel of Landlord engaged in the
administration, operation, repair, maintenance and security of the Building and
its grounds, parking facilities, driveways and amenities, including the area at
the rear of the Building to be made available for picnic and recreational
facilities but excluding, however, except as otherwise provided in this Lease,
executive and "home office" personnel of Landlord's managing agent for the
Building (the "Management Agent"); provided, however, that if during the Lease
Term such personnel of Landlord or the Management Agent perform services for any
affiliate of Landlord or the Management Agent as well as for the Building, such
personnel's wages, salaries, employment and/or unemployment taxes and insurance
and employee benefits shall be allocated among the Building and such affiliate
in accordance with generally accepted accounting principles or, if generally
accepted accounting principles do not apply, in a commercially reasonable manner
and that only the portion of such expenses reasonably allocable to the Building
shall be included as an element of the Building's Operating Charges.
(2) Supplies and materials used in the operation, repair,
maintenance and security of the Building, its grounds, parking facilities,
driveways and amenities (including all costs of service, security and
maintenance and other similar contracts relating to the management, operation,
repair, maintenance and security of the Building).
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(3) The cost of personal property and any taxes associated
therewith, used in connection with the management, operation, repair,
maintenance and security of the Building, provided that the cost thereof shall
be amortized over the reasonable life of the personal property item in question,
with the reasonable life and amortization schedule being determined by Landlord
in accordance with generally accepted accounting principles, and with the
portion of such amortization as shall be allocable to the Lease Term being
included as an element of Operating Charges; provided, however, that if, during
the Lease Term, such personal property is used by Landlord in connection with
the management, operation, repair, maintenance and security of any other
property of Landlord, or by any affiliate of Landlord, as well as in connection
with the management, operation, repair, maintenance and security of the
Building, the cost of such item of personal property and the taxes associated
therewith shall be allocated among the Landlord's properties and/or such
affiliate in accordance with generally accepted accounting principles or, if
generally accepted accounting principles do not apply, in a commercially
reasonable manner and that only the portion of such cost and the taxes
associated therewith reasonably allocable to the Building shall be included as
an element of the Building's Operating Charges.
(4) Depreciation of the cost of capital improvement items
that are used to reduce Operating Charges for the general benefit of the
Building's tenants, such cost to be depreciated over the reasonable life of the
capital improvement item in question, with the reasonable life and amortization
schedule being determined by Landlord in accordance with generally accepted
accounting principles, and with the portion of such depreciation as shall be
allocable to the Lease Term being included as an element of Operating Charges.
(5) Landlord's central accounting costs incurred in
connection with the accounting services provided for the Building; provided,
however, that if, during the term, the executive or "home office" personnel of
Landlord or any affiliate of Landlord provide such accounting services, the
costs therefor shall be allocated among the projects and properties of Landlord
and/or such affiliates in accordance with generally accepted accounting
principles and that only the portion of such accounting cost services reasonably
allocable to the Building shall be included as an element of the Building's
Operating Charges.
(6) All insurance premiums relating to insurance procured
and maintained by Landlord for the Building, the Land and Landlord's personal
property therein, together with any deductible expenses incurred by Landlord
during the year in question; provided, however, that if Landlord, or an
affiliate of Landlord, maintains a blanket policy of insurance which covers,
among other properties, the Building, then the premiums for such blanket policy
of insurance shall be allocated among all of the properties of Landlord and/or
such affiliate in accordance with generally accepted accounting principles or,
if generally accepted accounting principles do not apply, in a commercially
reasonable manner and that only the portion of such premiums reasonably
allocable to the Building shall be included as an element of the Building's
Operating Charges.
(7) The cost of all repairs, replacements, decorations and
general maintenance of and to the Building and the common areas within the
Complex (excluding, however, the cost of repairs, replacements and general
maintenance of and to the Building paid by proceeds of insurance or by specific
tenants as a special service or other third parties). The costs of any services
for the common areas within the Complex shall be allocated fairly among the
buildings within the Complex.
(8) All charges for electricity, water, sewer, power,
natural gas, fuel oil and other utility services (including surcharges and
connection fees).
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(9) A management fee that is consistent with management fees
paid to independent property managers on a good faith, arm's length basis for
the management of first-class office building of size and location similar to
those of the Building; provided, however, that during the initial Lease Term set
forth in Section 1.4 above, such management fee payable to any affiliate of
Landlord shall not exceed in any Lease Year (but for purposes of calculating
Operating Charges under this Lease only) an amount equal to four percent (4%) of
the gross rents or receipts received by Landlord from tenants or occupants in
the Building. The provisions of this Clause shall not be construed as a limit on
any management fee actually payable by Landlord to any affiliate of Landlord.
(10) License fees that are imposed by appropriate
governmental authorities on Landlord and/or the Building as a condition to its
operation, including (without limitation) any business and professional
operating license fees and taxes, but excluding, however, Building permit,
inspection, certificate of occupancy and similar fees that are associated with
the construction or occupancy of the Building or any portions thereof designed
for the exclusive use and occupancy of a tenant in the Building.
(11) Real Estate Taxes (as defined in Section 5.3).
(12) Charges for janitorial, cleaning, security, window
cleaning, landscaping and snow and trash removal services.
(13) Assessments imposed by any association now or hereafter
established to maintain common areas and facilities of the Complex, including
assessments imposed to finance capital improvements in such common areas
(provided, however, that no such assessment is imposed as of the date of this
Lease).
(14) Legal and other professional fees not described in
Paragraph 5.2(b) below.
(b) Operating Charges shall not include legal fees relating to the
enforcement of any particular lease; legal fees, brokers' commissions, marketing
expenses and similar costs incurred by Landlord in connection with the leasing
of space in the Building; legal fees and court costs incurred by Landlord in
enforcing any lease of space in the Building; legal fees and other professional
fees not related to the management, operation, repair and maintenance of the
Building and the common areas within the Complex; income taxes, estate taxes and
similar taxes for which Landlord or any affiliate is liable; fines, finance
charges, late charges, penalties or similar charges arising from the act or
omission of Landlord or its agent imposed upon Landlord or any affiliate of
Landlord for nonpayment or delay in the payment of any obligation of any kind
including, without limitation, utility company charges, service contract
installment payments and taxes (unless such charges or penalties relate to
payments not made or delayed because of Tenant's failure to pay when due any
payment of Tenant's Proportionate Share of Operating Charges as required
pursuant to this Lease or unless due to a good faith dispute between Landlord
and the supplier of any such services); depreciation of the Building except as
provided in Paragraph 5.2(a) above; advertising and promotional expenditures;
financing costs and debt service payments; ground rents; premium costs incurred
in performing work or furnishing services for any tenant of space in the
Building to the extent such work either is paid for by such tenant or amounts
for "premium" work that exceeds the work or service that Landlord is obligated
to furnish at Landlord's expense or that Landlord is offering to perform for all
tenants within the Building; capital expenditures for correcting construction
defects or equipment defects to the extent warranty coverage for such work is
available; costs of any curative action required for any repair, replacement or
alteration made by Landlord to remedy damage caused by or resulting from its
negligence or the negligence of its affiliates, employees, agents or servants
and not covered by insurance
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policies required to be obtained by Landlord or its affiliates, employees,
agents or servants or by Tenant or other tenants of the Complex; costs of any
special services or utilities charged to and paid for by a particular tenant of
space in the Building; or expenditures for any alteration, renovation,
redecoration, subdivision, layout or finish of any tenant space in the
Building performed in connection with the readying of such space for occupancy
thereof by a tenant or in connection with the renewal of any lease by an
existing tenant.
5.3 Real Estate Taxes shall mean (a) all real estate taxes, including
general and special assessments, ordinary and extraordinary, foreseen and
unforeseen, that are imposed or levied upon Landlord or assessed against the
Building and/or the Land or Landlord's personal property used in connection
therewith; (b) any other present or future taxes or governmental charges that
are imposed upon Landlord or assessed against the Building or the Land that are
in the nature of or in substitution for real estate taxes, including any tax
levied on or measured by the rents payable by tenants of the Building; and (c)
any assessment imposed by the Reston Homeowners Association or any successor
entity thereto. Real Estate Taxes shall not include income taxes or estate or
inheritance taxes or any taxes or governmental charges described in Paragraphs
(a) through (c) above relating to periods either prior to or subsequent to the
Lease Term (with appropriate allocations to be made with respect to those items
relating to both the Lease Term and periods either prior to or subsequent to the
Lease Term). Notwithstanding the foregoing, if Real Estate Taxes may be paid in
installments without penalty or interest, whether Landlord does in fact pay same
in installments, only the annual installments of the component of Real Estate
Taxes in question shall be included as an element of Operating Charges;
provided, however, that, in addition to the foregoing, Landlord shall be
entitled to include as an element of Operating Charges all reasonable expenses
(including, but not limited to, attorneys' fees) incurred by Landlord in
contesting any increase in Real Estate Taxes or assessments provided that any
adjustment to Real Estate Taxes shall be incorporated into Operating Charges as
an adjustment thereto for the year in which the contested Real Estate Tax or
assessment in question was included as an element of Operating Charges. If a
refund is received subsequent to the termination or expiration of the Lease
Term, regardless of the reason for such termination or expiration (provided
Tenant is not then in arrears to Landlord), Landlord shall pay promptly to
Tenant its pro rata portion of such refund, which obligation shall survive
termination or expiration of this Lease.
5.4 If the average occupancy rate for the Building during any Lease Year
is less than one hundred percent (100%), or if any tenant is separately paying
for electricity or janitorial services furnished to its premises, or if any
tenant does not desire or require electricity or janitorial services available
to its premises, then Operating Charges for such Lease Year shall be deemed to
include all additional costs and expenses, as reasonably estimated by Landlord,
that would have been incurred during such Lease Year if such average occupancy
rate had been one hundred percent (100%) and if electricity and janitorial
services had been furnished to all of such premises and paid for by Landlord.
For example, if the average occupancy rate for the Building during a Lease Year
is eighty percent (80%), and if the janitorial contractor charges are $1.00 per
square foot of occupied rentable area per year, and if the Building contains one
hundred thousand (100,000) square feet of rentable area, then it would be
reasonable for Landlord to estimate that if the Building had been one hundred
percent (100%) occupied during such Lease Year, then janitorial charges for such
Lease Year would have been one hundred thousand dollars ($100,000).
5.5 At the beginning of the Lease Term and at the beginning of each Lease
Year thereafter, Landlord may submit a statement setting forth the amount by
which Operating Charges that Landlord reasonably expects to be incurred during
each Lease Year exceed the Operating Charges Base Amount and Tenant's
Proportionate Share of such excess. Tenant shall pay to Landlord on
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the first day of each month after receipt of such statement, until Tenant's
receipt of any succeeding statement, an amount equal to one-twelfth (1/12) of
the total estimated amount payable by Tenant as set forth in such statement.
5.6 (a) Within approximately one hundred twenty (120) days after the
end of each Lease Year, Landlord shall submit a statement showing (1) Tenant's
Proportionate Share of the amount by which Operating Charges incurred during the
preceding Lease Year exceeded the Operating Charges Base Amount and (2) the
aggregate amount of Tenant's estimated payments during such year. If such
statement indicates that the aggregate amount of such estimated payments exceeds
Tenant's actual liability, then Landlord shall credit the excess to the next
Base Rent payments due from Tenant to Landlord. If such statement indicates that
Tenant's actual liability exceeds the aggregate amount of such estimated
payments, then Tenant shall pay the amount of such excess within forty-five (45)
days after receipt of such statement. If Tenant does not notify Landlord in
writing of any objection to such statement within forty-five (45) days after
receipt, then Tenant shall be deemed to have waived such objection. If Tenant
objects to anything contained in such statement, Tenant may notify Landlord in
writing of its objections after paying the amount set forth in such statement.
Landlord shall review such objections and furnish to Tenant reasonable
documentation of the specific items of expense to which Tenant has objected in
writing.
(b) If Tenant timely gives such notice to Landlord (and pays the
amount due from Tenant, if any, or receives the credit against Base Rent due
from Landlord, if any, all as set forth in such statement), then for a period of
sixty (60) days following the date of such notice Tenant shall have the right to
either (1) begin an inspection and/or audit of Landlord's books and records
relating to Operating Charges and the information set forth in such statement
(with such inspection and/or audit to take place during regular business hours,
at Landlord's place of business and following reasonable advance notice to
Landlord), or (2) have an independent certified public accountant designated by
Tenant and approved by Landlord (which approval shall not be unreasonably
withheld, conditioned or delayed) do so for Tenant. Landlord shall cooperate in
providing at reasonable cost any photocopies of such books and records that
might be requested during the course of such inspection and/or audit. Any such
inspection and/or audit, once begun, shall be pursued to completion in a
reasonably diligent and expeditious manner.
(c) Tenant shall provide Landlord with a copy of any such audit
within twenty (20) days after Tenant's receipt thereof. If the audit indicates
that the amount actually paid by Tenant to Landlord for Operating Charges
exceeds the amount to which Landlord is entitled under this Article V, Landlord
shall credit the excess to the next Base Rent payments due from Tenant to
Landlord or, if the inspection and/or audit is conducted with respect to the
final Lease Year in the Lease Term, shall refund the excess to Tenant within
forty-five (45) days after Tenant has provided Landlord with a copy of the
audit; provided, however, that if Landlord's auditor disagrees with the result
of Tenant's audit, Landlord shall not be obligated to make the aforesaid credit
or payment until the results of the neutral audit described below in this
Paragraph have been received by Landlord and Tenant, and such credit or payment
shall be adjusted as is necessary to reflect the result of the neutral audit. If
the audit indicates that the amount actually paid by Tenant to Landlord for
Operating Charges is less than the amount to which Landlord is entitled
hereunder, then within forty-five (45) days after Tenant's receipt of the audit,
Tenant shall pay to Landlord the amount of such deficiency. Notwithstanding
anything in this Section to the contrary, if Landlord disagrees with the results
of Tenant's audit, then Landlord's auditor and Tenant's auditor together shall
select a neutral auditor of similar qualifications to conduct an audit of such
books and records (the fees of such auditor to be shared equally by Landlord and
Tenant), and the determination of Operating Charges reached by such neutral
auditor shall be final and conclusive.
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(d) All costs and expenses of Tenant's audit shall be paid by
Tenant; provided, however, that if the final results of the audit procedure
described in Paragraph 5.6(c) above show that Operating Charges for the subject
Lease Year were overstated by more than five percent (5%), then Landlord shall
reimburse Tenant for the reasonable costs and expenses of Tenant's audit.
5.7 During the Lease Term, any increase in Tenant's Proportionate Share
of the amount by which Operating Charges during each Lease Year exceeds the
Operating Charges Base Amount shall not exceed a cumulative increase of more
than six percent (6%) over Tenant's Proportionate Share of such excess in the
immediately preceding Lease Year (the "Cap"). For purposes of this Section 5.7,
all charges for electricity, water, sewer, power, natural gas, fuel and other
utility services (including surcharges and connection fees); all insurance
premiums and costs; and all Real Estate Taxes shall be excluded from the
definition of Operating Charges. In the event that in any Lease Year such amount
payable by Tenant is less than the Cap, any shortfall shall be carried forward
to later Lease Years by Landlord to raise the Cap for such years (provided that
the cumulative increase during the Lease Term does not exceed an average of six
percent (6%) per year).
5.8 If the Lease Term commences or expires on a day other than the
first day or the last day of a Lease Year, respectively, then Tenant's liability
for Operating Charges incurred during such Lease Year shall be reduced
proportionately.
ARTICLE VI
USE OF PREMISES
6.1 Tenant shall use the Premises solely for general office purposes
and for no other use or purpose. Tenant shall not use the Premises for any
unlawful purpose or in any manner that in Landlord's opinion will constitute
waste, nuisance or unreasonable annoyance to Landlord or any tenant of the
Building. Tenant shall comply at its expense with all present and future laws,
ordinances, regulations and orders (including, without limitation, any
regulation requiring the sorting or separation of refuse and trash) concerning
the use, occupancy and condition of the Premises and all machinery, equipment
and furnishings therein. If any such law, ordinance, regulation or order
requires an occupancy or use permit for the Premises, then Tenant shall obtain
and keep current such permit at Tenant's expense and promptly deliver a copy
thereof to Landlord. Use of the Premises is subject to all covenants, conditions
and restrictions of record.
6.2 Tenant shall pay before delinquency any business, rent or other tax
or fee that now or hereafter is assessed or imposed upon Tenant's use or
occupancy of the Premises, the conduct of Tenant's business in the Premises or
Tenant's equipment, fixtures, furnishings, inventory or personal property. If
any such tax or fee is enacted or altered so that such tax or fee is imposed
upon Landlord or so that Landlord is responsible for collection or payment
thereof, then Tenant shall pay the amount of such tax or fee within ten (10)
days after Landlord's demand therefor.
6.3 Tenant shall not generate, use, store or cause or permit (either
with or without negligence) the escape, disposal or release of any Hazardous
Materials in or about the Building or the Land or the Complex. Hazardous
Materials shall mean (a) "hazardous wastes," as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to time, (b)
"hazardous substances," as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, (c) "toxic
substances," as defined by the Toxic Substances Control Act, as amended from
time to time, (d) "hazardous materials," as defined by the Hazardous Materials
Transportation Act, as amended from time to time, (e) any applicable state or
local laws and the regulations adopted under these acts,
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as amended from time to time, (f) oil or other petroleum products, (g) any
highly combustible substance and (h) any substance whose presence in Landlord's
reasonable judgment could be detrimental to the Building, the Land or the
Complex or hazardous to health or the environment. If any lender or governmental
agency ever shall require testing to ascertain whether or not there has been any
release of Hazardous Materials by Tenant, then the reasonable costs thereof
shall be reimbursed by Tenant to Landlord upon demand as additional charges if
such requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Materials in the Premises. In all events, Tenant shall indemnify
Landlord in the manner elsewhere provided in this Lease from any release of
Hazardous Materials in the Premises occurring while Tenant is in possession, or
elsewhere if caused by Tenant or persons acting under Tenant. The covenants set
forth in this Section shall survive the expiration or earlier termination of the
Lease Term.
ARTICLE VII
ASSIGNMENT AND SUBLETTING
7.1 If Tenant wants to assign, sublet or otherwise transfer all or part of
the Premises or this Lease, then Tenant shall give Landlord written notice
("Tenant's Request Notice") of the anticipated terms of any proposed assignment
or subletting, the area proposed to be assigned or sublet (the "Proposed Sublet
Space") and such other information as Landlord reasonably might request.
7.2 Landlord shall have the right in its sole and absolute discretion to
terminate this Lease with respect to the Proposed Sublet Space by sending Tenant
written notice within thirty (30) days after Landlord's receipt of Tenant's
Request Notice. If the Proposed Sublet Space does not constitute the entire
Premises and Landlord elects to terminate this Lease with respect to the
Proposed Sublet Space, then (a) Tenant shall tender the Proposed Sublet Space to
Landlord on the Proposed Sublease Commencement Date as if the Proposed Sublease
Commencement Date had been originally set forth in this Lease as the expiration
date of the Lease Term with respect to the Proposed Sublet Space and (b), as to
all portions of the Premises other than the Proposed Sublet Space, this Lease
shall remain in full force and effect except that the additional rent payable
pursuant to Article V and the Base Rent shall be reduced proportionately. If the
Proposed Sublet Space constitutes the entire Premises and Landlord elects to
terminate this Lease, then (x) Tenant shall tender the Premises to Landlord on
the Proposed Sublease Commencement Date, and (y) the Lease Term shall terminate
on the Proposed Sublease Commencement Date. Notwithstanding the foregoing, if
Landlord elects to terminate this Lease with respect to any Proposed Sublet
Space, Landlord's election will be rendered null, void and of no force or effect
if, within fifteen (15) days of Landlord's sending Tenant written notice of
Landlord's election to terminate this Lease with respect to the Proposed Sublet
Space, Tenant sends Landlord written notice withdrawing Tenant's request to
assign, sublease or otherwise transfer the Proposed Sublet Space and confirming
Tenant's intention to remain in possession of the Proposed Sublet Space, with
this Lease remaining in full force and effect.
7.3 Notwithstanding the foregoing provisions of this Article VII, Tenant
shall not assign this Lease or any of Tenant's rights or obligations hereunder,
or sublet or permit anyone to occupy the Premises or any part thereof, without
(a) the prior written consent of Landlord, which consent may be granted or
withheld in Landlord's sole and absolute discretion, and (b) the prior written
consent of the holder of any Mortgage (as defined in Section 21.1) (which
written consent shall confirm, without limitation, that any permitted assignment
or sublease shall not increase any of Landlord's obligations to such holder);
provided, however, that if the holder of any mortgage fails to approve or
disapprove such assignment or subletting within
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thirty (30) days of Landlord's request for such holder's approval of such
assignment or subletting, then for purposes of this Lease such holder shall be
deemed to have approved such assignment or subletting. Notwithstanding any of
the foregoing to the contrary, and provided that no Event of Default exists and
is continuing hereunder, Landlord shall not unreasonably withhold or delay its
consent to any proposed assignment or subletting of the Premises if (p) the use
of the Premises pursuant to such assignment or sublease is in compliance with
Article VI hereof; (q) the proposed assignee or subtenant is of a type and
quality consistent and compatible with a first-class office building and with
the Building and its tenants; (r) Landlord is reasonably satisfied with the
financial condition and liquidity of the assignee under any such assignment or
the sublessee under any such sublease; and (s) the initial Tenant remains fully
liable as a primary obligor for the payment of all rent and other charges
payable hereunder and for the performance of all its other obligations
hereunder. No assignment or transfer of this Lease may be effected by operation
of law or otherwise without Landlord's prior written consent. In connection with
obtaining such consent, Tenant shall provide to Landlord the following: (u) the
identity of the proposed assignee or subtenant and its business; (v) all terms
of the proposed assignment or subletting; (w) the proposed commencement date of
the proposed assignment or subletting; (x) the most recent financial statement
of the proposed assignee or subtenant or other evidence of financial
responsibility of the proposed assignee or sublessee; (y) a certification
executed by Tenant and such proposed assignee or subtenant stating whether any
premium or other consideration is being paid for the proposed assignment or
subletting; and (z) such other information as Landlord reasonably might request.
Tenant shall notify Landlord when Tenant believes that it has delivered to
Landlord all of aforesaid materials, documents and information. Within seven (7)
business days of Tenant's notice to Landlord, Landlord shall confirm to Tenant
by notice either that Landlord has received all of the aforesaid materials,
documents and information (as well as the date on which Landlord has received
all of the aforesaid materials, documents and information) or that Landlord has
not received all of the aforesaid materials, documents and information (as well
as a description of the materials, documents or information not received).
Notwithstanding any of the foregoing to the contrary, if Landlord has failed to
approve or disapprove any proposed assignment or subletting within thirty (30)
days after Tenant has provided Landlord with all of the aforesaid materials,
documents and information, as certified by Landlord's notice to Tenant, then for
purposes of this Lease Landlord shall be deemed to have approved such assignment
or subletting. Any assignment, subletting or occupancy, Landlord's consent
thereto or Landlord's collection or acceptance of rent from any assignee,
subtenant or occupant shall not be construed as a waiver or release of Tenant
from liability hereunder (it being understood that Tenant shall at all times
remain primarily liable as a principal and not as a guarantor or a surety) and
shall not be construed as relieving Tenant or any assignee, subtenant or
occupant from the obligation of obtaining Landlord's prior written consent to
any subsequent assignment, subletting or occupancy. Tenant assigns to Landlord
any sum due from any assignee, subtenant or occupant of Tenant as security for
Tenant's performance of its obligations pursuant to this Lease. Tenant
authorizes each such assignee, subtenant or occupant, upon any default by Tenant
under this Lease, to pay such sum directly to Landlord if such assignee,
subtenant or occupant receives written notice from Landlord specifying that such
rent shall be paid directly to Landlord. Landlord's collection of such rent
shall not be construed as an acceptance of such assignee, subtenant or occupant
as a tenant nor a waiver of any default hereunder by Tenant. All restrictions
and obligations imposed pursuant to this Lease on Tenant or the use and
occupancy of the Premises shall be deemed to extend to any subtenant, assignee
or occupant of Tenant, and Tenant shall cause such persons to comply with all
such restrictions and obligations. Tenant shall not mortgage or hypothecate this
Lease without Landlord's written consent, which consent may be granted or
withheld in Landlord's sole and absolute discretion. Tenant shall pay the
reasonable expenses (including attorneys' fees and hourly fees for Landlord's
employees and agents) incurred by Landlord in
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connection with reviewing Tenant's request for Landlord to give its consent to
any assignment, subletting, occupancy or mortgage.
7.4 If Tenant is a partnership, then any dissolution of Tenant or a
withdrawal or change, whether voluntary, involuntary or by operation of law, of
partners owning a controlling interest in Tenant shall be deemed a voluntary
assignment of this Lease. Subject to the provisions of Section 7.6 below, if
Tenant is a corporation or a partnership with a corporate general partner, then
any dissolution, merger, consolidation or other reorganization of Tenant (or
such corporate general partner), or any sale or transfer of a controlling
interest of its capital stock, shall be deemed a voluntary assignment of this
Lease. Whether Tenant is a partnership, corporation or any other type of entity,
then at the option of Landlord a sale of all or substantially all of its assets
also shall be deemed a voluntary assignment of this Lease.
7.5 If any sublease, assignment or other transfer (whether by operation of
law or otherwise) provides that the subtenant, assignee or other transferee (or
any affiliate thereof) is to pay any amount in excess of the rent and other
charges due under this Lease, then, whether such excess be in the form of an
increased rental, lump sum payment, payment for the sale or lease of fixtures or
other leasehold improvements or any other form (and, if the applicable space
does not constitute the entire Premises, the amount and existence of such excess
shall be determined on a pro rata basis), Tenant shall pay to Landlord fifty
percent (50%) of any net profit that Tenant realizes on account of such
sublease, assignment or other transfer after taking into account the rent and
other charges due under this Lease and the actual expenses Tenant incurs in
connection with such sublease, assignment or other transfer (which costs and
expenses shall include usual and customary leasing commissions; usual and
customary legal fees incurred in negotiating the terms of such sublease,
assignment or other transfer; expenses incurred in installing tenant
improvements in the space so sublet, assigned or transferred; and advertising
and marketing expenses; but which costs and expenses shall not include any lost
revenues) upon such terms as shall be specified by Landlord and in no event
later than ten (10) days after Tenant's receipt thereof. Tenant in all events
shall pursue diligently the collection of all amounts owed by any subtenant,
assignee or other transferee. Landlord shall have the right, at reasonable times
during normal business hours, to inspect and audit Tenant's books and
records-relating to any sublease, assignment or other transfer (and treat such
books and records confidentially); provided, however, that (unless an Event of
Default (as hereinafter defined) has occurred) Landlord shall have no right to
inspect and audit Tenant's books and records relating to any sublease,
assignment or other transfer more frequently than twice in every twelve (12)
month period. Any sublease, assignment or other transfer shall be effected on
forms supplied or approved by Landlord.
7.6 Notwithstanding anything contained in this Article VII to the
contrary, and provided that no event has occurred that, with the passage of time
or the giving of notice or both would be an Event of Default (as hereinafter
defined) under this Lease, Tenant, upon prior written notice to Landlord but
without Landlord's prior written consent and without being subject to Landlord's
rights and Tenant's obligations set forth in Section 7.5 above, may assign or
transfer this Lease or sublease all or any portion of the Premises: (a) to a
corporation or other business entity (herein sometimes referred to as a
"successor corporation") into or with which Tenant shall be merged or
consolidated, or to which substantially all of the assets of Tenant may be
transferred, provided that (1) such successor corporation shall have a net worth
at least equal to the net worth of Tenant as of the Lease Commencement Date (as
such net worth is adjusted upwardly by multiplying the net worth of Tenant as of
the Lease Commencement Date by a fraction the denominator of which shall be the
Consumer Price Index for Urban wage Earners and Clerical Workers, 1982-84 Base
Year, All Items, Washington, D.C.-MD-VA Metropolitan Area (the "Index"), as
published by the Bureau of Labor Statistics of the U.S. Department of Labor (the
"Bureau"), for the period including the month that is three (3) months
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prior to the month in which the Lease Commencement Date falls, and the numerator
of which shall be the Index for the period including the month that is three (3)
months prior to the month in which the proposed commencement date of such
assignment or subletting falls), (2) the successor corporation shall assume in
writing all of the obligations and liabilities of Tenant under this Lease, and
(3) the use of the Premises pursuant to such assignment or sublease is in
compliance with Article VI of this Lease; or (b) to a corporation or other
business entity (herein sometimes referred to as a "related corporation") that
shall control, be controlled by or be under common control with Tenant, provided
that (1) such related corporation shall have a net worth at least equal to the
net worth of Tenant as of the Lease Commencement Date (as such net worth is
adjusted upwardly by multiplying the net worth of Tenant as of the Lease
Commencement Date by a fraction the denominator of which shall be the Index for
the period including the month that is three (3) months prior to the month in
which the Lease Commencement Date falls, and the numerator of which shall be the
Index for the period including the month that is three (3) months prior to the
month in which the proposed commencement date of such assignment or subletting
falls), (2) the related corporation shall assume in writing all of the
obligations and liabilities of Tenant under this Lease and (3) the use of the
Premises pursuant to such assignment or sublease is in compliance with Article
VI of this Lease. In the event of any such assignment, transfer or subletting,
Tenant shall remain fully liable as a primary obligor for the payment of rent
and other charges required hereunder and for the performance of obligations to
be performed hereunder. For purposes of Paragraph (b) above, control shall be
deemed to be the ownership of fifty percent (50%) or more of the stock or other
voting interest of the controlled corporation or other business entity. A
successor corporation described in Paragraph (a) above or a related corporation
described in Paragraph (b) above shall be referred to sometimes in this Lease as
a "Permitted Transferee." For purposes of this Section, if the Index is changed
so that a base year other than 1982-84 is used, the Index shall be converted in
accordance with the conversion factor published by the Bureau. If the Index is
discontinued or otherwise revised during the Lease Term, then Landlord shall
select and utilize another government index or computation in use in the
commercial real estate industry in Northern Virginia for purposes of determining
the economic occurrence commonly known as "inflation" in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
ARTICLE VIII
MAINTENANCE AND REPAIRS
8.1 Tenant shall keep and maintain the Premises and all fixtures and
equipment located therein in clean, safe and sanitary condition and in
compliance with all legal requirements, shall take good care thereof and make
all repairs thereto, shall suffer no waste or injury thereto and, at the
expiration or earlier termination of the Lease Term, shall surrender the
Premises in the same order and condition in which they were on the Lease
Commencement Date (ordinary wear and tear consistent with the permitted use
hereunder excepted). Tenant's maintenance and repair obligations set forth in
this Section 8.1 do not include the maintenance and repair obligations of
Landlord pursuant to Paragraph 8.2(a) below. All injury, breakage and damage to
the Premises and to any other part of the Building or the Land caused by any act
or omission of any invitee, agent, employee, subtenant, assignee, contractor,
client, family member, licensee, customer or guest of Tenant (collectively
"Invitee") or Tenant, shall be repaired or replaced (as applicable) by and at
Tenant's expense (except to the extent that such injury, breakage or damage is
covered by insurance proceeds received by Tenant or Landlord), and except that
Landlord shall have the right at Landlord's option to make any such repair or
replacement and to charge Tenant for all reasonable costs and expenses incurred
in connection therewith.
8.2 (a) Landlord shall keep the exterior walls, load bearing elements,
foundations, pipes and conduits, roof and common areas (including the
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parking area and the picnic and recreational area to be installed behind the
Building) that form a part of the Building and the building standard mechanical,
electrical (including building standard light fixtures and building standard
light bulbs), HVAC and plumbing systems that are provided by Landlord in the
operation of the Building, clean and in good operating condition and, subject to
the third sentence of Section 8.1, shall make all required repairs thereto.
(b) Notwithstanding any of the foregoing to the contrary,
maintenance and repair of special tenant areas (excluding the parking area and
the picnic and recreational area to be installed behind the Building),
facilities, finishes and equipment (including, but not limited to, any special
fire protection equipment, telecommunications and computer equipment,
kitchen/galley/coffee equipment, supplementary air-conditioning equipment
(including, but not limited to, the computer room HVAC unit) and all other
furniture, finishings and equipment of Tenant and any Alterations (as
hereinafter defined) made by Tenant) shall be the sole responsibility of Tenant.
Moreover, Landlord shall have the right to require Tenant, at Tenant's sole
expense, to enter into maintenance contracts with duly qualified contractors
selected by Tenant and satisfactory to Landlord in all respects providing for
good, workmanlike, first-class and prompt maintenance and repair of such areas,
facilities, finishes, equipment and Alterations as may be designated by Landlord
in its reasonable discretion. Notwithstanding the foregoing provisions of this
Paragraph 8.2(b), Landlord warrants to Tenant that, for a period of ninety (90)
days after the Lease Commencement Date, the supplementary computer room HVAC
unit that Landlord is to install for Tenant shall remain in good working order,
and Landlord shall make during such ninety (90) day period any repairs necessary
to maintain the supplementary computer room HVAC unit in good working order.
Notwithstanding the provisions of the foregoing sentence, the aforesaid warranty
shall not require Landlord to make any repair made necessary by any negligent
act or omission or willful misconduct of Tenant or its employees, agents,
invitees or contractors. Any negligent act or omission or willful misconduct of
Tenant or its employees, agents, invitees or contractors that causes a need for
repair to the supplementary computer room HVAC system shall render any remaining
portion of the aforesaid warranty null, void and of no further force or effect.
Tenant shall give Landlord prompt notice (whether written or oral) of any matter
that Tenant reasonably believes is a cause for Landlord to make a repair
pursuant to the aforesaid warranty.
ARTICLE IX
ALTERATIONS
9.1 The initial improvement of the Premises shall be accomplished by
Landlord in accordance with Exhibit E or as set forth in Section 9.2 below;
provided, however, that Tenant shall reimburse Landlord eleven thousand one
hundred dollars ($11,100) toward the cost of such improvement of the Premises,
which reimbursement Tenant shall make to Landlord within twenty (20) days of
Landlord's request therefor; and provided further, however, that Tenant shall
have the right to utilize, to the extent that it remains available, the
Additional Improvements Allowance described in Section 23.1 below in satisfying
its reimbursement obligations set forth in this Section. Landlord is under no
obligation to make any alterations, decorations, additions, improvements,
demolitions or other changes (collectively "Alterations") in or to the Premises
except as set forth in Exhibit E or as set forth in Section 9.2 below.
9.2 In addition to the improvements to the Premises that Landlord is to
make pursuant to Section 9.1 above and Exhibit E, Landlord shall make the
improvements to the Premises and/or the Land described in Paragraphs 9.2(a), (b)
and (c) below (the "Additional Improvements"):
(a) Tenant shall have the right, within sixty (60) days after the
date of this Lease, to request in writing that Landlord install brick pavers
over Landlord's existing sidewalks at the two (2) main front entrances of
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the Premises. Landlord shall select the pavers in consultation with Tenant. The
location of such main front entrances are shown on the space plan that is
described in Exhibit E. Landlord and Tenant acknowledge and agree that the
installation of the aforesaid brick pavers shall be subject to the prior
approval of the Reston Architectural Review Board (the "ARB"), that Landlord
shall have no obligation to Tenant if the ARB does not approve the installation
of the aforesaid brick pavers and that this Lease is not conditioned in any
manner on Landlord's obtaining of ARB approval for the aforesaid brick pavers.
Landlord shall use good faith efforts to obtain ARB approval in a timely manner.
The Lease Commencement Date shall not be delayed if the aforesaid brick pavers
shall not be installed by the date on which all other conditions to the Lease
Commencement Date are satisfied. If Tenant does not request that the brick
pavers be installed, or if the ARB does not approve the installation of the
brick pavers, then Landlord shall power wash/steam clean the aforesaid sidewalks
at Landlord's sole cost and expense.
(b) Landlord and Tenant acknowledge and agree that the Building
contains as of the date of this Lease a sprinkler-style fire prevention system,
a 120-volt electrical transformer and an emergency power/battery power back-up
system (collectively, the "Existing Systems"). Tenant shall have the right,
within sixty (60) days after the date of this Lease, to request in writing that
Landlord modify and upgrade the Existing Systems (or any of them) as part of
Landlord's construction of the Premises. Landlord and Tenant shall proceed in
good faith to determine within the sixty (60) day period after the date of this
Lease on the specifications for any modifications or upgrades of the Existing
Systems that Tenant requests Landlord to make.
(c) Landlord acknowledges and agrees that, at its sole cost and
expense, it shall remove the existing dirt pile from behind the Building and
reseed the area. Thereafter, Landlord shall relocate its landscaping storage
area, shall landscape the area of its now-existing dirt pile and shall install
in that area picnic benches, a volleyball play area and a basketball court, all
such improvements to be located in the proximity of the locations shown on
Exhibit G attached hereto. Landlord and Tenant shall have the right to make
mutually acceptable changes to the proposed design of the picnic and
recreational area, provided that all such changes are made within the sixty (60)
day period after the date of this Lease. Landlord and Tenant acknowledge and
agree that the installation of the aforesaid picnic and recreational area shall
be subject to the prior approval of the ARB, that Landlord shall have no
obligation to Tenant if the ARB does not approve the installation of the
aforesaid picnic and recreational area and that this Lease is not conditioned in
any manner on Landlord's obtaining of ARB approval for the aforesaid picnic and
recreational area. Landlord shall use good faith efforts to obtain ARB approval
in a timely manner. The Lease Commencement Date shall not be delayed if the
aforesaid picnic and recreational area shall not be installed by the date on
which all other conditions to the Lease Commencement Date are satisfied.
Tenant shall be responsible for all of the costs and expenses incurred by
Landlord in connection with the Additional Improvements, including (without
limitation) all costs and expenses incurred by Landlord and paid to third
parties or incurred for the preparation of drawings (which drawings are subject
to Tenant's timely review and reasonable approval) in connection with Landlord's
efforts to obtain ARB approval of the Additional Improvements for which ARB
approval is required; provided, however, Landlord shall be responsible for the
first one thousand dollars ($1,000) in installing additional electrical
transformers; provided further, however, that Landlord shall be responsible for
fifty percent (50%) of the costs and expenses incurred in connection with the
relocation of its landscaping storage area and the installation of the picnic
and recreational area described in Paragraph 9.2(c) above (but not including the
costs and expenses of removing the now-existing dirt pile and reseeding the
area) up to a maximum obligation to Landlord of six thousand dollars ($6,000);
and provided further, however, that Tenant shall be entitled
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to apply against its obligations pursuant to this Section 9.2 the allowance that
Landlord is to provide to Tenant pursuant to Section 23.1 below.
9.3 Tenant shall not make or permit anyone to make any Alteration in or to
the Premises or the Building without Landlord's prior written consent, which
consent may be granted or withheld in Landlord's sole and absolute discretion.
Notwithstanding the foregoing, Landlord shall not withhold, delay or condition
unreasonably its consent to any nonstructural Alteration that Tenant might
desire to make to the Premises; provided, however, that Landlord shall retain
sole and absolute discretion to withhold its consent to any Alteration, whether
structural or nonstructural, that, in the opinion of Landlord, might adversely
affect the marketability of the Premises or might exceed the capacity of, hinder
the effectiveness of or interfere with the electrical, mechanical, heating,
ventilating, air conditioning or plumbing systems of the Premises or the
Building. Any Alteration that Landlord permits Tenant to make shall be made: (a)
in a good, workmanlike, first-class and prompt manner; (b) using new materials
only; (c) by a contractor and in accordance with plans and specifications
approved in writing by Landlord; (d) in accordance with legal requirements
(including, without limitation, the obtaining of all necessary permits and
licenses) and requirements of any insurance company insuring the Building; (e)
after obtaining any required consent of the holder of any Mortgage (which
consent shall be deemed to have been given for purposes of this Lease if the
holder shall not have denied its consent within thirty (30) days of Landlord's
request for such consent); (f) after obtaining a worker's compensation insurance
policy approved in writing by Landlord (which policy can be obtained by Tenant's
contractor); (g) after delivering to Landlord written, unconditional waivers of
mechanics' and materialmen's liens against the Premises, the Building and the
Land from all proposed contractors, subcontractors, laborers and material
suppliers for all work and materials in connection with such Alteration; and (h)
in compliance with such other reasonable requirements as Landlord might impose.
If any lien (or a petition to establish a lien) is filed in connection with any
Alteration, then such lien (or petition) shall be discharged by Tenant at
Tenant's expense within ten (10) days thereafter by the payment thereof or
filing of a bond acceptable to Landlord. Landlord's consent to the making of an
Alteration shall be deemed not to constitute Landlord's consent to subject its
interest in the Premises or the Building or the Land to liens which may be filed
in connection therewith. Tenant may hire Landlord (or its designee), at Tenant's
sole discretion, to perform any Alteration.
9.4 If any Alteration is made without Landlord's prior written consent,
then Landlord shall have the right, in addition to exercising all other
available remedies, at Tenant's expense to remove and correct such Alteration
and restore the Premises and the Building to their condition immediately prior
thereto or to require Tenant to do the same. Unless Landlord elects otherwise
pursuant to this Section 9.4, all Alterations to the Premises or the Building
made by either party immediately shall become Landlord's property (provided,
however, that during the Lease Term Tenant shall retain an insurable interest in
such Alterations) and shall remain upon and be surrendered with the Premises at
the expiration or earlier termination of the Lease Term; provided, however, that
if Tenant is not in default under this Lease, then Tenant shall have the right
to remove, prior to the expiration or earlier termination of the Lease Term, all
movable furniture, furnishings and trade fixtures installed in the Premises
solely at Tenant's expense. Notwithstanding any of the foregoing in this Section
9.4 to the contrary, Tenant also shall be required to remove all Alterations to
the Premises or the Building and all non-trade fixtures and equipment that
Landlord designates in writing for removal (which designation shall be provided
to Tenant prior to (a) the date thirty (30) days prior to the expiration of the
Lease Term or (b) the earlier termination of the Lease Term, other than any
termination as a result of an Event of Default (as hereinafter defined), in
which event Landlord shall give Tenant such notice as is practicable under the
circumstances, whether before or after the termination) and Tenant shall be
required to remove all telephone
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and data cabling installed above the ceiling of the Premises by or on behalf of
Tenant (collectively, "Cabling"). If Landlord designates to Tenant any
Alterations or non-trade fixtures and equipment for removal after a termination
of this Lease on account of an Event of Default, Tenant shall have five (5)
business days to remove such designated Alterations or non-trade fixtures and
equipment, after which time Landlord shall have the right to remove at Tenant's
cost and expense any such designated Alterations or non-trade fixtures and
equipment remaining in the Premises. Movable furniture, furnishings and trade
fixtures shall be deemed to include any of Tenant's systems furniture and
exclude any item that normally would be removed or detached from the Premises
with the assistance of any tool or machinery other than a dolly. Landlord shall
have the right to repair or replace at Tenant's expense all damage to the
Premises or the Building caused by any such removal if Tenant has failed to do
so promptly after notice thereof from Landlord or to require Tenant to do the
same. If any such furniture, furnishing or trade fixture is not removed by
Tenant prior to the expiration or earlier termination of the Lease Term, then
the same shall become, at Landlord's option, Landlord's property and shall be
surrendered with the Premises as a part thereof; provided, however, that
Landlord shall have the right to remove from the Premises at Tenant's expense
such furniture, furnishing or trade fixture and any Alteration, nontrade fixture
or equipment (which Landlord designates in writing for removal) and any Cabling.
ARTICLE X
SIGNS
10.1 Landlord shall provide at its sole cost and expense two (2)
building-standard V-shaped monument signs, which signs shall be located one (1)
at each of two (2) entrances to the Premises; provided, however, that at least
one (1) sign must be in the front of the Building. Tenant shall have the right
to provide the design for the aforesaid signs or for signs of equivalent value
(as mutually agreed by Landlord and Tenant) to Landlord at any time prior to the
date ninety (90) days prior to the Anticipated Occupancy Date; provided,
however, that Landlord shall have the right to approve the design of the
aforesaid signs. Landlord and Tenant acknowledge and agree that the exact design
and location of the aforesaid signs shall be subject to ARB approval. Landlord
shall use good faith efforts to obtain ARB approval in a timely manner. Tenant
shall not paint, affix or otherwise display on any part of the exterior or
interior of the Building (or any part of the Premises that is visible from
outside the Premises) any other sign, advertisement or notice. If any such item
that has not been approved by Landlord is so displayed, then Landlord shall have
the right to remove such item at Tenant's expense or to require Tenant to do the
same.
10.2 Except by United States mail, Tenant shall not distribute any
advertisements or notices within the Complex.
ARTICLE XI
[INTENTIONALLY DELETED]
ARTICLE XII
HOLDING OVER
12.1 Tenant acknowledges and agrees that it is extremely important that
Landlord have substantial advance notice of the date on which Tenant will vacate
the Premises, because Landlord will (a) require an extensive period to locate a
replacement tenant and (b) plan its entire leasing and renovation program for
the Building in reliance on its lease expiration dates. Tenant also acknowledges
and agrees that if Tenant fails to surrender the Premises at the expiration or
earlier termination of the Lease Term, then it will be presumed conclusively
that the value to Tenant of remaining in possession, and the loss that will be
suffered by Landlord as a result thereof, far exceed the Base Rent and
additional rent that would have been payable had the Lease Term
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continued during such holdover period. Therefore, if Tenant does not surrender
the Premises immediately upon the expiration or earlier termination of the Lease
Term, then the rent shall be increased, for the first three (3) months of the
holdover period, to an amount equal to one and one-half times the Base Rent,
additional rent and other sums that would have been payable pursuant to the
provisions of this Lease if the Lease Term had continued during such holdover
period and, if the holdover period continues thereafter, to an amount equal to
the greater of (1) one and one-half times the fair market rent for the Premises,
or (2) one and one-half times the Base Rent, additional rent and other sums that
would have been payable pursuant to the provisions of this Lease if the Lease
Term had continued during such holdover period. Such rent shall be computed on a
monthly basis and shall be payable on the first day of such holdover period and
the first day of each calendar month thereafter during such holdover period
until the Premises have been vacated. Landlord's acceptance of such rent shall
not affect adversely in any manner Landlord's other rights and remedies,
including Landlord's right to evict Tenant and to recover damages. Tenant agrees
to hold Landlord harmless from and against all loss and damages, direct and
consequential, that Landlord might suffer or incur in connection with claims by
other parties against Landlord arising out of the holding over by Tenant,
including, without limitation, attorneys' fees that might be incurred by
Landlord in defense of such claims. Except as otherwise specifically provided in
this Article, all terms of this Lease shall remain in full force and effect
during such holdover period.
ARTICLE XIII
INSURANCE
13.1 Tenant shall not conduct any activity or place any item in or about
the Building that might increase the rate of any insurance on the Building. If
any increase in the rate of such insurance is due to any such activity or item,
then (whether or not Landlord has consented to such activity or item and without
waiving Landlord's right to require such activities to cease) Tenant shall pay
the amount of such increase. The statement of any insurance company or insurance
rating organization (or other organization exercising similar functions in
connection with the prevention of fires or the correction of hazardous
conditions) that such an increase is due to any such activity or item shall be
conclusive evidence thereof; provided, however, that Landlord shall obtain, if
so requested in writing by Tenant, a statement of a second insurance company or
insurance rating organization (or other organization exercising similar
functions in connection with the prevention of fires or the correction of
hazardous conditions) confirming that such an increase is due to any such
activity or item.
13.2 Tenant shall maintain throughout the Lease Term with a company
licensed to do business in the jurisdiction in which the Building is located,
approved by Landlord and having a rating equal to or exceeding A:ll in Best's
Insurance Guide (a) broad form comprehensive general liability insurance
(written on an occurrence basis and including contractual liability coverage
insuring the obligations assumed by Tenant pursuant to Section 15.2 and an
endorsement for personal injury), (b) all-risk property insurance and (c)
comprehensive automobile liability insurance (covering automobiles owned by
Tenant). Such liability insurance shall be in minimum amounts typically carried
by prudent tenants engaged in similar operations, but in no event shall be in an
amount less than two million dollars ($2,000,000) combined single limit per
occurrence during the first three (3) Lease Years or three million dollars
($3,000,000) combined single limit per occurrence during the final two (2) Lease
Years; provided, however, that Landlord shall have the right to require
increased minimum amounts of such insurance during the Renewal Term. Such
property insurance shall be in an amount not less than that required to replace
all Alterations and all other contents of the Premises, excluding only the work
and materials considered to be building standard finishes. Such automobile
liability insurance shall be in an amount not less than one million dollars
($1,000,000) combined single limit per occurrence and
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two million dollars ($2,000,000) in the aggregate. All such insurance shall name
Landlord, its managing agent and the holder of any Mortgage as additional named
insureds, contain an endorsement that such insurance shall remain in full force
and effect notwithstanding that the insured may have waived its claims against
any person prior to the occurrence of a loss, provide that the insurer waives
all right of recovery by way of subrogation against Landlord, its partners,
agents and employees and contain an endorsement prohibiting cancellation,
failure to renew, reduction in amount of insurance or change of coverage (x) as
to the interests of Landlord or the holder of any Mortgage by reason of any act
or omission of Tenant and (y) without the insurer's giving Landlord thirty (30)
days' prior written notice of such action. Landlord reserves the right from time
to time to require Tenant to obtain higher minimum amounts or different types of
insurance if it becomes commercially reasonable for prudent tenants engaged in
operations similar to those in which Tenant might be engaged to carry insurance
of such higher minimum amounts or of such types. If Tenant disputes in good
faith and on reasonable basis any determination by Landlord to require Tenant to
obtain higher minimum amounts of insurance or different types of insurance, then
Landlord and Tenant each shall appoint, within five (5) days of Tenant
delivering notice to Landlord of such dispute by Tenant, a licensed and
appropriately qualified independent commercial insurance broker or agent. Such
two insurance brokers or agents together shall consider all relevant facts and
circumstances. If such insurance brokers or agents reach agreement, concerning
the propriety of Landlord's requirement that Tenant obtain higher minimum
amounts of insurance or different types of insurance, then such insurance
brokers or agents shall issue a joint written report, which report shall be
binding on Landlord and Tenant. If such insurance brokers or agents do not reach
agreement within ten (10) days of the appointment of the later of them to be
appointed concerning the propriety of Landlord's requirement that Tenant obtain
higher minimum amounts of insurance or different types of insurance, then within
five (5) days thereafter such insurance brokers or agents shall render separate
written reports and together shall appoint a third licensed and appropriately
qualified independent commercial insurance broker or agent. The third insurance
broker or agent shall consider all relevant facts and circumstances and, within
ten (10) days of his or her appointment, shall render a written report
concerning the propriety of Landlord's requirement that Tenant obtain higher
minimum amounts of insurance or different types of insurance, which report shall
be binding on Landlord and Tenant. Landlord shall bear the costs and expenses
incurred for the services of its insurance broker or agent and one-half of the
costs and expenses incurred for the services of the third insurance broker or
agent. Tenant shall bear the costs and expenses incurred for the services of its
insurance broker or agent and one-half of the costs and expenses incurred for
the services of the third insurance broker or agent. Tenant shall deliver a
certificate of such insurance and receipts evidencing payment of the premium for
such insurance (and, upon request, copies of all required insurance policies,
including endorsements and declarations) to Landlord on or before the Lease
Commencement Date and at least annually thereafter.
13.3 Landlord shall maintain fire insurance with extended coverage
insuring the base Building (but not any Alterations or any personal property or
other property of any tenant, including Tenant) through either (a) a "master" or
"blanket" policy covering the Building and other properties of Landlord and
affiliates of Landlord providing coverage for the Building in an amount not less
than ninety percent (90%) of estimated replacement cost (when the value of the
base Building is averaged with the values of the other properties covered by
such master policy) but permitting the payment of the full replacement cost of
the base building of any single property covered thereby (up to such policy's
maximum amount) or (b) a policy covering the Building providing coverage for the
Building in an amount not less than one hundred percent (100%) of estimated
replacement cost. Landlord hereby waives its right of recovery against Tenant if
the damage, loss or destruction was not caused by the gross negligence or
willful act or omission of Tenant or any Invitee, but only to the extent that
Landlord receives insurance proceeds with
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respect to such damage, loss or destruction. Landlord shall maintain broad form
comprehensive general liability insurance in an amount not less than two million
dollars ($2,000,000) combined single limit in the first three (3) Lease Years
and three million dollars ($3,000,000) combined single limit thereafter.
ARTICLE XIV
SERVICES AND UTILITIES
14.1 Landlord will furnish to the Premises heating, ventilation and
air-conditioning ("HVAC") on a year-to-year basis throughout the Premises
appropriate to the season. The equipment is designed to be capable of
maintaining a uniform indoor temperature of approximately 75 degrees Fahrenheit
Dry Bulb at a maximum of 50% Relative Humidity in summer based on the local
outdoor design condition and approximately 70 degrees Fahrenheit Dry Bulb at a
minimum of 25% Relative Humidity in the winter based on local outdoor design
condition. Temperature control shall be automatic, and the equipment is capable
of maintaining temperature set point +5 degrees Fahrenheit. Under ordinary
circumstances, Landlord shall set the thermostats for the Premises at 73 degrees
Fahrenheit during the season for air-conditioning and at 68 degrees during the
season for heating. Landlord shall not be liable for any failure to maintain
comfortable atmosphere conditions in all or any portion of the Premises due to
excessive heat generated by any equipment or machinery installed by Tenant (with
or without Landlord's consent) or due to any impact that Tenant's furniture,
equipment, machinery, millwork or skylights might have upon the delivery of HVAC
to the Premises. For purposes of this Section 14.1, excessive heat shall be
deemed to result from (a) the installation of machinery or equipment, other than
normal office machinery and equipment, in an area not engineered for such office
machinery and equipment or (b) the installation and concurrent operation of a
number of normal office machines or pieces of equipment in an area not
engineered for such a concentration. For example, a typical office will provide
comfortable temperatures for its occupant when a normal personal computer is
installed and operated in that office, but it may not do so if an unusually
large computer or a number of smaller computers are installed and operated in
that office. Landlord shall not be liable for its failure to maintain
comfortable atmosphere conditions due to an occupancy load of more than one
person per one hundred and fifty (150) square feet. Landlord will provide:
standard janitorial service, in accordance with the janitorial specifications
attached hereto as Exhibit H, on Monday through Friday only, excluding federal
legal holidays; electricity; water; and exterior window-cleaning service.
Landlord shall provide heating, ventilation and air-conditioning as required
pursuant to this Lease during the normal hours of operation of the Building,
which normal hours of operation of the Building will be 8:00 a.m. to 7:00 p.m.
on Monday through Friday, 9:00 a.m. to 1:00 p.m. on Saturday (except New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day). If Tenant requires air-conditioning or heat beyond the normal hours of
operation, then Landlord will furnish the same, and Landlord shall install "run
hour" meter buttons in the Premises to control the seven (7) rooftop HVAC units
to allow Tenant to control the usage of air-conditioning or heat after the
normal hours of operation. Tenant shall pay for such extra service in accordance
with Landlord's then-current schedule, which current rate is eight dollars
($8.00) per hour for each of the seven (7) rooftop HVAC units serving the
Premises, and which current rate is subject to increase from time to time to
reflect increases in Landlord's direct costs for electricity in providing extra
service. Tenant shall pay for such extra service within twenty (20) days after
receipt of Landlord's statement for such charges; provided, however, that if
Tenant is in default under this Lease (all notice and cure periods having
expired), Landlord shall have the right to terminate Tenant's right to utilize
the "run hour" meter buttons. Except as otherwise specified herein, Landlord
shall not be required to furnish services and utilities during hours other than
the normal hours of operation of the Building.
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14.2 Landlord may install checkmeters to electrical circuits to verify
that Tenant's electricity consumption is not excessive. A total average
consumption of electricity in excess of five (5) watts per square foot for the
Premises, including HVAC, lighting and power for Tenant's outlets, equipment and
machinery, shall be deemed excessive. If such checkmeters indicate that such
consumption is excessive, as determined by Landlord in consultation with a duly
qualified independent contractor or consultant over at least a three (3) month
period, then Tenant shall reimburse Landlord for the cost of installing such
checkmeters and Landlord may install at Tenant's expense submeters (or similar
measuring devices) to ascertain Tenant's actual electricity consumption, and
thereafter Tenant shall pay for such consumption at the then-current price per
kilowatt hour charged Landlord by the utility company.
14.3 Tenant shall promptly reimburse Landlord on demand for the cost of
any excess or disproportionate utility usage in or in connection with the
Premises (including, but not limited to, water, sewer and chiller usage). Excess
and/or disproportionate usage shall be determined by Landlord (in consultation
with a duly qualified independent contractor or consultant) and pursuant to
measurement of such usage by Landlord's energy management system. without
limiting the generality of the foregoing, Tenant shall be responsible for all
utility usage in connection with any supplementary HVAC units installed in the
Premises.
14.4 Landlord reserves the right to curtail or suspend any utility,
service or Building system when necessary or desirable in the reasonable
judgment of Landlord, by reason of accident, emergency, repairs, alterations,
replacements or improvements or any other reason whatsoever, until such cause
has been removed or remedied. With respect to a nonemergency curtailment or
suspension, Landlord shall provide Tenant, to the extent practicable, with
reasonable prior notice of such curtailment or suspension. If Tenant requests in
writing that Landlord reschedule any such nonemergency curtailment or suspension
to minimize the impact thereof on Tenant's work schedule, then Landlord shall
reschedule such nonemergency curtailment or suspension to the extent
practicable; provided, however, that if Tenant refuses entry to any party
attempting to remove or remedy the situation notwithstanding that Tenant had
theretofore approved such entry time, Tenant shall be responsible to Landlord
(and shall reimburse Landlord promptly upon demand) for any costs (including any
increase in service charges) resulting from such action of Tenant. In the event
of Landlord's failure or inability to furnish any of the utilities or services
required to be furnished by Landlord hereunder, Landlord shall not have any
liability to Tenant; provided, however, that Landlord shall use good faith
efforts to restore such failure or inability so long as such failure or
inability is within Landlord's reasonable control and to expend reasonable sums
to minimize the period of time over which any interruption of a utility, service
or Building system extends; and provided further, however, that if any utility,
service or Building system is interrupted on account of a cause within
Landlord's reasonable control and such interruption continues for more than one
(1) business day after Landlord's receipt of written notice from Tenant
identifying such interruption and as a result thereof all or a portion of the
Premises become uninhabitable, then Tenant shall be entitled to a pro rata
abatement of rent for the portion of the Premises that becomes uninhabitable and
actually is not occupied by Tenant. Such abatement of rent shall be retroactive
to the first business day of the interruption and shall remain in effect until
the utility, service or Building system is restored in a manner that renders the
uninhabitable portion of the Premises habitable, or Tenant recommences use,
whichever first occurs. Any interruption in any utility, service or Building
system that might give rise to a claim by Tenant for abatement of rent pursuant
to this Section shall be deemed an emergency for purposes of this Lease allowing
Landlord immediate access to the Premises. In the event of any conflict between
the provisions of this Section 14.4 and the provisions of Section 15.1 below,
the provisions of this Section 14.4 shall control.
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14.5 If any public utility or governmental body requires Landlord or
Tenant to restrict the consumption of any utility or reduce any service to the
Premises or the Building, Landlord and Tenant shall comply with such
requirements whether or not the utilities and services referred to in this
Article XIV are thereby reduced or otherwise affected, without any abatement,
deduction, set-off, rebate or adjustment to the Base Rent or additional rent
payable hereunder. Landlord shall recalculate its estimate of increases in
Operating Expenses in accordance with Section 5.5 above in the event of any such
action, however.
14.6 Subject to the terms and conditions of this Lease, Tenant shall
have access to the Building twenty-four (24) hours a day, seven (7) days a week.
Landlord acknowledges that it currently provides a security service for its
properties in Reston, Virginia from 2:00 p.m. to 2:00 a.m. each day, but
Landlord reserves specifically the right to change the hours during which such
security service is provided and to cancel such security system entirely
(provided, however, that Landlord shall use good faith efforts to notify Tenant
of any such change or cancellation). Tenant and its employees shall have the
right to request that Landlord's security service provide escorts during the
hours in which such security service is in operation and outside the normal
hours of operation of the Building, provided that in all instances the
satisfaction of such requests shall be subject to the other demands made from
time to time on such security service by Landlord and the other tenants of
Landlord. The availability of the aforesaid security service shall not be a
condition to this Lease remaining in force and effect, and Tenant acknowledges
and agrees that Landlord shall provide the aforesaid security service only as an
accommodation to Tenant.
ARTICLE XV
LIABILITY OF LANDLORD
15.1 Landlord and its employees and agents shall not be liable to
Tenant, any Invitee or any other person or entity for any damage (including
indirect and consequential damage), injury, loss or claim (including claims for
the interruption of or loss to business) based on or arising out of any cause
whatsoever (except as otherwise provided in this Section), including without
limitation the following: repair to any portion of the Premises or the Building;
interruption in the use of the Premises or any equipment therein; any accident
or damage resulting from any use or operation (by Landlord, Tenant or any other
person or entity) of heating, cooling, electrical, sewerage or plumbing or
mechanical equipment or apparatus; termination of this Lease by reason of damage
to the Premises or the Building; fire, robbery, theft, vandalism, mysterious
disappearance or any other casualty; actions of any other tenant of the Building
or of any other person or entity; failure or inability to furnish any service
specified in this Lease; and leakage in any part of the Premises or the Building
from water, rain, ice, snow or other cause that may leak into, or flow from, any
part of the Premises or the Building or the Land, or from drains, pipes or
plumbing fixtures in the Premises or the Building or the Land. If any condition
exists that might be the basis of a claim of constructive eviction, then Tenant
shall give Landlord written notice thereof and a reasonable opportunity to
correct such condition, and in the interim Tenant shall not claim that it has
been constructively evicted or is entitled to a rent abatement. Any property
placed by Tenant or Invitees in or about the Premises, the Building or the Land
shall be at the sole risk of Tenant, and Landlord shall not be responsible
therefor in any manner. If any employee of Landlord receives any package or
article delivered for Tenant, then such employee shall be acting as Tenant's
agent for such purpose and not as Landlord's agent. Notwithstanding the
foregoing provisions of this Section, Landlord shall not be released from
liability to Tenant for any physical injury to any natural person caused by
Landlord's willful misconduct or negligence to the extent such injury is not
covered by insurance (a) carried by Tenant or such person or (b) required by
this Lease to be carried by Tenant.
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15.2 Tenant shall reimburse Landlord for, and shall indemnify, defend
upon request and hold Landlord and its employees and agents harmless from and
against all costs, damages, claims, liabilities, expenses (including attorneys'
fees), losses and court costs suffered by or claimed against Landlord, directly
or indirectly, based on or arising out of, in whole or in part, (a) use and
occupancy of the Premises or the business conducted therein, (b) any act or
omission of Tenant or any Invitee, (c) any breach of Tenant's obligations under
this Lease, including failure to surrender the Premises upon the expiration or
earlier termination of the Lease Term, or (d) any entry by Tenant or any Invitee
upon the Land prior to the Lease Commencement Date.
15.3 If any landlord hereunder transfers the Building or such landlord's
interest therein, then such landlord shall not be liable for any obligation or
liability based on or arising out of any event or condition occurring after such
transfer. Tenant shall attorn to such transferee and, within five (5) days after
request, shall execute, acknowledge and deliver any document submitted to Tenant
confirming such attornment.
15.4 Tenant shall not have the right to offset or deduct any amount
allegedly owed to Tenant pursuant to any claim against Landlord from any rent or
other sum payable to Landlord. Tenant's sole remedy for recovering upon such
claim shall be to institute an independent action against Landlord.
15.5 If Tenant or any Invitee is awarded a money judgment against
Landlord, then recourse for satisfaction of such judgment shall be limited to
execution against Landlord's estate and interest in the Building and the Land.
No other asset of Landlord, any partner, director or officer of Landlord
(collectively, "Officer") or any other person or entity shall be available to
satisfy or subject to such judgment, nor shall any Officer or other person or
entity have personal liability for satisfaction of any claim or judgment against
Landlord or any Officer.
ARTICLE XVI
RULES AND REGULATIONS
16.1 Tenant and Invitees shall observe the rules and regulations specified
in Exhibit I attached hereto, as such rules and regulations might be modified,
amended or supplemented from time to time. Tenant and Invitees also shall
observe any other rule or regulation that Landlord might promulgate in its
reasonable discretion for the operation or maintenance of the Building, provided
that notice thereof is given and such rule or regulation is not inconsistent
with the provisions of this Lease. Landlord shall have no duty to enforce such
rules and regulations or any provision of any other lease against any other
tenant. Landlord shall not enforce such rules and regulations against Tenant in
a manner that discriminates against Tenant.
ARTICLE XVII
DAMAGE OR DESTRUCTION
17.1 If the Premises or the Building are totally or partially damaged or
destroyed thereby rendering the Premises totally or partially untenantable, then
Landlord shall repair and restore the Premises (except as hereinafter provided)
and the Building to substantially the same condition in which they were in prior
to such damage or destruction; provided, however, that if in the judgment of an
appropriately qualified architect, engineer or other professional selected by
Landlord in good faith (the "Casualty Architect") such repair and restoration
cannot be completed within ninety (90) days after the occurrence of such damage
or destruction (taking into account the time needed for effecting a satisfactory
settlement with any insurance company involved, removal of debris, preparation
of plans and issuance of all required governmental permits), then Landlord shall
have the right, at its sole option, to terminate this Lease as of the sixtieth
(60th) day after such damage or destruction by giving written notice of
termination within forty-five (45)
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days after the occurrence of such damage or destruction. Notwithstanding the
provisions of the foregoing sentence, if only the Premises or the Building (and
not any other building in the Complex) has been damaged or destroyed, then, in
the selection of the Casualty Architect, Landlord shall propose by notice
(whether in writing, by telephone or by facsimile transmission) to Tenant two
(2) candidates satisfying the conditions set forth above. If Tenant does not
notify Landlord (whether in writing, by telephone or by facsimile transmission)
of its selection of either proposed candidate within twenty-four (24) hours of
Landlord's notice to Tenant, then Landlord shall have the right to select in its
sole discretion either of the proposed candidates. If the Premises or any part
thereof are damaged or destroyed by fire or any other cause, Tenant shall give
prompt notice thereof to Landlord promptly upon Tenant obtaining knowledge
thereof. Tenant shall be responsible for any additional expenses incurred in the
event that Tenant does not provide such notice promptly. If this Lease is
terminated pursuant to this Article, then rent shall be apportioned (based on
the portion of the Premises which is usable after such damage or destruction)
and paid to the date of termination. If this Lease is not terminated as a
result of such damage or destruction, then until such repair and restoration of
the Premises are substantially complete, Tenant shall be required to pay the
Base Rent and additional rent only for the portion of the Premises that is
usable while such repair and restoration are being made; provided, however, that
if such damage or destruction was caused by the negligent, willful or
intentional act or omission of Tenant or any Invitee, then Tenant shall not be
entitled to any such rent reduction. If this Lease is not terminated as a result
of such damage or destruction, then Landlord shall bear the expenses of such
repair and restoration of the Premises and the Building; provided, however, that
if such damage or destruction was caused by the negligent, willful or
intentional act or omission of Tenant or any Invitee, then Tenant shall pay the
amount by which such expenses exceed the insurance proceeds, if any, actually
received by Landlord on account of such damage or destruction; and provided
further, however, that in no event shall Landlord be required to repair or
restore any work and materials not deemed by Landlord to be building standard
work and materials, any Alteration previously made by Tenant or any of Tenant's
trade fixtures, furnishings, equipment or personal property (unless the damage
to such items is caused by Landlord's willful misconduct or negligence and is
not covered by insurance carried by Tenant or required by this Lease to be
carried by Tenant). Notwithstanding anything herein to the contrary, Landlord
shall have the right to terminate this Lease if (a) Landlord's insurance is
insufficient to pay the full cost of such repair and restoration (provided that
Landlord is carrying the insurance that Landlord is required to carry pursuant
to this Lease), (b) the holder of any Mortgage fails or refuses to make such
insurance proceeds available for such repair and restoration, (c) zoning or
other applicable laws or regulations do not permit such repair and restoration
or (d) more than fifty percent (50%) of the Building is damaged by fire or
casualty (whether or not the Premises has been damaged) to such an extent that
Landlord decides, in its sole and absolute discretion, not to rebuild or
reconstruct the Building.
17.2 If, within forty-five (45) days after the occurrence of the damage or
destruction described in Section 17.1 above, the Casualty Architect determines
that the repairs and restoration cannot be completed substantially within one
hundred eighty (180) days after the occurrence of such damage or destruction
(or, if more than fifty percent (50%) of the Premises has been damaged or
destroyed, determines that the repairs and restoration cannot be completed
substantially within one hundred twenty (120) days after the occurrence of such
damage or destruction), and provided that Landlord does not elect to terminate
this Lease pursuant to this Article, then Landlord promptly shall notify Tenant
of such determination. Tenant shall have the right to terminate this Lease by
providing notice of such termination to Landlord within fifteen (15) days of
Landlord's notice to Tenant. Notwithstanding any of the foregoing to the
contrary, Tenant shall not have the right to terminate
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this Lease if the negligent, willful or intentional act or omission of Tenant or
any Invitee caused the damage or destruction.
17.3 Notwithstanding any provision of this Article XVII to the contrary,
if any portion of the Premises is rendered untenantable, then Landlord shall use
its good faith efforts to make available to Tenant as temporary space any
unleased and unoccupied space of similar size in the Complex. Any such temporary
space shall be made available to Tenant in its "as is" condition, with Landlord
having no obligation to install any tenant improvements in such temporary space.
Landlord shall have no obligation to provide Tenant with any allowances or other
concessions whatsoever with respect to such temporary space. Landlord shall have
no obligation to provide Tenant with temporary space that exceeds in size the
portion of the Premises that is rendered untenantable. The Base Rent and
additional rent for such temporary space shall be the Base Rent and additional
rent that Tenant would have paid for the portion of the Premises that is
rendered untenantable; provided, however, that, if the portion of the Premises
that is rendered untenantable exceeds in size such temporary space, then the
Base Rent and additional rent shall be adjusted accordingly. The availability of
temporary space for the temporary relocation of any portion of the Premises
rendered untenantable shall not be a condition to this Lease remaining in force
and effect if under the other terms and provisions of this Section this Lease is
to remain in force and effect. Tenant acknowledges and agrees that this right of
Tenant to relocate any untenantable portion of the Premises to temporary space
is provided only as an accommodation to Tenant.
ARTICLE XVIII
CONDEMNATION
18.1 If thirty percent (30%) or more of the Premises or occupancy thereof
shall be taken or condemned by any governmental or quasi-governmental authority
for any public or quasi-public use or purpose or sold under threat of such a
taking or condemnation (collectively, "condemned"), then this Lease shall
terminate on the date title vests in such authority and rent shall be
apportioned as of such date. If less than thirty percent (30%) of the Premises
or occupancy thereof is condemned, then this Lease shall continue in full force
and effect as to the part of the Premises not condemned, except that as of the
date title vests in such authority Tenant shall not be required to pay the Base
Rent and additional rent with respect to the part of the Premises condemned.
Notwithstanding anything herein to the contrary, if any portion of the Land or
the Building is condemned, and the nature, location or extent of such
condemnation is such that Landlord elects, in its sole and absolute discretion,
to demolish the Building (in whole or in part), then Landlord may terminate this
Lease by giving sixty (60) days prior written notice of such termination to
Tenant at any time after such condemnation (provided, however, that Landlord
shall use its good faith efforts to provide a longer advance notice to Tenant if
possible), and this Lease shall terminate on the date specified in such notice
and rent shall be adjusted to such date.
18.2 All awards, damages and other compensation paid by such authority on
account of such condemnation shall belong to Landlord, and Tenant assigns to
Landlord all rights to such awards, damages and compensation. Tenant shall not
make any claim against Landlord or the authority for any portion of such award,
damages or compensation attributable to damage to the Premises, value of the
unexpired portion of the Lease Term, loss of profits or goodwill, leasehold
improvements or severance damages. Nothing contained herein, however, shall
prevent Tenant from pursuing a separate claim against the authority for the
value of furnishings and trade fixtures installed in the Premises at Tenant's
expense and for relocation expenses, provided that such claim is stated
separately from any award to Landlord, and provided further that such claim
shall diminish in no way the award, damages or compensation otherwise payable to
Landlord in connection with such condemnation.
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ARTICLE XIX
DEFAULT
19.1 An Event of Default is any one or more of the following: (a)
Tenant's failure (1) to make by no later than the date eight (8) days after the
date when due any payment of the Base Rent due hereunder or (2) to make when due
any payment of additional rent or other sum due hereunder (provided, however,
that with respect to the first three (3) such failures during any twelve (12)
month period, an Event of Default shall not occur unless such failure continues
for five (5) days after notice from Landlord); (b) Tenant's failure to perform
or observe any material covenant or condition, if such failure is not
susceptible to cure; (c) Tenant's failure to perform or observe any covenant or
condition that is susceptible to cure, if such failure continues for thirty (30)
days after written notice thereof from Landlord, or such shorter period as is
appropriate if such failure can be cured within a shorter period of time,
provided that, if such violation or failure is susceptible to cure but is not
capable of being cured within such thirty (30) day period, there shall exist no
Event of Default if Tenant promptly commences to cure such violation or failure
and diligently pursues such cure to completion and actually completes such cure
within ninety (90) days from the date of Landlord's notice; (d) Tenant's failure
to occupy continuously the Premises unless Tenant is current in making all
payments required under this Lease; (e) an Event of Bankruptcy as specified in
Article XX; or (f) Tenant's dissolution or liquidation.
19.2 If there shall be an Event of Default, including an Event of
Default prior to the Lease Commencement Date, then the provisions of this
Section shall apply. Landlord shall have the right, at its sole option, to
terminate this Lease. In addition, with or without terminating this Lease,
Landlord may re-enter, terminate Tenant's right of possession and take
possession of the Premises. The provisions of this Article shall operate as a
notice to quit, any other notice to quit or of Landlord's intention to re-enter
the Premises being expressly waived. If necessary, Landlord may proceed to
recover possession of the Premises under applicable laws, by such other
proceedings, including re-entry and possession, or by using such force as may be
necessary. If Landlord elects to terminate this Lease and/or elects to terminate
Tenant's right of possession, then everything in this Lease to be done by
Landlord shall cease, without prejudice, however, to Tenant's liability for all
rent and other sums due hereunder. Landlord may relet the Premises or any part
thereof, alone or together with other premises, for such term(s) (which terms
may extend beyond the date on which the Lease Term would have expired but for
Tenant's default) and on such terms and conditions (which terms and conditions
may include concessions or free rent and alterations of the Premises) as
Landlord, in its sole discretion, may determine, but Landlord shall not be
liable for, nor shall Tenant's obligations be diminished by reason of,
Landlord's failure to relet the Premises or collect any rent due upon such
reletting. If Landlord relets the Premises and collects rent in excess of the
Base Rent and additional rent owed by Tenant hereunder, Landlord shall be
entitled to retain any such excess and Tenant shall not be entitled to a credit
therefor. Whether or not this Lease is terminated, Tenant nevertheless shall
remain liable for the Base Rent, additional rent and damages that might be due
or sustained, and all costs, fees and expenses (including without limitation
attorneys' fees, brokerage fees and expenses incurred in placing the Premises in
first-class rentable condition) incurred by Landlord in pursuit of its remedies
and in renting the Premises to others from time to time. Tenant shall be liable
for all rent that would have applied to any period of occupancy of the Premises
(whether or not any such period has elapsed) for which Tenant was granted
occupancy hereunder without any obligation to pay such rent (if any). Tenant
also shall be liable for additional damages that at Landlord's election shall be
either: (a) an amount equal to the Base Rent and additional rent that would have
become due during the remainder of the Lease Term, less the amount of rental, if
any, that Landlord receives during such period from others to whom the Premises
may be rented (other than any
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additional rent payable as a result of any failure of such other person to
perform any of its obligations), in which case such damages shall be computed
and payable in monthly installments, in advance, on the first day of each
calendar month following Tenant's default and continuing until the date on which
the Lease Term would have expired but for Tenant's default (provided, however,
that if at the time of any reletting of the Premises there exists other space in
the Building available for leasing, then the Premises shall be deemed the last
space rented, even though the Premises may be relet prior to the date such other
space is leased, and provided further, however, that separate suits may be
brought to collect any such damages for any month(s), and such suits shall not
in any manner prejudice Landlord's right to collect any such damages for any
subsequent month(s), or Landlord may defer any such suit until after the
expiration of the Lease Term, in which event such suit shall be deemed not to
have accrued until the expiration of the Lease Term); or (b) an amount equal to
the present value (as of the date of Tenant's default) of the Base Rent and
additional rent that would have become due through the date on which the Lease
Term would have expired but for Tenant's default, which damages shall be payable
to Landlord in a lump sum on demand. For purposes of this Section, present value
shall be computed by discounting at a rate equal to the prime rate at the time
of such computation as published in the "Money Rates" section of the Wall Street
Journal. Tenant waives any right of redemption, re-entry or restoration of the
operation of this Lease under any present or future law, including any such
right that Tenant otherwise would have if Tenant shall be dispossessed for any
cause. As used in the preceding sentence, the words "redemption", "re-entry",
"retention" and "dispossessed" shall not be deemed restricted to their technical
or legal meanings. Whether or not this Lease and/or Tenant's right of possession
is terminated, Landlord shall have the right, upon the occurrence of an Event of
Default, to terminate by written notice any renewal or expansion right contained
in this Lease and to grant or withhold any consent or approval pursuant to this
Lease in its sole and absolute discretion.
19.3 Landlord's rights and remedies set forth in this Lease are cumulative
and in addition to Landlord's other rights and remedies at law or in equity,
including those available as a result of any anticipatory breach of this Lease.
Landlord's exercise of any such right or remedy shall not prevent the concurrent
or subsequent exercise of any other right or remedy. Landlord's delay or failure
to exercise or enforce any of Landlord's rights or remedies or Tenant's
obligations shall not constitute a waiver of any such rights, remedies or
obligations. Landlord shall not be deemed to have waived any default unless such
waiver expressly is set forth in an instrument signed by Landlord. Any such
waiver shall not be construed as a waiver of any covenant or condition except as
to the specific circumstances described in such waiver. Neither Tenant's payment
of an amount less than a sum due nor Tenant's endorsement or statement on any
check or letter accompanying such payment shall be deemed an accord and
satisfaction. Notwithstanding any request or designation by Tenant, Landlord may
apply any payment received from Tenant to any payment then due. Landlord may
accept the same without prejudice to Landlord's right to recover the balance of
such sum or to pursue other remedies. Re-entry and acceptance of keys shall not
be considered an acceptance of a surrender of this Lease.
19.4 If more than one natural person and/or entity shall constitute Tenant
or any Guarantor, then the liability of each such person or entity shall be
joint and several. If Tenant or any Guarantor is a general partnership or other
entity the partners or members of which are subject to personal liability, then
the liability of each such partner or member shall be joint and several.
19.5 If Tenant fails to make any payment to any third party or to do any
act herein required to be made or done by Tenant, then Landlord may, but shall
not be required to, make such payment or do such act. Landlord's taking such
action shall not be considered a cure of such failure by Tenant and shall
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not prevent Landlord from pursuing any remedy to which it otherwise is entitled
to in connection with such failure. If Landlord elects to make such payment or
do such act, then all expenses incurred, plus interest thereon at the Default
Rate (as hereinafter defined) from the date incurred to the date of payment
thereof by Tenant, shall constitute additional rent. The Default Rate shall
equal the rate per annum that is the greater of eighteen percent (18%) or five
(5) whole percentage points above the prime rate published from time to time in
the "Money Rates" section of the Wall Street Journal.
19.6 If Tenant fails (a) to make any payment of the Base Rent payable to
Landlord on or before the date eight (8) days after the date such payment is due
and payable or (b) to make any payment of additional rent or any other sum
payable to Landlord on or before the date such payment is due and payable, then
Tenant shall pay a late charge equal to five percent (5%) of the amount of such
payment. Such payment and such late fee shall bear interest at the Default Rate
from the date such payment was due to the date of payment; provided, however,
that any payment of Base Rent and such late fee thereon shall not commence
bearing interest until the date nine (9) days after the date such payment of
Base Rent is due and payable. It Tenant is in default of this Lease for the same
or substantially the same reason more than twice during any Lease Year, then, at
Landlord's election, Tenant shall not have the right to cure such repeated
default. In the event of Landlord's election not to allow a cure of a repeated
default, Landlord shall have all the rights and remedies provided herein and by
law. In addition, following each second consecutive monthly installment of rent
that remains unpaid for longer than ten (10) days beyond the date on which the
same is due and payable, Landlord, in addition to all other rights and remedies
provided herein and by law, may require that (x) beginning with the first
monthly installment of rent next due, the rent no longer shall be paid in
monthly installments but shall be payable in advance on a quarterly basis and/or
(y) Tenant deposit with Landlord a security deposit in an amount equal to two
(2) months' rent. If Tenant shall deliver to Landlord a check that is returned
unpaid for any reason, such payment shall be deemed never to have been made and,
additionally, Tenant shall pay Landlord fifty dollars ($50.00) for Landlord's
expense in connection therewith (plus any reasonable out-of-pocket expenses
incurred in connection therewith), and said charge shall be payable to Landlord
on the first day of the next succeeding month as additional rent.
19.7 As security for the performance of Tenant's obligations, Tenant
grants to Landlord a lien upon and a security interest in Tenant's existing or
hereafter acquired personal property, inventory, furniture, fixtures, equipment
and other assets that are located in the Premises or used in connection with the
business to be conducted in the Premises; provided, however, that such lien and
security interest shall be subordinate to (a) the rights of independent lessors
who have leased furniture, fixtures, equipment or other personal property to
Tenant (including any independent lessors under any saleleaseback arrangements
into which Tenant might enter subsequent to its purchase of any furniture,
fixtures, equipment or other personal property) and (b) the rights of
independent lenders who have supplied purchase money financing to Tenant to
enable Tenant to purchase personal property, inventory, furniture, fixtures,
equipment and other assets. Such lien shall be in addition to Landlord's rights
of distraint. Tenant from time to time and promptly upon request from Landlord
(but no more often than once per each twelve (12) month period unless an Event
of Default has occurred) shall provide Landlord with a detailed inventory of all
such personal property, inventory, furniture, fixtures, equipment and other
assets. Additionally, within five (5) days after request, Tenant shall execute,
acknowledge and deliver to Landlord a financing statement and any other document
submitted to Tenant evidencing or establishing such lien and security interest.
During any period Tenant is in default under this Lease, Tenant shall not sell,
transfer or remove from the Premises such personal property, inventory,
furniture, fixtures, equipment and assets.
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ARTICLE XX
BANKRUPTCY
20.1 An Event of Bankruptcy is: (a) Tenant's, a Guarantor's or any
general partner (a "General Partner") of Tenant's becoming insolvent, as that
term is defined in Title 11 of the United States Code (the "Bankruptcy Code"),
or under the insolvency laws of any state (the "Insolvency Laws"); (b)
appointment of a receiver or custodian for any property of Tenant, a Guarantor
or a General Partner or the institution of a foreclosure or attachment action
upon any property of Tenant, a Guarantor or a General Partner; (c) filing of a
voluntary petition by Tenant, a Guarantor or a General Partner under the
provisions of the Bankruptcy Code or Insolvency Laws; (d) filing of an
involuntary petition against Tenant, a Guarantor or a General Partner as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which petition
either (1) is not dismissed within sixty (60) days after filing or (2) results
in the issuance of an order for relief against the debtor; (e) Tenant's, a
Guarantor's or a General Partner's making or consenting to an assignment for the
benefit of creditors or a composition of creditors; (f) a material and adverse
change in the financial condition or status of Tenant, a General Partner or a
Guarantor; or (g) an admission by Tenant or a Guarantor of its inability to pay
debts as they become due.
20.2 Upon occurrence of an Event of Bankruptcy, Landlord shall have all
rights and remedies available pursuant to Article XIX; provided, however, that
while a case (the "Case") in which Tenant is the subject debtor under the
Bankruptcy Code is pending, Landlord's right to terminate this Lease shall be
subject, to the extent required by the Bankruptcy Code, to any rights of Tenant
or its trustee in bankruptcy (collectively, "Trustee") to assume or assign this
Lease pursuant to the Bankruptcy Code. Trustee shall not have the right to
assume or assign this Lease unless Trustee promptly (a) cures all defaults under
this Lease, (b) compensates Landlord for all damages incurred as a result of
such defaults, (c) provides adequate assurance of future performance on the part
of Tenant as debtor in possession or Tenant's assignee and (d) complies with all
other requirements of the Bankruptcy Code. If Trustee fails to assume or assign
this Lease in accordance with the requirements of the Bankruptcy Code within
sixty (60) days after the initiation of the Case, then Trustee shall be deemed
to have rejected this Lease. Adequate assurance of future performance shall
require that, at a minimum, all of the following minimum criteria be met: (r)
Tenant's gross income (as defined by generally accepted accounting principles)
during the thirty (30) days preceding the filing of the Case must be greater
than ten (10) times the next monthly installment of the Base Rent and additional
rent; (s) both the average and median of Tenant's monthly gross income (as
defined by generally accepted accounting principles) during the seven (7) months
preceding the filing of the Case must be greater than ten (10) times the next
monthly installment of the Base Rent and additional rent; (t) Trustee must pay
its estimated pro rata share of the cost of all services performed or provided
by Landlord (whether directly or through agents or contractors and whether or
not previously included as part of the Base Rent) in advance of the performance
or provision of such services; (u) Trustee must agree that Tenant's business
shall be conducted in a first-class manner and that no liquidating sale, auction
or other non-first-class business operation shall be conducted in the Premises;
(v) Trustee must agree that the use of the Premises as stated in this Lease
shall remain unchanged and that no prohibited use shall be permitted; (w)
Trustee must agree that the assumption or assignment of this Lease shall not
violate or affect the rights of other tenants in the Building and the Complex;
(x) Trustee must pay at the time the next monthly installment of the Base Rent
is due, in addition to such installment, an amount equal to the monthly
installments of the Base Rent and additional rent due for the next six (6)
months thereafter, such amount to be held as a security deposit; (y) Trustee
must agree to pay, at any time Landlord draws on such security deposit, the
amount necessary to restore such security deposit to its original
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amount; and (z) all assurances of future performance specified in the Bankruptcy
Code must be provided.
ARTICLE XXI
SUBORDINATION
21.1 This Lease is subject and subordinate to the lien, provisions,
operation and effect of all mortgages, deeds of trust, ground leases or other
security instruments that now or hereafter might encumber the Building or the
Land (individually, each a "Mortgage" and collectively, "Mortgages"), to all
funds and indebtedness intended to be secured thereby, and to all renewals,
extensions, modifications, recastings or refinancings thereof. The holder of any
Mortgage to which this Lease is subordinate shall have the right (subject to any
required approval of the holders of any superior Mortgage) at any time to
declare this Lease to be superior to the lien, provisions, operation and effect
of such Mortgage, and Tenant shall execute, acknowledge and deliver all
confirming documents required by such holder.
21.2 In confirmation of the foregoing subordination, Tenant at Landlord's
request shall execute promptly any requisite or appropriate document. Tenant
appoints Landlord as Tenant's attorney-in-fact to execute any such document for
Tenant if Tenant fails to execute same within ten (10) days after request
therefor. Tenant waives the provisions of any statute or rule of law now or
hereafter in effect that might give or purport to give Tenant any right to
terminate or otherwise adversely affect this Lease or Tenant's obligations in
the event any such foreclosure proceeding is prosecuted or completed or in the
event the Land, the Building or Landlord's interest therein is sold at a
foreclosure sale or by deed in lieu of foreclosure. If this Lease is not
extinguished upon such sale or by the purchaser following such sale, then, at
the request of such purchaser, Tenant shall attorn to such purchaser and shall
recognize such purchaser as the landlord under this Lease. Upon such attornment,
such purchaser shall not be (a) bound by any payment of the Base Rent or
additional rent more than one (1) month in advance, (b) bound by any amendment
of this Lease made without the consent of the holder of each Mortgage existing
as of the date of such amendment, (c) liable for damages for any breach, act or
omission of any prior landlord or (d) subject to any offsets or defenses that
Tenant might have against any prior landlord. Within five (5) days after
receipt, Tenant shall execute, acknowledge and deliver any requisite or
appropriate document submitted to Tenant confirming such attornment.
21.3 If Landlord's current lender providing financing secured by the
Building requires as a condition of its financing of the Building that
modifications to this Lease be obtained, and provided that such modifications
(a) are reasonable, (b) do not affect adversely in a material manner Tenant's
use of the Premises permitted under this Lease or Tenant's rights or economic
benefits provided under this Lease and (c) do not increase the rent and other
sums to be paid by Tenant, then Landlord may submit to Tenant an amendment to
this Lease incorporating such modifications. Tenant shall execute, acknowledge
and deliver such amendment to Landlord within five (5) days after receipt.
ARTICLE XXII
COVENANTS OF LANDLORD
22.1 Landlord covenants that if Tenant shall perform timely all of its
obligations, then, subject to the provisions of this Lease, Tenant shall during
the Lease Term peaceably and quietly occupy and enjoy possession of the Premises
without hindrance by Landlord or anyone claiming through Landlord.
22.2 Landlord reserves the right to, so long as to do so does not impede
materially and adversely Tenant's business and use of the Premises: (a) upon at
least sixty (60) days' prior written notice to Tenant, change the street address
and name of the Building or the Complex (provided, however,
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that, unless such change in the street address or name of the Building or
Complex results from a governmental or quasi-governmental directive, Landlord
shall reimburse Tenant for the reasonable direct costs incurred by Tenant as a
result of such change (such as (but not limited to) costs for the reprinting of
stationery), if such costs were not otherwise incurred in the ordinary course of
Tenant's business); (b) change the arrangement and location of entrances,
passageways, doors, doorways, corridors, stairs, toilets or other public parts
of the Building and the Complex (other than entrances to the Premises), and, in
connection with such work, to temporarily close door entry ways, common or
public spaces and corridors of the Building or the Complex (other than entrances
to the Premises) so long as the Premises remain reasonably accessible; (c)
erect, use and maintain pipes and conduits in and through the Premises; (d)
grant to anyone the exclusive right to conduct any particular business in the
Building or the Complex not inconsistent with the permitted use of the Premises;
(e) use or lease exclusively the sidewalks and other exterior areas; (f)
resubdivide the Land or to combine the Land with other lands; (g) construct
improvements (including kiosks) on the Land or the common areas within the
Complex; (h) relocate or change roads, driveways and parking areas (subject to
the provisions of Article XXIII of this Lease) and to alter the means of access
to all or any portion of the Building or Complex; (i) install and display signs,
advertisements and notices relating to the leasing of space in the Building on
any part of the exterior or interior of the Building; (j) install such security
systems and devices as Landlord deems appropriate, provided that Tenant shall be
permitted to obtain access to the Premises as provided in Section 14.6; (k)
create easements over the Premises and in the entrances, aisles and stairways of
any parking areas for utilities, telephone lines, sanitary sewer, storm sewer,
water lines, pipes, conduits, drainage ditches, sidewalks, pathways, emergency
vehicles and ingress and egress for the use and benefit of others, without
Tenant joining in the execution thereof, and the Lease shall automatically be
subject and subordinate thereto; and (1) alter the site plan, landscaping,
walkways and common areas outside the Building within the context of general
site improvements, repairs and maintenance. Exercise of any such right shall not
be considered a constructive eviction or a disturbance of Tenant's business or
occupancy.
ARTICLE XXIII
ADDITIONAL OBLIGATIONS OF LANDLORD
23.1 Landlord shall provide to Tenant an allowance (the "Additional
Improvements Allowance") equal to the product of (a) six dollars ($6.00) and (b)
twenty-two thousand four hundred one (22,401); provided, however, that if the
Reston Architectural Review Board does not approve the installation of the
picnic and recreational area described in Paragraph 9.2(c) above, Landlord shall
increase the Additional Improvements Allowance by six thousand dollars ($6,000).
Tenant shall utilize the Additional Improvements Allowance to offset the cost
and expense that Tenant incurs to Landlord with respect to (w) the Additional
Improvements, (x) the eleven thousand one hundred dollar ($11,100) reimbursement
that Tenant is to make to Landlord pursuant to Section 9.1 above, (y) any
above-standard tenant improvements not described on the plans and specifications
for Tenant's tenant improvements attached to Exhibit E and (z) any changes to
such plans and specifications after their acceptance by Landlord and Tenant. If
any portion of the Additional Improvements Allowance remains after satisfaction
of the aforesaid obligations of Tenant to Landlord, then Landlord shall pay the
balance of the Additional Improvements Allowance to Tenant within twenty (20)
days after the Lease Commencement Date (or as soon thereafter as Landlord is
able to reconcile the accounting for the Additional Improvements Allowance). If
the costs and expenses for the improvements described in Paragraphs (w), (x),
(y) and (z) above exceed the Additional Improvements Allowance, then Tenant
shall reimburse Landlord for such excess costs and expenses within twenty (20)
days of Landlord's delivery to Tenant of a statement for such excess costs and
expenses (accompanied by reasonable supporting information).
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23.2 Landlord shall provide to Tenant an allowance (the "Moving
Allowance") equal to the product of (a) one dollar and fifty cents ($1.50) and
(b) twenty-two thousand four hundred one (22,401). Tenant shall have the right
to utilize the Moving Allowance to satisfy its costs and expenses incurred in
connection with its move to the Premises. Landlord shall pay portions of the
Moving Allowance to Tenant, at any time after the date sixty (60) days prior to
the Anticipated Occupancy Date, within twenty (20) days of Tenant's delivery to
Landlord of a statement verifying the portion of the Moving Allowance so
requested (along with supporting information reasonably acceptable to Landlord).
If any portion of the Moving Allowance remains after Landlord's periodic
payments of the Moving Allowance to Tenant, then Landlord shall pay the balance
of the Moving Allowance to Tenant within twenty (20) days after the Lease
Commencement Date (or as soon thereafter as Landlord is able to reconcile the
accounting for the Moving Allowance).
23.3 In the preparation of the space plan, working drawings and plans and
specifications for the tenant improvements in the Premises, Tenant shall utilize
the services of Stanmyre & Noel, Landlord's usual architect, or another licensed
and duly qualified architect selected by Tenant and reasonably acceptable to
Landlord. Tenant shall be responsible for all costs and expenses incurred in
connection with such provision of the foregoing architectural services;
provided, however, that Tenant shall not be responsible for the costs and
expenses incurred in connection with the preparation by Stanmyre & Noel of the
initial "test fit" space plan provided to Tenant prior to execution of this
Lease. Notwithstanding the foregoing, Landlord shall provide to Tenant an
allowance (the "Architectural Fee Allowance") equal to the product of (a) two
dollars and fifty cents ($2.50) and (b) twenty-two thousand four hundred one
(22,401), which Architectural Fee Allowance Tenant shall have the right to
utilize against the aforesaid architectural costs and expenses. If Tenant
utilizes the services of Starmyre & Noel, Landlord shall pay Stanmyre & Noel
directly from the Architectural Fee Allowance (but shall pay no more than such
Architectural Fee Allowance) and shall report the amounts of such payments to
Tenant on a regular basis so that Tenant is informed as to the amount of the
Architectural Fee Allowance remaining (if any). If Tenant utilizes the services
of another architect (as contemplated above), Landlord shall pay portions of the
Architectural Fee Allowance (but no more than the Architectural Fee Allowance)
to Tenant within twenty (20) days of Tenant's delivery to Landlord of an invoice
from such architect (along with supporting information as may be reasonably
requested by and acceptable to Landlord). If any portion of the Architectural
Fee Allowance remains after final payment for the aforesaid architectural costs
and expenses, then Landlord shall pay the balance of the Architectural Fee
Allowance to Tenant within twenty (20) days after the Lease Commencement Date
(or as soon thereafter as Landlord is able to reconcile the accounting for the
Architectural Fee Allowance). If the aforesaid architectural costs and expenses
exceed the Architectural Fee Allowance, then Tenant shall reimburse Landlord for
such excess costs and expenses within twenty (20) days of Landlord's delivery to
Tenant of a statement for such excess costs and expenses (accompanied by
reasonable supporting information).
23.4 Landlord acknowledges and agrees that, for so long as Landlord owns
the residential apartment complexes in the Reston, Virginia market known as
Crescent and Fairways, Landlord shall provide to Tenant's employees a ten
percent (10%) discount from the advertised rental rates for apartments in such
complexes. This discount is personal to the initial Tenant named in this Lease
and any Permitted Transferee and shall not be available to any other sublessees
or assignees. Further, this discount shall become null and void in the event
Tenant subleases or assigns more than twenty-five percent (25%) of the Premises
(to any party other than a Permitted Transferee) or in the event the initial
Tenant named in this Lease or any Permitted Transferee no longer is in
possession or occupancy of the Premises. Tenant's right to this discount shall
be null and void if Tenant is in default under this Lease (all notice and cure
periods having expired). No termination of this discount
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shall affect any then-effective lease (which is not in default) between Landlord
and an employee of Tenant (or a Permitted Transferee).
ARTICLE XXIV
PARKING
24.1 During the Lease Term, Tenant and its employees, business invitees
and agents shall have the right to use (on a non-exclusive first-come,
first-served basis) four (4) parking permits for the parking areas of the
Complex for each one thousand rentable square feet in the Premises from time to
time for the parking of passenger automobiles in the parking areas of the
Complex designated by Landlord from time to time for the use of tenants of the
Building.
24.2 During the Lease Term, Landlord shall provide to Tenant, as part of
the parking permits described in Section 24.1 above, six (6) reserved parking
spaces for Tenant's business invitees. Landlord shall designate these six (6)
reserved parking spaces from those parking spaces located in front of the
Building.
24.3 As a result of Landlord relocating its landscaping storage area, as
described in Paragraph 9.2(c) above, Landlord shall make available additional
parking spaces in the rear of the Building, as shown on Exhibit G. Tenant and
its employees, business invitees and agents shall have the exclusive right to
use these additional parking spaces for the parking of passenger automobiles.
Landlord shall designate these parking spaces as reserved for Tenant and its
employees, business invitees and agents.
24.4 Landlord reserves the right to establish and modify or amend rules
and regulations governing the use of such parking areas. Landlord shall have the
right to revoke a user's parking privileges in the event such user fails to
abide by the rules and regulations governing the use of such parking areas.
Tenant shall be prohibited from using such parking areas for purposes other than
for parking registered vehicles. The storage or repair of vehicles in such
parking areas shall be prohibited.
24.5 Tenant shall not assign or sublet any parking rights granted to
Tenant herein. Any attempted assignment or sublease shall be null and void.
24.6 Landlord reserves the right to institute (upon prior notice to
Tenant) a magnetic card access system or any other parking or permit system it
deems appropriate. During the initial Lease Term, Tenant and its employees,
business invitees and agents shall not be liable for parking charges as a result
thereof with respect to the parking spaces provided pursuant to this Lease.
24.7 Landlord shall not be liable for any damage or loss to any automobile
(or property therein) parked in, on or about such parking areas, or for any
injury sustained by any person in, on or about such areas. If Landlord, in its
sole and absolute discretion, deems it necessary to repair or maintain such
parking areas, Landlord shall have the right to substitute use of other parking
areas; provided, however, that if such other parking areas are not in walking
distance to the Premises, then Landlord shall provide a shuttle service, on an
as-needed basis, during the normal hours of operation of the Building.
ARTICLE XXV
GENERAL PROVISIONS
25.1 Tenant acknowledges that neither Landlord nor any broker, agent or
employee of Landlord has made any representation or promise with respect to the
Premises or the Building or the Land except as expressly set forth herein, and
no right is being acquired by Tenant except as expressly set forth in this
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Lease. This Lease contains the entire agreement of the parties and supersedes
all prior agreements, negotiations, letters of intent, proposals,
representations, warranties and discussions between the parties. This Lease may
be amended or modified in any manner only by an instrument signed by both
parties.
25.2 Nothing contained in this Lease shall be construed as creating any
relationship between Landlord and Tenant other than that of landlord and tenant.
25.3 Landlord and Tenant each warrants that in connection with this Lease
it has not employed or dealt with any broker, agent or finder other than the
Brokers (provided, however, that Tenant discloses to Landlord that Barrueta &
Associates might have a claim on all or a portion of any commission owed to
Priest, Taylor & Associates). Tenant shall indemnify and hold harmless Landlord
from and against any claim for brokerage or other commissions asserted by any
other broker, agent or finder employed by Tenant or with whom Tenant has dealt.
Landlord acknowledges and agrees that it shall pay a brokerage commission to the
Brokers pursuant to the terms and conditions of a separate written agreement
with each Broker, and Landlord shall indemnify and hold harmless Tenant from and
against any claim for brokerage commissions asserted by the Brokers. Landlord
and Tenant acknowledge and agree that, until the pending claim by Barrueta &
Associates to any brokerage commission payable to Priest, Taylor & Associates is
released to Landlord's reasonable satisfaction, any brokerage commission payable
to Priest, Taylor & Associates shall be held in escrow pursuant to an escrow
arrangement mutually acceptable to Landlord and Priest, Taylor & Associates.
25.4 From time to time upon five (5) days' prior written notice Tenant
and each subtenant, assignee or occupant of Tenant shall execute, acknowledge
and deliver to Landlord and any designee of Landlord a written statement
certifying: (a) that this Lease is unmodified and in full force and effect (or
that this Lease is in full force and effect as modified and stating
modifications); (b) the dates to which rent and any other charges have been
paid; (c) that Landlord is not in default in the performance of any obligation
(or specifying the nature of any default); (d) the address to which notices are
to be sent; (e) that this Lease is subject and subordinate to all Mortgages,
unless the holder of a Mortgage has subordinated the lien of its Mortgage to the
force and effect of this Lease; (f) that Tenant has accepted the Premises and
all work thereto has been completed (or specifying the incomplete work); and (g)
such other matters as Landlord reasonably might request. Any such statement may
be relied upon by any owner of the Building or the Land, any prospective
purchaser of the Building or the Land, any holder or prospective holder of a
Mortgage or any other person or entity. Tenant acknowledges that time is of the
essence to the delivery of such statements and Tenant's failure to deliver
timely such statements may cause substantial damages resulting from, for
example, delays in obtaining financing secured by the Building.
25.5 LANDLORD, TENANT, GUARANTORS AND GENERAL PARTNERS WAIVE TRIAL BY JURY
IN ANY ACTION, CLAIM OR COUNTERCLAIM BROUGHT IN CONNECTION WITH ANY MATTER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE LANDLORD TENANT
RELATIONSHIP, TENANT'S USE OR OCCUPANCY OF THE PREMISES OR ANY CLAIM OF INJURY
OR DAMAGE. Tenant consents to service of process and any pleading relating to
any such action at the Premises; provided, however, that nothing herein shall be
construed as requiring such service at the Premises. Landlord, Tenant, all
Guarantors and all General Partners waive any objection to the venue of any
action filed in any court situated in the jurisdiction in which the Building is
located and waive any right under the doctrine of forum non convenient or
otherwise to transfer any such action filed in any such court to any other
court.
25.6 All notices or other required communications shall be in writing and
shall be deemed duly given only when delivered in person (with receipt
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therefor), or three (3) days after when sent by certified or registered mail,
return receipt requested, postage prepaid, or the next business day when sent by
national overnight courier service, to the following addresses: (a) if to
Landlord, at the Landlord Address for Notices, with a copy to Shaw, Pittman,
Potts & Trowbridge, Suite 4400, 1501 Farm Credit Drive, McLean, Virginia 22102,
Attention: Robert M. Gordon, Esquire; or (b) if to Tenant, at the Tenant Address
for Notices, with a copy to Young & Goldman, Suite 416, 510 King Street,
Alexandria, Virginia 22314, Attention: H. Alan Young, Esquire. Either party may
change its address for the giving of notices by notice given in accordance with
this Section. If Landlord or the holder of any Mortgage notifies Tenant that a
copy of each notice to Landlord shall be sent to such holder at a specified
address, then Tenant shall send (in the manner specified in this Section and at
the same time such notice is sent to Landlord) a copy of each such notice to
such holder, and no such notice shall be considered duly sent unless such copy
is so sent to such holder. If Tenant claims that Landlord has breached any
obligation, then Tenant shall send such holder notice specifying the breach and
permit such holder a reasonable opportunity to cure the breach.
25.7 Each provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law. If any provision or its application to any
person or circumstance shall to any extent be invalid or unenforceable, then
such provision shall be deemed to be replaced by the valid and enforceable
provision most substantively similar thereto, and the remainder of this Lease
and the application of such provision to other persons or circumstances shall
not be affected.
25.8 Feminine, masculine or neuter pronouns shall be substituted for those
of another form, and the plural or singular shall be substituted for the other
number, in any place in which the context may require.
25.9 The provisions of this Lease shall be binding upon and inure to the
benefit of the parties and their respective representatives, successors and
assigns, subject to the provisions herein restricting assignment or subletting.
25.10 Landlord and its designees may enter the Premises at any time upon
reasonable notice to Tenant (except in emergency situations), without charge
therefor and without diminution of the rent payable by Tenant, to inspect and
exhibit the Premises and make such alterations and repairs as Landlord may deem
necessary (including, but not limited to, alterations and repairs for a new
tenant during the last sixty (60) days of the Lease Term if Tenant has vacated
the Premises).
25.11 This Lease shall be governed by the internal laws of the
Commonwealth of Virginia.
25.12 Headings are used for convenience and shall not be considered when
construing this Lease.
25.13 The submission of a copy of this document to Tenant shall not
constitute an offer or option to lease. This Lease shall become effective and
binding only upon execution and delivery by both Landlord and Tenant.
25.14 Time is of the essence with respect to each obligation of Landlord
and Tenant, except as otherwise specifically provided in this Lease.
25.15 This Lease may be executed in multiple counterparts, each of which
is deemed an original and all of which constitute one and the same document.
25.16 Neither this Lease nor a memorandum thereof shall be recorded.
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25.17 Landlord reserves the right to make reasonable changes to the plans
and specifications for the Building without Tenant's consent, provided such
changes do not alter the character of the Building as a first-class office
building.
25.18 Except as otherwise provided in this Lease, any additional rent or
other sum owed by Tenant to Landlord, and any cost, expense, damage or liability
incurred by Landlord for which Tenant is liable, shall be considered additional
rent payable pursuant to this Lease and paid by Tenant no later than twenty (20)
days after the date Landlord notifies Tenant of the amount thereof.
25.19 The liabilities of Landlord and/or Tenant existing as of the
expiration or earlier termination of the Lease Term shall survive such
expiration or earlier termination.
25.20 If Landlord or Tenant is in any way delayed or prevented from
performing any obligation under this Lease (other than any obligation of Tenant
to make any monetary payment required under this Lease) due to fire, act of God,
governmental act or failure to act (including failure to process or delay in
processing necessary permits, licenses or approvals), labor dispute (beyond the
reasonable control of Landlord or Tenant, as applicable), inability to procure
materials (beyond the reasonable control of Landlord or Tenant, as applicable)
or any cause beyond Landlord's or Tenant's reasonable control, as applicable
(whether similar or dissimilar to the foregoing events), then the time for
performance of such obligation shall be excused for the period of such delay or
prevention and extended for the time necessary to compensate for the period of
such delay or prevention.
25.21 The deletion of any printed, typed or other portion of this Lease
shall not evidence an intention to contradict such deleted portion. Such deleted
portion shall be deemed not to have been inserted in this Lease.
25.22 Landlord has procured financing for the Building, but Landlord is
required to obtain the approval of this Lease by Landlord's lender. Landlord
shall submit this Lease after execution by the parties for such approval. In the
event such lender disapproves this Lease or conditions its approval on Landlord
modifying substantially the economic terms of this Lease within sixty (60) days
of execution, then Landlord shall give written notice thereof to Tenant, in
which event this Lease shall be terminated and cancelled and the parties to
this Lease automatically shall be released from any and all liability in
connection with this Lease to the full extent as though it had neither been
negotiated nor executed, except that Landlord shall pay to Tenant the sum of
fifty thousand dollars ($50,000) as full and complete liquidated damages as a
result of such cancellation of this Lease. If Landlord's lender fails to
disapprove the Lease or condition its approval on Landlord modifying
substantially the economic terms of this Lease within sixty (60) days of
execution, then for purposes of this Lease Landlord's lender shall be deemed to
have approved this Lease. Notwithstanding anything in this Section 25.22 to the
contrary, the modifications to this Lease that Tenant has agreed to make
pursuant to Section 21.3 of this Lease shall not be construed in any
circumstance as provisions modifying substantially the economic terms of this
Lease.
25.23 Landlord shall use good faith efforts to secure for Tenant a
subordination of mortgage (subordinating the lien of Landlord's lender to the
force and effect of this Lease) or nondisturbance agreement (recognizing
Tenant's rights under this Lease) from Landlord's lender, which subordination of
mortgage or nondisturbance agreement shall be on the standard form of Landlord's
lender.
25.24 Landlord shall use good faith efforts to locate a tenant for the
"deli"/cafeteria space in the Complex at 1930 Isaac Newton Square, but Tenant
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acknowledges and agrees that Landlord shall have no liability to Tenant if
Landlord is unable to so locate a tenant.
25.25 The person executing this Lease on Tenant's behalf warrants that
such person is duly authorized to so act. The person executing this Lease on
Landlord's behalf warrants that such person is duly authorized to so act.
25.26 If any Base Rent or additional rent is collected by or through an
attorney or if Landlord requires the services of an attorney to cause Tenant to
cure any default, to evict Tenant or to pursue any other remedies to which
Landlord is entitled hereunder, Tenant shall pay the reasonable fees of such
attorney (including in-house attorneys) together with all reasonable costs and
expenses incurred by Landlord in connection with such matters, whether or not
any legal proceedings have been commenced. In the event of any legal proceeding
brought by either party against the other under this Lease, the prevailing party
shall be entitled to recover all costs and expenses incurred in connection with
such proceeding, including reasonable attorneys' fees.
25.27 All references in this Lease to "days" shall be taken to mean
calendar days unless it is specifically provided otherwise.
25.28 Tenant represents that the audited financial statements for the
periods ending December 31, 1989 and December 31, 1990 and the nonaudited
year-to-date financial statements for the period ending August 31, 1991 and
delivered to Landlord are a true, complete and accurate presentation as of the
date hereof of all of the assets, liabilities and net worth of Tenant. Tenant
acknowledges that as a material inducement for entering into this Lease,
Landlord is relying on the accuracy of this information.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date first above written.
LANDLORD:
RESTON INVESTMENT PROPERTIES ASSOCIATES
LIMITED PARTNERSHIP, a Virginia Limited
Partnership
WITNESS: By: FAMILY TRUST UNDER THE WILL OF MARK
WINKLER, DECEASED, General Partner
By: /s/ CYNTHIA CLARK By: /s/ COROLYN W. THOMAS
Name: Cynthia Clark COROLYN W. THOMAS, Trustee
Title:
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By: DONATELLI AND KLEIN ASSOCIATES
RESTON, a Virginia Limited
Partnership, General Partner
ATTEST: By: DONATELLI & KLEIN, INC.,
General Partner
By: /s/ D. DEEANNE BOYER By: /s/ WILLIAM M. HARVEY
------------------------ --------------------------
Name: D. DeeAnne Boyer Name: William M. Harvey
--------------------- ------------------------
Title: Assistant Secretary Title: Senior Vice President
--------------------- -----------------------
RECOMMENDED FOR LANDLORD'S EXECUTION:
THE MARK WINKLER COMPANY
By: /s/ MICHAEL D. LYNCH
-------------------------------
MICHAEL D. LYNCH, President
ATTEST: TENANT:
BEST PROGRAMS, INC., a Virginia
Corporation
By: /s/ Jorge Forgues By: /s/ [SEAL]
------------------------------ -----------------------------
Name: Jorge Forgues Title: President
---------------------------- ------------------
Title: Vice President of Finance Date: 10/28/91
--------------------------- -------------------
[CORPORATE SEAL]
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EXHIBIT A
[MAP GRAPHIC]
[FLOOR PLAN OF PREMISES]
A-1
<PAGE> 56
EXHIBIT B -- EXISTING "TECHPLAN" SPACE
[MAP GRAPHIC]
[FLOOR PLAN SHOWING FIRST EXPANSION SPACE]
B-1
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EXHIBIT C -- EXISTING "NOVA" SPACE
[MAP GRAPHIC]
[FLOOR PLAN SHOWING SECOND EXPANSION SPACE]
C-1
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EXHIBIT D
MEASUREMENT OF RENTABLE AREA
The Rentable Area of the Premises shall be determined in accordance with the
following:
(1) Rentable Area shall equal the sum of (i) net usable area and (ii)
floor core factor.
(2) For the purposes hereof, the terms identified in Paragraph (1) hereof
shall have the following definitions.
(a) Net usable area shall be computed by measuring from the
finished surface for the corridor side of the common corridor and/or wall of the
building core to the inside finished surface of the glassline of the permanent
outer building walls, and to the center of any demising walls that separate the
Premises from any adjoining space.
(b) Floor core factor shall be a pro rata allocation of all
building service areas on the floor or floors on that the Premises are located
that are not measured in the net usable area calculation, including but not
limited to restrooms, public corridors, telephone and electrical closets and
mechanical rooms, but excluding vertical penetrations through the floor slab
that serve more than one floor in the Building, including but not limited to
public stairs, public elevator shafts, flues, pipe shafts, vertical ducts and
their enclosing walls. The pro rata allocation will be based on the ratio of net
usable area of the Premises on the floor relative to the total net usable area
on the floor.
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EXHIBIT E
WORK AGREEMENT
THIS EXHIBIT is attached to and made a part of that certain Lease
Agreement dated as of October 28, 1991 (the "Lease"), by and between RESTON
INVESTMENT PROPERTIES ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited
partnership ("Landlord") and BEST PROGRAMS, INC., a Virginia corporation
("Tenant").
Tenant acknowledges and agrees that the basic economics underlying the
business terms of the Lease assume occupancy of the Premises and commencement of
rental payments by Tenant on or about the Anticipated Occupancy Date.
Accordingly, Tenant acknowledges that time is of the essence in proceeding with
the construction of the Premises, and Tenant agrees to review and finally
- -approve each and every submission from Landlord regarding the Premises and to
provide Landlord with all materials or information requested by Landlord within
five (5) business days after Tenant's receipt of any submission or request.
1. Tenant's Authorized Representative. Tenant designates James Petersen,
Jorge Forgues or Ronald Koval, any one (1) of whom can act ("Tenant's Authorized
Representative"), as the person authorized to (a) initial as approval all plans,
drawings, change orders and approvals pursuant to this Exhibit and (b)
communicate with Landlord regarding the decisions, elections and requests of
Tenant. Landlord shall not be obligated to respond to or act upon any such item
until such item has been initialed by Tenant's Authorized Representative.
2. Work and Materials at Landlord's Expense. The items listed in the
workletter attached hereto as Schedule I (the "Workletter") and the space plan
prepared by Stanmyre & Noel dated October 25, 1991, consisting of one (1) page
and initialled by Landlord and Tenant (the "Space Plan"), which Space Plan is
attached hereto and made a part hereof by reference, constitute all work and
materials to be provided by Landlord in connection with the initial construction
of the Premises; provided, however, that as is set forth in Section 9.1 of the
Lease, Tenant shall reimburse Landlord for an eleven thousand one hundred dollar
($11,100) portion of the costs and expenses of providing such work and
materials.
3. Work and Materials at Tenant's Expense. Landlord will provide any
additional or nonstandard work or materials over and above the work and
materials shown on the Workletter and the Space Plan and provided that Tenant
requests any Additional or Nonstandard Work and Materials no later than sixty
(60) days after the date of the Lease (collectively, the "Additional or
Nonstandard Work and Materials") requested by Tenant, provided that Landlord
approves the final plans and working drawings therefor. Tenant also shall have
the right, within sixty (60) days after the date of this Lease, to delete any
work or materials shown on the Work Agreement or the Space Plan, and any savings
that results from such deletion shall reduce, on a dollar-for-dollar basis, the
reimbursement amount that Tenant is to pay to Landlord pursuant to Section 9.1
of the Lease and Paragraph 2 of this Work Agreement. If Tenant wants any
Additional or Nonstandard Work and Materials, or if Tenant deletes any work or
materials shown on the Work Agreement or the Space Plan, then Tenant shall pay
all expenses of preparing all plans, working drawings and budgets prepared by
the architect supervising the build-out of the Premises for the Additional or
Nonstandard Work and Materials or for any such deletions of work or materials;
provided, however, that Tenant shall have the right to utilize the Architectural
Fee Allowance described in Section 23.3 of the Lease in satisfying such
expenses. Tenant shall pay all expenses, including a fee for Landlord's
construction management, incurred in connection with the Additional or
Nonstandard Work and Materials. If Landlord submits an estimate of
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the additional expenses attributable to such Additional or Nonstandard Work and
Materials, then Tenant shall pay such estimated additional expenses prior the
performance of such Additional or Nonstandard Work and Materials; provided,
however, that Tenant shall have the right to utilize the Additional Improvements
Allowance described in Section 23.1 of the Lease in satisfying such additional
expenses. If the actual additional expenses attributable to such Additional or
Nonstandard Work and Materials exceed such estimated additional expenses, then
Tenant shall pay the amount of such excess no later than twenty (20) days after
Tenant's receipt of a bill therefor; provided, however, that Tenant shall have
the right to utilize the Additional Improvements Allowance described in Section
23.1 of the Lease in satisfying such additional expenses. If such estimated
additional expenses exceed the actual additional expenses attributable to such
Additional or Nonstandard Work and Materials, then the amount of such excess
shall be credited to Tenant against the initial payments of Base Rent due from
Tenant to Landlord pursuant to the Lease. All amounts payable pursuant to this
Exhibit by Tenant shall be considered additional rent and subject to the
provisions of Section 19.6 of the Lease; provided, however, that Tenant shall
have the right to utilize the Additional Improvements Allowance described in
Section 23.1 of the Lease in satisfying such additional expenses.
4. Approval by Landlord. All plans and drawings (and changes thereto)
shall be subject to Landlord's written approval. Such approval shall not
constitute approval of any delay caused by Tenant or a waiver of any right or
remedy that may arise as a result of such delay nor shall such approval
constitute approval of the adequacy of the plans or their compliance with legal
requirements.
5. Change Orders. If Tenant requests any change or addition to the work or
materials to be provided by Landlord pursuant to this Exhibit after Tenant's
approval of final architectural working drawings and Landlord approves same, any
additional expense attributable to any such change order shall be payable by
Tenant prior to the performance of the work contemplated by such change order.
If Landlord submits an estimate of the additional expenses attributable to a
change order, then Tenant shall pay such estimated additional expenses prior to
the performance of the work contemplated by such change order; provided,
however, that Tenant shall have the right to utilize the Additional Improvements
Allowance described in Section 23.1 of the Lease in satisfying such additional
expenses. If the actual additional expenses attributable to such change order
exceed such estimated additional expenses, then Tenant shall pay the amount of
such excess no later than twenty (20) days after Tenant's receipt of a bill
therefor; provided, however, that Tenant shall have the right to utilize the
Additional Improvements Allowance described in Section 23.1 of the Lease in
satisfying such additional expenses. If such estimated additional expenses
exceed the actual additional expenses attributable to such change order, then
the amount of such excess shall be credited to Tenant against the initial
payments of Base Rent due from Tenant to Landlord pursuant to the Lease.
6. Possession. Tenant's taking of possession of the Premises shall
constitute Tenant's acknowledgment that the Premises are in good condition and
that all work and materials are satisfactory, except as to any defect or
incomplete work that is described in a written notice given by Tenant to
Landlord not later than fifteen (15) days after the date Tenant takes possession
of the Premises. Tenant and its agents shall have no right to make any
alteration in the Premises until Tenant submits such written notice. Landlord
will correct and complete those defects and incomplete items described in such
notice that Landlord's architect or engineer confirms are in fact defects or
incomplete items (collectively, "punch list items"). Landlord shall complete all
such punch list items as expeditiously as possible, and Landlord agrees that any
punch list items that remain unperformed for a period of twenty-five (25) days
after the determination of the punch list items (subject to force majeure delays
and excluding delays caused by Tenant or its Invitees and long
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lead items that cannot be performed within twenty-five (25) days notwithstanding
Landlord's diligent efforts) may be performed by Tenant at Landlord's cost and
expense after written notice to Landlord specifying the item that remains
unperformed and providing Landlord with five (5) business days to perform same
from receipt of such notice (and provided that all such costs and expenses are
reasonable and Tenant provides valid invoices and other information reasonably
requested by Landlord prior to reimbursement from Landlord). Tenant shall use
only contractors acceptable to Landlord for any punch list item work on the
Building's structural, mechanical, electrical, plumbing or HVAC systems. Tenant
shall have the right to request that Landlord provide to Tenant a list of
acceptable contractors; if Landlord fails to provide such list within two (2)
business days, Tenant shall have the right to select any licensed and
appropriately qualified contractor of its selection.
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SCHEDULE I TO EXHIBIT E
WORK LETTER
The following improvements shall be provided by and at the expense of
Landlord in accordance with the Stanmyre & Noel space plan dated October 25,
1991 and attached as Schedule II to the foregoing Work Agreement (the "Space
Plan"), for the construction of the Premises for Tenant's occupancy.
PARTITIONING: Interior floor to ceiling partitioning shall be constructed
with 1/2" gypsum wallboard on 2 1/2" metal studs. A movable partition shall be
provided for the conference/training center shown on the Space Plan.
DOORS: Solid core wood doors and painted hollow metal frames shall be
provided with a standard passage hardware set.
PAINTING: Walls shall be painted in latex flat paint with matching trim in
alkyd semi-gloss enamel. Tenant shall select colors from samples furnished by
Landlord, with Tenant allowed to choose one color per room and up to three
colors for the Premises.
CEILINGS: Ceilings, set at a finished height of 9' 0" (except a
finished height of 8' 0" in the existing Techplan space of approximately 6,500
square feet, as shown on the Space Plan), will be 2' x 4' Armstrong Second Look
acoustical tile in a 3/4" grid. Landlord shall be responsible for all materials
that are part of the ceiling assembly, including ceiling tiles, diffusers,
grills and light fixtures, all of which materials are to satisfy all applicable
codes.
FLOOR COVERING: Carpet will be a 28 ounce level loop, directly glued down,
with a 4" vinyl core base, in a color selected by Tenant from samples submitted
by Landlord. Vinyl composite tile will be provided in the kitchen, copy room and
other areas designated by Tenant.
ELECTRICAL OUTLETS: Duplex wall outlets and duplex dedicated wall outlets,
mounted in an interior partition, will be provided as shown on the Space Plan.
TELEPHONE OUTLETS: Standard telephone wall outlets, mounted in interior
partition with plaster ring and pull string, will be provided as shown on the
Space Plan.
LIGHTING: Interior lighting will be provided by recessed 2' x 4'
fluorescent fixtures with prismatic lenses in sufficient quantity for general
office use; provided, however, that in the conference/training center shown on
the Space Plan, Landlord will install parabolic lenses.
WINDOWS: Horizontal 1" miniblinds shall be installed on all exterior
windows, which blinds shall be similar in quality to the blinds installed in
the "Reston Association" space in the Complex. Caulking around windows shall be
cleaned or redone where necessary to provide a neat appearance and to prevent
condensation. The existing roll-up door in the rear of the 6,500 square foot
Techplan space, as shown on the Space Plan, shall be converted to a window,
which window shall be consistent with the pattern of the other windows in the
Premises.
HEAT AND AIR CONDITIONING: HVAC system to provide heating and cooling for
normal office use with a ratio of one ton of cooling for every 300 rentable
square feet. Landlord shall install one (1) additional rooftop HVAC unit. All
supply ducts shall be insulated. An existing one ton HVAC unit shall be
installed in the computer room, which HVAC unit shall be warrantied
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as provided in the Lease. Economizer systems shall be provided for four (4) of
the existing rooftop units (two (2) existing rooftop units have economizer
systems) and for the new rooftop HVAC unit to be installed. Run hour meter
buttons shall be provided for each of the seven (7) rooftop HVAC units. The
adjustment and calibration of both internal and external controls of the roof
top units shall be retained as a function of the new layout. Baseboard hot water
radiators shall be installed on the windows that do not currently have baseboard
heat. Additional in-line reheat units shall be installed if required as a
function of the new layout. The valves servicing the existing heating coils
shall be replaced. Landlord shall purchase and maintain in reserve one (1)
additional Controller and one (1) Flame Scan for the boiler servicing the
Premises. All component parts of the circulating pumps including bearings,
motors, impellers, packing housings and seals shall be inspected and repaired as
necessary. The cabinet heaters shall be serviced and the thermostats shall be
recalibrated. The roof top unit thermostats and control panels shall be
recalibrated.
RESTROOMS: Restrooms shall have sufficient fixtures to meet applicable
code requirements with the finishes of such restrooms similar in quality to the
restrooms in the "Reston Association" building. A shower shall be installed in
the men's and women's restrooms. Mechanical ventilation to the expanded
restrooms shall be in compliance with all applicable codes.
PLUMBING: A kitchen off the lunchroom and one (1) coffee station shall be
provided. Landlord shall install in the kitchen a stainless steel sink with
disposal, building standard upper and lower cabinetry, a countertop, a building
standard refrigerator, a building standard microwave oven, a building standard
dish washer and direct water piping for a coffeemaker. The coffee station shall
have a stainless steel sink, building standard upper and lower cabinetry and
direct water piping for a coffeemaker. The existing air piping system shall be
capped off above the ceiling. Additional coffee stations (whether or not shown
on the Space Plan) shall be installed at Tenant's cost and expense.
ELECTRICAL: Sufficient emergency power for emergency lighting shall be
provided to meet all applicable codes. All light fixtures shall be cleaned and
revamped as necessary. In accordance with applicable code requirements, Landlord
shall utilize the necessary amount of these fixtures as emergency white lights.
SKYLIGHTS: Five (5) skylights (4' x 4') shall be installed in locations
designated by Tenant and approved by Landlord.
SECURITY SYSTEM: An electronic security system (similar to a Kastle or
like system) that restricts unauthorized access to the Premises shall be
installed at the four (4) entrances to the Premises.
STOREFRONT: A new bronze (or material of equivalent value if Tenant elects
within sixty (60) days of the date of this Lease not to install bronze)
storefront shall be installed (same as "Reston Association" building) for the
two (2) main front entrances. Landlord and Tenant acknowledge and agree that the
installation of the aforesaid storefront shall be subject to the prior approval
of the Reston Architectural Review Board (the "ARB"), that Landlord shall have
no obligation to Tenant if the ARB does not approve the installation of the
aforesaid storefront and that the Lease is not conditioned in any manner on
Landlord's obtaining of ARB approval for the aforesaid storefront; provided,
however, that, if the ARB does not approve the installation of the aforesaid
storefront, Landlord and Tenant shall cooperate in selecting a mutually
acceptable material of equivalent value for the storefront. Landlord shall use
good faith efforts to obtain ARB approval, including resubmitting to the ARB for
approval of the storefront if it is necessary for Landlord and Tenant to select
another material for the storefront.
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RAMPS AND STAIRS: There is a handicapped ramp in the rear of the building.
A ramp and stairs shall be provided for each of the two (2) door locations to
make the transition for the difference in floor slab heights of approximately
24" for space on either side of the fire wall within the Premises.
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EXHIBIT F
FORM OF CERTIFICATE AFFIRMING LEASE COMMENCEMENT DATE
THIS EXHIBIT is attached to and made a part of that certain Lease
Agreement dated as of October 28, 1991 (the "Lease"), by and between RESTON
INVESTMENT PROPERTIES ASSOCIATES LIMITED PARTNERSHIP a Virginia limited
partnership ("Landlord") and BEST PROGRAMS, INC., a Virginia corporation
("Tenant"). The Certificate to be provided to Tenant pursuant to Section 3.2 of
the Lease shall provide as follows:
"This Certificate is being provided to Tenant pursuant to the terms and
provisions of that certain lease agreement dated as of __________________
__, 19__ (the "Lease"), by and between ________________________ and
________________________. This Certificate confirms the following:
1. THE Lease Commencement Date is ______________, 19_.
2. The initial term of the Lease shall expire on
_____________, 19_.
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EXHIBIT G
[MAP GRAPHIC]
[SITE MAP]
G-1
<PAGE> 67
EXHIBIT H
CLEANING SPECIFICATIONS
SPECIFICATIONS FOR NIGHT CLEANING
TENANT SPACES
(Includes any private bathrooms and kitchen areas)
DAILY
- - Empty and wipe all ashtrays.
- - Empty all wastebaskets and redline. Replace plastic liner as required.
Remove trash to designated area.
- - Recyclable materials removed to designated area.
- - Dust and wipe clean all telephones, tables, bookcases, file cabinets,
convertors and grills, chairs and chair bases, with treated cloth, etc.
Desks and credenza's will be dusted and wiped with treated cloth so as
not to disturb papers and other articles therein.
- - Clean all glass furniture tops.
- - Vacuum all carpeting, detail all corners.
- - Spot clean all carpeting.
- - Sweep and mop all non-carpeted area, and maintain uniform finish.
- - Damp wipe with disinfectant cleaner all telephones.
- - Clean doors, door frames, walls and switchplates to remove
fingerprints, spills and other markings.
- - Clean all interior partitions, glass windows, glass entrance doors.
- - Clean all metal trimwork.
- - Clean all counters and counter tops in kitchen areas. Remove dust from
all spaces above finish floor.
- - Wash, clean, and polish all water coolers.
- - Lights will be turned off and doors will be locked (except where
specifically designated otherwise).
- - Windows are to remain closed/locked and venetian blinds adjusted, as
requested.
- - Police and sweep tenant balcony where lighted.
WEEKLY
- - Dust clean all window frames, window sills, chair rails, convector
tops, pictures or wall hangings above finish floor.
- - Vacuum upholstered furniture and wipe all chair legs with treated
cloth.
- - Edge vacuum all carpeted areas and dust, wipe, and polish baseboards.
- - Buff all composition floors, maintaining uniform finish daily.
- - High dusting of all area above 60" from floor with a treated cloth.
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MONTHLY
- - Clean all baseboards.
- - Dust all window blinds. Blinds to be dust free at all times.
- - Dust all lighting and ventilation fixtures.
- - Vacuum all lighting and ventilation fixtures.
- - Machine scrub, strip, seal, and wax all composition floors.* Skid
resistant finish to be used at all times.
* Note: Some special floor treatments may exist in certain tenant areas. When
an unfamiliar surface is encountered, check with building management.
AS NEEDED
- - Wash out waste receptacles as necessary.
- - Any work defined herein is at the discretion of the Owner.
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SPECIFICATIONS FOR NIGHT CLEANING
GENERAL COMMON AREAS
DAILY
- - Sweep all entries from curb to entry door including sidewalks and
stairs.
- - Empty and damp wipe all ashtrays. Remove all debris. Refill sand as
necessary.
- - Empty all wastebaskets and reline.
- - Dust and clean lobby directory.
- - Dust and clean lobby furniture.
- - Clean composition/floors (sweep and mop), and maintain uniform finish.
- - Dust all window ledges and frames.
- - Polish all architectural metal.
- - Vacuum all carpeted areas and spot clean as necessary.
- - Dust, clean, and spot clean all pictures and wall hangings.
- - Sweep, mop and buff lobby terrazzo or granite floor.
- - Dust any fire extinguisher cabinets.
- - Clean, polish and sanitize drinking fountains.
- - Spot clean mail chutes, metal trimwork, doors, door frames, walls and
light switches to remove fingerprints, smudges, water and other marks.
- - Wash all entrance door and transom glass inside and out. Clean out all
cigarette urns.
WEEKLY
- - Buff composition floors, and maintain uniform finish.
- - Dust clean all walls from floor to ceiling.
- - Remove streaks, smudges and stains from walls and wallcovering.
- - Vacuum all lobby furniture.
MONTHLY
- - Dust clean all exterior light fixtures, inside and out, within 10' of
floor.
- - Dust clean all walls from floor to within 15'. Spot clean as required.
AS REQUIRED
- - Strip, seal, and refinish floors as necessary. (Only skid resistant
finish to be used).
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SPECIFICATIONS FOR NIGHT CLEANING
RESTROOMS
DAILY
- - Damp wipe with mild, non-abrasive detergent all doors, kickplates, door
frames, walls, light switches, glass thresholds and partitions.
- - Clean and polish towel and toilet tissue dispensers, flushometers,
shelves, piping, tampon machines, toilet hinges and other metal
surfaces to remove all soil as necessary.
- - Clean glass mirrors and vanity top removing all fingerprints, streaks,
smudges, and splash marks.
- - Empty and damp wipe all waste containers using proper odorless
disinfectant, deodorant and germicide combination cleaner. Reline with
proper liner for each container, liners should be minimally visible
from outside the container.
- - Clean toilets, toilet seats, and urinals with proper combination
non-abrasive lavatory cleaner, disinfectant and deodorizer removing all
streaks, stains, and deposits. Clean and polish all chrome work.
- - Wash and disinfect both sides of toilet seats.
- - Floors: Remove all litter, wet mop with proper combination lavatory
cleaner of disinfectant, deodorizer and fungicide. Rinse and mop with
plain water. Remove all stains from underneath sinks, toilets and
urinals.
- - Refill all toilet tissue, towel, sanitary napkin, and toilet seat cover
dispensers.
WEEKLY
- - Partitions: Wash to remove streaks, stains and smudges with proper
non-abrasive combination lavatory cleaner, disinfectant and deodorizer.
Remove graffiti, where possible.
- - Damp wipe all baseboards.
- - Dust ventilating diffusers and light lenses.
- - Pour clean, clear water down all traps.
MONTHLY
- - Machine scrub all ceramic flooring, and refinish.
AS NEEDED
- - Tile walls: Wash completely (floor to ceiling) with proper combination
cleaner, disinfectant, deodorant and fungicide.
- - MAINTAIN BATHROOM IN A CLEAN AND ODOR FREE, FIRST-CLASS CONDITION AT
ALL TIMES. PARTICULAR ATTENTION SHOULD BE PAID TO MAINTAIN DETAILED
CLEAN CORNERS, GROUT, AND AREAS WHICH CAN ACCUMULATE GRIME.
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EXHIBIT I
RULES AND REGULATIONS
THIS EXHIBIT is attached to and made a part of that certain Lease
Agreement dated as of October 28, 1991 (the "Lease"), by and between RESTON
INVESTMENT PROPERTIES ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited
partnership ("Landlord") and BEST PROGRAMS, INC., a Virginia corporation
("Tenant").
1. Tenant shall not obstruct or encumber or use for any purpose other
than ingress and egress to and from the Premises any sidewalk, entrance,
passage, court, elevator, vestibule, stairway, corridor, hall or other part of
the Building not exclusively occupied by the Tenant. Landlord shall have the
right to control and operate the public portions of the Building and the
facilities furnished for common use of the tenants, in such manner as Landlord
deems best for the benefit of the tenants generally. Tenant shall not permit the
visit to the Premises of persons in such numbers or under such conditions as to
interfere with the use and enjoyment of the entrances, corridors, elevators and
other public portions or facilities of the Building by other tenants. Tenant
shall coordinate in advance with Landlord's property management department all
deliveries to the Building so that arrangements can be made to minimize such
interference. Tenant and its employees shall not use any of the parking spaces
designated for use by visitors only or the roof of the Building.
2. Tenant shall not place any showcase, mat or other article in any
common or public area of the Building.
3. Tenant shall not use the water and wash closets and other plumbing
fixtures for any purpose other than those for which they were constructed, and
Tenant shall not place any debris, rubbish, rag or other substance therein.
4. Tenant shall not construct, maintain, use or operate within their
respective premises any electrical device, wiring or apparatus in connection
with a loudspeaker system or other sound system without Landlord's prior written
consent. Tenant shall not construct, maintain, use or operate any such
loudspeaker or sound system outside of the Premises.
5. Tenant shall not bring any vehicle, animal, bird or pet of any kind
into the Building, and Tenant shall not bring any bicycle into the Premises
except through a rear entrance door that accesses only the Premises and not any
common area. Tenant shall not do or permit any cooking on the Premises, except
for microwave cooking and use of coffee machines by Tenant's employees for their
own consumption. Tenant shall not cause or permit any unusual or objectionable
odor to be produced upon or permeate from the Premises. Tenant, at Tenant's
expense, shall comply with all laws, orders, ordinances and regulations of
federal, state, county and municipal authorities and with directions of public
officers, departments, boards or similar entities thereunder, and with the
Occupational Safety and Health Act, respecting all matters of occupancy,
condition or maintenance of the Premises, whether such orders or directions
shall be directed to Tenant or Landlord and Tenant shall hold Landlord harmless
from cost or expense on account thereof.
6. Tenant shall not use any space in the Building for the sale of goods
to the public in the manner of a retail establishment or for the sale at auction
of goods or property of any kind. Tenant shall not suffer or permit any trade or
occupation or activity to be carried on or use made of the Premises which shall
be unlawful, noisy, offensive or injurious to any person or property.
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7. Tenant shall not place on any floor a load exceeding the floor load
per square foot which such floor was designed to carry. Landlord shall have the
right to prescribe the weight, position and manner of installation of safes and
other heavy items. Landlord shall have the right to repair or replace at
Tenant's expense any damage caused by Tenant's moving property into or out of
the Premises or due to the same being in or upon the Premises or to require
Tenant to do the same. Tenant shall not receive into the Building or carry into
the elevators any furniture, equipment or bulky item except as approved by the
Landlord, and any such furniture, equipment and bulky item shall be delivered
only through the designated delivery entrance of the Building and the designated
freight elevator. Tenant shall remove promptly from sidewalks adjacent to the
Building items delivered for Tenant.
8. Tenant shall not place additional locks or bolts of any kind on any
door or window or make any change in any lock or locking mechanism without
Landlord's prior written approval. Tenant shall keep doors leading to a corridor
or main hall closed during business hours except as such doors may be used for
ingress or egress. Upon the termination of its tenancy, Tenant shall deliver to
Landlord the operations manual for any security or other system installed by
Tenant and all keys furnished to or procured by Tenant, and if any key so
furnished is not delivered, then Tenant shall pay the replacement cost thereof.
Tenant's key system shall be separate from that for the rest of the Building.
9. Tenant shall not install or operate in the Premises any equipment
that operates on greater than 110 volt power without obtaining Landlord's prior
written consent. Landlord hereby acknowledges that Tenant will install its IBM
AS 400 mini-computer (and its universal power supply for such mini-computer).
Landlord may condition such consent upon Tenant's payment of additional rent in
compensation for the excess consumption of electricity or other utilities and
for the cost of any additional wiring or apparatus that may be occasioned by the
operation of such equipment. Tenant shall not install any equipment of any type
or nature that will or may necessitate any changes, replacements or additions
to, or changes in the use of, the water system, heating system, plumbing system,
air-conditioning system or electrical system of the Premises or the Building,
without obtaining Landlord's prior written consent, which consent may be granted
or withheld in Landlord's sole and absolute discretion. If any equipment of
Tenant causes noise or vibration that may be transmitted to such a degree as to
be objectionable to Landlord or any tenant in the Building, then Landlord shall
have the right to install at Tenant's expense vibration eliminators or other
devices sufficient to reduce such noise and vibration to a level satisfactory to
Landlord or to require Tenant to do the same.
10. Landlord may exclude from the Building any person who does not
properly identify himself to the Building management or guard on duty. Landlord
may require any person admitted to or leaving the Building to register.
11. Tenant shall not use the Premises for lodging.
12. Before closing and leaving the Premises at any time, Tenant shall
close all windows and turn off all lights. Tenant shall cooperate with
Landlord's efforts to conserve energy. Tenant shall utilize the Building's
venetian blinds, if any, in such a manner as to assist the Landlord in
maintaining reasonably comfortable temperatures in the Building.
13. Tenant shall not request Landlord's employees to do anything
outside of such employees' regular duties without Landlord's prior written
consent. Tenant's special requirements will be attended to only upon application
to Landlord, and any such special requirements shall be billed to Tenant in
accordance with the schedule of charges maintained by Landlord from time to time
or as is agreed upon in writing in advance by Landlord and Tenant.
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Tenant shall not employ any employee of Landlord for any purpose whatsoever
without Landlord's prior written consent.
14. Canvassing, soliciting and peddling in the Building are prohibited.
Tenant shall cooperate to prevent the same.
15. Only hand trucks equipped with rubber tires and side guards may be
used in the Building. Tenant shall be responsible for loss or damage resulting
from any delivery made by or for Tenant.
16. Tenant shall comply with standards prescribed by Landlord for
curtains, drapes, blinds, shades, screens, lights and ceilings, including
standards designed to give the Building a uniform, attractive appearance.
17. Drapes (whether installed by Landlord or Tenant) which are visible
from the exterior of the Building shall be cleaned by Tenant at least once a
year at Tenant's expense.
18. Landlord may, upon request of Tenant, waive Tenant's compliance
with any of the rules, provided that no waiver (a) shall be effective unless
signed by Landlord, (b) shall relieve Tenant from the obligation to comply with
such rule in the future unless otherwise agreed in writing by Landlord, (c)
granted to any tenant shall relieve any other tenant from the obligation of
complying with these rules and regulations, and (d) shall relieve Tenant from
any liability for any loss or damage resulting from Tenant's failure to comply
with any rule.
19. Flammable, explosive or other hazardous liquids and materials shall
not be brought on the Premises or into the Building without the prior written
consent of Landlord.
20. Tenant shall store all trash and garbage within the Premises and
shall not burn or otherwise dispose of any trash or garbage in or about the
Premises or in any of the common areas of the Building.
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Exhibit 10.10
KOGER
LEASE
THIS LEASE AGREEMENT, dated 11-17, 1992, by and between KOGER MANAGEMENT, INC.,
Florida Corporation (the "Manager") as agent for the undersigned owner (the
"Lessor"), with its principal office at 3986 Boulevard Center Drive,
Jacksonville, Florida 32207, and ABRA CADABRA SOFTWARE*, a Corporation organized
and existing under the laws of Virginia with its principal office at 888
Executive Center Drive West, Suite 300, St. Petersburg, Florida 33702, (the
"Lessee").
WITNESSETH:
1. BASIC LEASE PROVISIONS
A. Name of Building and Address:
BAKER Building
Koger Center ST. PETERSBURG
County PINELLAS
City ST. PETERSBURG State FL 33702
B. Tenant Address for Notices:
888 Executive Center Drive W.
Suite 300
St. Petersburg, FL 33702
C. Manager & Lessor Addresses for Notices:
Koger Management, Inc .
Attention: General Manager
877 Executive Center Drive W.
Suite 100
St. Petersburg, FL 33702
With copy to Koger Management, Inc.
3986 Boulevard Center Drive
Jacksonville, Florida 32207
D. Lease Term: * Five (5) Years/* 60 months from Commencement Date.
E. Commencement Date: January 1, 1993 subject to Paragraph 3.
F. Expiration Date: Dec. 31, 1997.
G. Monthly Base Rent: $12,523.78, plus any sales or use
taxes in the current amount of $876.66 for a total
current monthly amount of $13,400.44.
H. Leased Area of the Premises 13,241 rentable square feet,
which includes Lessee's share of common area facilities.
I. Suite Number(s): 300
J. Security Deposit: $13,400.44
K. Address for Payment of Rent:
KOGER EQUITY, INC.
Post Office Box 0860504
Orlando, Florida 32886-0504
NEITHER THIS LEASE NOR ANY MEMORANDUM OF THIS LEASE MAY BE RECORDED OR FILED FOR
RECORD IN ANY PUBLIC RECORDS WITHOUT THE SEPARATE EXPRESS WRITTEN CONSENT, IN
RECORDABLE FORM, OF THE LESSOR SIGNED ON BEHALF OF THE LESSOR BY THE PRESIDENT
OR A SENIOR VICE PRESIDENT OF THE LESSOR.
2. LEASE OF PREMISES: The Lessor hereby leases to the Lessee and the Lessee
hereby leases from the Lessor the premises (the "Premises") shown on Exhibit "A"
which are or will be contained in the office building (the "Building") located
at the address stated in Paragraph 1A, upon the terms and conditions contained
in this Lease. For purposes of this Lease, "Center" shall mean the Center
referred to in Paragraph 1A and all land, buildings, and improvements including
the "Common Areas" (as defined in Paragraph 29) associated with the Building.
The Leased Area of the Premises is as shown on Exhibit "A" and contains the
Leased Area as stated in Paragraph 1H as designated in Paragraph 1I.
3. TERM: The term of this Lease (the "Term") shall commence on the date (the
"Commencement Date") which is the earlier to occur of: the date stated in
Paragraph 1E, or the date the Lessee first occupies all or part of the Premises.
The Term shall expire on the date (the "Expiration Date") stated in Paragraph 1F
unless sooner terminated as otherwise provided in this Lease or unless extended
pursuant to Paragraph 26.
4. USE AND POSSESSION: It is understood that the Premises are to be used by the
Lessee for general office purposes and for no other purpose without the prior
written consent of the Lessor. The Lessee shall not occupy or use the Premises
or permit the use or occupancy of the Premises for any purpose or in any manner
which: (a) is unlawful or in violation of any applicable legal, governmental or
quasi-governmental requirement, ordinance or rule; (b) may be dangerous to
persons or property; (c) may invalidate any insurance policy held by the Lessor
or increase the amount of premiums for any policy of insurance affecting the
Building or the Center, and if any additional amounts of insurance premiums are
so incurred, the Lessee shall pay to the Lessor the additional amounts on demand
as Additional Rent, as provided in Paragraph 5; provided that such payment shall
not authorize such use; (d) may create a nuisance or disturb any other tenant of
the Building or the Center or the occupants of the neighboring property or
injure the reputation of the Building or the Center; and (e) violates the Rules
and Regulations of the Building as may from time to time be provided by the
Manager (the "Rules and Regulations") or any restriction of record. The Lessor
agrees to have the Premises completed and ready for possession on or before the
Commencement Date, except as a result of strikes, insurrections, Acts of God and
other casualties or unforeseen events beyond the control of the Lessor. The
Lessee agrees to accept possession of the Premises within ten (10) days after
the receipt of notice by the Lessor of completion if after the date specified in
Paragraph 1E. The Lessee, at the expiration of the Term, shall deliver up the
Premises in good repair and condition, except for damages beyond the control of
the Lessee, reasonable use, and ordinary wear and tear.
1 of 6
<PAGE> 2
5. RENT: The Lessee agrees to pay to the Manager, as agent for the Lessor, at
the address specified in Paragraph 1K, or at such other place designated, in
writing, by the Manager or the Lessor, the base rent at the initial monthly rate
stated in Paragraph 1G (the "Monthly Base Rent"), without any prior notice or
demand and without any deduction whatsoever. The Monthly Base Rent is subject to
adjustment pursuant to Paragraph 6, and as adjusted is called "Adjusted Monthly
Base Rent". The Monthly Base Rent and the Adjusted Monthly Base Rent shall be
paid monthly in advance on the first day of each month of the Term, except that
the first installment of the Monthly Base Rent shall be paid by the Lessee to
the Lessor prior to the Commencement Date. The Adjusted Monthly Base Rent shall
be prorated for partial months within the Term. All charges, costs and sums
required to be paid by the Lessee to the Lessor under this Lease, in addition to
the Monthly Base Rent and the Adjusted Monthly Base Rent shall be considered
additional rent ("Additional Rent"), and the Adjusted Monthly Base Rent and
Additional Rent shall be collectively called the "Rent". The covenant of the
Lessee to pay the Rent shall be independent of every other covenant in this
Lease. All delinquent Rent shall bear interest at the maximum rate permitted by
law or fifteen percent (15%) per annum, whichever is less, from the date due
until paid.
6. RENT ADJUSTMENTS: The monthly base rent for each twelve (12) month period
subsequent to the first complete twelve (12) month period occurring during the
Term of this Lease or any renewal thereof shall be computed by multiplying the
previous years monthly base rental by a factor of 1.035. The Lessor shall notify
the Lessee of the amount of the Adjusted Monthly Base Rent, in writing, prior to
the respective anniversary date if the rent adjustment occurs. The Lessee agrees
to pay the Adjusted Monthly Base Rent, together with any applicable taxes as set
forth in Paragraph 7, on the first date of each month for the following twelve
(12) month period of for those months remaining in the period after notification
by the Lessor.
7. SALES AND USE TAX: In addition to the Rent and other amounts to be due to the
Lessor under this Lease, the Lessee shall pay to the Lessor and the Lessor shall
remit to the appropriate governmental authorities any sales, use, or other tax,
excluding Federal or State income taxes, now or hereafter imposed upon rents,
notwithstanding the fact that any statute, ordinance, enactment, or regulation
may endeavor to impose any of those types of taxes on the Lessor.
8. NOTICES: For the purpose of any notice or demand under this Lease, the
respective parties shall be served by overnight delivery, personal delivery, or
certified or registered mail, return receipt requested, addressed to the Lessee
at the address as set forth in Paragraph 1B and to the Lessor or the Manager at
the address set forth in Paragraph 1C. Any notice shall be effective when
delivered.
9. ORDINANCES AND REGULATIONS: The Lessee shall comply promptly, at the Lessee's
sole cost and expense, with all present and future laws, ordinances, rules and
regulations of any municipal, county, state, federal or other governmental
authority and any bureau or department thereof, and of the Board of Fire
Underwriters or any other body exercising similar functions, which may be
applicable to the manner in which the Lessee shall use or occupy the Premises,
and shall comply with the requirements of all policies of insurance at any time
in force with respect to the Buildings in which the Premises are located. The
Lessee agrees for itself and for its subtenants, employees, agents and invitees
to comply with the Rules and Regulations. The Lessor agrees to comply promptly
with all other such laws, ordinances, rules and regulations, including, but not
limited to, those requiring repairs, alterations, changes or additions to the
Building in which the Premises are located.
10. SIGNS: The Lessee shall not place any signs or other advertising matter or
material on the exterior or on the interior of the Premises visible from any of
the common areas of the Building or the Building or at any other location in the
Center, without the prior written consent of the Manager. Any lettering or signs
placed on the interior of the Building shall be for directional purposes only,
and such signs and lettering shall be of a type, kind, character and description
to be approved by the Manager in writing. Directional and identification signage
provided by the Lessor shall consist of building standard lettering on the
existing exterior monument, tenant entry door, and lobby directory.
11. SERVICES: The Lessor shall provide the following: heat and air conditioning
in the Premises, during normal business hours (See Paragraph 4), to the extent
necessary for the comfortable occupancy of the Premises under normal business
operations and in the absence of the use of machines, equipment, or devices
which affect the temperature otherwise maintained in the Premises; water from
the regular Building fixtures for drinking, lavatory, and toilet purposes,
customary cleaning, and janitorial services in the Premises Monday through
Friday, excluding national holidays; customary cleaning, mowing, grounds
keeping, and trash removal in the Common Areas; customary security services for
the exterior of the Building; and electricity for normal business usage.
Additional capacity or usage shall be provided at the option of the Lessor
(reasonably exercised) and at the sole cost and expense of the Lessee as
Additional Rent. The Lessor shall provide a reasonable amount of free parking
for the employees and visitors of the Lessee on the parking areas adjacent to
the Building. The Baker building provides 303 non-reserved parking space, or 5.1
spaces per net square foot. The Lessee agrees that the Lessor shall not be
liable for damages or failure to furnish or delay in furnishing any service if
attributable to any of the causes described in Paragraph 15, Paragraph 16, or as
a result of Acts of God or events beyond the control of the Manager or the
Lessor. No failure to delay resulting from the foregoing reasons shall be
considered to be an eviction or disturbance of the Lessee's quiet enjoyment,
use, or possession of the Premises.
If the Lessee shall require electrical current to operate equipment or machines,
including heating, refrigeration, data processing (shall not include personal
computers), punch card, or other machines or equipment using electrical current
that will increase the amount of the electricity usually furnished by the Lessor
for use in general office space, the Lessee will obtain the prior written
approval of the Lessor and pay to the Lessor the additional direct expense
incurred, including any installation or maintenance cost, as Additional Rent.
12. ALTERATIONS: The Lessee, by occupancy hereunder, accepts the Premises as
being in good repair and condition and suitable for the Lessee's intended use of
the Premises. The Lessee shall maintain the Premises and every part thereof in
good repair and condition, damages by causes beyond the control of the Lessee,
reasonable use, wear and tear excepted. The Lessee shall not make or suffer to
be made any alterations, additions or improvements to or of the Premises or any
part thereof. The Lessee shall not permit any lien or claim for lien of any
mechanic, laborer, or supplier or any other lien to
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be filed against the Center, the Common Areas, the Building, the Premises, or
any part of such property arising out of work performed, or alleged to have been
performed by, or at the direction of, or on behalf of the Lessee.
13. QUIET ENJOYMENT: So long as the Lessee is not in default under this Lease,
the Lessee shall be entitled to peaceful and quiet enjoyment of the Premises,
subject to the terms of this Lease.
14. LESSOR'S RIGHT TO INSPECT AND DISPLAY: The Lessor shall have the right, at
all reasonable times during the Term of this Lease, to enter the Premises for
the purpose of examining or inspecting the Premises and of making any repairs or
alterations as the Lessor shall deem necessary. The Lessor shall also have the
right to enter the Premises at all reasonable hours for the purpose of
displaying the Premises to prospective tenants during the ninety (90) day period
prior to the Expiration Date of this Lease. During said ninety (90) day period
Lessor shall provide tenant prior notice of intent to display the premises,
Lessee's consent shall not be unreasonably withheld.
15. DESTRUCTION OF PREMISES: If the Premises, the Building, or the Center are
rendered substantially untenantable by fire or other casualty, the Lessor may
elect by giving the Lessee written notice within forty-five (45) days after the
date of fire or casualty, either to: (a) terminate this Lease as of the date of
the fire or other casualty; or (b) proceed to repair or restore the Premises,
the Building, or the Center (other than the leasehold improvements and personal
property installed by the Lessee), to substantially the same condition as
existed immediately prior to the fire or casualty.
If the Lessor elects to proceed pursuant to Subparagraph (b) above, the Lessor's
notice shall contain the Lessor's reasonable estimate of the time required to
substantially complete the repair or restoration. If the estimate indicates that
the time so required will exceed ninety (90) days from the date of the casualty
and the Lessor does not make available to the Lessee for its use and occupancy
other office space, substantially similar to the Premises and located in the
Center, pursuant to Paragraph 22, then the Lessee shall have the right to
terminate this Lease as of the date of such casualty by giving written notice to
the Lessor not later than twenty (20) days after the date of the Lessor's
notice. If the Lessor's estimate indicates that the repair or restoration can
be substantially completed within ninety (90) days, or if the Lessee fails to
exercise its right to terminate this Lease, this Lease shall remain in force and
effect.
If either the Premises, the Building, or the Center is damaged by fire or other
casualty but is not rendered substantially untenantable, then the Lessor shall
diligently proceed to repair and restore the damaged portions thereof within a
period not to exceed forty-five (45) days, other than the leasehold improvements
and personal property installed by the Lessee, to substantially the same
condition as existed immediately prior to such fire or other casualty, unless
such damage occurs during the last twelve (12) months of the Term, in which
event the Lessor shall have the right to terminate this Lease as of the date of
such fire or other casualty by giving written notice to the Lessee within thirty
(30) days after the date of such fire or other casualty.
If all or part of the Premises are damaged by fire or other casualty and this
Lease is not terminated, the Rent shall abate for all or part of the Premises
which are untenantable on a per diem and proportionate area basis from the date
of the fire or other casualty until the Lessor has substantially completed the
repair and restoration work in the Premises which it is required to perform,
provided, that as a result of such fire or other casualty, the Lessee does not
occupy the portion of the Premises which are untenantable during such period.
16. CONDEMNATION: If all or part of the Premises, the Building, or the Center is
permanently taken or condemned by any authority for any public use or purpose
(including a deed given in lieu of condemnation), which renders the Premises
substantially untenantable, this Lease shall terminate as of the date XXXX vests
in such authority or at such time as the leased premises becomes untenantable
and the Rent shall be apportioned as of such date.
If any part of the Premises, the Building, or the Center is taken or condemned
for any public use or purpose (including a deed given in lieu of condemnation)
and this Lease is not terminated, the Rent shall be equitably and fairly reduced
for the period of such taking by an amount which bears the same ratio to the
Rent then in effect as the number of square feet of Leased Area in the Premises
so taken or condemned, if any, bears to the number of square feet of Leased Area
specified in Paragraph 1H. The Lessor, upon receipt and to the extent of the
award in condemnation or proceeds of sale, shall make necessary repairs and
restorations (exclusive of leasehold improvements and personal property
installed by the Lessee) to restore the Premises remaining to as near its former
condition as circumstances will permit, and to the Building and the Center to
the extent necessary to constitute the portion of same not so taken or condemned
as complete. If said condemnation substantially prevents Lessee's ability to
conduct business, Lessee shall have the option to terminate this lease.
The Lessor shall be entitled to receive the entire price or award from any such
sale, taking or condemnation without any payment to the Lessee and the Lessee
hereby assigns the Lessor the Lessee's interest, if any, in such award; provided
however, the Lessee shall have the right separately to pursue against the
condemning authority an award in respect of the loss, if any, to the leasehold
improvements paid by the Lessee without any credit or allowance from the Lessor
and for any loss for injury, damage or destruction of the Lessee's business
resulting from such taking. Under no circumstances shall the Lessor seek or be
entitled to any compensation for the value of its leasehold estate.
17. ASSIGNMENT AND SUBLEASE: Without the prior written consent of the Lessor,
the Lessee shall not sublease the Premises, or assign, mortgage, pledge,
hypothecate or otherwise transfer or permit the transfer of this Lease or the
interest of the Lessee in this Lease, in whole or in part, by operation of law,
court decree or otherwise. The consent of the Lessor to any sublease or
assignment shall not be unreasonably withheld based upon the determination by
the Lessor of the financial and or other suitability of the proposed sublessee
or assignee. If the Lessee desires to assign this Lease or to enter into any
sublease of the Premises, the Lessee shall deliver written notice of such intent
to the Lessor, together with a copy of the proposed assignment or sublease at
least thirty (30) days prior to the effective date of the proposed assignment or
commencement date of the term of the proposed sublease. Any approved sublease
shall be expressly subject to the terms and conditions of this Lease. In the
event of any approved sublease or assignment, the Lessee shall not be released
or discharged from any liability, whether past, present or future, under this
Lease, including any renewal term of this Lease. For purposes of this Paragraph
17, an assignment shall be considered to include a change in the majority
ownership or control of the Lessee if the Lessee is a partnership or a
corporation whose shares of stock are not traded publicly.
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18. HOLDING OVER: It is further covenanted and agreed that if the Lessee, or any
assignee or sublessee of the Lease, shall continue to occupy the Premises after
the termination of this Lease (including a termination by notice under Paragraph
23 or Paragraph 26), without the prior written consent of the Lessor, such
tenancy shall be a Tenancy of Sufferance. During the period of any hold over
tenancy by the Lessee, or any assignee or sublessee, the Lessor or the Manager,
by notice to the Lessee, may adjust the Adjusted Monthly Base Rent to an amount
equal to one hundred and fifty percent (150%) of the Adjusted Monthly Base Rent
for the last month of the Term for which rent is paid. Acceptance by the Lessor
of any Rent after termination shall not constitute a renewal of this Lease or a
consent to such hold over occupancy nor shall it waive the Lessor's right of
re-entry or any other right contained in this Lease or provided by law.
19. SUBORDINATION AND ATTORNMENT: This Lease and the rights of the Lessee
hereunder are expressly subject and subordinate to the lien and provisions of
any mortgage, deed of trust, deed to secure debt, ground lease, assignment of
leases, or other security instrument or operating agreement (collectively called
a "Security Instrument") now or hereafter existing encumbering the Premises, the
Building, the Center, or any part thereof, and all amendments, renewals,
modifications and extensions of and to any such Security Instrument and to all
advances made or hereafter to be made upon the security of such Security
Instrument. The Lessee agrees to execute and deliver such further instruments,
in such form as may reasonably be required by any holder of a proposed or
existing Security Instrument, subordinating this Lease to the lien of any such
Security Instrument as may be requested in writing by the Lessor or the Manager
from time to time.
In the event of the foreclosure of any such Security Instrument by voluntary
agreement or otherwise, or the commencement of any judicial action seeking such
foreclosure, the Lessee, at the request of the then lessor, shall attorn to and
recognize such mortgagee or purchaser in foreclosure as the Lessee's landlord
under this Lease. The Lessee agrees to execute and deliver at any time upon
request of such mortgagee, purchaser, or their successors, any instrument to
further evidence such attornment in form acceptable to such person and Lessee.
The Lessee shall from time to time, upon not less than ten (10) days' prior
written request by the Lessor or the Manager, deliver to the Lessor or the
Manager a statement in writing certifying: that this Lease is unmodified and in
full force and effect, or, if there have been modifications, that this Lease, as
modified, is in full force and effect; the amount of each item of the Rent then
payable under this Lease and the date to which the Rent has been paid; that the
Lessor is not in default under this Lease or, if in default, a detailed
description of such default; that the Lessee is or is not in possession of the
Premises, as the case may be; and containing such other information and
agreements as may be reasonably requested.
20. WAIVER AND INDEMNIFICATION: To the full extent permitted by law, the Lessee
hereby releases and waives all claims against the Lessor, the Manager and their
respective agents, employees, officers, directors, and independent contractors,
for injury or damage to person, property or business sustained in or about the
Center, the Building, or the Premises by the Lessee, its agents or employees
other than damage caused by the negligence of the Lessor, the Manager or their
respective agents or employees.
The Lessee agrees to indemnify and hold harmless the Lessor, the Manager and
their respective agents and employees, from and against any and all liabilities,
claims, demands, costs, and expenses of every kind and nature (including
attorneys' fees), including those arising from any injury or damage to any
person (including death), property or business sustained in or about the
Premises, and resulting from the negligence or willful act or omission of the
Lessee, its employees, agents, servants, invitees, licensees or subtenants, or
resulting from the failure of the Lessee to perform its obligations under this
Lease; provided, however, the Lessee's obligations under this section shall not
apply to injury or damage resulting from the negligence or willful act of the
Lessor, the Manager or their respective agents or employees.
The Lessor agrees to indemnify and hold harmless the Lessee and its respective
agents and employees, from and against any and all liabilities, claims, demands,
costs and expenses of every kind and nature (including attorney's fees), arising
from any injury or damage to any person (including death), property or business
sustained in or about the Building and resulting from the negligence or willful
act or omission of the Lessor, its employees, agents or servants, or resulting
from the failure of the Lessor to perform its obligations under this Lease;
provided, however, the Lessor's obligations under this section shall not apply
to injury or damage resulting from the negligence or willful act of the Lessee,
or its agents or employees.
The Lessor and the Manager shall not be responsible or liable to the Lessee for
any event, act or omission to the extent covered by insurance and maintained by
the Lessee with respect to the Premises and its use and occupancy thereof
(whether or not such insurance is actually obtained or maintained) and the
proceeds of such other insurance as is obtained and maintained by the Lessee
with respect to the Premises and to its use and occupancy thereof. At the
request of the Lessor, the Lessee shall from time to time provide the Lessor
with effective waivers of subrogation by its insurers for the benefit of the
Lessor and the Manager, and their respective agents or employees, in a form
satisfactory to the Lessor.
21. SURRENDER OF PREMISES: Upon the expiration or termination of this Lease or
the termination of the Lessee's right of possession of the Premises, the Lessee
shall surrender and vacate the Premises immediately and deliver possession
thereof to the Lessor in a clean, good, and tenantable condition, except for
damages beyond the control of the Lessee, reasonable use, and ordinary wear and
tear. Any movable trade fixtures and personal property that may be removed from
the Premises by the Lessee but which are not so removed upon the vacancy of the
Premises by the Lessee shall be conclusively presumed to have been abandoned by
the Lessee and title to such property shall pass to the Lessor without any
payment or credit and the Lessor may, at its option and at the Lessee's expense,
store and/or dispose of such property.
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23. EVENTS OF DEFAULT: Each of the following shall constitute an event of Rent
default by the Lessee under this Lease: the Lessee fails to pay any installment
within ten (10) days after the date on which the installment of Rent first
becomes due; the Lessee fails to observe or perform any of the other covenants,
conditions or provisions of this Lease and fails to cure such default within
fifteen (15) days after written notice to the Lessee; the interest of the Lessee
in this Lease is levied upon under execution of other legal process; a petition
is filed by or against the Lessee to declare the Lessee bankrupt or seeking a
plan of reorganization or arrangement under any Chapter of the Bankruptcy Code,
or any amendment, replacement or substitution therefor, or to delay payment of,
reduce or modify the Lessee's debts; the Lessee is declared insolvent by law or
any assignment of the Lessee's property is made for the benefit of creditors; a
receiver it appointed for the Lessee or the Lessee's property; or the Lessee
abandons or vacates the premises or within such time as may be reasonable under
the circumstances provided Lessee diligently commences and pursues action to
cure such default. Upon the occurrence of an event of default by the Lessee
under this Lease, the Lessor, at its option, without further notice or demand to
the Lessee, may in addition to all other rights and remedies provided in this
Lease, at law or in equity:
A. Terminate this Lease and the Lessee's right of possession of the Premises,
and recover all damages to which the Lessor is entitled under law, specifically
including, without limitation, all the Lessor's expenses of reletting (including
repairs, alterations, improvements, additions, decorations, legal fees and
brokerage commissions).
B. Terminate the Lessee's right of possession of the Premises without
terminating this Lease, in which event the Lessor may, but shall not be
obligated to, relet the Premises, or any part thereof for the account of the
Lessee, for such rent and such term and upon such terms and conditions as are
acceptable to the Lessor. For purposes of any reletting of the Premises, the
Lessor is authorized to redecorate, repair, alter and improve the Premises to
the extent reasonably necessary. Until the Lessor does not relet the Premises,
the Lessee shall pay the Lessor monthly on the first day of every month during
the period that Tenant's right of possession is terminated, a sum equal to the
amount of Rent due under this Lease for such month (less any amount which the
Lessor could have realized if the Lessor relet the premises to a reputable,
credit-worthy substitute lessee procured by the Lessee and presented to the
Lessor in writing, which substitute lessee was ready, willing and able to lease
the Premises pursuant to the form of this Lease). If and when the Premises are
relet and a sufficient sum is not realized from such reletting after payment of
all the Lessor's expenses of reletting (including repairs, alterations,
improvements, additions, decorations, legal fees and brokerage commissions) to
satisfy the payment of Rent due under this Lease for any month, the Lessee shall
pay to the Lessor any such deficiency monthly upon demand. The Lessee agrees
that the Lessor may file suit to recover any sums due to the Lessor under this
section from time to time and that such suit or recovery of any amount due the
Lessor shall not be any defense to any subsequent actions brought for any amount
not previously reduced to judgment in favor of the Lessor.
If the Lessor elects to terminate the Lessee's right to possession only without
terminating this Lease, the Lessor may, at its option, enter into the Premises,
remove the Lessee's signs and other evidences of tenancy, and take and hold
possession thereof; provided, however, that such entry and possession shall not
terminate this Lease or release the Lessee, in whole or in part, from the
Lessee's obligation to pay the Rent reserved hereunder for the full Term or from
any other obligation of the Lessee under this Lease.
The Lessee shall pay, upon demand, all costs and expenses, including attorneys'
fees, incurred by the Lessor in enforcing the Lessee's obligations under this
Lease or resulting from the Lessee's default under this Lease.
24. SUCCESSORS AND ASSIGNS: This Lease shall bind and inure to the benefit of
the successors, assigns, executors, administrators, and legal representatives of
the parties hereto. In the event of the sale, assignment, or transfer by the
Lessor of its interest in the Building or in this Lease (other than a collateral
assignment to secure a debt of the Lessor prior of enforcement) a successor in
interest who expressly assumes the obligations of the Lessor hereunder, the
Lessor shall thereupon be released or discharged from all of its covenants and
obligations hereunder, except such obligations as the Lessor shall have accrued
prior to any such sale, assignment or transfer; and the Lessee agrees to look
solely to such successor in interest of the Lessor for performance of such
obligations. Any securities or funds given by the Lessee to the Lessor to secure
performance by the Lessee of its obligations hereunder may be assigned by the
Lessor to such successor in interest of Lessor and, upon acknowledgment by such
successor or receipt of such security and its assumption of the obligation to
account for such security in accordance with the terms of the Lease, the Lessor
shall be discharged from any further obligation relating thereto. The Lessor's
assignment of the Lease or of any or all of its rights herein shall in no manner
affect the Lessee's obligations hereunder. The Lessor shall have the right to
freely sell, assign or otherwise transfer its interest in the Building and/or
this Lease.
25. NON-WAIVER: No waiver of any covenant or condition of this Lease by either
party shall be deemed to imply or constitute a further waiver of the same
covenant or condition or any other covenant or condition of this Lease.
26. SECURITY DEPOSIT: As security for the performance of its obligations under
this Lease, the Lessee upon its execution of this Lease has paid to the Lessor a
security deposit (the "Security Deposit") in the amount stated in Paragraph 1J.
The Security Deposit may be applied by the Lessor to cure or partially cure any
default of the Lessee under this Lease, and upon notice by such Lessor of such
application, the Lessee shall replenish the Security Deposit in full by promptly
paying to the Lessor the amount so applied. The Lessor shall not pay any
interest on the Security Deposit. The Security Deposit shall not be deemed an
advance payment of rent or a measure of damages for any default by the Lessee
under this Lease, nor shall it be a bar or defense to any
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<PAGE> 6
action which the Lessor may at any time commence against the Lessee.
27. LIMITATION OF THE LESSOR'S LIABILITY: As used in this Lease, the term
"Lessor" shall mean the entity herein named as such, and its successors and
assigns. No person holding the Lessor's interest under this Lease (whether or
not such person is named as the "Lessor") shall have any liability hereunder
after such person ceases to hold such interest, except for any liability
accruing hereunder while such person held such interest. Neither the Lessor nor
any principal officer, employee, or partner (general or limited) of the Lessor
shall have any personal liability under any provision of this Lease. If the
Lessor defaults in the performance of any of the obligations under this Lease or
otherwise, the Lessee shall look solely to the Lessor's assets, interest, and
rights, and not to the assets, interest, or rights of any principal, officer,
employee, or partner (general or limited), for satisfaction of the Lessee's
remedies on account thereof.
28. COMMON AREAS: For purposes of this Lease "Common Areas" shall mean all
areas, improvements, space, and equipment in or at the Center, provided by the
Lessor for the common or joint use and benefit of tenants, customers, and other
invitees.
29. MISCELLANEOUS: This Lease, the Exhibits and the Riders, if any, attached
hereto contain the entire agreement between the Lessor and the Lessee and there
are no other agreements, either oral or written. This Lease shall be modified or
amended only by a writing signed by the Lessor and the Lessee and specifically
referring to this Lease. The captions in this Lease are for convenience only and
in no way define, limit, construe or describe the scope or intent of the
provisions of this Lease. This Lease shall be construed in accordance with the
laws of the state in which the Building is located. If any provision of this
Lease or any amendment hereof is invalid or unenforceable in any instance, such
validity or unenforceability shall not affect the validity or enforceablity of
any other provision, or such provision in any circumstance not controlled by
such determination.
30. RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from the applicable county
public health unit.
31: RIDERS: All riders attached hereto and signed by the Lessor and Lessee shall
be deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, the Lessee and the Lessor have executed or caused to be
executed this Lease as of the date set forth above.
ATTACHED ADDENDUM BECOMES A PART OF THIS LEASE.
Lessee: ABRA CADABRA SOFTWARE, INC. Lessor: KOGER EQUITY, INC.
By: /s/ Jim Fletcher (SEAL) By: Koger Management, Inc.
--------------------------- as Agent for the Lessor
Title: Chairman By: /s/ Signature
----------------------------- ------------------------------
Its: Vice President
Attest: Attest: /s/ J Dudley Bates
----------------------------- --------------------------
Its:
(Corporate Seal) (Corporate Seal)
Signed and sealed in the Signed and sealed in the
presence of: presence of:
(1) /s/ Christian R. Cupstein (1) /s/ Diana Gray
-------------------------------- -----------------------------
(2) /s/ Jane J. Johnson (2) /s/ Priscilla Johnson
-------------------------------- -----------------------------
As to the Lessee As to the Lessor
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<PAGE> 7
ADDENDUM TO LEASE
ABRA CADABRA
33. Rent Abatement: Lessee shall receive a total of five (5) months rental
abatement distributed as follows:
January 1993
February 1993
January 1994
January 1995
January 1996
34. Tenant Improvements: Lessor shall provide an initial tenant improvement
allowance of $7.50 per rentable square foot leased, or $99,307.50 (13,241
rentable square feet). Lessee shall reimburse Lessor for improvement costs in
excess of the $7.50 per rentable square foot allowance.
In the event the total cost of tenant improvements is less than $7.00 per
rentable square foot leased, or $92,687.00, the remaining surplus, up to a $7.00
per rentable square foot ceiling, will be used to reimburse Lessee for
reasonable out-of-pocket relocation cost.
Space planning and construction drawings are to be provided by Lessor exclusive
of the tenant improvement allowance.
35. Option to Renew: Lessee shall have the Option to Renew this lease for one
(1) additional term of one (1) year, by providing Lessor one hundred-twenty
(120) days prior written notice. Rental payments for the one (1) year renewal
term shall be at the rate of $13.48 per rentable square foot per annum plus
applicable sales tax. The first months rent (January, 1998) of said renewal term
shall be abated.
36. First Right of Refusal: Lessee shall have First Right of Refusal on all
vacant space of the third floor of the Baker Building. Lessor shall provide
Lessee prior written notice of its intent to lease all or a portion of said
space. Lessee shall have ten (10) working days from date of notice to lease
or reject said space. To exercise said option, Lessee must lease additional
square footage equal to or greater in size than the square footage specified in
Lessor's notice.
37. Expansion: In the event Lessee expands during the initial term of this
lease, the rental rate for said expansion space shall be the per rentable square
foot rate then prevailing for the initial space lease. Said expansion rental
rate shall be escalated concurrent with the rate for the initial space leased.
<PAGE> 8
ADDENDUM TO LEASE
ABRA CADABRA
PAGE TWO
Lessee shall receive a tenant improvement allowance on said expansion space
equal to a prorated portion of $7.50 per expansion square foot leased, prorated
for the remaining portion of the initial (5) year term, or more specifically ,
$.125 per rentable square foot per reaming month of initial lease term.
In the event Lessee requires expansion space occupied by another tenant, Lessor
shall make a diligent, good faith effort the negotiate the relocation of said
tenant. To secure said relocation, Lessee may be required to absorb the costs
associated with the relocation of said tenant.
38. Interruption of Building Services: In the event the building services
outlined in Paragraph 11 of this lease are interrupted, and said interruption
causes all or a portion of the leased premises to become uninhabitable, Lessor
shall diligently commence and pursue action to restore the interrupted services.
If said interruption is within the control of the Lessor, and Lessor does not
restore said services within three (3) business days, or within such time as may
be reasonable under the circumstances provided Lessor diligently commences and
pursues action to restore said service without unreasonable delay, the rent
shall be abated for the portion of the leased premises that is uninhabitable for
the period of time said space is uninhabitable.
39. Early Occupancy: In the event Lessee occupies the leased premises prior to
the commencement of this Lease Agreement, all terms and conditions of the lease
will be in effect, except the monthly rental, which shall commence March 1, 1993
as outlined in the Lease Agreement (January 1993, February 1993 are abated).
40. After Hours HVAC: Lessor shall provide HVAC service to the leased premises
8:00 AM to 7:00 PM Monday through Friday, excluding national holidays. After
hours HVAC for the hours of 8:00 AM to 1:00 PM on Saturdays will be invoiced at
the rate of $5.00 per hour. HVAC for all hours other than those outlined above
shall be invoiced at the rate of $10.00 per hour. In the event Lessee expands
and said expansion results in increased HVAC capacity requirements, the after
hours HVAC rate shall increase proportionately with the increased capacity
requirement.
###
<PAGE> 9
[KOGER LOGO]
RULES AND REGULATIONS
1. The Lessor may refuse admission to any Building outside of ordinary business
hours to any person not known to any watchman, or security guard or not properly
identified, and may require all persons admitted to or leaving any Building
outside of ordinary business hours to register. Any person whose presence in any
Building, or the Center at any time, shall in the judgment of the Lessor, be
prejudicial to the safety, character, reputation and interests of any Building
or its tenants may be denied access to any Building or may be ejected therefrom.
In case of invasion, riot, public excitement or other commotion, the Lessor may
prevent all access to any Building during the continuance of the same, by
closing the doors or otherwise, for the safety of the Lessees, any Building and
protection of property in any Building. The Lessor may require any person
leaving any Building with any package or other object to exhibit a pass from the
Lessee from whose Premises the package or object is being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibility on the Lessor for the protection of any Lessee against the
removal of property from the Premises of the Lessee. The Lessor shall in no way
be liable to any Lessee for damages or loss arising from the admission,
exclusion or ejection of any person to or from the Lessee's Premises or any
Building under the provisions of this rule.
2. The Lessor reserves the right to exclude or expel from any Building any
person who in the judgment of the Lessor is intoxicated or under the influence
of liquor or drugs.
3. Lessees shall not do or permit anything to be done in their Premises or bring
or keep anything therein which will in any way obstruct or interfere with the
rights of other tenants, of do, or permit anything to be done in their Premises
which shall, in the judgment of the Lessor or its Manager, in any other way
injure or annoy them, or conflict with the laws relating to fire, or with the
regulations of the fire department or with any insurance policy upon any
Building or any part thereof or any contents therein or conflict with any of the
Rules and Ordinances of the public building or health authorities.
4. All electrical equipment used by the Lessee shall be U.L. approved. Nothing
shall be done or permitted in the Lessee's Premises, and nothing shall be
brought into or kept in the Premises which would impair or interfere with any
Building services or the proper and economic heating, cooling, cleaning or other
servicing of any Building or the Premises.
5. Lessees shall not install or operate any steam or gas engine or boiler, or
carry on any mechanical business, in any Building. The use of oil, gas or
inflammable liquids for heating, lighting or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into any Building or the Center. The Lessee shall not use any other
method of heating other than that supplied by the Lessor.
6. Lessees shall give the Lessor prompt notice of all accidents to or defects in
air conditioning equipment, plumbing, electric facilities, or any part or
appurtenance of their Premises.
7. Lessees shall use electric, gas and other forms of energy only from such
sources of supply as is furnished by Lessor in any Building occupied by such
Lessee.
8. All deliveries to any Building for or by any Lessee are to be made through
the service entrance, if any, to any Building as designated by the Lessor,
unless special permission is granted by the Lessor for the use of other Building
entrances.
9. Furniture, equipment or supplies shall be moved in or out of any Building
only upon the elevator designated by the Lessor and then only during such hours
and in such manner as may be prescribed by the Lessor.
10. Should any Lessee desire to place in any Building any unusually heavy
equipment, including, but not limited to, large files, safes, and electronic
data processing equipment, it shall first obtain written approval of the Lessor
to place such items within any Building, for the use of any Building elevators,
and for the proposed location in which such equipment is to be installed. The
Lessor shall have the power to prescribe the weight and position of any
equipment that may exceed the weight load limits of any building structure, and
may further require, at the Lessee's expense, the reinforcement of any flooring
on which such equipment may be placed, and/or to have an engineer study
performed to determine such weight and position of equipment, to determine added
reinforcement required, and/ or determine whether or not such equipment can be
safely placed within any Building.
11. Lessees shall not place additional locks or bolts or any kind upon any of
the doors of their Premises and no lock on any door therein shall be changed or
altered in any respect. Duplicate keys for the Lessee's Premises shall be
procured only from the Lessor, which may make a reasonable charge therefor. Upon
the termination of a Lessee's lease, all keys of the Premises shall be delivered
to the Lessor.
12. Lessees shall not leave any refuse in the public hallways or other areas of
any Building (excepting the Lessee's own Premises) for disposal.
1
<PAGE> 10
THE KOGER CENTER ST. PETERSBURG
an Office Community Between 4th and 9th Streets North
at Gandy Boulevard
BAKER BUILDING
[FLOOR PLAN]
SUITE 300
ABRA CADABRA, INC.
13,241 RENTABLE SQ
EXHIBIT "A"
<PAGE> 11
[KOGER LETTERHEAD]
LEASE AMENDMENT
THIS LEASE AGREEMENT, dated OCT 02 1995, by and between KOGER EQUITY, INC., a
Florida Corporation ("Lessor") with its principal office at 3986 Boulevard
Center Drive, Jacksonville, Florida 32207, and ABRA CADABRA SOFTWARE, INC., a
Corporation organized and existing under the laws of the State of Virginia, with
its principal office at 888 Executive Center Drive West, Suite 300, St.
Petersburg, Fl 33702 ("Lessee"). The Lessee and the Lessor executed a Lease
Agreement dated November 17, 1992, and amended 7/2/93, effective 7/1/95* for
space designated as Suite 300, comprising approximately 19,415 square feet (as
shown on Exhibit "A" attached), located at 888 Executive Center Drive West, City
of St. Petersburg, county of Pinellas State of Florida. The parties hereto
desire to alter and modify said Lease Agreement, effective December 1, 1995, as
follows:
*and effective 8/1/1995
1. Increase square footage from 19,415 rentable square feet as shown on
Exhibit "A".
2. Increase the monthly base rental from $20,947.17 to $25,824.43 plus
$1,807.71 sales tax for a monthly total of $27,632.14.
3. Per Paragraph 37 of the Lease Agreement, Lessor shall provide tenant
improvements up to an allowance of $3.00 per rentable expansion square
foot leased or a total of $18,588.00.
4. Lessee shall reimburse Lessor for all costs directly related to the
relocation of the current tenants of Suites 301 and 304 in the Baker
Building. Said costs are to include the moving of office equipment,
replacement of existing printed material and the construction of the
relocation premises. Said costs are estimated at approximately
$68,700.00. Lessee shall not be liable for any relocation costs that vary
more than 10% from the quoted estimate.
Except as specifically amended and modified by this Lease Amendment, all other
terms of the Lease and the Exhibits attached thereto remain in full force and
effect.
IN WITNESS WHEREOF, the Lessee and the Lessor have executed or caused to be
executed this Lease Amendment as of the date set forth above.
<TABLE>
<S> <C>
Lessee: ABRA CADABRA SOFTWARE, INC. Lessee: KOGER EQUITY, INC.
---------------------------- ----------------------------
a Florida Corporation, Successor by merger
By: /s/ MELODY RANELL (SEAL) By: /s/ JAMES W. WALKER
---------------------------- ----------------------------
Melody Ranell JAMES W. WALKER
Title: Treasurer Title: VICE PRESIDENT
---------------------------- ----------------------------
Attest: /s/ Shelley Rebach Attest: /s/ Mary Sue Wakeman
---------------------------- ----------------------------
Its: Secretary Its:
---------------------------- ----------------------------
(Corporate Seal) (Corporate Seal)
Date: 8/25/95 Date: OCT 02 1995
---------------------------- ----------------------------
Signed and sealed in the presence of: Signed and sealed in the presence of:
(1) /s/ EILEEN M. ELLWORTH (1)
---------------------------- ----------------------------
Print Name Eileen M. Ellworth Print Name:
---------------------------- ----------------------
(2) /s/ SHIRLEY SPOTSWOOD LEWIS (2)
-------------------------------
Print Name: Shirley Spotswood Lewis Print Name:
---------------------------- ----------------------
As to the Lessee As to the Lessor
</TABLE>
<PAGE> 12
THE KOGER CENTER ST. PETERSBURG
an Office Community Baker Building
875 Centerview
[FLOOR PLAN]
FIRST FLOOR
ABRA CADABRA
SECOND FLOOR
EXPANSION
6,196 RSF
ABRA CADABRA
19,415 RSF
(INCLUDING SECOND FLOOR)
THIRD FLOOR
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.11
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR
AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.
THIS WARRANT AND THE STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT
TO RESTRICTIONS ON TRANSFER SET FORTH IN THIS WARRANT AND IN A CERTAIN WARRANT
PURCHASE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED OWNER OF THIS
WARRANT (OR SUCH OWNER'S PREDECESSOR IN INTEREST), AND SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE OFFICE OF THE SECRETARY OF THE CORPORATION
DURING NORMAL BUSINESS HOURS.
BEST PROGRAMS, INC.
COMMON STOCK PURCHASE WARRANT
Special Series
Warrant No. __
Date of Issuance:___________ Right to Purchase __
Shares of Common Stock
(subject to adjustment)
Not Transferable or Exercisable
Except upon Conditions Herein Specified
Void After the Dates Specified Herein
For value received, Best Programs, Inc., a Virginia corporation (the
"Company"), hereby grants to ______________ or his registered assigns (the
"Registered Holder"), the right to purchase from the Company __ shares of the
Company's Common Stock (subject to adjustment pursuant to Section 4 hereof) at
a price of $___ per share (as adjusted pursuant to Section 3 hereof, the
"Exercise Price"). This Warrant is issued pursuant to the terms of Warrant
Purchase Agreement dated as of _________________ (the "Purchase Agreement"),
between the Company and the individual listed on Exhibit A thereto. The
amount and kind of securities purchasable pursuant to the rights granted under
this Warrant and the purchase price for such securities are subject to
adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
1. Definitions. As used in this Warrant, the following terms
have the meanings set forth below:
"Common Stock" means the Company's Common Stock, no par value
per share.
"Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus
the number of shares of Common Stock deemed to be outstanding pursuant to
Section 3 of this Warrant.
"Date of Issuance" shall have the meaning specified in
Section 12 of this Warrant.
<PAGE> 2
"Market Price" means as to any security the average of the
closing prices of such security's sales on all domestic securities exchanges on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest
asked prices an all such exchanges at the end of such day, or, if on any day
such security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day,
or, if on any day such security is not quoted in the NASDAQ System, the average
of the high and low bid and asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day;
provided that if such security is listed on any domestic securities exchange
the term "business days" as used in this sentence means business days on which
such exchange is open for trading. If at any time such security is not listed
on any domestic securities exchange or quoted in the NASDAQ System or the
domestic over-the-counter market, the "Market Price" will be the fair value
thereof determined in good faith by the Board of Directors of the Company.
Notwithstanding the foregoing, until December 23, 1993, the Market Price of the
Common Stock will be determined based on a market value of the Company equal to
at least $30,000,000.00.
"NASDAQ System" means the NASDAQ Inter-Dealer Quotation System
or such other similar inter-dealer quotation system as may in the future be
used generally by members of the National Association of Securities Dealers,
Inc., for over-the-counter transactions in securities.
"Person" means an individual, a partnership, a corporation, a
trust, a joint venture, an unincorporated organization and a government or any
department or agency thereof.
"Warrants" means this Warrant and all other stock purchase
warrants, special series, of the Company issued pursuant to purchase agreements
between the Company and the original holder of such Warrants that are
substantially identical to the Purchase Agreement, and all stock purchase
warrants issued in exchange therefor pursuant to the terms thereof.
"Warrant Stock" means shares of the Company's authorized but
unissued Common Stock; provided that if there is a change such that the
securities issuable upon exercise of the Warrant are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the term "Warrant Stock" will mean one share of the security issuable upon
exercise of the Warrant if such security is issuable in shares, or will mean
the smallest unit in which such security is issuable if such security is not
issuable in shares.
2. Exercise of Warrant.
2.1 Exercise Period. The Registered Holder may exercise
this Warrant, in whole or in part (but not as to a fractional share of Warrant
Stock), at any time and from time to time after its Date of Issuance and,
except as specifically provided in Section 8, prior to the earlier to occur of
(i) 5:00 p.m. (Eastern time) on _____, or (ii) 5:00 p.m. (Eastern time) on the
day that is two (2) days prior to the consummation of the sale to an entity with
equity securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, of all or substantially all of the assets or business
of the Company, by merger, sale of assets, sale of stock or otherwise (the
"Exercise Period"). The Registered Holder will be given at least 20 days prior
written notice of the scheduled consummation date of the transaction described
in clause (ii) of the previous sentence. Such notice will be sent by first
class mail, postage pre-paid, to the address of such Registered Holder shown on
the books of the Company.
2.2 Exercise Procedure.
(a) This Warrant will be deemed to have been
exercised at such time as the Company has received all of the following items
(the "Exercise Date"):
2
<PAGE> 3
(i) a completed Exercise Agreement, as
described below, executed by the Person exercising all
or part of the purchase rights represented by this
Warrant (the "Purchaser");
(ii) this Warrant;
(iii) if this Warrant is not registered in
the name of the Purchaser, an Assignment or
Assignments in the form set forth in Exhibit I
hereto, evidencing the assignment of this Warrant to
the Purchaser; and
(iv) a check payable to the Company in an
amount equal to the product of the Exercise Price
multiplied by the number of shares of Warrant Stock
being purchased upon such exercise.
(b) Certificates for shares of Warrant Stock
purchased upon exercise of this Warrant will be delivered by the Company to the
Purchaser within 30 days after the Exercise Date. Unless this Warrant has
expired or all of the rights represented hereby have been exercised, the
Company will prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised. The Company will, within such 30-day period,
deliver such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(c) The Warrant Stock issuable upon the exercise
of this Warrant will be deemed to have been issued to the Purchaser on the
Exercise Date, and the Purchaser will be deemed for all purposes to have become
the record holder of such Warrant Stock on the Exercise Date.
(d) The issuance of certificates for shares of
Warrant Stock upon exercise of this Warrant will be made without charge to the
Registered Holder or the Purchaser for any issuance tax in respect thereof or
any other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Warrant Stock.
(e) The Company will not close its books for the
transfer of this Warrant or of any share of Warrant Stock issued or issuable
upon the exercise of this Warrant in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Warrant Stock acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price then in effect.
(f) Notwithstanding anything in this Section 2 to
the contrary, in the event this Warrant is exercised after the notice provided
Section 2.1 is given, the Registered Holder may condition the exercise of this
Warrant on the consummation of the transaction set forth in Section 2.1(ii) by
clearly stating such conditional exercise on the completed Exercise Agreement.
In the event of such conditional exercise and if the transaction has not been
consummated within 90 days after the scheduled consummation date, the Company
shall promptly return to the Registered Holder the amount of the check
described in Subsection 2.2(a)(iv) (without interest) and the Company shall not
thereafter consummate such transaction without at least 10 days prior written
notice to the Registered Holder.
2.3 Exercise Agreement. The Exercise Agreement will be
substantially in the form set forth in Exhibit II hereto, except that, subject
to compliance with the restrictions set forth in Section 11, if the shares of
Warrant Stock are not to be issued in the name of the Registered Holder of this
Warrant, the Exercise Agreement will also state the name of the Person to whom
the certificates for the shares of Warrant Stock are to be issued, and if the
number of shares of Warrant Stock to be issued does not include all the shares
of Warrant Stock purchasable hereunder, it will also state the name of the
Person to whom a new Warrant for the unexercised portion of the rights
hereunder is to be delivered.
3
<PAGE> 4
2.4 Fractional Shares. If a fractional share of
Warrant Stock would, but for the provisions of Subsection 2.1, be issuable
upon exercise of the rights represented by this Warrant, the Company will,
within ten days after the Exercise Date, deliver to the Purchaser a check
payable to the Purchaser in lieu of such fractional share, in an amount equal
to the Market Price of such fractional share as of the close of business on the
Exercise Date.
3. Exercise Price.
3.1 General.
(a) The initial Exercise Price will be
$___. In order to prevent dilution of the rights granted under this Warrant,
the Exercise Price will be subject to adjustment from time to time pursuant to
this Section 3.
(b) If and whenever the Company issues
or sells, or in accordance with Subsection 3.2 below is deemed to have issued
or sold, after the later of (i) December 31, 1992, or (ii) the first day on
which the total number of shares of Common Stock outstanding or issuable
pursuant to the exercise or conversion of outstanding options, convertible
securities or other rights (other than the Warrants and without regard to any
shares owned or held by or for the account of the Company or any subsidiary of
the Company) exceeds 6,500,000 shares (as adjusted for stock splits, stock
dividends, recapitalizations and similar events), any shares of Common Stock
for a consideration per share less than the lesser of the Market Price of the
Common Stock or the Exercise Price in effect immediately prior to the time of
such issuance or sale, then immediately upon such issuance or sale the Exercise
Price will be reduced to a price determined by dividing (A) an amount equal to
the sum of (x) the Exercise Price immediately prior to such issuance or sale
multiplied by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issuance or sale, plus (y) the aggregate
consideration, if any, received or to be received by the Company upon such
issuance or sale, by (B) the number of shares of Common Stock Deemed
Outstanding immediately after such issuance or sale.
3.2 Effect on Exercise Price of Certain Events.
For purposes of determining the adjusted Exercise Price under Subsection 3.1
above, the following provisions will be applicable:
(a) Issuance of Rights or Options. If
the Company in any manner grants any rights or options to subscribe for or to
purchase Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the lesser of the Market Price of the
Common Stock or the Exercise Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options will be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of this
paragraph, the "price per share for which Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities" will be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Company upon exercise of all such Options, plus, in the case of Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all Convertible
Securities issuable upon the exercise of such Options. Except as otherwise
provided in paragraphs (c) and (d) below, no adjustment of the Exercise Price
will be made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock is actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities.
4
<PAGE> 5
(b) Issuance of Convertible Securities.
If the Company in any manner issues or sells any Convertible Securities, and
the price per share for which Common Stock is issuable upon such conversion or
exchange is less than the lesser of the Market Price of the Common Stock or the
Exercise Price in effect immediately prior to the time of such issuance or
sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities will be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which
Common Stock is issuable upon such conversion or exchange" will be determined
by dividing (A) the total amount received or receivable by the Company as
consideration for the issuance or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
all such Convertible Securities. Except as otherwise provided in paragraphs
(c) and (d) below, no adjustment of the Exercise Price will be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issuance or sale of such Convertible Securities is
made upon exercise of any Options for which adjustments of the Exercise Price
had been or are to be made pursuant to other provisions of Section 3, no
further adjustment of the Exercise Price will be made by reason of such
issuance or sale.
(c) Change in Option Price or Conversion
Rate. If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock change at any time (other
than under or by reason of provisions designed to protect against dilution of
the type set forth in this Section 3 and which have no more favorable effect on
the holders of such Options or Convertible Securities than this Section 3 would
have if this Section 3 were included in such Options or Convertible
Securities), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided, that
such adjustment of the Exercise Price will be made only if as a result thereof
the Exercise Price then in effect would be reduced. If the purchase price
provided for in any Option, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable for Common
Stock, is reduced at any time under or by reason of provisions with respect
thereto designed to protect against dilution of the type set forth herein and
which have no more favorable effect on the holders of such Options or
Convertible Securities than the provisions hereof would have if the provisions
of this Warrant were included in such Options or Convertible Securities, then
in the case of the delivery of Common Stock upon the exercise of any such
Option or upon the conversion or exchange of any such Convertible Security, the
Exercise Price then in effect under this Warrant will forthwith be adjusted to
such respective amount as would have been obtained had such Option or
Convertible Security never been issued as to such Common Stock and had
adjustments been made in accordance with paragraph (b) above upon the issuance
of the shares of Common Stock delivered upon such exercise or conversion, but
only if as a result of such adjustment the Exercise Price then in effect under
this Warrant would be reduced.
(d) Treatment of Expired Options and
Unexercised Convertible Securities. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities
without the exercise of such Option or right, the Exercise Price then in effect
hereunder will be adjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities never been issued.
(e) Calculation of Consideration
Received. In case any Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for consideration part or
all of which is cash, the amount of cash consideration received therefor will
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for a consideration part or all of which is other than
cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration as determined in good faith by the
Board of Directors of the Company, except where such consideration consists of
securities, in
5
<PAGE> 6
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving corporation as determined in good faith by
the Board of Directors of the Company as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be.
(f) Integrated Transactions. In case any Option
is issued in connection with the issuance or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
will be deemed to have been issued without consideration.
(g) Treasury Shares. The number of shares of
Common Stock Deemed Outstanding at any given time does not include shares owned
or held by or for the account of the Company or any subsidiary of the Company,
and the disposition of any shares so owned or held will be considered an
issuance or sale of Common Stock.
(h) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issuance or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or upon the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
3.3 Subdivision or Combination of Common Stock and Stock
Dividends. In case the Company shall at any time after the date hereof (a)
issue any shares of Common Stock or of Convertible Securities, or any rights to
purchase Common Stock or Convertible Securities, as a dividend upon Common
Stock, or (b) issue any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise, or (c) combine
outstanding shares of Common Stock, by reclassification or otherwise, the
Exercise Price which would apply if purchase rights hereunder were being
exercised immediately prior to such action by the Company shall be adjusted by
multiplying it by a fraction, the numerator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately prior to such dividend,
subdivision or combination and the denominator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately after such dividend,
subdivision or combination.
3.4 Certain Dividends. In case the Company shall declare
a dividend upon the Common Stock payable otherwise than out of earnings or
earned surplus and otherwise than in Common Stock or Convertible Securities,
the Exercise Price which would apply if purchase rights hereunder were being
exercised immediately prior to the declaration of such dividend shall be
reduced by an amount equal, in the case of a dividend in cash, to the amount
thereof payable per share of the Common Stock or, in the case of any other
dividend, to the fair value of such dividend per share of the Common Stock as
determined in good faith by the Board of Directors of the Company. For the
purposes of the foregoing, a dividend other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such
dividend as determined in good faith by the Board of Directors of the Company.
Such reductions shall take effect as of the date on which a record is taken for
the purpose of such dividend, or, if a record is not taken, the date as of
which the holders of Common Stock of record entitled to such dividend are to be
determined.
3.5 No Adjustments. No adjustment of the Exercise Price
shall be made if the amount of such adjustment shall be less than one cent per
share, but in such case any adjustment that would otherwise be required then to
be made shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to not less than one cent per
share.
6
<PAGE> 7
3.6 Other Events. If any event occurs of the type
contemplated by the provisions of this Section 3 but not expressly provided for
by such provisions, the Board of Directors of the Company will make an
appropriate adjustment in the Exercise Price so as to protect the rights of the
Registered Holders.
4. Adjustment of Number of Shares Issuable upon Exercise. Upon
each adjustment of the Exercise Price pursuant to Section 3.3 hereof, but in no
other event, the Registered Holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the adjusted Exercise
Price in effect on the date purchase rights under this Warrant are exercised,
the number of shares of Warrant Stock, calculated to the nearest full share,
determined by (a) multiplying the number of shares of Warrant Stock purchasable
hereunder immediately prior to the adjustment of the Exercise Price by the
Exercise Price in effect immediately prior to such adjustment, and (b) dividing
the product so obtained by the adjusted Exercise Price in effect on the date of
such exercise.
5. Effect of Reorganization, Reclassification, Consolidation,
Merger or Sale. Subject to Section 2.1, if at any time while this Warrant is
outstanding there shall be any reorganization or reclassification of the
capital stock of the Company (other than a subdivision or combination of shares
provided for in Subsection 3.3 hereof) or any consolidation or merger of the
Company with another corporation (other than a consolidation or merger in which
the Company is the surviving entity and which does not result in any chance in
the Common Stock), or any sale or other disposition by the Company of all or
substantially all of its assets to any other corporation, the holder of this
Warrant shall thereafter upon exercise of this Warrant be entitled to receive
the number of shares of stock or other securities or property of the Company,
or of the successor corporation resulting from such consolidation or merger, as
the case may be, to which the Warrant Stock (and any other securities and
property) of the Company, deliverable upon the exercise of this Warrant, would
have been entitled upon such reorganization, reclassification of capital stock,
consolidation, merger, sale or other disposition if this Warrant had been
exercised immediately prior to such reorganization, reclassification of capital
stock, consolidation, merger, sale or other disposition. In any such case,
appropriate adjustment (as determined in good faith by the Board of Directors
of the Company) shall be made in the application of the provisions set forth in
this Warrant with respect to the rights and interests thereafter of the holder
of this Warrant to the end that the provisions set forth in this Warrant
(including those relating to adjustments of the Exercise Price and the number
of shares issuable upon the exercise of this Warrant) shall thereafter be
applicable, as near as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the exercise hereof as if this Warrant had
been exercised immediately prior to such reorganization, reclassification of
capital stock, consolidation, merger, sale or other disposition and the holder
hereof had carried out the terms of the exchange as provided for by such
reorganization, reclassification of capital stock, consolidation or merger. In
the event that in any such reorganization or reclassification, consolidation or
merger, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for or of a security
of the Company other than Common Stock, any such issue shall be treated as an
issue of Common Stock covered by the provisions of Section 3 above with the
amount of the consideration received upon the issue thereof being determined in
good faith by the Board of Directors of the Company. The Company shall not
effect an such reorganization, consolidation or merger unless, upon or prior to
the consummation thereof, the successor corporation shall assume by written
instrument the obligation to deliver to the holder hereof such shares of stock,
securities, cash or property as such holder shall be entitled to purchase in
accordance with the foregoing provisions. Notwithstanding any other provisions
of this Warrant, in the event of sale or other disposition of all or
substantially all of the assets of the Company as a part of a plan for
liquidation of the Company, all rights to exercise the Warrant shall terminate
60 days after the Company gives written notice to the Registered Holder of this
Warrant that such sale or other disposition has been consummated.
6. Notice of Adjustments. Immediately upon any adjustment of the
Exercise Price or increase or decrease in the number of shares of Common Stock
purchasable upon exercise of this Warrant, the Company will send written notice
thereof to all Registered Holders, stating the adjusted Exercise Price and the
increased or decreased number of shares purchasable upon exercise of this
Warrant and setting forth in reasonable detail the method of calculation for
such adjustment and increase or decrease. When appropriate, such notice may be
given in advance and included as part of any notice required to be given
pursuant to Section 7 below.
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<PAGE> 8
7. Prior Notice as to Certain Events. In case at any time:
(a) the Company shall pay any dividend payable in stock
upon its Common Stock or make any distribution (other than cash dividends) to
the holders of its Common Stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
any other rights, or
(c) there shall be any reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation or a sale or disposition of all or substantially all
its assets (other than a transaction described in Section 2.l(ii)); or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in each of said
cases, the Company shall give prior written notice, by first class mail,
postage prepaid, addressed to the Registered Holder of this Warrant at the
address of such holder as shown on the books of the Company, of the date on
which (i) the books of the Company shall close or a record shall be taken for
such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. A copy of each
such notice shall be sent simultaneously to each transfer agent of the
Company's Common Stock. Such notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given at least 20 days prior to the action in question and not less than 20
days prior to the record date or the date on which the Company's transfer books
are closed in respect thereto.
8. Put Rights.
(a) In the event the Company has not had a
registration statement filed under the Securities Act of 1933, as amended (the
"Act"), covering the Company's first public offering of Common Stock declared
effective by December 23, 1993 (the "First Anniversary Date"), the Registered
Holder shall have the right until January 23, 1994 (the "First Put Date"), to
require the Company to redeem all or a part of this Warrant by paying the
Registered Holder $3.08 (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) for each share of Warrant Stock then
issuable upon the exercise of this Warrant that the Registered Holder requests
to be redeemed. In the event the Company has not had a registration statement
filed under the Act covering the Company's first public offering of Common
Stock declared effective by December 23, 1997 (the "Fifth Anniversary Date")
(collectively, the First Anniversary Date and the Fifth Anniversary Date shall
be hereinafter referred to as the "Anniversary Dates"), the Registered Holder
shall have the right until January 23, 1998 (the "Second Put Date")
(collectively, the First Put Date and the Second Put Date shall be hereinafter
referred to as the "Put Dates"), to require the Company to redeem all or a part
of this Warrant by paying, subject to the proviso set forth in this sentence,
the Registered Holder the greater of (i) $3.08 (as adjusted for stock splits,
stock dividends, recapitalizations and similar events) or (ii) the difference
between $4.62 (as adjusted for stock splits, stock dividends, recapitalizations
and similar events) and the value per share of Common Stock as determined by an
appraiser mutually acceptable to the Company and the Registered Holder for each
share of Warrant Stock then issuable upon the exercise of this Warrant (without
regard to any termination of this Warrant pursuant to Section 2.l(i)) that the
Registered Holder requests to be redeemed, provided, however, that the
Registered Holder shall not have the right to receive the consideration set
forth in clause (ii) of this sentence if the number of shares of Warrant Stock
then issuable upon the exercise of this Warrant is not greater than 10,000
shares (as adjusted for stock splits, stock dividends, recapitalizations and
similar events). In the event that the Company and the Registered Holder
cannot agree on a mutually acceptable appraiser, the Company and the Registered
Holder will each select an appraiser. If the two appraisers cannot agree on
the value per share of Common Stock, the two appraisers will select a third
appraiser with knowledge and experience in the software industry, in which
event the value of per share of Common Stock will be the average of the two
highest appraisals
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<PAGE> 9
submitted by the three appraisers. The cost of any appraisal under this
Section 8(a) shall be borne equally by the Company and the Registered Holder.
(b) The rights granted by this Section 8 shall be
exercised by the Registered Holder by the delivery of written notice thereof to
the Company on or prior to the applicable Put Date. In the event of the
exercise of the right granted by this Section 8, subject to clause (d) of this
Section 8 the Company shall pay to the Registered Holder the amounts payable
pursuant to this Section 8 within 120 days of the applicable Anniversary Dates.
In the event the amounts payable pursuant to this Section 8 are not paid within
120 days of the applicable anniversary dates, such amounts shall thereafter
bear annual interest at an interest rate equal to the then prime rate offered
by the Company's principal bank to its best corporate customers plus five
percentage points.
(c) Upon the exercise of any right granted by
this Section 8, this Warrant shall terminate and thereafter be of no further
force or effect with respect to the Warrant Shares requested to be redeemed by
the Registered Holder and, if there are Warrant Shares still issuable upon
exercise of this Warrant, the Company will prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised.
(d) If the funds of the Company legally available
for redemption of the Warrants are insufficient to redeem the Warrants required
under this Section 8 or Section 8 of any other Warrants to be redeemed on any
Put Date, those funds which are legally available will be used to redeem the
maximum possible number of such Warrants ratably on the basis of the number of
Warrants which would be redeemed on such date if the funds of the Company
legally available therefor had been sufficient to redeem all Warrants required
to be redeemed on such date. At any time thereafter when additional funds of
the Company become legally available for the redemption of the Warrants, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of the shares which the Company was theretofore obligated to
redeem, ratably on the basis set forth in the preceding sentence.
9. Reservation of Common Stock. The Company will at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants, and upon
such issuance such shares of Common Stock will be validly issued, fully paid
and nonassessable.
10. No Voting Rights; Limitations of Liability. This Warrant will
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Registered Holder to purchase Warrant Stock, and no
enumeration in this Warrant of the rights or privileges of the Registered
Holder, will give rise to any liability of such Holder for the Exercise Price
of Warrant Stock acquirable by exercise hereof or as a stockholder of the
Company.
II. Warrant Transferable.
(a) Subject to the transfer conditions referred to in
paragraphs (b) and (c), below, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit I hereto) at the principal office of the Company.
(b) Each Registered Holder of this Warrant acknowledges
that this Warrant has not been registered under the Act, and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an
effective registration statement as to this Warrant or such Warrant Stock under
the Act (or any similar statute then in effect), or (ii) an opinion of legal
counsel reasonably acceptable to the Company to the effect that such
registration is not, under the circumstances, required.
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<PAGE> 10
(c) Each Registered Holder of this Warrant agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Stock issued upon its exercise without the prior written
approval of the Company, which approval may be withheld only in a case where
the transferee is a potential or actual customer, supplier, competitor or a
party whose interests are viewed as contrary to the Company's interests. In no
event shall such a sale, pledge, distribution, offer for sale, transfer or
other distribution occur without the prior solicitation of the prior written
approval of the Company, which approval may be deemed received if the Company
does not otherwise notify the Registered Holder within 10 business days after
the request for approval is received by the Company. Any dispute between the
parties relating to this Section 11(c) shall be determined by arbitration in
accordance with the Rules of the ITAA Alternative Dispute Resolution
procedures, if available, or in accordance with the commercial arbitration
rules of the American Arbitration Association, if the ITAA procedures are not
available. In either event, the arbitration shall be conducted by a single
arbitrator chosen in accordance with the applicable rules, which arbitrator
shall have knowledge and experience in the computer software industry. The
arbitration shall be conducted in Washington, D.C., or in such other location
as the parties may mutually agree. The costs of any arbitration relating to
this Section 11(c) shall be borne by the party that does not prevail in the
arbitration.
12. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants will represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. The date the Company
initially issues this Warrant will be deemed to be the "Date of Issuance" of
this Warrant regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant are
issued.
13. Miscellaneous.
13.1 Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holder of this Warrant.
13.2 Notices. Any notices required to be sent to a
Registered Holder will be delivered to the address of such Registered Holder
shown on the books of the Company. Except as otherwise provided herein, all
notices referred to herein will be delivered in person or sent by first class
mail, postage prepaid, and will be deemed to have been given when so delivered
or sent.
13.3 Descriptive Headings; Governing Law. The descriptive
headings of the paragraphs of this Warrant are inserted for convenience only
and do not constitute a part of this Warrant. The construction, validity and
interpretation of this Warrant will be governed by the laws of the Commonwealth
of Virginia.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officers under its corporate seal.
BEST PROGRAMS, INC.
[CORPORATE SEAL] By:
-------------------------------
James F. Petersen, President
Attest:
- --------------------------
Secretary
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<PAGE> 11
EXHIBIT I
ASSIGNMENT
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant with respect to
the number of shares of the Warrant Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated:
Signature
---------------------
---------------------
Witness
---------------------
<PAGE> 12
EXHIBIT II
EXERCISE AGREEMENT
To:
Dated:
The undersigned, pursuant to the
provisions set forth in the within Warrant, hereby agrees to subscribe for and
purchase _____ shares of the Warrant Stock covered by such Warrant and makes
payment herewith in full for such Warrant Stock at the price per share provided
by such Warrant.
Signature
---------------------
---------------------
Address
---------------------
---------------------
<PAGE> 1
EXHIBIT 10.12
CONSOLIDATING REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of June 3, 1993, is entered into by and among
Best Programs, Inc., a Virginia corporation (the "Company") PNC Capital Corp.,
a Delaware corporation ("PNC"), Edison Venture Fund L.P., a Delaware limited
partnership ("Edison"), Dorothy T. Webb Family Trust, a trust, Petersen
Irrevocable Trust for Nieces and Nephews, a trust, Petersen Irrevocable Trust
for James Mitchell Petersen, a trust (each a "Trust" and collectively the
"Trusts"), Dorothy T. Webb, an individual ("Webb"), and James F. Petersen, an
individual ("Petersen"); (PNC, Edison, each Trust, Webb and Petersen are
sometimes referred to individually herein as a "Rights Holder" and collectively
as the "Rights Holders").
W I T N E S S E T H:
WHEREAS, Edison, the Trusts and Petersen are the owners of certain
shares of Common Stock, no par value, of the Company (the "Common Stock");
WHEREAS, Edison is the owner of certain shares of Class A Preferred
Stock, $0.01 par value per share of the Company (the "Class A Preferred
Stock");
WHEREAS, Webb and Petersen hold options to purchase Common Stock (the
"Options");
WHEREAS, PNC is the owner of a warrant to purchase Common Stock (the
"Warrant"); and
WHEREAS, Edison, the Trusts, Webb and Petersen have certain
registration rights with respect to Common Stock pursuant to a Shareholders'
Agreement dated as of October 26, 1988, as amended (the "1988 Agreement");
WHEREAS, PNC has certain registration rights with respect to Common
Stock pursuant to a Registration Rights Agreement dated March 24, 1993 (the
"1993 Agreement"); and
WHEREAS, the Company and the Rights Holders desire to consolidate
their registration rights in a single agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
<PAGE> 2
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, no par value per share,
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of Common
Stock (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registration Expenses" means the expenses described in
Section 5.
"Registration Expenses" means (i) the shares of Common Stock
held by Edison (except for 38,676 shares of Common Stock held by Edison on the
date hereof), the Trusts and Petersen on the date hereof, (ii) the shares of
Common Stock issued or issuable upon exercise of Options held on the date
hereof by Petersen or Webb, (iii) the shares of Common Stock issued or issuable
upon conversion of the Class A Preferred Stock, (iv) the shares of Common Stock
issued or issuable upon the exercise of the Warrant and (v) any other shares of
Common Stock issued in respect of such shares described in (i)-(iv) above
(because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock which are Registrable Shares shall cease to be Registrable Shares (i)
upon any sale pursuant to a Registration Statement, Section 4(l) of the
Securities Act or Rule 144 under the Securities Act, (ii) at such time as
they are eligible for sale by the holder pursuant to Rule 144(k) under the
Securities Act, or (iii) upon any sale in any manner to a person or entity
which, by virtue of Section 12 of this Agreement, is not entitled to the rights
provided by this Agreement. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Registrable Shares,
the determination of such percentage shall
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<PAGE> 3
include shares of Common Stock issuable upon conversion of the Shares even if
such conversion has not yet been effected.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Stockholders" means the Rights Holders and any persons or
entities to whom the rights granted under this Agreement are transferred by any
Rights Holders, their successors or assigns pursuant to Section 14 hereof.
2. Termination of Prior Registration Rights Provisions. The
Company, Edison, each Trust, Webb and Petersen hereby acknowledge and agree
that Section 3 of the 1988 Agreement is hereby terminated in its entirety and
shall be of no further force and effect. The Company and PNC hereby acknowledge
and agree that the 1993 Agreement is hereby terminated in its entirety and
shall be of no further force and effect.
3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement at any time and from time to time, it will, prior to such filing,
give written notice to all Stockholders of its intention to do so and, upon the
written request of a Stockholder or Stockholders given within 20 days after the
Company provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use reasonable good
faith efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders to register to be registered
under the Securities Act to the extent necessary to permit their sale of other
disposition in accordance with the intended methods of distribution specified
in the Company's written notice to the Stockholders; provided that the Company
shall have the right to postpone or withdraw any registration effected
pursuant to this Section 3 without obligation to any Stockholder.
(b) In connection with any registration under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided that such terms must be consistent with
this Agreement). If any Stockholder disapproves of the terms of any such
underwriting, the Stockholder may, anytime prior to entering into a binding
commitment to participate in the underwriting,
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<PAGE> 4
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. If in the opinion of the managing underwriter it is appropriate
because of marketing factors to limit the number of Registrable Shares to be
included in the offering, then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the
managing underwriter believes should be included therein; provided that no
persons or entities other than the Company, the Stockholders and persons or
entities other than the Company, the Stockholders and persons or entities
holding registration rights granted in accordance with Section 9 hereof shall
be permitted to include securities in the offering. If the number of
Registrable Shares to be included in the offering in accordance with the
foregoing is less than the total number of shares which the holders of
Registrable Shares who have requested to be included, then the holders of
Registrable Shares have requested registration and other holders of securities
entitled to include them in such registration shall participate in the
registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereunto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in
the preceding sentence.
4. Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to use its reasonable good faith
efforts to effect the registration of any of the Registrable Shares under the
Securities Act, the Company shall, subject to its rights under Section 3(a)
above to postpone or withdraw such registration:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its reasonable good faith efforts to
cause that Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any
other offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the
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<PAGE> 5
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the selling
Stockholder may reasonable request in order to facilitate the public sale or
other disposition of the Registrable Shares owned by the selling Stockholder;
and
(d) as expeditiously as possible use its reasonable good faith
efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities of Blue Sky laws of such states as
the selling Stockholders shall reasonably request, and do any and all other
acts and things that may be necessary or desirable to enable the selling
Stockholders to consummate the public sale or other disposition in such states
of the Registrable Shares owned by the selling Stockholder; provided, however,
that the Company shall not be required in connection with this paragraph (d) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
If the Company has delivered preliminary of final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
5. Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement. For purposes of this
Section 5, the term "Registration Expenses" shall mean all expenses incurred
by the Company in complying with this Agreement, including, without limitation,
all registration and filing fees, exchange listing fees, printing expenses,
fees and expenses of counsel for the Company and the reasonable fees and
expenses (up to an aggregate of $ 20,000) of one counsel selected by the
selling Stockholders to represent the selling Stockholders, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of selling Stockholders' own counsel
(other than the counsel selected to represent all selling Stockholders).
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<PAGE> 6
6. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller of underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue
Sky laws or otherwise, insofar as such losses, claims, damages or
liabilities,(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company will
reimburse such seller, underwriter and each such controlling person for any
legal or any other expenses reasonably incurred by such seller, underwriter or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any untrue statement or omission
made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use
in the preparation thereof.
(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors and officers and each
underwriter (if any) and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, underwriter or controlling
person may become subject under the Securities Act, Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any
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<PAGE> 7
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with information relating
to such seller furnished in writing to the Company in an instrument duly
executed by or on behalf of such seller specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section
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 there from; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); 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 6. The Indemnified
Party may participate in such defense at such party's expense; provided,
however, that the Indemnifying Party shall pay such expense if representation
of such Indemnified Party by the counsel retained by the Indemnifying Party
would be inappropriate due to actual or potential differing interests between
the Indemnified Party and any other party represented by such counsel in such
proceeding. 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 of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any
-7-
<PAGE> 8
case in which either (i) any holder of Registrable Shares exercising rights
under this Agreement, or any controlling person of any such holder, makes a
claim for indemnification pursuant to this Section 6 but it is judicially
determined (by the entry of a final judgment of decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 6 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any such selling Stockholder or any such controlling person in
circumstances for which indemnification is provided under this Section 6; then,
in each such case, the Company and such Stockholder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions so that such holder is
responsible for the portion represented by the percentage that the public
offering price of its Registrable Shares offered by the Registration Statement
bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.
7. Information by Holder. Each Stockholder including Registrable
Shares in any registration shall furnish to the Company such information
regarding such Stockholder and the distribution proposed by such Stockholder as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
8. "Stand-Off" Agreement. Each Stockholder, if requested by the
Company and the managing underwriter of an offering by the Company of Common
Stock or other securities of the Company pursuant to a Registration Statement,
shall agree not to sell publicly or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by such Stockholder
for a specified period of time (not to exceed 180 days) following the effective
date of such Registration Statement.
9. Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of PNC (if it then holds
Registrable Shares) and other Stockholders holding at
-8-
<PAGE> 9
least 51% of the Registrable Shares (including any Registrable Shares owned by
PNC), enter into any agreement (other than this Agreement) with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to include securities of the Company in any
Registration Statement, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
on terms substantially similar to the terms on which holders of Registrable
Shares may include shares in such registration.
10. Rule 144 Requirements. The Company agrees, upon the request of
any Stockholder, to make available to such Stockholder and to any prospective
transferee of any Registrable Shares of such Stockholder the information
concerning the Company described in Rule 144A(d)(4) under the Securities Act.
After the earliest of (i) the closing of the sale of securities of the Company
of a class of securities under Section 12 of the Exchange Act, or (iii) the
issuance by the Company of an offering circular pursuant to Regulation A under
the Securities Act, the Company agrees to:
(a) comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(b) use its reasonable good faith efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon
request (i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements), (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents of
the Company as such holder may reasonably request to avail itself of any
similar rule or regulation of the Commission allowing it to sell any such
securities without registration.
11. Termination. All of the Company's obligations to register
Registrable Shares held by Stockholders other than PNC under this Agreement
shall terminate on the fifth anniversary of this Agreement.
-9-
<PAGE> 10
12. Transfers of Rights.
(a) The rights granted to a Stockholder under this
Agreement may be transferred by such Stockholder to another person or entity
that is then a Stockholder, to any affiliate of the Company or to any person or
entity acquiring the lesser of (i) all of the Registrable Shares held by such
Stockholder or (ii) 30,000 of the Registrable Shares (as adjusted for stock
splits, stock dividends, recapitalization or similar events).
(b) Any transferee (other than a Rights Holder) to whom
rights under this Agreement are transferred shall, as a condition to such
transfer, deliver to the Company a written instrument by which such transferee
identifies itself, gives the Company notice of the transfer of such rights,
indicates the Registrable Shares owned by it and agrees to be bound by the
obligations imposed upon Stockholders under this Agreement.
(c) A transferee to whom rights are transferred pursuant
to this Section 13 may not again transfer such rights to any other person or
entity, other than as provided in paragraphs (a) or (b) above.
(d) Notwithstanding anything to the contrary herein, (i)
any Stockholder which is a partnership or corporation may transfer rights
granted to such Stockholder under this Agreement to any partner or stockholder
thereof to whom Registrable Shares are transferred and who delivers to the
Company a written instrument in accordance with paragraph (b) above which
contains a representation that the transfer is exempt from registration under
the Securities Act and (ii) any Stockholder who is an individual may transfer
the rights granted to such Stockholder under this Agreement to any trust for
the benefit of members of such Stockholder's family to whom Registrable Shares
are transferred and who delivers to the Company written instrument in
accordance with paragraph (b) above which contains a representation that the
transfer is exempt from registration under the Securities Act. In the event of
such transfer, such partner, or stockholder or trust shall be deemed a
Stockholder for purposes of this Agreement and may again transfer such rights
to any other person or entity which acquires Registrable Shares from such
partner, stockholder or trust, in accordance with, and subject to, the
provisions of paragraphs (a), (b) and (c) above.
(e) Except as provided in this Section 12, no party to
this Agreement may transfer or assign any of its rights hereunder.
-10-
<PAGE> 11
13. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 11413 Isaac Newton Square, Reston, Virginia
22090, Attention: President, or at such other address or addresses as may have
been furnished in writing by the Company to the Rights Holders, with a copy to
David Sylvester, hale and Door, 1455 Pennsylvania Avenue, N.W., Suite 1000,
Washington, D.C. 20004; or
If to a Stockholder, at his or its address set forth below after his
or its signature, or at such other address or addresses as may have been
furnished to the Company in writing by such Stockholder.
Notices provided in accordance with this Section 13(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect tot the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(c) Amendments and Waivers. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and PNC (if it then
holds Registrable Shares) and other Stockholders holding at least 51% of the
Registrable Shares (including any Registrable Shares owned by PNC); provided,
that this Agreement may be amended with the consent of the holders of less that
all Registrable Shares only in a manner which affects all Registrable Shares in
the same fashion. No waivers of or exceptions to any term, condition or
providing of the Agreement, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
(d) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
<PAGE> 12
(e) Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity of enforceability
of any other provision of this Agreement.
(f) Governing Laws. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
Executed as of the date first written above.
COMPANY,
BEST PROGRAMS, INC.
By: /s/ JAMES F. PETERSEN
---------------------------------
Name: James F. Petersen
-------------------------------
Title: President
------------------------------
RIGHTS HOLDERS:
PNC CAPITAL CORP.
By: /s/ PETER V. DEL PRESTO
---------------------------------
Name: Peter V. Del Presto
-------------------------------
Title: Vice President
------------------------------
EDISON VENTURE FUND L.P.
By: /s/ JOHN H. MARTINSON
---------------------------------
Name: John H. Martinson
-------------------------------
Title: General Partner
of Edison Partners L.P.
and Edison Ventures Fund L.P.
------------------------------
-12-
<PAGE> 13
DOROTHY T. WEBB FAMILY TRUST
By: /s/ DOROTHY T. WEBB
---------------------------------
Name: Dorothy T. Webb
-------------------------------
Title: Trustee
------------------------------
PETERSEN IRREVOCABLE TRUST FOR
NIECES AND NEPHEWS
By: /s/ BURTEN A. PETERSEN
---------------------------------
Name: Burten A. Petersen
-------------------------------
Title: Trustee
------------------------------
PETERSEN IRREVOCABLE TRUST FOR JAMES
MITCHELL PETERSEN
By: /s/ BURTEN A. PETERSEN
---------------------------------
Name: Burten A. Petersen
-------------------------------
Title: Trustee
------------------------------
/s/ DOROTHY T. WEBB
------------------------------------
Dorothy T. Webb
/s/ JAMES F. PETERSEN
------------------------------------
James F. Petersen
-13-
<PAGE> 1
EXHIBIT 10.13
CONFIDENTIAL TREATMENT
Confidential material has been omitted
and filed separately with the Securities
and Exchange Commission. Astericks
denote such omissions.
LICENSE AGREEMENT
THIS AGREEMENT is made as of the 28th day of May, 1996, between Best!Ware, Inc.,
of 300 Roundhill Drive, Rockaway, New Jersey, USA ("Licensor") and Data-Tech
Software Pty. Ltd, of 4 Solwood Lane, Blackburn, VIC 3130, Australia
("Licensee").
WHEREAS:
A) Licensor is the owner of all right, title and interest in and to
certain small business accounting software products listed on EXHIBIT A
hereto (collectively, the "Bestware Products").
B) Licensor licenses other software currently in development, as listed
and described on EXHIBITS B and C hereto ("Casper" and "People
Manager TM", respectively), from affiliated entities, namely its
parent corporation, Best Programs, Inc. ("Best") and a sister
corporation, Abra Cadabra Software, Inc. ("Abra"). The term
"Casper" shall automatically be expanded to include any
modifications to the product provided by Licensor, Best or Abra to
Licensee during the term of this Agreement whether pursuant to
Section 4 hereof or otherwise.
C) Licensor has the right to license and/or sublicense (collectively
herein "license") tile Bestware Products, Casper and People Manager to
Licensee and to provide Licensee with source code to the such products.
D) Licensee desires to obtain a license and/or sublicense (collectively
herein "license") to copy, modify, make derivative works from, support,
distribute and use the Products (as defined below) pursuant to all the
terms of this Agreement.
E) Licensor agrees to license the Products to Licensee pursuant to all
the terms of this Agreement.
NOW THEREFORE, in consideration of the premises, covenants and agreements
contained herein, the parties hereto agree as follows:
1. DEFINITIONS
In this Agreement:
- - "Bestware Customer Lists" means all customer and prospect lists for the
Bestware Products owned by Licensor as of the Effective Date, including
customer lists created by Licensor's international distributors which
are owned by Licensor by virtue of such distribution relationships and
are in Licensor's possession as of the Effective Date or, even if not
owned, are under Licensor's control or in Licensor's possession as of
the Effective Date, but only to the extent that Licensor has the right
with regard to such lists to sublicense its rights to Licensee
hereunder. but specifically excluding the DT-Australia Customer Lists
(as defined below).
- - "Derivative Products" means all modified Software and Documentation
produced by Licensee or by a third party on Licensee's behalf after the
Effective Date, but specifically does not include the changes made by
Best to Casper or any other Product pursuant to Section 4 of this
Agreement which changes shall automatically become part of the Products
hereunder.
- - "Documentation" means the installation instructions and user manual
together with all other documentation customarily supplied by Licensor
for use with the Products, or any part thereof, including portions
incorporated in Derivative Products.
- - "DT-Australia Agreement" means that certain Vendor International
Distribution Agreement dated January 1, 1996 between Licensor and
Licensee, as the Pacific Rim distributor of the Bestware Products,
which shall be terminated by mutual agreement of the parties, as of the
Effective Date, pursuant to a termination agreement in the form attached
hereto as EXHIBIT D.
<PAGE> 2
- - "DT-Australia Customer Lists" means all customer and prospect lists for
the Bestware Products owned by Licensee as of the Effective Date or,
even if not owned, that are under Licensee's control or in Licensee's
possession as of the Effective Date.
- - "Effective Date" means the date first set forth above.
- - "Independent Competitive Product" means a software product developed by
Licensee or any other entity other than Licensor that performs
substantially the same functions as any Product and which is not a
Derivative Product.
- - "Low End Accounting Software Product" means an integrated general ledger
accounting software product that has the following characteristics: (a)
a customer base populated primarily by customers that have less than
fifty employees and less than $5 million in annual revenues; and(b) are
sold for less than $400 suggested retail.
- - "Management Agreement" means a separate management agreement that
Licensor may enter into, in its sole discretion, pursuant to which it
will hire a U.S. entity to run its day-to-day U.S. operations. Licensor
shall permit Licensee to sublicense its rights hereunder to such entity
(the "Management Company"), provided that (i) Licensee obtains
Licensor's prior approval of the Management Company, which approval
shall not be unreasonably denied; and (ii) such Management Agreement
shall comply with all the terms of this Agreement.
- - "Overlap Code" means that code in Abra's payroll software modules that
overlap with the payroll code in the MYOB payroll module, including
without limitation, the code modules designated as "PayEng.ccp" and
"PayEngl.ccp."
- - "People Manager Territory" means the countries listed on EXHIBIT E to
this Agreement.
- - "Products" means (a) the Bestware Products, as they exist on the
Effective Date of this Agreement including all versions thereof in
existence on the date of this Agreement which are owned by Licensor,
including the UK version which was created by Licensor's UK distributor,
Best Programs Ltd., (b) Casper, a product currently in development which
includes those elements described on EXHIBIT B hereto, and (c) People
Manager, a product currently in development which includes those
elements described on EXHIBIT C hereto. The term "Products" does not
include any separate products (i.e., products for which a separate
charge will be made in addition to any standard support/upgrade fee)
currently being developed by Licensor, any modifications to Casper or
People Manager developed by Licensor after the Effective Date (except as
specifically provided in Section 4 below) or any resulting new Licensor
products unless and until such time as the parties mutually agree in
writing to include such products in the definition of "Products."
- - "SLA" means a software license agreement in the form previously supplied
by Licensor to Licensee permitting use of the Software by end user
customers, or any software license agreement form adopted by Licensee
which is no less protective of Licensor's proprietary rights in the
Products than Licensor's form, to the extent permitted by law in the
relevant territory.
- - "Software" means that part of the Products consisting of computer
software programs.
- - "Trade Marks" includes the name of Licensor and such other trademarks of
Licensor (whether registered or applied to be registered as a trade or
service mark, or unregistered) which are listed on EXHIBIT F to this
Agreement.
<PAGE> 3
2. LICENSES AND LICENSE RESTRICTIONS
2.1 Grants by Product
a) BESTWARE PRODUCTS. Subject to all the terms and conditions of
THE AGREEMENT, Licensor hereby grants Licensee an exclusive,
worldwide, nontransferable license to use, copy, modify, create
Derivative Products from, support, market and distribute, The
Bestware Products, and to sublicense such Bestware Products and
any Derivative Products created therefrom, in object code form
only, to end users for use in accordance with the terms of an
SLA. Licensee acknowledges that the exclusivity of the license
granted in this Section 2.1(a) is qualified by and subject to
(i) Licensor's retention, on Abra's behalf, of nonexclusive
rights to market, copy, distribute, modify, license and in any
other way, use the Overlap Code, and (ii) the existence of
certain pre-existing distribution agreements granted by Licensor
to various third parties prior to the date hereof A list of all
such agreements is set forth on EXHIBIT G hereto. As between
Licensor and Licensee, these agreements shall be treated as set
forth in Section 2.4 below.
b) CASPER. Subject to all the terms and conditions of the
Agreement, Licensor hereby grants Licensee a non-exclusive,
worldwide, nontransferable license to use, copy. modify, create
Derivative Products from, support, market and distribute,
Casper, and to sublicense Casper and any Derivative Products
created therefrom, in object code form only, to end users for
use in accordance with the terms of an SLA.
c) PEOPLE MANAGER. Subject to all the terms and conditions of the
Agreement, Licensor hereby grants Licensee (i) a non-exclusive,
nontransferable license to use, copy, modify, create Derivative
Products from, People Manager, (ii) an exclusive
-nontransferable license to market, distribute and support
People Manager and any Derivative Products created therefrom,
solely in the People Manager Territory, and (iii) all exclusive,
nontransferable license to sublicense People Manager and any
Derivative Products created therefrom, in object code form only,
to end users solely in (the People Manager Territory for use in
accordance with the terms of an SLA.
d) SUBLICENSING. The licenses granted to Licensee in subsections
(a) through (c) above may not be sublicensed to a third party
except (i) as specifically permitted in the case of
subdistribution agreements pursuant to Section 2.4 below and
(ii) that such rights may be sublicensed pursuant to the
Management Agreement.
2.2 Source Code License by Product -
a) BESTWARE PRODUCTS. Subject to all the terms and conditions of
this Agreement, including without limitation the source code
limitations in Section 3 below, Licensor hereby grants Licensee
an exclusive, non-transferable license to use, copy and modify
the source code version of the Bestware Products and related
Documentation to create Derivative Products thereof and to
incorporate the source and/or the object code or portions
thereof in the Derivative Products, subject to Licensor's
retained rights as set forth in Section 2.1(a) above.
b) CASPER AND PEOPLE MANAGER. Subject to all the terms and
conditions of this Agreement, including without limitation the
source code limitations in Section 3 below, Licensor hereby
grants Licensee a non-exclusive, non-transferable license to
use, copy and modify the source code version of Casper and
People Manager and related Documentation to create Derivative
Products thereof and to incorporate the source and/or the object
code or portions thereof in the Derivative Products. In the case
of People Manager, the Derivative Works created may only be for
use in the People Manager Territory.
c) SUBLICENSING. The licenses granted to Licensee in subsections
(a) and (b) above may not be sublicensed to a third party except
that such rights only be sublicensed pursuant to the
3
<PAGE> 4
Management Agreement or as reasonably necessary to allow for
localization of the Products within the authorized territories.
2.3 Bestware Customer List License - Subject to all the terms and conditions
of this Agreement, Licensor hereby grants Licensee an exclusive,
non-transferable license to use the Bestware Customer Lists solely in
its marketing, support and distribution of the Bestware Products, the
Derivative Products, the Independent Competitive Products, and Casper
during the term of this Agreement. This license may not be sublicensed
other than (i) pursuant to the Management Agreement, or (ii) pursuant to
customer list rental arrangements of the type conducted by Licensor
prior to the Effective Date and provided that no such rental shall be
made to any manufacturer or distributor of products which compete with
the Products for the purpose of promoting any product that competes with
any of the Products.
2.4 Dealers/Distributors - During the term of this Agreement, Licensee's
right to sublicense its distribution rights to third parties is solely
as set forth in this Section 2.4, except that the requirements set forth
in subsection (a) below shall not apply to any of the Licensor
distribution agreements set forth on EXHIBIT G, which are entered into
between Licensee and such distributor after the Effective Date, if such
are executed under the same (or substantially similar) terms as those
originally agreed to by Licensor.
a) APPOINTMENT - Licensee shall have the right to sublicense
distributors and dealers to distribute the Products to
end-users, subject to the terms of this Section 2.4. Licensee
agrees that subdistributors and dealers authorized by Licensee
to distribute the Products shall assume obligations relating to
the marketing and distribution of the Products equivalent to
those assumed by Licensee hereunder, with regard to (a) the
protection of Licensor's Trade Marks, Products and confidential
information; (b) record keeping and inspection, and (c)
disclaimer of liability. Further, Licensee shall limit the scope
of rights granted to any such party such that the rights so
granted in no way exceed the rights granted to Licensee
hereunder (in particular, the territorial limitations of the
People Manager product). Further, Licensee agrees to indemnify
Licensor and hold Licensor harmless from any and all claims
brought against Licensor by any such distributor/dealer or
against any damages arising from any such distributor/dealer
relationship, unless such claims arise due to the negligent act
or misconduct of licensor. In no event shall Licensee grant any
distributor or dealer access or rights to any Product source
code without Licensor's prior written consent. All distributor
and dealer agreements shall automatically terminate upon
termination of this Agreement due to default by Licensee.
b) BREACH OF OBLIGATIONS - If at any time during the term of this
Agreement, Licensor has reason to believe that any distributor
or dealer is in violation of any material provision of its
distributor or dealer agreement, including without limitation
those provisions relating to treatment of Licensor Trade Marks
or confidential information, Licensor shall so notify Licensee
and the parties shall consult in good faith to determine the
action to be taken by Licensee under the applicable distributor
or dealer agreement. Licensee shall agree to take all reasonable
actions, up to and including legal action against any
distributor or dealer, if such action is reasonably necessary to
protect Licensor's proprietary rights. Licensee shall pay the
costs, expenses and attorneys' fees of any such action. Licensor
agrees that it will cooperate fully with Licensee in prosecuting
or settling any such claim and shall negotiate with Licensee
reasonably and in good faith as necessary with regard to
continuing prosecution or settling the claim. In addition, each
distributor agreement shall provide that Licensor shall have the
right to enforce the terms of such agreement as long as this
Agreement remains in effect.
c) DT-AUSTRALIA AGREEMENT - On the Effective Date, the parties
shall mutually agree to terminate the DT-Australia Agreement,
pursuant to a termination agreement in the form attached hereto
as EXHIBIT D.
4
<PAGE> 5
d) OTHER EXISTING LICENSOR DISTRIBUTION AGREEMENTS - Promptly after
the Effective Date, Licensor, in conjunction with Licensee (or
the Management company, if Licensee so designates), will notify
all of the distributors listed on EXHIBIT G, that it is
terminating its relationship with such distributor as soon as
legally permitted under the terms of Licensor's then-current
agreement with each such distributor. As soon as possible after
the Effective Date, Licensee agrees to undertake a commercially
reasonable effort to execute new agreements with such parties,
During the period between the Effective Date and the date of
termination of these agreements (the "Transfer Period"),
Licensee agrees that it shall serve as Licensor's agent in
relation to such agreements and shall fulfill all of Licensor's
obligations thereunder. In consideration therefore, Licensee
shall be entitled to collect and retain all fees paid by such
third parties to Licensor which relate to transactions occurring
under such agreements after the Effective Date. The mechanics
of operation of such distribution agreements during the Transfer
Period, as between Licensor and Licensee, shall be as set forth
in detail in a separate agreement of even date herewith between
Licensor and the Management Company, if any (the "Transition
Agreement"). If there is any conflict between the terms of this
paragraph and the terms of the Transition Agreement dealing with
management of those distribution agreements listed on EXHIBIT G,
Licensor and Licensee agree that the terms of the Transition
Agreement shall govern. Licensor agrees to indemnify Licensee
and hold Licensee harmless from any and all claims brought
against Licensee by any such distributor/dealer (a) for improper
termination of its distribution agreement by Licensor, or (b)
under its distribution agreement during the Transfer Period;
provided, however that Licensor shall have no liability for any
such claims that arise due to the negligent act or misconduct of
Licensee, whether in its role as Licensor's agent or otherwise.
Conversely, Licensee agrees to indemnify Licensor and hold
Licensor harmless from any and all claims brought against
Licensor by any such distributor/dealer under its distribution
agreement during the Transfer Period, which arise from the
negligent act or misconduct of Licensee, whether in its role as
Licensor's agent or otherwise.
e) ROYALTIES - All royalties paid to Licensee from its
subdistributors shall be commercially reasonable.
2.5 End User Licensing - With every Product and Derivative Product
distribution by Licensee or on Licensee's behalf, Licensee shall include
an SLA. In addition, during the term of this Agreement, each such
agreement shall provide that Licensor shall have the right to enforce
the terms of such agreement. Licensee agrees to use its best efforts to
enforce the obligations of its agreements and to inform Licensor
immediately of any known breach of such obligations.
2.6 Relationship between the Parties - During the term of this Agreement,
Licensee shall act as an independent contractor and shall neither be,
nor represent itself to be, an employee or agent of Licensor except as
specifically permitted herein. Licensee shall in no event have authority
to bind or incur any liability or make any commitment on behalf of
Licensor. Nothing in this Agreement shall be construed as constituting
Licensee and Licensor as partners, or as creating the relationship of
employer and employee, franchiser and franchisees master and servant, or
principal and agent (except as specifically permitted herein) between
them.
2.7 Licensor Rights - Notwithstanding any other provision of this Agreement,
neither Licensor nor any of its affiliates shall be treated as in breach
of any obligation to Licensee in relation to:
a) Any copy of the Bestware Products distributed or marketed before
the Effective Date, or any copy of People Manager distributed or
marketed other than by Licensor into the People Manager
Territory before the Effective Date;
b) Any copy of People Manager imported into the People Manager
Territory after the Effective Date for supply within the People
Manager Territory where such copy is lawfully marketed in parts
outside the People Manager Territory, but Licensor will use
reasonable efforts, unless prohibited by law, to discourage such
activities if timely notified of their occurrence by the
Licensee;
5
<PAGE> 6
c) Any Licensor products other than the People Manager Products in
the People Manager Territory, and the Bestware Products.
2.8 Competing Products -
LICENSEE:
a) DURING THE TERM. Licensee may during the term of this Agreement
develop, manufacture or distribute goods which compete with the
Products (including any Independent Competitive Product), as
long as Licensee pays Licensor a royalty on the receipts
therefrom as part of the revenue calculation set forth on
EXHIBIT H hereof.
b) AFTER TERMINATION FOR CAUSE BY LICENSOR DUE TO DEFAULT BY
LICENSEE. Further, in the case of termination of this Agreement
by Licensor due to default by Licensee, Licensee shall not
directly or indirectly as an individual proprietor, partner,
stockholder, officer, employee, director, joint venturer,
investor, lender, or in any other capacity whatsoever (other
than as the holder of not more than five percent (5%) of the
total outstanding stock of a publicly held company), for one
year after the date of such termination, engage in the business
of developing, marketing or distributing goods which compete
with the Products.
LICENSOR:
c) DURING THE TERM. During the term of this Agreement, Licensor
shall not directly or indirectly as an individual proprietor,
partner, stockholder, officer, employee, director, joint
venturer, investor, lender, or in any other capacity whatsoever
(other than as the holder of not more than five percent (5%) of
the total outstanding stock of a publicly held company), engage
in the business of developing, marketing or distributing a Low
End Accounting Software Product.
d) AFTER TERMINATION FOR CAUSE BY LICENSEE DUE TO DEFAULT BY
LICENSOR. For the period of four years from the Effective Date
of this Agreement, Licensor shall not directly or indirectly as
an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any
other capacity whatsoever (other than as the holder of not more
than five percent (5%) of the total outstanding stock of a
publicly held company), engage in the business of developing,
marketing or distributing a Low End Accounting Software Product.
e) EXCLUSIONS. Nothing in Sections 2.8(c) or 2.8(d) is intended to
in any way restrict Licensor, Best or Abra's right to develop,
market, distribute, or sublicense (i) any product based on,
related to, or derived from the Casper or People Manager
technology (which right with regard to People Manager, during
the term of this Agreement, shall be restricted to areas outside
of the People Manager Territory), as long as such derivative
product is not a Low End Accounting Software Product, or (ii) an
integrated payroll module with Casper, People Manager (which
right with regard to People Manager, during the term of this
Agreement, shall be restricted to areas outside of the People
Manager Territory) or any other software product, which module
may or may not include the Overlap Code, in Licensor's sole
discretion; or (iii) a corporate budgeting product. Further,
notwithstanding Sections 2.8(c) or 2.8(d), in the event that
Licensor, Best or Abra shall merge with, or acquire the assets
of, another business, and such business was developing and/or
marketing prior to the merger or acquisition, in addition to
other products, one or more Low End Accounting Software
Products, the restrictions of Section 2.8(c) and 2.8(d) shall
not apply to such Low End Accounting Software Product(s) after
completion of the merger or acquisition, on the grounds that the
competition between the Bestware Product(s) and such Low End
Accounting Software Products pre-existed such merger or
acquisition.
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<PAGE> 7
f) BEST/ABRA AGREEMENT. On or before the Effective Date, Licensor
shall obtain the written agreement of Best and Abra to abide by
the terms of Sections 2.8(c) and (d).
2.9 Activities relating to People Manager outside the People Manager
Territory - Unless otherwise agreed by Licensor in writing, Licensee
shall not at any time either during or after the term of this Agreement
and in relation to People Manager, seek customers, establish any branch
or maintain any distribution depot for the distribution of People
Manager outside the People Manager Territory without written
authorization from the Licensor.
3. SOURCE CODE.
3.1 Permitted Uses. Promptly after the Effective Date of this Agreement,
Licensor shall provide a copy of Product source code to Licensee, and
Licensor hereby grants Licensee the right to use such copy in order for
Licensee to modify and enhance the Products for the purpose of producing
Derivative Products for end-users that are competitive in the
marketplace and for supporting and repairing the Products and any such
Derivative Products.
3.2 Obligations - During the term of this Agreement, Licensee shall have no
rights to disclose, sell, license, distribute, encumber, or in any way
transfer the source code, or any portion thereof, to any third party
without Licensor's prior written approval and will at all times hold the
source code in the strictest confidence. Licensee may give access to the
source code only to those Licensee employees and consultants, or those
employees and consultants of the Management Company, if any, who must
access the code in order to make the modifications permitted hereunder.
All such employees and consultants who are given access to the source
code must sign, or have signed, a confidentiality agreement imposing
confidentiality obligations substantially similar to those set forth in
this Section 3.2. During the term of this Agreement, Licensee agrees
that it shall keep (and shall require the Management Company, if any, to
keep) written records of all those persons who have access to Licensor
Product source code, and shall provide such records to Licensor if
Licensor so requests in connection with a bona fide investigation of
copyright infringement of any Licensor Product or for any legitimate
business reason. Licensee shall use its best efforts (and shall require
the Management Company, if any, to commit to the same level of effort)
to safeguard the Licensor Product source code and to ensure that no
unauthorized persons have access to the source code, and that no persons
authorized to have such access (i.e., specified employees and
consultants) shall take any action which would be in violation of either
their confidentiality agreement or this Agreement if taken by Licensee.
With regard to all Products, the foregoing obligations relating to
confidentiality and nondisclosure will subsist during the term of this
Agreement and (i) with regard to People Manager and Casper source code,
will survive for five (5) years after the date of expiration or any
termination of this Agreement and (ii) with regard to the Bestware
Products source code, will survive for five (5) years after the date of
any termination of this Agreement by Licensor due to default by
Licensee.
3.3 Ownership of Changes. All Derivative Products created by any third party
on Licensee's behalf, including without limitation those made by the
Management Company, if any, shall be owned by Licensee. During the term
of the Agreement, Licensee shall obtain written assignments of ownership
from any such third parties.
3.4 Retention Procedures; Escrow.
a. Within thirty days, Licensee agrees to institute a source and
customer list retention procedure whereby, no less than once per
quarter, Licensee will send the then current version of the
Bestware Customer Lists, the DT-Australia Customer Lists and
the Product source code (including all Derivative Product
source code) to an off site, secure, third party record
retention facility. During the term of this Agreement, Licensor
shall at its request, during normal business hours, be given
access to the records so retained in order to verify that the
obligations under this paragraph are being met. Licensor's right
to such access shall terminate automatically upon expiration of
this Agreement or termination of this Agreement by Licensee due
to default by Licensor. Upon any
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<PAGE> 8
termination of this Agreement by Licensor due to default by
Licensee, Licensee shall promptly instruct the third party
record retention facility to turn over all materials in its
possession to Licensor. Any disputes relating to the release of
the materials from the third party record retention facility
shall be settled by arbitration. As appropriate, Licensee may
delegate some or all of the obligations set forth in this
subsection 3.3(a) to the Management Company, if any; provided
that the Management Agreement contain obligations equivalent to
those set forth in this subsection.
b. In addition, within thirty days of the Effective Date, Licensee
and Licensor shall enter into an escrow agreement mutually
acceptable to Licensee and Licensor which shall remain in effect
during the term of this Agreement. The escrow agreement shall
provide, in general, that no less frequently than once every six
months during the term of this Agreement, Licensee shall deliver
the source code of the then current Products, and Derivative
Products, plus the then current Bestware and DT Australia
Customer Lists, to the escrow agent. Licensor shall be given
access to such source code and Customer Lists in the event that
this Agreement terminates due to breach by Licensee. If
termination occurs due to expiration or due to breach by
Licensor, the escrow agent will deliver all of the escrow
materials to Licensee. Any disputes relating to the release of
the escrowed materials from escrow shall be settled by
arbitration, as described in more detail in the escrow
agreement. Licensor shall pay all escrow fees. The escrow
agreement shall terminate upon delivery of the escrowed
materials to either Licensee or Licensor.
3.5 Breach of Section 3 Obligations. Any violation of the terms of Sections
3.2 and 3.3 by Licensee shall be considered a material breach of this
Agreement by Licensee. Licensee shall promptly report to Licensor any
violation of Section 3.2 and shall take further steps as may be
requested by Licensor to prevent or remedy any such violation, at
Licensee's cost. In addition, because unauthorized use or transfer of
the Licensor Product source code or the Customer Lists would diminish
substantially the value of such program and irrevocably harm Licensor,
if Licensee breaches the provisions of Section 3.2, Licensor shall be
entitled to injunctive and/or other equitable relief, in addition to
other remedies afforded by this Agreement or by law, to prevent or
remedy a breach of Section 3.2.
3.6 Return of Materials - Upon any termination of this Agreement due to
default by Licensee, Licensee shall immediately return all copies of the
Product source code to Licensor, including all source code for any
Derivative Products created during the term of this Agreement, and the
Bestware Customer Lists.
4. CASPER MODIFICATIONS. Licensor agrees that during the eighteen month
period commencing on the Effective Date, it has contracted with Best to have
Best provide Licensee with up to 600 hours of technical consulting support on
Casper, free of charge, with no more than 300 hours being utilized in the final
six months of such period. The parties agree that such 600 hours may be utilized
by Licensee towards Casper development in accordance with the procedure set
forth in detail in EXHIBIT I. Upon request, during the term of this Agreement,
additional Casper development services shall be provided by Best to Licensee at
a specified rate as set forth in EXHIBIT I. Further, during the twelve month
period commencing on the Effective Date, Best has committed to Licensee that it
will deliver to Licensee any enhancements to Casper that it creates during such
period provided, however, that nothing in this sentence shall be interpreted as
a commitment on Licensee or Best's part to create any such enhancements.
5. OWNERSHIP OF PRODUCTS AND CUSTOMER LISTS
5.1 Products Existing as of the Effective Date - Licensee acknowledges and
agrees that all Products licensed to Licensee by Licensor hereunder,
whether in object or source code form, are and shall remain the sole
and exclusive property of Licensor, Best or Abra, as applicable.
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5.2 Modified Products Delivered by Licensor, Best or Abra. Any modified
Products delivered to Licensee during the term of this Agreement by
either Licensor, Best or Abra and whether pursuant to Section 4 or
otherwise, are and shall remain the property of such delivering party.
5.3 Derivative Products Created by Licensee Hereunder - Licensor agrees that
any Derivative Products created by Licensee hereunder shall be and
remain the sole and exclusive property of Licensee, except for any
elements of such Derivative Products that consist of Licensor Product
source code, which are and shall remain the sole and exclusive property
of Licensor. The ownership rights of Licensee set forth in this
paragraph are further subject to the transfer of ownership provisions
set forth in Section 6 below.
5.4 Customer Lists - The Bestware Customer Lists are and shall remain the
sole and exclusive property of Licensor.
6 COMMENCEMENT, DURATION AND TERMINATION
6.1 Commencement and Duration - This Agreement shall commence on the
Effective Date and, unless earlier terminated as herein provided or
renewed by the mutual written agreement of the parties, shall expire on
the date upon which Licensee has fully paid the total amount of royalty
required by this Agreement as though this Agreement had run its full
four year term, as set forth in EXHIBIT H. Such a termination is
referred to herein as "expiration."
6.2 Termination by Licensor - Licensor shall have the right without
liability to Licensee to terminate this Agreement forthwith upon written
notice in the event that Licensee shall:
a) Be in breach of any material term or any obligation on its part
to be performed and shall have failed to remedy such breach
within sixty (60) days from the date of written notice
specifying the breach and requiring its remedy; or
b) Be adjudged insolvent or bankrupt, take or have taken against it
any proceedings or action seeking relief, reorganization or
arrangement under any laws relating to insolvency (excluding an
intended reorganization undertaken with the approval of the
other party), make or suffer any assignment for the benefit of
creditors, suffer the appointment of any receiver, liquidator,
or trustee of any or its property or assets, or suffer
liquidation, dissolution, or winding up of its business or any
analogous action taken on account of its financial position; or
c) Assign this Agreement to a third party in violation of the
assignment provisions set forth herein; or
d) Not achieve the royalty cap for any twelve month period as set
forth on EXHIBIT H hereof; provided however that for any twelve
month period in which Licensee does not achieve the royalty cap,
Licensee shall have the right to make a lump sum payment to
Licensor of the deficiency at the time it makes its last payment
of royalties for such twelve month period.
Termination by Licensor pursuant to this Section 6.2 may be referred to
herein as "termination due to default by Licensee" or "termination due
to breach by Licensee."
6.3 Termination by Licensee - Licensee shall have the right without
liability to Licensor to terminate this Agreement forthwith upon written
notice in the event that Licensor shall:
a) Be in breach of any material term or any obligation on its part
to be performed and shall have failed to remedy such breach
within sixty (60) days from the date of written notice
specifying the breach and requiring its remedy; or
b) Be adjudged insolvent or bankrupt, take or have taken against it
any proceedings or action seeking relief, reorganization or
arrangement under any laws relating to
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<PAGE> 10
insolvency (excluding an intended reorganization undertaken with
the approval of the other party), make or suffer any assignment
for the benefit of creditors, suffer the appointment of any
receiver, liquidator, or trustee of any of its property or
assets, or suffer liquidation, dissolution, or winding up of its
business or any analogous action taken on account of its
financial position; or
c) Assign this Agreement to a third party in violation of the
assignment provisions set forth herein.
Termination by Licensee pursuant to this Section 6.3 may be referred to
herein as "termination due to default by Licensor" or "termination due
to breach by Licensor."
6.4 Consequences of Expiration or Termination by Licensee due to Default by
Licensor - Upon termination of this Agreement due to expiration or due
to termination by Licensee due to default by Licensor:
a) No further royalties shall be paid by Licensee to Licensor under
this License Agreement.
b) Any provision of this Agreement expressly stated to survive, or
impliedly surviving, termination shall remain in full force and
effect.
c) All licenses granted by Licensor to Licensee hereunder shall
automatically terminate on the date of expiration or termination
and Licensee shall have no further right to copy, modify,
distribute or market any Product or Derivative Product (unless
Product source code is eliminated therefrom), or in any way use
the Bestware Customer Lists, or the Trade Marks. No SLAs shall
be affected, which shall continue in full force in accordance
with their terms.
d) Licensee shall retain any and all right, title and interest that
Licensee may have in and to any of the Derivative Products by
virtue of the changes it has made to the Products hereunder.
e) No rights of either party accrued at the date of termination
shall be affected or prejudiced.
6.5 Consequences of Termination Due to Default by Licensee - Upon
termination of this Agreement by Licensor due to Default by Licensee:
a) Payment by Licensee to Licensor of any royalties owed or deemed
to be owing shall be handled as set forth in that certain Deed
of Company Charge signed by Licensor, a form of which is
attached hereto as EXHIBIT J (the "Charge"), and in such other
security documents and guaranties as may have been provided
pursuant to Section 8.1 below due to the fact that termination
due to default by Licensee shall constitute and "Event of
Default" under such document(s).
b) Any provision of this Agreement expressly stated to survive, or
impliedly surviving, termination shall remain in full force and
effect.
c) Licensee shall assign to Licensor and agrees to assign to
Licensor, irrevocably and in perpetuity, any and all right,
title and interest that Licensee may have in and to any of the
Products and Derivative Products. Licensee further agrees,
during and subsequent to the term of this Agreement, entirely at
Licensee's expense and without further consideration, to
document the assignment of all right, title, and interest in
such products to Licensor. Promptly upon Licensor's request,
Licensee agrees that Licensee will execute any appropriate
assignment document.
d) All licenses granted by Licensor to Licensee hereunder shall
automatically terminate on the date of termination of this
Agreement and Licensee shall have no further right to
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copy, modify, distribute or market any Product or Derivative
Product, or in any way use the Bestware Customer Lists or the
Trade Marks. No SLAs shall be affected, which shall continue in
full force in accordance with their terms.
e) Licensee shall give instructions so that all materials being
held by third parties pursuant to the terms of Section 3.4 above
shall be released to Licensor.
f) No rights of either party accrued at the date of termination
shall be affected or prejudiced.
6.6 Licensee's Alternative Remedy in the Case of Licensor Bankruptcy.
Licensor acknowledges that if a trustee in bankruptcy, or Licensor as a
debtor-in-possession in a case under the Bankruptcy Code rejects this
Agreement, Licensee may elect, in its sole discretion, instead of
terminating the Agreement for Licensor default as provided in Section
6.3 above, to retain its rights under this Agreement as provided in
Section 365(n) of the Bankruptcy Code, provided all royalties are paid
to Licensor when due hereunder. Upon written request of to Licensor or
the Bankruptcy Trustee, Licensor or such Bankruptcy Trustee shall not
interfere with the rights of Licensee as provided in this Agreement.
7. DUTIES OF LICENSEE
7.1 Best Efforts Obligation. Licensee shall use its best efforts to maintain
the Products so that they are competitive in the marketplace and shall
vigorously and aggressively promote the Products, subject to Licensee's
right to determine, in its best business interests, to discontinue
maintaining and updating a product in any particular geographic area.
7.2 Marketing and Advertising - Licensee shall indemnify and hold Licensor
harmless from all damages incurred by Licensor as a result of Licensee's
advertising or promotional materials with respect to the Products.
7.3 Support - It is a condition of this Agreement that Licensee (including
its distributors and dealers) shall establish and thereafter operate an
efficient support service in relation to the Products. In no
circumstances will Licensor, or any affiliate of Licensor, be required
to provide support, modifications or updates for the Products, other
than that to be provided by Best as detailed in Section 4 above.
Licensee shall be solely responsible for supporting the Products and for
training its dealers and distributors in respect of support.
7.4 Warranty Work, etc. - Licensee shall provide all warranty service for
end users for all Products, whether sold, licensed or otherwise
distributed by Licensor prior to the Effective Date or by Licensee after
the Effective Date.
7.5 Compliance with Laws, etc. - Licensee shall comply with all laws,
statutes and regulations affecting the Products and/or the performance
by Licensee of its obligations hereunder. Licensee agrees that it will
not sell, license, or re-export the Products so as to violate any of the
export control laws of the United States.
7.6 Reports - Licensee shall submit to Licensor, within thirty days of
Licensor's written request therefor, which request may be made no more
than quarterly, written sales and activity reports in such form and at
such intervals as Licensor shall require. Such reports may include
shipments of Products, Dollar volume, etc. If the Management Company is
to maintain such records on Licensee's behalf pursuant to the Management
Agreement, Licensee shall insure that such reports are timely delivered
by the Management Company to Licensor.
7.7 Inspection - Licensee shall allow representatives of Licensor on
reasonable notice and during normal working hours, to examine Licensee's
place(s) of business and/or inventories of the Products for the purpose
of verifying to the satisfaction of the Licensor that Licensee is
performing its obligations under this Agreement; Licensee shall use its
best efforts to procure
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rights allowing Licensor on reasonable notice and during normal working
hours access to the Management Company's and sub-distributors' places of
business for similar inspections.
7.8 General Information and Assistance - Licensee shall immediately advise
Licensor of any legal notices served on Licensee that might affect
Licensor.
7.9 Records. Promptly after the Effective Date, Licensor shall provide
Licensee with access to such books, records and accounts (or copies
thereof), including financial information, correspondence, production
records, and other similar information as necessary for Licensee to
fully exploit the licenses granted hereunder. Such books, records and
accounts shall remain the property of Licensor and Licensor shall have
the right to remove such books, records and accounts from Licensee's
premises at any time, provided that Licensor shall allow Licensee
sufficient time to make copies of any such books, records and accounts
it reasonably needs to retain in order to operate its business. With
regard to any records that Licensor maintains at a separate facility,
Licensee shall have the right for a period of three years following the
Effective Date to have reasonable access to those books, records and
accounts, including financial and tax information, correspondence,
production records, employment records and other records to the extent
any of the foregoing relates to the business of developing, marketing
and distributing the Products, and solely for the purpose of complying
with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations, or any other reasonable
purpose relative to the operation of its ongoing business. With regard
to those books, records and accounts of Licensor still in Licensee's
possession at the time of expiration of this Agreement or termination
due to breach by Licensor, Licensee shall maintain such books, records
and accounts, including financial information, correspondence,
production records, and other similar information until at least June 1,
2000. Thereafter, Licensee may destroy such books, records and accounts
after giving no less than thirty days prior written notice to Licensor
which notice shall give Licensor the opportunity to take possession of
breach by Licensee, Licensee will promptly return all Licensor books,
records and accounts to Licensor.
7.10 References. No written or printed material, including, without
limitation, any catalogue, brochure, sales or any kind of promotion
material or other selling material, that contains the name of or
references Best, Best Programs Ltd, Best Programs - Canada, or Abra
shall be used publicly or distributed by Licensee until such names or
references are deleted or covered by a sticker acceptable to Best or
Abra, as applicable. If there is any conflict between the terms of this
paragraph and the terms of the Transition Agreement dealing with the use
of materials referencing Best or Abra after the Effective Date, Licensor
and Licensee agree that the terms of the Transition Agreement shall
govern.
7.11 Affirmative Covenants - From the Effective Date of this Agreement until
termination or expiration hereof, Licensee covenants and agrees that it
and its subsidiaries shall:
FINANCIAL REPORTS.
a) Furnish to Licensor, within 30 days after the end of each
quarter, an unaudited financial report of the Licensee which
report shall include the following: (i) a profit and loss
statement and cash flow statement for such quarter, together
with a cumulative profit and loss statement and cash flow
statement from the first day of the current fiscal year to the
last day of such quarter, which statements shall be comparative
to the corresponding period of the prior fiscal year and shall
be prepared in accordance with Australian applicable accounting
standards and Australian Accounting Standards and Statements of
Accounting Concepts, consistently applied; and (ii) a balance
sheet as of the last day of such quarter, which balance sheet
shall be prepared in accordance with Australian applicable
accounting standards and Australian Accounting Standards and
Statements of Accounting Concepts, consistently applied.
b) Furnish to Licensor, within 120 days after the end of each
fiscal year of the Licensee, "Audited" financial statements of
the Licensee which shall include a profit and loss
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statement and cash flow statement for such fiscal year and a
balance sheet as of the last day thereof, each prepared in
accordance with Australian applicable accounting standards and
Australian Accounting Standards and Statements of Accounting
Concepts, consistently applied and accompanied by the auditors'
report of a reputable Charted Accountant as may be chosen by the
Licensee.
In the context of this subparagraph, "Audited" shall refer to an
independent Investigating Accountant's Report prepared in
relation to the end of year financial statements. The report
should specifically address the verification of the balance
sheet accounts in relation to cash balances, bank balances,
accounts receivable balances, accounts payable balances together
with investigation into the correctness of the Gross Revenue (as
defined in Exhibit H) for the year, compliance with negative and
affirmative covenants, and reporting as to any material
differences or balances in the financial statements.
TAX RETURNS AND PAYMENT OF TAXES.
c) File all lawful tax returns and other reports which it is
required by law to file, maintain adequate reserves for the
payment of all taxes imposed upon it, its income, its sales, or
its profits, or upon any assets or properties belonging to it
and pay and discharge all such taxes prior to the date on which
penalties attached thereto.
BUSINESS INSURANCE.
d) Maintain insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are
customary for corporations of established reputation. Provide a
certificate of insurance to Licensor within ninety days of the
Effective Date and on an annual basis.
INSURANCE.
e) Maintain life insurance coverage on Brad Shofer, and Craig
Winkler by financially sound and reputable insurers in such
forms and amounts and against such risks as are customary for
corporations of established reputation. Such amount should cover
at least one-sixth of any unpaid royalty obligation per person.
Proceeds from this policy necessary for payment of such royalty
obligation should be escrowed for payment to Licensor should
Licensee's revenues not be sufficient to satisfy all royalty
obligations set forth in Exhibit H at any time during the
remainder of this Agreement's four year term. Provide a
certificate of insurance to Licensor within ninety days of the
Effective Date and on an annual basis.
7.12 Negative Covenants - From the Effective Date of this Agreement until
termination or expiration hereof, Licensee covenants and agrees that it
and its subsidiaries shall not take the following actions without prior
approval by Licensor:
a) Merge or consolidate with or acquire all or any substantial
portion of the assets or capital stock of any entity in any
transactions involving payments by Licensee of consideration
having a total fair market value in excess of the "Limitation
Amount." For purposes of this Section 7.12, the term "Limitation
Amount" shall mean, as of the Effective Date, $1 million dollars
(the "Base Amount"), and thereafter, an amount calculated as:
(I) the Base Amount, plus (II) the amount of royalties actually
paid under the License Agreement multiplied by 120%.
b) Except for sales, leases, transfers or other dispositions of
assets made in the ordinary course of business, sell, lease,
transfer, license or otherwise dispose of any of its or its
subsidiaries' assets or properties (including transfers among
the Licensee and its subsidiaries) having a fair market value in
excess of 20% of the Net Book Value of the Licensee and its
subsidiaries, either singularly or in the aggregate. For
purposes of this
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Subsection (b), the term "Net Book Value" shall mean the net
assets of the business following add-back of the Unit Holder
loan balances.
c) In any Agreement year, until the royalty cap for such Agreement
year has been fully paid to Licensor, and Licensee has
accumulated and reserved at least 25% of the next year's royalty
cap, (I) declare or pay dividends upon any of Licensee's capital
stock or make any distributions in respect of Licensee's profits
or distribute Licensee's assets or properties to any person
except for the crediting of shareholder and unit holder loan
accounts, stock dividends or splits, nor (II) lend money to
shareholders, unit holders and/or directors, or repay any
shareholder or unit holder loans, except, in either case, as
required to comply with necessary trust, accounting or taxation
law.
d) Enter into any agreement or arrangement with any affiliate
whereby Licensee agrees to pay management fees, service fees,
licensing fees, consulting fees, research and development fees,
royalties or any other form of compensation to such affiliate,
except for fees or compensation for services rendered where such
fees or compensation are comparable to similar fees which would
be paid to unrelated third parties for the same or similar
services.
e) Pay compensation to any officer or director or senior manager of
Licensee representing an increase in excess of 15% of their base
compensation from the prior year (which compensation does not
include distributions or commissions). Licensee agrees that
commissions and bonuses, if granted shall be granted consistent
with historical commission or bonus plans or pursuant to plans
approved by the Licensor.
f) [INTENTIONALLY DELETED]
g) Commit or incur debt financing in excess of the Limitation
Amount (excluding any debt owed to Licensor) and, shall not
create, incur, assume or suffer to exist any Senior Indebtedness
in excess of the lesser of (I) the Limitation Amount, and (II)
an amount determined pursuant to the following table:
<TABLE>
<CAPTION>
Agreement Year Amount of Senior Indebtedness Permitted
-------------- ---------------------------------------
<S> <C>
First None
Second $500,000
Third $1.5 million
Fourth $2.5 million
</TABLE>
The term "Senior Indebtedness" shall mean (x) all future
indebtedness of Licensee for money borrowed from any bank, trust
company, insurance company or other private, commercial or
governmental lending institutions, up to the limits set forth
above, regardless of whether such indebtedness is secured by
assets of Licensee, and to which indebtedness the royalties owed
to Licensor hereunder are expressly subordinated in writing.
With regard to any indebtedness that is junior in payment to
Licensor, the promissory note of Licensee evidencing such junior
indebtedness shall contain subordination provisions effectively
subordinating the junior creditor's indebtedness to that of
Licensor and any holder of Senior Indebtedness,
7.13 Board Observer - From the Effective Date of this Agreement until
termination or expiration hereof, Licensee covenants and agrees that
Licensor shall have the right to designate one representative who shall
be entitled to attend all Licensee Board of Directors Meetings. Such
Board of Directors shall meet no fewer than once annually and may hold
meetings by teleconference. Licensee will give Licensor's representative
reasonable prior notice of any Licensee Board of Directors meeting. The
representative designated by the Licensor shall be entitled to
reimbursement of all reasonable out-of-pocket expenses incurred in
connection with attendance at such meeting provided, however, that such
representative must obtain prior approval from Licensee for expenses
greater than One Thousand Dollars ($ 1,000) per meeting. Any action
taken by Licensor's representative shall not be deemed or otherwise
construed as an act or omission by Licensor.
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8. ROYALTIES AND PAYMENTS
8.1 Royalties - In consideration of the licenses granted to Licensee
hereunder, Licensee shall pay Licensor a royalty calculated as set forth
on EXHIBIT H to this Agreement. For each twelve month period during the
term of this Agreement, measured from the Effective Date, Licensee shall
not pay more than the royalty cap amount set forth for such year on
EXHIBIT H. Consequently, when any year's cap is satisfied, Licensee
shall have no further obligation to pay or accrue further royalties in
such year, accrual to begin again on the next anniversary of the
Effective Date. The annual royalty caps shall be secured by the Charge
which shall be executed by Licensee as of the Effective Date. Further,
the Management Company, if any, and any company affiliated with Licensee
that is established after the Effective Date, shall, promptly upon
Licensor's request enter into a Security Agreement and a Guaranty,
substantially in the form set forth on EXHIBITS K AND L hereto (which
form may need modification depending on the country/jurisdiction
involved). In addition, Licensee's Australian directors shall execute
a Deed in the form attached as EXHIBIT M.
8.2 Payment Terms - Royalties are to be accrued monthly. Royalties must be
paid by the fifteenth day of the month following each Agreement quarter.
Unless otherwise agreed by Licensor in writing, Licensee shall pay by
wire transfer to a bank account designated by Licensor. All payments
shall be made in US dollars.
8.3 Taxes, Imposts, Duties, etc. - All payments required under this
Agreement are exclusive of taxes, imposts and duties of whatever nature
and howsoever arising, and Licensee shall bear and be responsible for
the payment of all such taxes (including without limitation Value Added
Tax or GST), imposts and duties (except for taxes based on Licensor's
income other than credited income taxes paid by Licensee in Australia on
behalf of Licensor). When any tax is required to be paid by Licensee,
Licensee shall pay such tax, including any interest or penalties,
directly to the taxing authority. If any tax is required to be paid by
Licensor as a result of this Agreement (except for taxes based on
Licensor's income other than credited income taxes paid by Licensee in
Australia on behalf of Licensor), the full amount of such tax, including
any interest and penalties, will be billed to Licensee separately,
whether or not this Agreement is then in effect and promptly paid to
Licensor by Licensee.
8.4 Reimbursement - Licensee shall promptly reimburse Licensor for all
travel, accommodation and subsistence expenses incurred by Licensor in
providing assistance to or otherwise at the request of Licensee
provided, however, that Licensor must obtain prior approval from
Licensee for expenses greater than One Thousand Dollars ($ 1,000).
8.5 Audit - Licensee agrees to create and maintain, until the expiration of
two years after the last royalty payment under this Agreement is made,
sufficient books, records, and accounts regarding Licensee's licensing,
distribution and other activities and the royalties paid Licensor
hereunder. Licensor shall have the right, once per year during the term
of this Agreement and not more than once in the twelve month period
following Licensee's last payment of royalties hereunder (except in the
case where such last payment triggers expiration of this Agreement) and
at Licensor's expense, to have an accountant examine such books, records
and accounts during Licensee's normal business hours in order to verify
the accuracy and sufficiency of Licensee's payments to Licensor under
this Agreement. A condition to any such examination shall be that the
accountant shall execute an appropriate confidentiality agreement with
respect to Licensee's nonpublic or proprietary information. If any such
examination or inspection discloses a shortfall or overpayment in the
royalties due to Licensor hereunder, the appropriate party shall
reimburse the other party for the full amount of such shortfall or
overpayment. Should the audit discover a shortfall of twenty five
thousand dollars ($25,000) or more in any one year, Licensee shall
reimburse Licensor for the reasonable costs of such audit.
15
<PAGE> 16
9. WARRANTIES; DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY
9.1 Warranties.
a. Licensor represents and warrants that: (i) it either owns, or
has a valid license to sublicense to Licensee, the Products and
the Trade Marks; (ii) the use and sublicensing of the Products
in the form delivered by Licensor to Licensee (and without
regard to use in any Derivative Product), will not infringe any
copyright, trade secret or other proprietary right of any third
party; (iii) the use of the Trade Marks in the U.S. will not
infringe any trade mark of any third party; and (iv) it has the
corporate authority to enter into and fulfill this Agreement.
The warranty set forth in subsection (ii) shall not apply to any
modifications to the Products made or caused to be made by
Licensee.
b. Licensee represents and warrants that it has the corporate
authority to enter into and fulfill this Agreement.
9.2. Disclaimer of Warranty. EXCEPT FOR THE WARRANTIES SPECIFICALLY SET FORTH
IN SECTION 9.1, NEITHER PARTY MAKES ANY WARRANTIES OR REPRESENTATIONS OF
ANY NATURE WHATEVER INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. TO
THE EXTENT PERMITTED BY APPLICABLE LAW, ALL EXPRESS WARRANTIES AND
IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OR
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
EXCLUDED. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LICENSOR
HEREBY DISCLAIMS ALL WARRANTIES OR REPRESENTATIONS AS TO PERFORMANCE OF
THE PRODUCTS, WHICH ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND.
9.3 Limitation of Liability. THE LIABILITY OF EACH PARTY WITH RESPECT TO
THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE LIMITED, EXCEPT IN
CONNECTION WITH UNPAID ROYALTIES, TO THE ROYALTY AMOUNTS ACTUALLY PAID
OR TO BE PAID HEREUNDER, BUT SHALL IN NO EVENT EXCEED $6,765,000. IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL EXEMPLARY OR OTHER DAMAGES OR LOSS OF REVENUES,
LOSS OF INCOME, LOSS OF PROFITS OR OTHER FINANCIAL REMEDIES IN EXCESS OF
ONE HUNDRED THOUSAND DOLLARS ($100,000).
IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY INCIDENTAL, INDIRECT,
SPECIAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF,
THIS AGREEMENT OR IN CONNECTION WITH, OR ARISING OUT OF, THE EXISTENCE,
FURNISHING, FUNCTIONING, OR LICENSEE'S OR ANY THIRD PARTY'S USE, OF ANY
PRODUCTS, ITEMS OR SERVICES PROVIDED FOR IN THIS AGREEMENT. LICENSOR AND
LICENSEE ACKNOWLEDGE THAT THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN
INCLUDED AS A MATERIAL INDUCEMENT FOR LICENSOR TO ENTER THIS AGREEMENT
AND THAT LICENSOR WOULD NOT HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE
LIMITATIONS ON ITS LIABILITY SET FORTH.
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<PAGE> 17
10. INDEMNIFICATION
10.1 By Licensor.
a. Infringement. In the event of a claim for infringement of any
copyright or trademark, trade secret or other proprietary right
by any Product in the form delivered by Licensor to Licensee
(and without regard to use in any Derivative Product), Licensor
shall promptly, and at its expense and option, either: (i)
secure for Licensee the right to continue marketing and/or using
the infringing matter, (ii) replace or modify the infringing
matter so as to make it non-infringing (provided there is no
loss of features or functionality), with Licensee to promptly
provide the non-infringing replacement to its sublicensees,
dealers, and subdistributors; provided, however, if commercially
reasonable efforts to achieve the foregoing are unsuccessful,
Licensor shall so notify Licensee thereof, and Licensee shall
have the right to terminate this Agreement due to breach by
Licensor. In addition, Licensor will defend, indemnify and hold
Licensee harmless from any and all claims, losses, liabilities,
costs, damages, and expenses arising from a claim for
infringement of any copyright or trademark, trade secret or
other proprietary right by any Product in the form delivered by
Licensor to Licensee (and without regard to use in any
Derivative Product), subject to Section 10.3 below. This Section
10.1 (a) sets forth Licensee's sole remedy for Licensor's breach
of the warranty set forth in Section 9. 1 (a)(ii) above.
b. Other Indemnities. In the event of a claim against Licensee for
Licensor's negligence or willful misconduct in connection with
its performance under this Agreement, Licensor shall indemnify
and hold Licensee harmless from any and all claims, losses,
liabilities, costs (including reasonable attorneys' fees),
damages, and expenses, subject to Section 10.3 below.
10.2 By Licensee. In the event of a claim against Licensor (i) for
infringement of any copyright, trademark, trade secret, or other
proprietary right by the combination of the Licensee computer software
with an otherwise infringement-free Product; (ii) for any representation
or warranty made by Licensee to any third party with respect to any
Derivative Product; or (iii) for Licensee's negligence or willful
misconduct in connection with its performance under this Agreement,
Licensee shall indemnify and hold Licensor harmless from any and all
claims, losses, liabilities, costs (including reasonable attorneys'
fees), damages, and expenses, provided Licensor complies with the
procedural requirements of Section 10.3 below. In addition, Licensee
agrees to indemnify and hold Licensor harmless from any and all third
party claims, losses, liabilities, costs (including reasonable
attorneys' fees), damages, and expenses which may arise from the use of
the Derivative Products or any other item furnished by Licensee to any
such third party hereunder, subject to Section 10.3 below.
10.3 Indemnification Procedure. Whenever any claim shall arise for
indemnification under this Agreement, the party seeking indemnification
(the "Indemnified Party") shall promptly notify the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and,
when known, the facts constituting the basis for such claim. In
connection with any claim giving rise to indemnity hereunder resulting
from or arising out of any claim by a person who is not a party to this
Agreement, the Indemnifying Party at its sole cost and expense may, upon
written notice to the Indemnified Party, assume the defense of any such
claim or legal proceeding if it acknowledges to the Indemnified Party in
writing its obligations to indemnify the Indemnified Party with respect
to all elements of such claim. The Indemnified Party shall be entitled
to participate in (but not control) the defense of any such action, with
its counsel and at its own expense, provided that if the Indemnifying
Party assumes control of such defense and the Indemnified Party
reasonably concludes that the Indemnifying Party and the Indemnified
Party have conflicting interests or different defenses available with
respect to such action, suit or proceeding, the reasonable fees and
expenses of counsel to the Indemnified Party shall be considered
"damages" for purposes of the Agreement. If the Indemnifying Party does
not assume the defense of any such claim or litigation resulting
therefrom within 30 days after the date such claim is made, (a) the
Indemnified Party may defend against such claim or litigation, in such
17
<PAGE> 18
manner as it may deem appropriate, and (b) the Indemnifying Party shall
be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense. If the Indemnifying
Party thereafter seeks to question the manner in which the Indemnified
Party defended such third party claim, the Indemnifying Party shall
have the burden to prove by, a preponderance of the evidence that the
Indemnified Party did not defend or settle such third party claim in a
reasonably prudent manner. In either case, the party controlling the
defense shall keep the other party advised of the status of such action,
suit or proceeding and the defense thereof and shall consider in good
faith recommendations made by tile other party with respect thereto.
None of the parties shall agree to any settlement of any such action,
suit or proceeding without the prior written consent of the other
party(s), which shall not be unreasonably withheld. All claims and
actions for indemnity pursuant to this License Agreement for breach of
any representation or warranty made herein shall be asserted or
maintained in writing by a party hereto no later than one year after the
Effective Date. Any indemnification under this Agreement shall be
effected by payment of cash or delivery of a cashiers or bank check.
10.4 Certain Pre-Effective Date Liabilities. The respective liabilities of
the parties with regard to Product returns and with regard to warranty
claims made by customers relating to Products sold before the Effective
Date shall be as set forth in the Transition Agreement.
11. TRADE MARKS
11.1 Licensee Acknowledgment - Licensee acknowledges the exclusive right of
Licensor in and to all of the Trade Marks, all of the copyrights in
Documentation, Software and all other material covered by this Agreement
During the term of this Agreement, Licensor hereby grants Licensee an
exclusive license to use the Trade Marks and copyrights solely for the
purpose of conducting the business contemplated by this Agreement.
11.2 Guidelines - Licensee agrees that at all times during the term of this
Agreement it shall abide by Licensor's guidelines regarding proper use
of Licensor's Trade Marks, as shall be provided to Licensee by Licensor
from time to time.
11.3 Manner of Use - Whenever Licensee is permitted to employ any of the
Trade Marks in any written material, Licensee shall so note by use of an
asterisk and a footnote reading "Trademark of [INSERT THEN CURRENT NAME
OF LICENSOR]", or "Registered Trademark of [INSERT THEN CURRENT NAME OF
LICENSOR]", or as otherwise requested by Licensor. Licensee will use the
Trade Marks only in connection with the Products or the Derivative
Products. Licensee agrees that the ownership of the Trade Marks and the
goodwill relating thereto shall remain vested in Licensor. If requested
by Licensor, Licensee shall assist Licensor to register the Trade Marks
in any territory, at the expense of Licensor but Licensee shall not
itself seek to register the Trade Marks in its name. Licensee covenants
and agrees with the Licensor to perform all acts, deeds and things
reasonably necessary and requested by Licensor to maintain and keep the
registrations, if any, of the Trade Marks in full force and effect and
take all appropriate steps to prevent any actual or threatened
infringement thereof.
11.4 License Limitation - No right or license under any patent, copyright,
trademark or trade name or other intellectual property right of Licensor
is granted by, or is to be inferred from, any provision in this
Agreement except as expressly provided herein. Specifically, Licensee
acknowledges that it has not been granted a license to use the trademark
"People Manager" and shall have no right to use such mark, or any
confusingly similar mark, in connection with the People Manager product
either during the term of this Agreement or at any time thereafter.
11.5 Notices and Legends. Licensee agrees to include in any reproduction of
the Software and in every Derivative Product, and all reproductions of
Documentation and in packages and containers for the Derivative Products
and the Documentation, reproductions of Licensor's restricted rights
notices, copyright notices and other proprietary legends of Licensor.
18
<PAGE> 19
12. CONFIDENTIALITY
12.1 Confidentiality - Each party agrees to keep secret and not to disclose
any confidential or proprietary information of the other (including
without limitation the terms of this Agreement) acquired hereunder or in
connection herewith except as authorized in writing by the party owning
the confidential information and shall keep and shall require its
officers, directors, and employees to keep confidential such
information. As used herein, "confidential information" means all trade
secrets, know-how, technical, operating, financial and other information
relating to the business, products, customers and suppliers. Each party
shall immediately upon termination of this Agreement, surrender to the
other all of the other's confidential or proprietary material. The
obligation herein to keep such information confidential shall continue
in effect after as well as before the expiration or termination of this
Agreement and unless and until the information concerned becomes freely
publicly available.
12.2 Public Announcements. The parties agree that from the Effective Date
until one year after the date of termination of this Agreement, except
as otherwise required by law, any and all public announcements or other
public communications concerning this Agreement and the licenses granted
hereunder shall be subject to the approval of all parties, which
approval shall not be unreasonably withheld; provided that the Licensee
shall have no restriction upon announcements or other publications
connected with marketing the Licensee's products in the normal course.
In no event shall the Licensee or Licensor at any time disclose the
financial terms of this Agreement or any other agreement contemplated in
this Agreement, except as required by law.
13. GENERAL
13.1 Force Majeure - If the performance of any part of this Agreement or
order issued under it shall be interfered with for any length of time by
Governmental restrictions, war, civil commotion, riots, strike, lock
out, shortage of labor or materials, lack of shipping space, and acts of
God such as typhoon, flood, fire, or any other similar causes which are
beyond die control of the parties, neither party shall be responsible
for delay or failure of performance of this Agreement. If such failure
shall continue for a period of more than three (3) months, either party
shall have the right forthwith to terminate this Agreement due to breach
of a material term by the nonperforming party, pursuant to the
termination provisions of Section 6, except that the sixty day cure
period shall be reduced to fourteen days.
13.2 Waiver - The failure of either party to enforce any of the provisions of
this Agreement or to exercise any right hereunder shall not constitute a
waiver of the same or prejudice that party's right to enforce the same
thereafter.
13.3 Notices - All notices required or permitted under this Agreement shall
be in writing and shall be deemed to have been given upon personal
delivery or sending by telex or facsimile (as long as written
confirmation is received) or three days after depositing in the mail,
first-class, with postage prepaid or, for all international notices, and
for domestic notices if such service is selected, three days after
sending by Federal Express (or equivalent overnight courier service).
The addresses of the parties (until written notice of change shall have
been given) shall be as follows:
For Licensor:
Best!Ware, Inc.
c/o Best Programs, Inc.
11413 Isaac Newton Square
Reston, VA 22090
USA
ATTN: President
19
<PAGE> 20
with copy to:
Shelley Reback
c/o Best Programs, Inc.
11413 Isaac Newton Square
Reston, VA 22090 USA
For Licensee:
DATA-TECH SOFTWARE PTY LTD
4 Solwood Lane
Blackburn
Victoria 3130
AUSTRALIA
ATTN: Craig Winkler
with copy to:
Best!Ware, Inc.
300 Roundhill Drive
Rockaway, New Jersey 07866
ATTN: President
13.4 Entire Agreement - This Agreement constitutes the entire agreement in
respect of business hereby contemplated by and between the parties and
supersedes all previous agreements, negotiations, and commitments in
respect thereto, and shall not be changed or modified in any manner,
except by mutual consent in writing of subsequent dates signed by duly
authorized representatives of each party to this Agreement.
13.5 Exclusive Remedies. Except for any matter for which injunctive relief is
sought (as, for example, any infringement of Licensor's proprietary
rights) or any matter involving Licensor's rights under the Charge, the
Deed or any other security agreement(s)executed by Licensee or any
Licensee affiliate on Licensor's behalf (the "Security Agreements"), the
parties hereby agree that they may resort to only those dispute
resolution remedies explicitly set forth in this Section 13.5 in the
event of any disagreement, dispute, breach or claim of breach,
non-performance or repudiation hereunder; the entire transaction
represented hereby and the structure and amount of the fees and other
financial terms of this Agreement are based upon strict compliance with
this Paragraph 13.5, and the exclusive remedies set forth herein have
been explicitly bargained for and negotiated and shall bind the parties
as an integral part of this Agreement in accordance with the following
terms and conditions:
a) Internal Resolution Procedure. In the event that the parties
have any disagreement, dispute, breach or claim of breach,
non-performance, or repudiation arising from, related to or in
connection with this Agreement or any of the terms or conditions
hereof, or any transaction hereunder, including, but not limited
to, either party's failure or alleged failure to comply with any
of the provisions of this Agreement (hereinafter collectively
the "Dispute"), the parties shall first conduct a management
procedure as follows. Within ten (10) calendar days of the time
that a senior management representative of either party having
the authorization to do so informs the other party of a Dispute
by sending a written notice specifically referencing and
invoking this Paragraph 13.5, the parties shall conduct a
meeting at a location halfway between the locations of the two
parties (unless otherwise agreed) and use their best efforts to
either: (a) resolve the matter and set forth such resolution in
writing, or (b) define the Dispute in writing including a
description of the position of each party.
(b) Arbitration Resolution Procedure. If the parties are unable to
reach an agreement pursuant to subparagraph (a) above, the
Dispute shall be resolved by mandatory, binding, expedited
arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association before an arbitrator
with knowledge and experience in the areas of computer software
licensing. The result of the arbitration shall be final and
binding, and judgment upon the award rendered by the arbitrator
may
20
<PAGE> 21
be entered in any court having jurisdiction thereof. The decision
of the arbitrator shall be in writing. He or she shall be
compensated by the party that does not substantially prevail in
the arbitration, and the party responsible for payment shall be
specified in the arbitrators award. IN NO EVENT SHALL THE
ARBITRATOR HAVE THE POWER TO MODIFY, AMEND, OR OTHERWISE CHANGE
OR ADD TO ANY OF THE TERMS OR CONDITIONS OF THIS AGREEMENT OR ANY
EXHIBIT HERETO WITHOUT THE EXPRESS WRITTEN APPROVAL OF BOTH
PARTIES. The internal laws of the State of New Jersey shall
govern the enforcement of the award and the principles set forth
in this Agreement shall be applied by the arbitrators for both
evidence and substantive law questions during the arbitration,
including the rendering of the award. Judgment upon the award of
the arbitrator, enforced in accordance with New Jersey law, shall
be final and binding upon the parties and may be entered in any
court in the country of either of the parties hereto. The parties
acknowledge and stipulate that this is a commercial contract and
that any award, judgment or order, interim or final. shall be
enforceable as a commercial award, judgment or order wherever
such enforcement is sought. The arbitrator shall give effect to
the applicable statute of limitation in determining any claim,
and any controversy concerning whether an issue is arbitrable
shall be determined by the arbitrators. The arbitration
proceeding and all evidence taken shall be treated as
confidential information hereunder.
13.6 Governing Law and Jurisdiction - This Agreement shall be construed and
governed in accordance with the laws of the State of New Jersey, U.S.A.
except for that body of law known as conflicts of law, and excluding any
applicable provisions of the United Nations Convention on Contract for
International Sales of Goods. The parties hereto hereby irrevocably
submit to the exclusive jurisdiction of the New Jersey courts and hereby
waive any present or future objection to any such venue, and irrevocably
consent and submit unconditionally to the jurisdiction for itself and in
respect of any of its property of any such court. The parties further
agree that final judgment against either party in any action or
proceeding arising out of or relating to this Agreement or the Security
Agreements shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States of America by suit on
the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and of the amount of the obligation. As
soon as practical after the Effective Date of this Agreement, Licensee
shall irrevocably appoint an agent in New Jersey to accept service of
proceedings on its behalf. Licensee shall maintain such appointment
continuously in effect at all times which License is obligated under the
Security Agreements. Upon request, Licensee shall provide Licensor with
proof that it continues to maintain an authorized agent in New Jersey.
13.7 Assignment - Licensee may not assign this Agreement or any rights
hereunder without the prior written consent of Licensor. Licensor may
not assign this Agreement nor any rights hereunder without the prior
written consent of Licensee to any third party unless (a) such third
party agrees to assume all of Licensor's obligations, and (b) such party
is not a named competitor of Licensee listed on Exhibit N hereto.
Anything to the contrary herein notwithstanding, Licensor shall be
permitted at any time to assign this Agreement, without consent, but
with notice (a) to any subsidiary or associated company of Licensor,
provided such entity consents to assume all of Licensor's obligations
hereunder, and (b) pursuant to any merger, consolidation, change in
control or other reorganization, provided the surviving entity consents
to assume all of Licensor's obligations hereunder. Any attempted
assignment of this Agreement in contravention of this provision shall be
void and of no effect. Subject to the foregoing, this Agreement shall
bind and inure to the benefit of the respective parties hereto and their
successors, and assigns.
13.8 Severability - If any of the provisions, or portions hereof, are invalid
under any applicable stature or rule of law then, that provision
notwithstanding this Agreement shall remain in full force and effect.
13.9 Headings - Headings are included in this Agreement for convenience only,
and shall not form a part of it for the purposes of construction.
21
<PAGE> 22
13.10 Authorized Representatives - Each party represents and warrants that the
person signing on its behalf is duly authorized to bind such party and
that the execution, delivery and performance of this Agreement and the
performance by Licensor and Licensee of their respective obligations
have been duly authorized by all requisite corporate action.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
under seal by their duly authorized representatives.
BEST!WARE, INC. DATA-TECH SOFTWARE PTY. LIMITED
By: Melody S. Ranelli, Treasurer By: Andrew Craig Winkler, Director
Signature: /s/ Melody S. Ranelli Signature: /s/ Andrew Craig Winkler
---------------------- -------------------------
Date: 5/28/96 Date: 5/28/96
------- -------
22
<PAGE> 23
LICENSE AGREEMENT
Exhibit A - Products
M.Y.O.B. Accounting Software for the Macintosh
M.Y.O.B. Accounting Software for Windows
M.Y.O.B. Accounting Software for the Macintosh with Payroll
M.Y.O.B. Accounting Software for Windows with Payroll
BESTBOOKS for the Macintosh
BESTBOOKS for Windows
Durga (to be delivered "as is," as of the Effective Date)
23
<PAGE> 24
LICENSE AGREEMENT
Exhibit B - CASPER
[To be provided promptly after Closing]
24
<PAGE> 25
LICENSE AGREEMENT
Exhibit C - PEOPLE MANAGER
[To be provided promptly after Closing]
25
<PAGE> 26
LICENSE AGREEMENT
Exhibit D - Termination Agreement
May 28, 1996
Mr. Andrew Craig Winkler
Director
Data-Tech Software Pty Ltd
4 Solwood Lane
Blackburn, VIC 3130, Australia
Dear Craig:
This Letter Agreement will terminate the Vendor International Distribution
Agreement dated January 1, 1996 (the "Agreement") between Best!Ware, Inc. and
Data-Tech Software Pty. Ltd, as of the close of business on May 28, 1996, under
the following terms and conditions.
All of the rights and obligations of Best!Ware and Data-Tech expressly stated to
survive, or impliedly surviving, termination under the Agreement shall not
survive termination and shall be of no force and effect after termination,
except that:
a. All rights and obligations of indemnification set forth in the
Agreement as they would apply to events that occur prior to termination
shall survive termination;
b. All royalties accrued by Data-Tech as of the date of termination will
be paid to Best!Ware within thirty days of termination; and
c. The rights and obligations set forth in the first sentence of Section 7.9
and in all of Section 8.6 of the Agreement with respect to transactions
occurring before the date of termination shall survive termination.
Please sign below to show your assent and approval to the immediate termination
of the Agreement under the terms and conditions described in this Letter
Agreement.
Very Truly Yours,
Best!Ware, Inc. AGREED AND CONSENTED TO:
Data-Tech Software Pty. Ltd
By:__________________________ By:________________________________
Melody Ranelli, Treasurer Craig Winkler, Director
<PAGE> 27
LICENSE AGREEMENT
Exhibit E - People Manager Territory
Licensee is authorized to sell People Manager in the following countries only:
a. Australia
b. New Zealand
c. Papua New Guinea
d. Fiji
e. Solomon Islands
f. Vanuatu
g. Cook Islands
h. Malaysia (distributor)
i. Brunei
j. South Africa (distributor)
k. Singapore (distributor)
<PAGE> 28
LICENSE AGREEMENT
Exhibit F - Trademarks
MYOB(R)
BESTBOOKS(R)
BEST!WARE(R)
<PAGE> 29
LICENSE AGREEMENT
Exhibit G - Existing Distribution Agreements
<TABLE>
<CAPTION>
WRITTEN AGREEMENTS DATE SIGNED
- --------------------------------------------------------------------------------
<S> <C>
Merisel November 20, 1990
631 River Oaks Parkway
San Jose, California 95134
- --------------------------------------------------------------------------------
Merisel, CPD Amendment to prior agreement January 1992
described above
- --------------------------------------------------------------------------------
Merisel, CPD Amendment (to prior agreement February 1, 1994
described above) pertaining only to Canada
- --------------------------------------------------------------------------------
U.S. Software Resource Inc. December 30th, 1991
8 Digital Drive/Suite 100
Novato, California 94949
- --------------------------------------------------------------------------------
PC Connection July 11, 1990
- --------------------------------------------------------------------------------
Ingrain Micro Inc. March 25, 1993
1600 E. St. Andrew Place
Santa Ana, California 92705
- --------------------------------------------------------------------------------
Ingram Micro Inc. (Canada) September 1, 1993
230 Barmac Drive
Weston, Ontario M9L 2Z3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ORAL AGREEMENTS
- --------------------------------------------------------------------------------
Merisel (Canada) (Unclear if this is the Merisel
CPD Amendment of February 1, 1994 pertaining
only to Canada, described above)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Egghead
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Micro Warehouse
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
CONFIDENTIAL TREATMENT
Confidential material has been omitted
and filed separately with the Securities
and Exchange Commission. Astericks
denote such omissions.
LICENSE AGREEMENT
Exhibit H - Royalties
*
<PAGE> 31
LICENSE AGREEMENT
Exhibit I - Consulting Services Procedure
A. As provided for in Section 4, Casper Modifications, Licensor agrees that
during the first 12 months following the Effective Date, Best has committed to
Licensor that it will deliver to Licensee any enhancement to Casper that it
creates during those 12 months. Specifically, as part of that commitment, Best
will provide to Licensee any enhancements to the Casper architecture that result
from the Best Budgets development effort if, as a result of such effort,
enhancements are made to the original Casper architecture or any part of such
architecture.
B. As also provided for in Section 4, Casper Modifications, Best will provide
Licensee with up to 600 hours of technical consulting support on Casper, at no
charge to Licensee. The 600 hours can be utilized over an 18 month period
measured from the Effective Date, with no more than 300 hours being expended in
the final 6 months of the 18 months.
The technical managers of Best and Licensee have agreed to the following
procedure whereby Licensee will expend the 600 hours to have Best assist in the
design and then have Best develop certain components for Licensee. For those
components, the following process will be put in place:
Specification Phase:
Licensee or its Management Company will make a proposal for a component to
be designed and implemented by Best. Best and Licensee or, if Licensee so
designates, its Management Company, will enter into an effort to complete
a reasonable specification of the components functionality and user
interface. A specification template, designed during the Casper project,
will be provided to the Management Company. This template outlines the
appropriate information necessary to complete the definition phase. The
template has been included at the end of this document.
In addition to the specifications document, an "Acceptance Criteria"
document will be completed. The Acceptance Criteria document will define
criteria under which both parties agree to completion of the component.
This may include performance bench marks, zero defect level, etc.
The hours exercised by Best engineers during this phase will be deducted
from the 600 hour pool. This should be a 1-2 week phase. To use the
hours most effectively Licensee or its Management Company should come to
the table with a complete specification document, focusing the time spent
on educating the engineers on the component and working through any
technical issues.
SCHEDULE PHASE:
The schedule phase will be a brief period of time during which the Best
engineers and the Management Company QA will evaluate the specifications
and arrive at a schedule and total number of man hours necessary to
deliver the component, 50% of the hours exercised by Best engineers during
this phase will be deducted from the 600 hour pool.
IMPLEMENTATION AND STABILIZATION PHASE:
The implementation and stabilization phase will cover the design,
development, QA and delivery of the component by the Best engineers.
The hours exercised by Best engineers during this phase will be deducted
from the 600 hour pool. If at any time during the project the Best project
manager reasonably anticipates that the project costs will exceed the
estimate by more than 10%, the Best project manager will notify Licensee
of the number of hours that Best estimates will be required to complete
such task and will not continue to work on such task until Licensee
approves the revised estimate.
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C. Additional Casper Consulting. Should Licensee determine that it wishes to
contract additional technical consulting/development work on the Casper
product to Best Programs, the procedure for doing so is as follows:
1. Licensee will advise Best of its interest in having the work performed
and will provide Best with a description of the project.
2. Best will evaluate the request with respect to the work to be performed
and (the availability of resources. Best will provide Licensee with an
estimate for the project, indicating projected cost and schedule for the
project along with a summary of its understanding of the work to be
performed and the deliverables of the project.
The cost will be estimated using the following labor rates:
<TABLE>
<S> <C>
Vice President $200 per hour
Senior Engineer $100 - $150 per hour
Jr. Eng/QA analyst $ 50 per hour
</TABLE>
The schedule will be based on the availability of resources, assuming a
start date no earlier than two months from the date of the request.
3. Licensee will review the estimate and advise Best of its decision as to
whether or not it wishes to proceed with the project.
4. If Licensee wishes to proceed, Best and Licensee will then enter into
the negotiation of a specific contract, utilizing the project process
defined above in B.
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TEMPLATE:
Area (Component) Outline:
1. BACKGROUND. (Describes the component in a general fashion and to the
extent necessary and appropriate, what the user expects to do, not how
they expect to do it). This aids in engineer and QA comprehension of
the area especially those that don't necessarily map to real world
things.
Another area this is important for is in framing the UI design.
Understanding the profile of the end user is critical in making good
decisions about information flow.
Some attributes that would be invaluable are profile of user (job, needs,
desires, etc.), frequency of usage (once in a while, every day,
constantly, etc.), and typical tasks the user would do with this component
(batch enter checks that are mailed in by customers, quick access to card
information when filling out an invoice when they are on the phone to
verify address. name and other critical info, etc.).
II. LOGIC SPECIFICATION
A. Rules (such as what to do when trying to delete an account that has
posted transactions, the exact steps needed to post a sales journal entry,
workflow rules, etc.).
B. Boundaries (such as allow no more than 5 fiscal years of budgets,
performance or memory benchmarks, etc.)
C. Security (such as a user should be permitted to have access to any or
all of the following; Budgets, History, and Account Profile, or no one may
be executing Financial reports when a journal entry is submitted, etc.).
III. UI SPECIFICATION
A. Screens (bitmap snapshots such as Susan has created)
B. Menus - DropDown & PopUp (if applicable; snapshots such as Susan has
created)
C. UI interaction descriptions (such as clicking "Apply" should save the
changed information and not close the window, or clicking "Add All" should
move all entries from the Shown Fields listbox to the Tab Stop listbox).
D. Error/Warning Messages (such as Error 123: This account already
exists.; greatly aids development, QA and doc in discerning error/warning
conditions.)
E. Field Attributes (note: these are per field)
1. Smart enabling?
2. Editable field value defaults
3. Display only?
4. Accelerators
5. Smart filling?
6. Validations
7. Single Select? (if a list type field)
8. Required field?
9. Icons/Bitmaps (especially for MDI windows, trees, bitmap
buttons, and tabs).
10. Popup menu tie in with (B).
11. Length
12. Expected type (date, string, money, number, etc.).
13. Formatting (all uppercase, all lowercase, MM/DD/YY, MM/YY, etc.)
14. Quantity/Capacity (especially for lists, trees and grids).
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15. Descriptive name
16. Status line help text (if applicable)
17. Drill down enabled? (if so, what does it drill down into?)
IV. ANALYSIS SPECIFICATION
A. Reports
1. Logic Specification (similar to II)
2. UI specification (similar to III)
B. Graphs & Other Output
1. Logic Specification (similar to II)
2. UI specification (similar to III)
C. Audit Trail (events/actions in component that should generate an audit
event and what information is contained in the audit event itself).
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LICENSE AGREEMENT
Exhibit J - Licensee Security Agreement
35
<PAGE> 36
LICENSE AGREEMENT
Exhibit K - Management Company Security Agreement
36
<PAGE> 37
LICENSE AGREEMENT
Exhibit L - Management Company Guarantee
37
<PAGE> 38
LICENSE AGREEMENT
Exhibit M - Deed of Owners
38
<PAGE> 39
LICENSE AGREEMENT
Exhibit N - Competitive Companies
Intuit
DacEasy
Peachtree
Checkmark
Aatrix
Big Software
MTX International
Abacus Accounting Systems
Satori
M-USA
Brilliant
Pegasus
Reckon Software
Sybiz
Attache
Pastel
Sage
Business Vision
39
<PAGE> 1
EXHIBIT 10.14
CONFIDENTIAL TREATMENT
Confidential material has been omitted
and filed separately with the Securities
and Exchange Commission. Astericks
denote such omissions.
ASSET PURCHASE AND TRANSITION AGREEMENT
THIS ASSET PURCHASE AND TRANSITION AGREEMENT (the "Agreement") is made as
of the 28th day of May, 1996, by and among Best!Ware, Inc., a New Jersey
corporation with its principal office at 300 Round Hill Drive, Rockaway, NJ
07866 (the "Buyer"), and Best!Ware, Inc., a Virginia corporation with its
principal office at 300 Round Hill Drive, Rockaway, NJ 07866 (the "Seller"), and
Seller's parent corporation, Best Programs, Inc., a Virginia corporation with
its principal office at 11413 Isaac Newton Square, Reston, Virginia 22090
("Best").
In consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Definitions. Unless the context otherwise requires, for purposes of
this Agreement the following terms shall have the meanings set forth in this
Section 1:
"AS/400 Assets" shall mean those assets listed on Schedule 1 hereto which
are currently located at Seller's facilities and whose function is to allow
Seller to utilize the Best AS/400 computer and systems located in Reston, VA.
"Assets" shall mean the properties, assets, and other claims, rights and
interests of the Seller relating to the Business, to be sold, conveyed,
transferred and delivered by the Seller to the Buyer pursuant to
Subsection 2.1.
"Assumed Liabilities" shall mean the following liabilities, obligations
and commitments of the Seller: (i) all the liabilities, obligations and
commitments of the Seller continuing after the Closing under the contracts,
agreements, licenses and other instruments set forth on Schedule 2.1(a)
(ii) which become due and payable or performable after the Closing Date (but
which shall not include any liabilities resulting from Seller's breach of any
such contract, agreement or other instrument prior to the Closing Date); (ii)
all the liabilities, obligations and commitments of the Buyer set forth in
Section 11; and (iii) all other liabilities, obligations and commitments of the
Seller specifically set forth on Schedule 2.4 or in Section 11 hereof.
"Bestware Products" shall mean those software products listed on EXHIBIT A
of that certain License Agreement (the "License Agreement") by and between
Data-Tech Software Pty. Ltd. ("DT") and Seller of even date herewith.
"Business" shall mean the business conducted by the Seller prior to the
Closing of developing, manufacturing, marketing and supporting the Bestware
Products and all services related thereto. The Business specifically excludes
the business conducted by Best and by Abra Cadabra Software, Inc. ("Abra"), a
wholly-owned subsidiary of Best, including without limitation, Abra's human
resources software and payroll
<PAGE> 2
CONFIDENTIAL TREATMENT
Confidential material has been omitted
and filed separately with the Securities
and Exchange Commission. Astericks
denote such omissions.
software and all products and services related thereto, and the asset management
and budgeting software business of Best and all products and services related
thereto.
"Closing" shall mean the simultaneous execution of this Agreement and the
closing of the transactions contemplated by this Agreement.
"Closing Date" shall mean the date of the Closing.
"Encumbrances" shall mean all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets.
"Excluded Assets" shall mean those assets of the Business not specified in
Subsection 2.1(a), which Excluded Assets shall include, but not be limited to,
(i) the assets of Best, (ii) the assets of Abra, (iii) net working capital, and
(iv) the AS/400 Assets.
"Indemnified Party" shall mean the party seeking indemnification.
"Indemnifying Party" shall mean the party or parties from whom
indemnification is sought.
"Promissory Note" shall mean a secured, non-interest bearing promissory
note of the Buyer for * ( * ) maturing on March 31, 1997 in the
form of Exhibit B.
"Settlement Payment" shall mean the payment to be made by Buyer to Seller
or Seller to Buyer, based on the net amount due after comparing all obligations
subject to this provision. See Section 1l.6(c)(xi) for the process for
determining and paying the Settlement Payment.
2. Sale and Delivery of the Assets
2.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this Agreement, and
qualified by the terms of Section 11 hereof which dictates the treatment of
certain specified Assets, at the Closing, the Seller shall sell, transfer,
convey, assign and deliver to the Buyer, and the Buyer shall purchase from the
Seller, the following properties, assets and other claims, rights and interests:
(i) all components and finished goods inventory of the Seller solely
relating to the Business and which exist on the Closing Date;
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<PAGE> 3
(ii) subject to Subsection 2.2, all of the rights and benefits of
the Seller under the contracts, agreements, leases, licenses and other
instruments set forth on Schedule 2.1(a)(ii);
(iii) all production records, technical, manufacturing and
procedural manuals, designs, specifications, drawings, brochures,
catalogues, sales and marketing materials, studies, reports, summaries and
any other information which has been reduced to writing or other form,
relating to, or arising solely out of, the Business.
(iv) all rights of the Seller and Best under express or implied
warranties solely related to the Assets from the suppliers of the Assets;
and
(v) all fixed assets located at Seller's New Jersey facilities and
at Seller's remote sales offices currently used by Dale Rolley, Craig
Runeberg, and Eric Cecil, including without limitation the fixed assets
set forth on Schedule 2.1(a)(v), but specifically excluding the AS/400
Assets.
(b) Anything in this Agreement to the contrary notwithstanding, the
Assets shall only include the assets listed in paragraph (a) above and shall in
no event include the Excluded Assets.
(c) If there is any conflict between the terms of this Subsection
2.1 and Section 11 below with regard to whether or not certain Assets are to be
transferred by Seller to the Buyer, or any restrictions on such transfer, the
terms of Section 11 shall govern.
2.2 Nonassignable Contracts. Nothing in this Agreement shall be
construed as an attempt or agreement to assign (i) any contract which is
nonassignable without the consent of the other party or parties thereto unless
such consent shall have been given or (ii) any contract or claim as to which all
the remedies for the enforcement thereof enjoyed by the Seller would not pass to
the Buyer as an incident of the assignments provided for by this Agreement.
However, the Seller shall, by itself or by its agents, at the request and
expense and under the direction of the Buyer, in the name of the Seller or
otherwise as the Buyer shall reasonably specify and as shall be permitted by
law, take all such action and do or cause to be done all such things as shall be
reasonably necessary or proper in order that the rights and obligations of, or
benefits accruing to, the Seller under such contracts shall be preserved.
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<PAGE> 4
2.3 Purchase Price. The Purchase Price shall be payable pursuant to
the terms of the Promissory Note, which shall be delivered by the Buyer to the
Seller at the Closing.
2.4 Assumption of Liabilities. Buyer agrees that, from the Closing
Date, Buyer shall assume and perform, pay and discharge the Assumed Liabilities.
The Buyer shall not assume or agree to perform, pay or discharge any
obligations, liabilities and commitments, fixed or contingent, of the Seller and
Best, other than the Assumed Liabilities.
2.5 Allocation of Purchase Price and Assumed Liabilities. The
aggregate amount of the Purchase Price and the Assumed Liabilities shall be
allocated as set forth on Schedule 2.5.
2.6 The Closing. The Closing shall take place at the offices of the
Seller on May 28, 1996 or at such other place, time or date as may be mutually
agreed upon in writing by the parties hereto. The transfer of the Assets by the
Seller to the Buyer shall be deemed to occur at 6:00 p.m., Eastern time, on the
Closing Date.
3. Representations of the Seller and Best. The Seller and Best, where
applicable, represent and warrant to the Buyer that the statements contained in
this Section 3 are correct and complete as of the date of this Agreement.
3.1 Organization. The Seller and Best are corporations duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and have all requisite power and authority (corporate
and other) to own their properties, to carry on their businesses as now being
conducted, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Certified copies of the Certificates of
Incorporation and the Bylaws of the Seller, as amended to date, have been
previously delivered to the Buyer or will be delivered within thirty days of the
Closing, are complete and correct, and no amendments have been made thereto or
have been authorized since the date thereof.
3.2 Authorization. The execution, delivery and performance of this
Agreement by the Seller and Best, and the agreements provided for herein, and
the consummation by the Seller and Best of all transactions contemplated hereby,
have been duly authorized by all requisite corporate action. This Agreement and
all such other agreements and obligations entered into and undertaken in
connection with the transactions contemplated hereby to which the Seller and
Best are a party constitute the valid and legally binding obligations of the
Seller and Best, enforceable against the Seller and Best in accordance with
their respective terms, subject as to enforcement of
4
<PAGE> 5
remedies to applicable bankruptcy, insolvency, reorganization and similar laws
affecting generally the enforcement of the rights of contracting parties and
subject to a court's discretionary authority with respect to the granting of a
decree ordering specific performance or other equitable remedies.
3.3 Ownership of the Assets. The Seller is and at the Closing will
be, the true and lawful owner of the Assets, and will have the right to sell and
transfer to the Buyer good, clear and valid title to the Assets, free and clear
of any Encumbrances of any kind, except as set forth on Schedule 3.3.
3.4 Compliance with Agreements and Laws, Regulatory Approvals. The
Seller has all requisite licenses, permits and certificates, including
environmental, health and safety permits, from federal, state and local
authorities necessary for the execution and delivery by the Seller of this
Agreement. The Seller is not in violation of any law, regulation or ordinance
(including, without limitation, those relating to building, zoning,
environmental, disposal of hazardous substances, land use or similar matters)
relating to the Assets, the violation of which could have a material adverse
effect on the Assets. All consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulation which are necessary for
the execution and delivery by the Seller and Best of this Agreement and the
documents to be executed and delivered by the Seller and Best in connection
herewith have been, or will be prior to the Closing Date, obtained and
satisfied.
3.5 Investment Representation. The Seller is acquiring the Note for
its own account for the purpose of investment and not with a view to or for
sale, and the Seller has no present agreement or commitment providing for the
disposition thereof. The Seller understands that (i) the Note has not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
by reason of its issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof, (ii) the
Note must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration, (iii)
the Note will bear a legend to such effect and (iv) the Seller will make a
notation on its transfer books to such effect. The Seller further understands
that the exemptions from registration afforded by Rules 144 and 144A under the
Securities Act depend on the satisfaction of various conditions and that, if
applicable, such rules afford the basis of sales of the Note in limited amounts
under certain conditions.
3.6 Litigation. Except as set forth on Schedule 3.6, there are no
pending actions, suits, or proceedings with respect to the Business or the
Assets.
3.7 Disclosure. No representation or warranty by the Seller or Best
in this Agreement or in any Exhibit hereto, or in any list, statement, document
or
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<PAGE> 6
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller and
Best have disclosed to the Buyer all material facts pertaining to the
transactions contemplated by this Agreement.
3.8 Disclaimer Regarding Third Party Software. Anything to the
contrary in this Agreement notwithstanding, Buyer acknowledges that Seller has
not conducted a software audit of the third party software existing on the
personal computers at the New Jersey facility, the licenses to which, to the
extent they have been purchased by Seller, shall transfer to Buyer hereunder,
and makes no representations as to the validity of the licenses therefor except
for those licenses set forth on Schedule 3.8 which warranty shall become
effective two weeks after the Closing Date.
4. Representations of the Buyer. The Buyer represents and warrants to the
Seller and Best that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement.
4.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
New Jersey, and has requisite power and authority (corporate and other) to own
its properties and to carry on its Business as now being conducted. The Buyer
has full power to execute and deliver this Agreement, the Promissory Note and
the other agreements provided for herein and to consummate the transactions
contemplated hereby and thereby. Certified copies of the Certificates of
Incorporation and the Bylaws of the Buyer, as amended to date, have been
previously delivered to the Seller, are complete and correct, and no amendments
have been made thereto or have been authorized since the date thereof.
4.2 Authorization. The execution, delivery and performance of this
Agreement by the Buyer, and the agreements provided for herein, and the
consummation by the Buyer of all transactions contemplated hereby, have been
duly authorized by all requisite corporate action. This Agreement and all such
other agreements and written obligations entered into and undertaken in
connection with the transactions contemplated hereby to which the Buyer is a
party constitute the valid and legally binding obligations of the Buyer,
enforceable against the Buyer in accordance with their respective terms, subject
as to enforcement of remedies to applicable bankruptcy, insolvency,
reorganization and similar laws affecting generally the enforcement of the
rights of contracting parties and subject to a court's discretionary authority
with respect to the granting of a decree ordering specific performance or other
equitable remedies.
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<PAGE> 7
4.3 Compliance with Agreements and Laws; Regulatory Approvals. The
Buyer has all requisite licenses, permits and certificates, including
environmental, health and safety permits, from federal, state and local
authorities necessary for the execution and delivery by the Buyer of this
Agreement. The Buyer is not in violation of any law, regulation or ordinance
(including, without limitation, those relating to building, zoning,
environmental, disposal of hazardous substances, land use or similar matters)
relating to its Businesses or properties, the violation of which could have a
material adverse effect on the Buyer or its properties. All consents, approvals,
authorizations and other requirements prescribed by any law, rule or regulation
which are necessary for the execution and delivery by the Buyer of this
Agreement and the documents to be executed and delivered by the Buyer in
connection herewith have been, or will be prior to the Closing Date, obtained
and satisfied.
4.4 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Buyer has
disclosed to the Seller and Best all material facts pertaining to the
transactions contemplated by this Agreement.
5. Confidentiality; Public Announcements.
5.1 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of the
Seller, Best or the Buyer, which shall have been furnished by the Buyer or the
Seller/Best to the other party hereto in connection with the transactions
contemplated hereby or as provided pursuant to this Section 5 shall not be
disclosed to any person other than their respective employees, directors,
attorneys, accountants or financial advisors or other than as contemplated
herein, except to the extent such information shall have become public knowledge
other than by breach of this Agreement or any other agreement executed in
connection with the transactions contemplated by this Agreement, or such
information is disclosed to comply with any applicable law or such information
is disclosed in the enforcement of the disclosing party's rights. In no event
shall the Buyer disclose or use any non-public information about the Seller/Best
not relating solely to the Business. In no event shall the Seller/Best disclose
or use any non-public information about the Buyer relating to the Business.
5.2 Public Announcements. The parties agree that for a period of one
year after the Closing Date, except as otherwise required by law, any and all
public announcements or other public communications concerning this Agreement
and the
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<PAGE> 8
purchase of the Assets by the Buyer shall be subject to the approval of all
parties, which approval shall not be unreasonably withheld; provided that the
Buyer shall have no restriction upon announcements or other publications
connected with marketing the Products in the normal course. The mechanics of
public announcements and interaction immediately after the Closing Date are
addressed in Section 11 below. In no event shall the Buyer, the Seller or Best
at any time disclose the financial terms of this Agreement or any other
agreement contemplated in this Agreement, except as required by law.
6. Financial Covenants of Buyer.
6.1 Affirmative Covenants - From the Closing Date until termination
or expiration of the License Agreement, Buyer covenants and agrees that it and
its subsidiaries shall:
Financial Reports.
a) Furnish to Seller, within 30 days after the end of each quarter and
at other times, as reasonably requested by the Seller, an unaudited
financial report of the Buyer which report shall include the
following: (i) a profit and loss statement and cash flow statement
for such quarter, together with a cumulative profit and loss
statement and cash flow statement from the first day of the current
fiscal year to the last day of such quarter, which statements shall
be comparative to the corresponding period of the prior fiscal year
and shall be prepared in accordance with Generally Accepted
Accounting Principles, consistently applied; and (ii) a balance
sheet as of the last day of such quarter, which balance sheet shall
be prepared in accordance with Generally Accepted Accounting
Principles, consistently applied.
b) Furnish to Seller, within 120 days after the end of each fiscal year
of the Buyer, "Audited" financial statements of the Buyer which
shall include a profit and loss statement and cash flow statement
for such fiscal year and a balance sheet as of the last day thereof,
each prepared in accordance with Generally Accepted Accounting
Principles, consistently applied and accompanied by the opinion of a
reputable Certified Public Accountant as may be chosen by the Buyer.
In the context of this subparagraph, "Audited" shall mean an
independent Investigating Accountant's Report prepared in relation
to the end of year financial statements. The report should
specifically address the verification of the balance sheet accounts
in relation to cash balances,
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<PAGE> 9
bank balances, accounts receivable balances, accounts payable
balances together with investigation into the correctness of the
Gross Revenue for the year, compliance with negative and affirmative
covenants, and reporting as to any material differences or balances
in the financial statements.
Tax Returns and Payment of Taxes.
c) File all lawful tax returns and other reports which it is required
by law to file, maintain adequate reserves for the payment of all
taxes imposed upon it, its income, its profits or sales, or upon any
assets or properties belonging to it and pay and discharge all such
taxes prior to the date on which penalties attached thereto.
Business Insurance.
d) Maintain insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are
customary for corporations of established reputation. Provide a
certificate of insurance to Seller within 90 days of Closing and
thereafter on an annual basis.
Insurance.
e) Maintain life insurance coverage on Chris Lee by financially sound
and reputable insurers in such forms and amounts and against such
risks as are customary for corporations of established reputation.
Such amount should cover at least one-sixth of any unpaid royalty
obligation, as specified in the License Agreement. Proceeds from
this policy necessary for payment of such royalty obligation should
be escrowed for payment to Licensor should Licensee's revenues not
be sufficient to satisfy all royalty obligations set forth in
Exhibit H of the License Agreement at any time during the remainder
of that Agreement's four year term. At any time, to the extent that
the amount of funds in this escrow account exceed total future
royalty obligations under the License Agreement, such excess portion
may be released from escrow into Buyer's possession. Provide a
certificate of insurance to Seller within 90 days of Closing and
thereafter on an annual basis.
6.2 Negative Covenants - From the Effective Date of the License
Agreement until termination or expiration of the License Agreement, Buyer
covenants and agrees that it and its subsidiaries shall not take the following
actions without prior approval by Seller:
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<PAGE> 10
a) Merge or consolidate with or acquire all or any substantial portion
of the assets or capital stock of any entity in any transactions
involving payment by Buyer of consideration having a total fair
market value in excess of the "Transaction Limitation Amount". For
purposes of this Section 6.2, the term "Transaction Limitation
Amount" shall mean, as of the Effective Date, $1 million dollars
(the "Base Amount"), and thereafter, an amount calculated as: (I)
the Base Amount, plus (II) the amount of royalties actually paid
under the License Agreement multiplied by 120%, less (III) the
amount of consideration paid by Licensee in all transactions of the
type contemplated by this Subsection (a).
b) Except for sales, leases, transfers or other dispositions of assets
made in the ordinary course of business, sell, lease, transfer,
license or otherwise dispose of any of its or its subsidiaries'
assets or properties (including transfers among the Buyer and its
subsidiaries or affiliates) having a fair market value in excess of
20% of the net book value of the Buyer and its subsidiaries, either
singularly or in the aggregate.
c) Declare or pay dividends upon any of Buyer's capital stock or make
any distributions in respect of the Buyer's capital stock or Buyer's
assets or properties to any person except for stock dividends or
splits.
d) Enter into any agreement or arrangement with any affiliate whereby
Buyer agrees to pay management fees, service fees, licensing fees,
consulting fees, research and development fees, royalties or any
other form of compensation to such affiliate, except for fees or
compensation for services rendered where such fees or compensation
are comparable to similar fees which would be paid to unrelated
third parties for the same or similar services.
e) Shall not pay compensation to any officer or director or senior
manager of Buyer representing an increase in excess of 15% of their
base compensation from the prior year (which compensation does not
include distributions and commissions). Buyer agrees that
commissions and bonuses, if granted shall be granted consistent with
historical commission or bonus plans or pursuant to plans approved
by the Seller.
f) Shall not make distributions to any officer or director of Buyer
during any agreement year until the minimum royalties for such year
have been fully paid to Seller under the License Agreement and,
thereafter during
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the same year, except as required to conduct its Business in the
ordinary course, not make any such distributions until DT-Australia
has accumulated and reserved at least 25% of the next year's
minimum royalty.
g) Shall not commit or incur debt financing (excluding any debt owed to
Seller) in excess of the Debt Limitation Amount and, shall not
create, incur, assume or suffer to exist any Senior Indebtedness in
excess of the lesser of (I) the Debt Limitation Amount, and (II) an
amount determined pursuant to the following table:
Agreement Year Amount of Senior Indebtedness Permitted
-------------- ---------------------------------------
First None
Second $500,000 (less total Senior Indebtedness of Licensee)
Third $1.5 million (less total Senior Indebtedness of Licensee)
Fourth $2.5 million (less total Senior Indebtedness of Licensee)
The term "Senior Indebtedness" shall mean all future indebtedness
of Buyer for money borrowed from any bank, trust company, insurance
company or other private, commercial or governmental lending
institutions, up to the limits set forth above, regardless of
whether such indebtedness is secured by assets of Buyer, and to
which indebtedness the security given to Seller pursuant to a
separate security agreement between Buyer and Seller is expressly
subordinated in writing. With regard to any indebtedness that is
junior in payment to Seller's security, the promissory note of Buyer
evidencing such junior indebtedness shall contain subordination
provisions effectively subordinating the junior creditor's
indebtedness to that of Seller and any holder of Senior
Indebtedness.
For purposes of this Section 6.2, the term "Debt Limitation Amount"
shall mean, as of the Effective Date, $1 million dollars (the "Base
Amount"), and thereafter, an amount calculated as: (I) the Base
Amount, plus (II) the amount of royalties actually paid under the
License Agreement by Licensee multiplied by 120%, less (III) the
amount of Licensee debt currently outstanding.
6.3 Board Observer - From the Closing Date of this Agreement until
termination or expiration of the License Agreement, Buyer covenants and agrees
that Seller shall have the right to designate one representative who shall be
entitled to attend all Buyer Board of Directors Meetings. Such Board of
Directors shall meet no fewer than once annually and may hold meetings by
teleconference. Buyer will give Seller's
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representative reasonable prior notice of any Buyer Board of Directors meeting.
The representative designated by the Seller shall be entitled to reimbursement
of all reasonable out-of-pocket expenses incurred in connection with attendance
at such meeting provided, however, that such representative must obtain prior
approval from Buyer for expenses greater than One Thousand Dollars ($1,000) per
meeting. Any action taken by Seller's representative shall not be deemed or
otherwise construed as an act or omission by Seller.
7. Conditions to Obligations of the Buyer. The obligations of the Buyer
under this Agreement are subject to the fulfillment, at the Closing Date, of the
following conditions precedent, each of which may be waived in writing in the
sole discretion of the Buyer:
7.1 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of the Seller and Best to authorize or carry
out this Agreement and to convey, assign, transfer and deliver the Assets shall
have been taken.
7.2 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller or Best of the transactions contemplated by this
Agreement shall have consented to, authorized, permitted or approved such
transactions.
7.3 Board of Directors and Shareholder Approval. The Board of
Directors of the Seller and Best shall have duly authorized the transactions
contemplated by this Agreement and shareholder approval, if required.
7.4 Closing Deliveries. The Buyer shall have received at or prior to
the Closing each of the following:
(a) a bill of sale transferring title to the Assets;
(b) possession of the Assets; and
(c) such other documents, instruments or certificates as the Buyer
may reasonably request.
8. Conditions to Obligations of the Seller and Best. The obligations of
the Seller and Best under this Agreement are subject to the fulfillment, at the
Closing Date, of the following conditions precedent, each of which may be waived
in writing at the sole discretion of the Seller and Best:
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8.1 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of the Buyer to authorize or carry out this
Agreement shall have been taken.
8.2 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.3 Consents of Third Parties. The Buyer shall have received all
requisite consents and approvals of all lenders, lessors and other third parties
whose consent or approval is required in order for the Buyer to consummate the
transactions contemplated by this Agreement.
8.4 Board of Directors Approval. The Board of Directors of the Buyer
shall have duly authorized the transactions contemplated by this Agreement.
8.5 Closing Deliveries. The Seller and Best shall have received at
or prior to the Closing each of the following:
(a) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Seller shall reasonably request;
(b) certificate of the Secretary of State of the state of New Jersey
as to the legal existence and good standing of the Buyer in New Jersey;
(c) certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, and the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement;
(d) executed Promissory Note; and
(e) such other documents, instruments or certificates as the Seller
and Best may reasonably request.
9. Indemnification.
9.1 By the Seller and Best. The Seller and Best agree, jointly and
severally, to indemnify and hold harmless the Buyer against all claims, damages,
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losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) reasonably incurred in
connection with each and all of the following:
(a) any breach by the Seller or Best of any representation or
warranty in this Agreement or any other agreement, instrument or document
furnished in connection with this Agreement;
(b) any breach of any covenant, agreement or obligation of the
Seller or Best contained in this Agreement or any other agreement, instrument or
document contemplated by this Agreement;
(c) obligations or liabilities of the Seller to its employees
arising under the Federal Worker Adjustment and Retraining Act, provided that as
of the Closing, Buyer has offered to rehire all such Seller employees; and
(d) any liability of the Seller or Best not expressly assumed by the
Buyer as an Assumed Liability, including, without limitation, any liability
resulting from claims by employees and premises-related claims arising from
events that occurred prior to the Closing Date.
9.2 By the Buyer. The Buyer agrees to indemnify and hold harmless
the Seller and Best against all claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred in connection with each and all of the
following:
(a) any breach by the Buyer of any representation or warranty in
this Agreement or any other agreement, instrument or document furnished in
connection with this Agreement;
(b) any breach of any covenant, agreement or obligation of the Buyer
contained in this Agreement or any other agreement, instrument or document
contemplated by this Agreement;
(c) any products sold/licensed after the Closing which are
manufactured in whole or in part out of the inventory being conveyed to Buyer on
the Closing Date;
(d) any Assumed Liability.
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9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the Indemnified Party shall promptly notify the
Indemnifying Party of the claim and, when known, the facts constituting the
basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
9.4 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense; provided
that if the Indemnifying Party assumes control of such defense and the
Indemnified Party reasonably concludes that the Indemnifying Party and the
Indemnified Party have conflicting interests or different defenses available
with respect to such action, suit or proceeding, the reasonable fees and
expenses of counsel to the Indemnified Party shall be considered "damages" for
purposes of the Agreement. If the Indemnifying Party does not assume the defense
of any such claim or litigation resulting therefrom within 30 days after the
date such claim is made, (a) the Indemnified Party may defend against such claim
or litigation, in such manner as it may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim, the Indemnifying Party shall
have the burden to prove by a preponderance of the evidence that the Indemnified
Party did not defend or settle such third party claim in a reasonably prudent
manner. In either case, the party controlling the defense shall keep the other
party advised of the status of such action , suit or proceeding and the defense
thereof and shall consider in good faith recommendations made by the other party
with respect thereto. None of the parties shall agree to any settlement of any
such action, suit or proceeding without the prior written consent of the other
party(s), which shall not be unreasonably withheld.
9.5 Survival of Representations, Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall expire on the first
anniversary of the Closing Date, except for claims, if any, asserted in writing
prior to such first anniversary, which shall survive until finally resolved and
satisfied in full. All claims and actions for indemnity pursuant to this
Purchase Agreement for breach of any
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representation or warranty shall be asserted or maintained in writing by a party
hereto on or prior to the expiration of such one-year period. Notwithstanding
anything to the contrary in this Section 9, the aggregate amount payable under
this Section 9 by the Seller and Best collectively, or the Buyer shall not
exceed Five Hundred Thousand Dollars ($500,000), except that amounts to be paid
by either party to the other under Section II shall not be applied against this
limitation.
9.6 Payment. Any indemnification under this Agreement shall be
effected by payment of cash or delivery of a cashiers or bank check.
9.7 Consequential Damages. UNDER NO CIRCUMSTANCES SHALL THE SELLER,
BEST OR THE BUYER BE LIABLE, DIRECTLY TO ANY OTHER PARTY OR BY WAY OF INDEMNITY
ARISING OUT OF ANY THIRD-PARTY CLAIM, FOR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OR LOSSES, INCLUDING WITHOUT LIMITATION LOST PROFITS OR
LOST SALES, ARISING OUT OF OR CONNECTED TO THIS AGREEMENT OR THE TRANSACTION OF
WHICH IT IS A PART.
10. Post-Closing Agreements.
10.1 Proprietary Information. Subject to the last sentence of this
Subsection 10.1, from and after the Closing Date, the Seller and Best shall hold
in confidence, and use its reasonable efforts to have all of Seller's and Best's
officers, directors and personnel hold in confidence, all commercial knowledge
and information of a secret or confidential nature relating to the Assets or the
Business and shall not disclose, publish or make use of the same without the
written consent of the Buyer, except to the extent that such information shall
have become public knowledge other than by breach of this Agreement by the
Seller or Best, such information is disclosed to comply with any applicable law,
or such information is disclosed in the enforcement of the Seller's or Best's
rights.
10.2 Solicitation of Employees. For a period of one year after the
Closing Date, the Buyer shall not, without Best's prior written consent, solicit
or hire (whether as an employee or a consultant) any employee or former employee
of Best or Abra, unless (a) such employee was involuntarily terminated by Best
or Abra, or (b) such employee has been out of Abra's or Best's employ for at
least twelve months. For a period of one year after the Closing Date, the Seller
and Best (including Abra) shall not, without Buyer's prior written consent,
solicit or hire (whether as an employee or a consultant) any employee or former
employee of Buyer, unless (a) such employee was involuntarily terminated by
Buyer, or (b) such employee has been out of Buyer's employ for at least twelve
months.
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10.3 Sharing of Data. Promptly after the Closing Date, Seller or
Best shall provide Buyer with access to such books, records and accounts (or
copies thereof), including financial information, correspondence, production
records, and other similar information as necessary for Buyer to utilize the
Assets and conduct the Business, which shall be in addition to those records
purchased by Buyer as described in Section 2.1 (a)(iii) above (the "Production
Records"). Such books, records and accounts shall remain the property of Seller
or Best and Seller and Best shall have the right to remove such books, records
and accounts from Buyer's premises at any time, provided that Seller or Best
shall allow Buyer sufficient time to make copies of any such books, records and
accounts it reasonably needs to retain in order to operate its business. With
regard to any records that Seller or Best maintains at a separate facility,
Buyer shall have the right for a period of three years following the Closing
Date to have reasonable access to those books, records and accounts, including
financial and tax information, correspondence, production records, employment
records and other records, to the extent any of the foregoing relates to the
Business, and for the purpose of complying with its obligations under applicable
securities, tax, environmental, employment or other laws and regulations, or any
other reasonable purpose relative to the operation of its ongoing business. With
regard to those books, records and accounts of Seller or Best that remain in
Buyer's possession, not including the Production Records, Buyer shall maintain
such books, records and accounts, including financial information,
correspondence, production records, and other similar information until at least
June 1, 2000. Thereafter, Buyer may destroy such books, records and accounts
after giving no less than thirty days prior written notice to Seller and Best
which notice shall give Seller and Best the opportunity to take possession of
such books, records and accounts.
10.4 References. No written or printed material, including, without
limitation, any catalogue, brochure, sales or any kind of promotion material or
other selling material, and no other tangible Asset acquired by the Buyer from
the Seller or Best pursuant to this Agreement that contains the name of or
references to Best shall be used publicly or distributed by the Buyer until such
names or references are deleted or covered by a sticker acceptable to Best,
except as specifically permitted in Section II below.
11. Transitional Issues. All transitional issues relate to the operations
of Seller in New Jersey, and Seller in the United Kingdom and Canada, to the
extent applicable. To the extent that any specific documents or agreements are
required in order to complete the intention of the transition plan in the UK
and/or Canada, the parties agree to promptly execute such documents or
agreements.
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11.1 Personnel
(a) Termination and Rehire. Effective as of the close of business on
the Closing Date, Seller will terminate all of its employees, except for any
employees who are being transferred to Best or Abra. Effective the first
business day following the Closing Date, Buyer will offer employment to, and
hire, all employees with such employment to be on substantially the same terms
as when the employees were employees of Seller. Seller will not incur any costs
associated with any severance pay due to the termination of the employees.
(b) Termination Package. Seller will provide a termination package
for each terminated employee in accordance with its company policies and
procedures that will include the following:
(i) Final paycheck. A check reflecting hours worked for Seller
through the Closing Date plus any vacation earned but not used since April
1, 1996, less appropriate taxes and other withholdings. The final check
will be reduced for any amounts owed by the employee. Since Seller and
Buyer have agreed to maintain the continuity of the payroll cycle,
depending on where the Closing Date falls in the payroll cycle, the
payroll amount due to each employee will be split into two separate checks
to reflect the hours worked by the employee for the Buyer and Seller
(Seller's checks to be adjusted as discussed above). No later than two
business days prior to the date that the payroll checks will be issued by
the Buyer to the employees after the Closing Date, Seller will transfer
funds to its payroll bank account sufficient to cover Seller's paychecks.
A detail payroll register and other supporting documentation as reasonably
requested by Seller will be sent to Seller, for approval, prior to the
funding of Seller's portion of the payroll.
(ii) Computer Purchase Loan. Seller will forgive 50 % of any
outstanding computer purchase loan balance due as of the Closing Date.
This constitutes a taxable income event for the employee and will be
reflected in the year-end W-2 statement. For those employees hired by
Buyer, the 50 % remaining due will be recovered from the employee by Buyer
based on continued employment at Buyer. Buyer will reimburse Seller its
50% share of the computer purchase loans in the Settlement Payment.
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(iii) Health/Insurance benefits.
(A) Termination of Old Plans. Current Seller health
(medical/dental) and insurance plan coverage will continue
through May 31, 1996. Effective June 1, 1996, Buyer will
establish health and insurance plan coverage for those
employees that it is hiring.
(B) COBRA. A letter defining the employees' rights under the COBRA
provisions will be given to all terminated employees by Seller
as part of the termination package.
(iv) 401(k). For those Seller employees participating in the Seller
401(k) plan, including current and former employees, all vested assets and
funds will transfer into a qualified 401(k) plan to be established by
Buyer. This is being structured to constitute a roll-over such that this
will not necessitate payment of 20% withholding tax, etc.
(v) Tuition Reimbursement. Seller will fulfill tuition reimbursement
obligations. Prior to Closing, Buyer will notify Seller of any employees
that are currently participating in the tuition reimbursement program,
along with the potential costs of the program and the estimated completion
date of the academic period. Eligible employees will notify Buyer at
completion of academic period, and if reimbursement is earned, Buyer will
compensate employee in the normal paycheck process. This liability is
retained by the Seller. Seller will reimburse Buyer in the Settlement
Payment.
(c) Buyer will hire all employees effective the first business day
following the Closing Date and will provide those employees with the following:
(i) Health, Employment and Life Insurance Benefits. Benefit plans
and procedures for its employees that, where practical, are consistent
with the plans in place at Seller as of the Closing Date. These plans will
be in effect as soon as possible after the Closing Date so as to minimize
any disruption or discontinuity of benefit protection. Buyer will work
with those employees who participate in the Flexible Spending Account
(FSA) to define a course of action for the remainder of 1996. Seller has
no liability for actions subsequent to the Closing Date other than
provided by FSA procedures.
(ii) Seniority. A credit with regard to seniority equal to the term
of service reflected on Seller's records as of the Closing Date. Such
credit will apply to those benefits that are affected by service. Employee
records defining
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start date and credited years of Seller service have been provided to
Buyer by Seller.
(iii) Continuation of Pay. Continuation of pay at current effective
rate.
(iv) Paid Time Off. Vacation/sick leave policy reflecting the
termination from Seller on the Closing Date and the fact that employees
have already been paid for their vacation that was earned and unused since
April 1, 1996. Seller does not compensate for unused sick leave upon
termination.
(v) Computer Loans. Buyer will reimburse Seller in the Settlement
Payment for 50% of the outstanding computer loan balance for those Seller
employees it hires and will amortize the employees' payment of those loans
based on continued employment with Seller on terms that it will define.
(vi) Sales Commissions. Buyer will continue Seller's current sales
commission plan at least through June 30, 1996 and will pay, in accordance
with the terms of that plan, eligible employees the sales commission that
is earned and payable based on first quarter achievements under such plan
(April, 1996 through June, 1996). Upon receipt of notice that commission
payment is due plus a report reconciling the amounts to be paid, Seller
will compensate Buyer, in the Settlement Payment, for a share of those
sales commissions, where Seller's share will be a pro-rata share of the
commission equal to the pro rata portion of sales recorded up to/including
the Closing Date as a percentage of total net sales recorded in the
quarter. Net sales will be determined, in accordance with Seller's sales
commission plan, as total sales less a 25% allowance for future credits.
11.2 Leases and Other Commitments.
(a) Real Property. The lessor of the real property and facilities
currently occupied by Seller has agreed to assign the current leases, as
amended, to Buyer as of the Closing Date, which assignment shall include a
provision releasing Seller and Best of all future liability under such leases.
The parties agree that Buyer rent payment obligation under such leases shall
begin the day after the period covered by the final rent payment made by Seller
for May 1996.
(b) Cable & Wireless (Long Distance). Seller and Buyer agree that
Buyer will continue to use the C&W Long Distance and will not seek to obtain
other such services for the period remaining on the current C&W agreement.
Seller will use commercially reasonable efforts to obtain C&W's consent to amend
this agreement to
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provide Buyer with continuation of service through the current agreement at
current prices, as well as for direct invoice to and payment from Buyer. Buyer
is free to discontinue its use of C&W at the conclusion of the current
agreement, October 1997, and make other arrangements if it so desires.
(c) Telephone System. Seller will use commercially reasonable
efforts to obtain Leasing Technologies, Inc.'s (LTI) consent to assignment of
the current lease to Buyer. Until the assignment is executed, Buyer shall fully
comply with all the terms and conditions of the current lease, including making
all payments thereunder to LTI.
(d) Access Line. Seller will assign and Buyer will accept assignment
of the Access Line contract. Until this assignment is executed, Buyer shall
fully comply with all the terms and conditions of the current agreement,
including making all payments thereunder to Access Line.
(e) Other Leases (furniture, copiers, etc.) and Commitments. For
minor leases/commitments not already discussed in this Section 11.2, Buyer will
continue to make payments under the current agreements and, as soon as possible
after the Closing Date, Buyer will contact the vendors to establish business
relations in its own name. In the event that Buyer fails to make payments or
fulfill any other obligation in these leases, it will indemnify Seller and hold
Seller harmless for any costs that Seller incurs as a result of a Buyer
deficiency. Such indemnification will be subject to the indemnifications
procedures set forth in Section 9 except that any amounts due pursuant to this
indemnification shall not count against the $500,000 indemnification cap.
Failure to fulfill these obligations or cure the deficiency promptly after
written notice from Seller will be considered a breach of this Agreement.
(f) Buyer Indemnification of Seller. In the event that Buyer fails
to make payments or fulfill any other obligation, after the Closing, under any
of the leases or agreements, Buyer will indemnify Seller and hold Seller
harmless for any costs (including penalties and attorneys' fees) that Seller
incurs as a result of a Buyer breach. Such indemnification will be subject to
the indemnification procedures set forth in Section 9 except that any amounts
due pursuant to this indemnification shall not count against the $500,000
indemnification cap. Failure to fulfill these obligations or promptly cure any
breach after written notice from Seller will be considered a breach of this
Agreement.
11.3 Assets, Inventory & Fulfillment.
(a) Fixed Assets and Inventory. Seller is transferring fixed assets
and inventory to Buyer pursuant to Section 2.1 above. Such inventory shall
include all
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of the Product inventory, including that inventory at Echo Systems in
Downingtown, PA. However, Buyer agrees that it will make available, at no cost
to Seller, any items from that inventory necessary for any of Seller's
obligations due to any Product licenses sold prior to the Closing Date to be
fulfilled.
(b) The AS/400 Assets. Buyer agrees that upon its termination of use
of the Best AS/400 system, it will assist Best in shipping the AS/400 Assets to
Best's facility. Best will be responsible for arranging for, and for the cost
of, shipping these assets to whatever location it designates. Buyer shall return
the AS/400 Assets to Best in the same condition that they were on the Closing
Date, ordinary wear and tear excepted. If the AS/400 Assets as returned to Best
requires repair, or if any of the AS/400 Assets are not returned to Best as
required by this Section (b), Buyer shall immediately pay to Best, upon receipt
of invoice, the reasonable cost of such repair, or if any AS/400 Asset is not
returned, the replacement cost of such AS/400 Asset.
(c) Fulfillment. Until it makes other arrangements, Buyer will
utilize Echo Systems to fulfill product orders. Current operating procedures
between Seller and Echo involve unique pricing and ordering procedures and
invoicing and payment directly between Seller and Echo. Buyer will continue to
use those procedures and will make all payments due to Echo directly to Echo. As
soon as practical, Buyer will establish its own specific order fulfillment
arrangement with a vendor of its choice. Immediately after the Closing Date,
Seller and Buyer will jointly advise Echo in writing of this arrangement and
will advise Echo that Seller has no liability with respect to any obligation of
Buyer accruing after the Closing Date.
(d) Pre-Assembled Product. The pre-assembled Bestware Products in
inventory at Echo Systems can be utilized by Buyer, without change, to fulfill
orders after the Closing Date. The license agreement and all collateral material
that utilize the Seller designation can be used "as is" except for the Certified
Consultant Directory. Since the Certified Consultant Directory references Seller
as a "Best!" company, all unassembled stock of this document are to be
destroyed immediately after the Closing Date, or Buyer will obscure the
reference to a "Best" company by means of a sticker at Buyer's cost and sole
discretion. Buyer will be responsible for replacing that Directory with a new
version that does not include any reference to Best. In addition, there are a
number of small print references that may be in Seller end-user materials being
transferred to or sold to Buyer hereunder (such as polybag notices, license
agreements, etc.). When transferred stock is depleted, any reprints of such
material shall delete any reference to Best or Abra. With respect to materials
sold to Buyer by Seller (e.g., poly bags), Buyer shall make all reasonable
efforts to create and utilize replacements for any and all such materials,
without any reference to Abra or Best. Buyer shall indemnify and hold Seller,
Best and Abra harmless from any costs, damages or liability any of them may
incur as a result of Buyer's use of this inventory after the Closing Date.
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(e) Company Name. Seller and Best agree that, during the term of
this Agreement, Seller shall no longer have any right to use, and will not use
or allow any third party to use the name "Best!Ware, Inc." after the Closing
Date; except for its use related to checks and bank accounts as specified in
Sections 11.1 and/or 11.6 or as specifically agreed in writing by Buyer. Seller
shall change its corporate name so as not to include such words, promptly after
the Closing Date.
11.4 Sales, Marketing and Support
(a) Distributor Agreements. Disposition of the current distributor
arrangements listed on an Exhibit to the License Agreement shall be handled as
set forth in the License Agreement. Pursuant to the Management Agreement, Buyer
shall manage the day to day operations of such distribution relationships on
DT's behalf.
(b) Mechanics relating to Distribution Relationships Continuing
after the Closing Date. With regard to distribution relationships existing
before the Closing Date which continue after the Closing Date, Seller will be
responsible for all aspects of those orders that were entered into prior to the
Closing Date. That is, Seller is responsible for any returns that are part of
orders dated prior to the Closing Date. Seller will also complete any co-op
arrangements that were entered into and relate to orders dated on/or before the
Closing Date, subject to the financial arrangement described in Section 11.6.
(c) Support. Buyer will use commercially reasonable efforts to
continue to provide customer support services consistent with those provided
prior to the Closing Date.
(d) Sales and Marketing, Campaigns. Buyer will not undertake new
sales or marketing campaigns after the Closing Date and until the next product
release (scheduled for October, 1996) that would motivate customer/distributors
to return product to Seller in order to re-order the same product from Buyer.
(e) Reports. Buyer will provide Seller with a copy of a quarterly
sales report showing unit sales by product by distributor, by month and
year-to-date. The report will also show returns and other credits processed
against orders received after the Closing Date. These reports should be produced
by Buyer's regular internal reporting system and be transmitted to Seller within
three days of their internal publication to Buyer. The report formats utilized
in the Seller's Quick Look Reports and the Sell-Through Reports will satisfy
this reporting requirement.
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(f) Publicity. The parties agree that it is important that a
coordinated and consistent message be presented as regards to this transaction.
They will work together to define a press release to be provided to the
appropriate industry publications shortly after the Closing Date. They will also
prepare a list of typical questions and the answers for these questions to be
provided to members of management who are authorized to respond to such queries.
Each company will advise all its employees, as part of its internal
announcement, to refer any and all such inquiries to designated managers and not
to volunteer any information regarding this transaction.
11.5 Best-provided Services
(a) MIS. Best agrees to allow Buyer to continue to use Best's AS/400
computer and those selected applications named in Schedule 11.5 until Buyer has
been able to establish its own MIS operations.
(i) Buyer agrees to pay Best [ * ] per month for the use of the
AS/400 and the named applications. In addition to the [ * ] monthly
AS/400 usage fee, Buyer will also pay Best for all dedicated resources
(e.g., T1 phone lines) and for any other incremental costs incurred by
Best due to Buyer's use of the AS/400. Payment will be made monthly
within seven days of the end of each month.
(ii) The parties do not anticipate any changes to any of the AS/400
applications on behalf of Buyer. However, if Buyer wants any changes made
or requests any labor-based services, including preparing annual updates,
they will provide a written request to Best (attention Doug Fuller and
Melody Ranelli). Requests for such AS/400 services should be made
reasonably in advance of the need for such services. Best will provide a
cost estimate, based on the labor rates listed in Schedule 11.5, and a
schedule for completing the work, which schedule may reflect then-current
resource availability. If Buyer wishes to proceed, it will then authorize
the work in writing.
(iii) Best agrees that it will make the AS/400 available to Buyer,
under the conditions described above, until March 31, 1997. Buyer agrees
that it will make a reasonable effort to establish its own MIS system as
soon as possible and thereby terminate its use of Best's AS/400 system on
or-before March 31, 1997.
(b) Lotus Notes. Seller will transfer to Buyer all the assets and
licenses necessary for Buyer to operate its own Lotus Notes system independent
of the Best system beginning with the Closing Date, except for information
downloaded to
* FOR CONFIDENTIAL TREATMENT
24
<PAGE> 25
Buyer's system from the AS/400. When Buyer terminates its usage of the AS/400
system, it will establish its own procedures for transferring such information
into its own Notes system.
(c) Web site. The Best Programs Web Site is a company-wide site,
with subsections for various companies/products. Buyer will establish its own
site within 90 days of the Closing Date. Once the Buyer site is established,
Best will put directions into the Seller sections of the site that will instruct
the user as to how to reach the Buyer site. Buyer will be allowed to delay the
cut-over to its own site for 30 days with 14 days notice (a maximum of 2
extensions permitted).
(d) Other Services. In the event that Buyer requires support from
Best in areas other than those defined in this Agreement, the parties agree that
Best will make all reasonable efforts to be of assistance. Such requests should
be directed to David Bosserman for him to determine to whom to assign the
project and to prepare an estimate of the time involved and a schedule. The
parties agree that such support will be billed to Buyer for the direct hours
worked on the project. The billing rate will be calculated as the direct labor
rate of the resources performing the work plus 25%, where the 25% will cover
all the indirect costs of taxes, benefits, and all other labor related expenses.
In addition, Best will pass through to Buyer any out of pocket costs incurred on
behalf of Buyer, such as travel and entertainment associated with the project.
Best will invoice Buyer monthly for any such work performed, with payment due
within 30 days of invoice date.
11.6 Accounting/Administrative Wrap-Up. While Buyer will essentially
continue the business operations of Seller following the Closing Date, the fact
that Buyer is a new and separate company necessitates that a number of
accounting and administrative matters be dealt with. This is also the case since
Seller is retaining ownership of and responsibility for certain balance sheet
accounts.
Buyer is responsible for establishing its own bank accounts, merchant
accounts, and tax identification numbers for payroll, sales, income, and any
other purposes, along with performing any other requirement to sever their
operational ties to Seller existing after the Closing Date.
(a) Prior to the Closing Date, the parties will have prepared a
preliminary Balance Sheet, including detail lists of all accounts that are
normally available through the Seller accounting system (e.g., schedule of gross
and net accounts receivable, including a detail accounts receivable aging,
analysis of allowances for product returns and bad debt, schedule of commitments
under co-op arrangements, analysis of accrued rebates, and other analyses to
support net accounts receivable; schedules of prepaid expenses and other assets,
other accounts receivable, deposits, and
25
<PAGE> 26
of other assets; schedule of detailed open accounts payable, schedule of accrued
payroll, including commissions and taxes payable, schedule of sales taxes
payable, etc.). The parties have agreed upon a distribution of all accounts to
either Seller or Buyer (see attached Schedule 11.6) and, as such, calculate a
Net Working Capital Proceeds Account ("NWCPA") for Seller. Within 20 days of the
Closing Date, Buyer will prepare a final version of the Balance Sheet as of the
Closing Date, including final versions of all account detail.
(b) Six months after the Closing Date, Seller will calculate a final
value for the NWCPA and a reconciliation of all accounts assigned to it. If the
final value is less than the value as of the Closing Date, Buyer will pay the
difference to Seller by March 31, 1997.
(c) During the six months following the Closing Date, the parties
will operate as follows. Buyer will perform on-going duties as it relates to the
performance of the wrap-up of affairs relative to Seller, including operations
in New Jersey, United Kingdom and Canada. Such duties include but are not
limited to:
- Closing monthly financial statements for May
- Filing all final payroll related reports, including the payment of
taxes
- Filing all final sales tax reports, including the payment of taxes
(i) Cash. Seller will take title to all bank and cash accounts at
Closing. As soon as practical after closing, Seller will change the name
of the account from Seller to either Best or its new company name. Buyer
is to open new accounts under their tax identification number and order
new check stock. Buyer to pay Seller for the impress balance of the petty
cash account as part of the Settlement Payment,
(ii) Accounts Receivable (including Trade A/R, Accrued A/R and Other
A/R). As of the Closing, Seller retains all ownership to trade accounts
receivable; accrued accounts receivable, including but not limited to
Deluxe commissions, Access Line fees and all royalty arrangements
(including that of Licensee); and other accounts receivable; that were
accrued or should have been accrued by Seller. In order to minimize any
confusion with current distributors and resellers and to continue a
consistent practice in processing credits, rebates and other returns, the
practical approach is to continue to have payments and credit requests
sent to Buyer and be processed consistent with past practices of Seller.
Eventually, all such transactions will relate only to business
transactions entered into after the Closing Date and will be the sole
responsibility of Buyer. From the Closing Date until that time, some
transactions will contain items that impact both Seller and Buyer.
Procedures for handling these transactions and
26
<PAGE> 27
for providing proper reporting to Seller are defined as follows. Buyer
will receive all payments and process requests for credits, return
authorizations and co-ops, as well as all other accounts receivable
transactions in the normal course of business. Any payments received that
are wholly owed to Seller will immediately be forwarded to the Seller's
Lock Box, along with all remittance information. As time proceeds, and
payments reflect items that belong to both parties, Buyer will process
such payments and apportion the payments based on the invoices paid and
the credits taken. Buyer will make payments to Seller and transmit to the
Seller's Lock Box on a weekly basis.
(iii) Co-op. Buyer will process all co-op credit requests in the
normal course of business and reconcile them with the list of open
approved requests as of the Closing Date. Buyer will provide a monthly
report summarizing all such transactions.
(iv) Rebates. Seller will be responsible for all rebates that are
received by Buyer within 60 days of Closing Date. Buyer will provide a
report on a monthly basis of rebates reimbursed and a final report on
rebates process. Seller to reimburse Buyer in the Settlement Payment.
(v) Credit Card Transactions. Buyer will establish its own credit
card merchant numbers. Immediately after the Closing Date, Buyer and
Seller will notify credit card processors that all transactions after this
notification are to be processed to Buyer's bank account. Seller will
leave its bank and merchant accounts open for 45 days after the Closing
Date to process any charge backs against products sold prior to the
Closing Date. If Buyer receives any charge backs requests for sales made
prior to the Closing Date after the Seller accounts are closed, Buyer will
process these requests in normal course of business and provide a monthly
report to Seller. Seller will reimburse Buyer, in the Settlement Payment,
for any costs Buyer incurs as a result of such approved charge backs.
Specifically with respect to credit card transactions in the
UK/Canada, the Buyer agrees as follows: (A) to limit the use of Seller's
merchant account to less than 45 days; (B) to indemnify Seller for
consequences of improper use and any damages; (C) to provide a
precheck-writing report to Seller before checks are dispersed for accounts
payable; and (D) to provide final reconciliation of cash.
(vi) Prepaid Expenses and Deposits. Buyer will pay Seller an amount
equal to the prepaid expense and deposit account balances, as of Closing
Date,as
27
<PAGE> 28
part of the Settlement Payment. Buyer will collect for itself all
deposits that are released as conditions are fulfilled.
(vii) Payables. Immediately following the Closing Date, Buyer will
prepare a payables report reflecting all items at least 30 days old and
all under 30 days. Seller will transfer funds to Seller's bank account for
it to make the payments, as payments are scheduled to be made. Those over
30 days will be paid in Buyer's first check run after the Closing Date.
Those under 30 days will be paid in the second check run. After each check
run, Buyer will provide Seller with a report showing all checks to be
issued along with copies of the corresponding invoices/purchase orders.
Such checks are to be forwarded to Seller (c/o Best) for signature by an
authorized Seller or Best employee, and for dispatch to the appropriate
vendor, all of which shall occur within ten working days of receipt of the
checks from Buyer. If new invoices are received after the Closing Date
that wholly or partially belong to Seller, Buyer will prepare a payables
request indicating the amount owed. Such amounts will be included in the
Settlement Payment, unless there is a dispute about the payable. Such
disputes will be discussed and if not resolved, will be added to the
payable report and funded by Seller pursuant to the above procedure, such
amount counting against the NWCPA final value. As soon as practical after
the Closing Date, Buyer and Seller will notify all vendors that Seller is
not and will not be responsible for obligations incurred after the Closing
Date.
(viii) Accrued Compensation and Taxes. Promptly after Closing, Buyer
shall prepare a schedule of all unpaid compensation and tax obligations
that exist as of the Closing Date. Buyer will process for the period up to
Closing Date, for Seller's signature, all final tax returns, and Buyer
will pay taxes associated with such filings under Seller's tax
identification number. Seller will reimburse Buyer for payroll taxes paid
on its behalf in the Settlement Payment.
(ix) Foreign Tax Credit. Seller shall retain all rights to the
foreign tax credits whether paid or accrued or should have been paid or
accrued by Seller.
(x) Sales Tax Payable. Buyer to provide a schedule of all sales
taxes owed, as of the date of Closing. Buyer will prepare all sales tax
returns in the normal course of business, for Seller's signature and Buyer
will pay taxes as they become due. Seller will reimburse Buyer the amount
of the taxes paid in the Settlement Payment.
28
<PAGE> 29
(xi) Settlement Payment. A reconciliation for amounts due, for the
following, will be made by the Buyer:
- Seller's prorata share of "shared" accounts payable
- Petty cash account owed to Seller by the Buyer
- Deposits owed to the Seller by the Buyer
- Prepaid expenses owed to the Seller by the Buyer
- Buyer's obligation for 50 % of the computer purchase obligation, as
of the Closing Date
- Tuition reimbursement owed by Seller to Buyer
- Sales commissions owed by Seller to Buyer
- Sales taxes payable owed by Seller to Buyer
- Payroll taxes payable owed by Seller to Buyer
- Rebates owed by Seller to Buyer
- Credit card charge backs owed Seller to Buyer
The reconciliation will reflect, by category, the amount owed by Buyer to Seller
or by Seller to Buyer, along with a net amount owed by one party to the other.
This reconciliation will be made as of the July month end and will be forwarded
to Seller by August 10, 1996, along with detail schedules supporting the
amounts. After acceptance by both parties, and not later than August 15, 1996, a
payment will be made by the "owing" party.
12. Transfer and Sales Tax; Bulk Sales.
12.1 Taxes. Notwithstanding any provisions of law imposing the
burden of such taxes on the Seller, Best or the Buyer, as the case may be, the
Buyer shall pay (a) all sales, use and transfer taxes, and (b) all governmental
charges, if any, upon the sale or transfer of any of the Assets hereunder.
12.2 Bulk Sales. The Buyer hereby waives compliance by the Seller or
Best with any applicable bulk transfer laws, including, without limitation, the
bulk transfer provisions of the Uniform Commercial Code of any state, or any
similar statute, with respect to the transactions contemplated hereby. The
Seller and Best shall at all times defend, indemnify and save harmless the Buyer
from and against any and all claims by creditors of the Seller or Best that the
Buyer may incur as a result of its agreement to waive the requirements of the
Bulk transfer provisions of the Uniform Commercial Code, unless such claims
arise solely out of the Buyer's failure to pay or otherwise satisfy, when due,
any of the duties that were assumed by and delegated to the Buyer pursuant to
this Agreement.
29
<PAGE> 30
13. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if sent by Federal Express (required form
for international communications) or similar overnight courier or by registered
or certified mail, postage prepaid, addressed in any event as follows or to such
other address of which the parties have given notice in accordance with this
Section 13:
To the Seller: Best!Ware, Inc. 11413
Isaac Newton Square
Reston, VA 22090
Attention: Melody Ranelli, Treasurer
To Best: Best Programs, Inc.
11413 Isaac Newton Square
Reston, VA 22090
Attention: President
In either case with Hale and Dorr
a copy to: 1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attn: David Sylvester, Esq.
To the Buyer: Best!Ware, Inc.
300 Roundhill Drive
Rockaway, NJ 07866
Attn: President
With a copy to: Data-Tech Software Pty Ltd
4 Solwood Lane
Blackburn
Victoria 3130
AUSTRALIA
Attn: Craig Winkler
Such notices or other communications shall be deemed received (a) on the date
delivered, if delivered personally, (b) three Business days after being
deposited with the U.S. Post Office, if sent by registered or certified mail, or
(c) on the next Business day, if sent by Federal Express or similar overnight
courier.
14. Assignment. Buyer may not assign this Agreement or any rights
hereunder without the prior written consent of Seller or Best. Seller or Best
may not assign this Agreement nor any rights hereunder to any third party
without the prior written consent of Buyer unless (a) such third party agrees
to assume all of Seller or
30
<PAGE> 31
Best's obligations, and (b) such party is not a named competitor of Buyer listed
on EXHIBIT N of the License Agreement. Anything to the contrary herein
notwithstanding, Seller or Best shall be permitted at any time to assign this
Agreement, without consent, (a) to any subsidiary or associated company of
Seller or Best, and (b) pursuant to any merger, consolidation, change in control
or other reorganization. Any attempted assignment of this Agreement in
contravention of this provision shall be void and of no effect. Subject to the
foregoing, this Agreement shall bind and inure to the benefit of the respective
parties hereto and their successors, and assigns.
15. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties. The Buyer, Best and the Seller may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by them.
(b) If the provisions of any Schedule or Exhibit to this Agreement
are inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
16. Expenses. Except as otherwise expressly provided herein, tile Buyer,
Best and the Seller shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby.
17. Exclusive Remedies. Except for any matter for which injunctive relief
is sought (as, for example, any infringement of Seller's proprietary rights) or
any matter involving Seller's rights under any security agreement(s) executed by
Buyer or any Buyer affiliate on Seller's behalf (the "Security Agreements"), the
parties hereby agree that they may resort to only those dispute resolution
remedies explicitly set forth in this Section 17 in the event of any
disagreement, dispute, breach or claim of breach, non-performance or repudiation
hereunder; the entire transaction represented hereby and the structure and
amount of the fees and other financial terms of this Agreement are based upon
strict compliance with this Paragraph 17, and the exclusive remedies set forth
herein have been explicitly bargained for and negotiated and shall bind the
parties as an integral part of this Agreement in accordance with the following
terms and conditions:
17.1 Internal Resolution Procedure. In the event that the parties
have any disagreement, dispute, breach or claim of breach, non-performance, or
repudiation
31
<PAGE> 32
arising from, related to or in connection with this Agreement or any of the
terms or conditions hereof, or any transaction hereunder, including, but not
limited to, either party's failure or alleged failure to comply with any of the
provisions of this Agreement (hereinafter collectively the "Dispute"), the
parties shall first conduct a management procedure as follows. Within ten (10)
calendar days of the time that a senior management representative of either
party having the authorization to do so informs the other party of a Dispute by
sending a written notice specifically referencing and invoking this Paragraph
17, the parties shall conduct a meeting at a location halfway between the
locations of the two parties (unless otherwise agreed) and use their best
efforts to either: (a) resolve the matter and set forth such resolution in
writing, or (b) define the Dispute in writing including a description of the
position of each party.
17.2 Arbitration Resolution Procedure. If the parties are unable to
reach an agreement pursuant to subparagraph (a) above, the Dispute shall be
resolved by mandatory, binding, expedited arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association before an
arbitrator with knowledge and experience in the areas of computer software
licensing. The result of the arbitration shall be final and binding, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The decision of the arbitrator shall be in writing.
He or she shall be compensated by the party that does not substantially prevail
in the arbitration, and the party responsible for payment shall be specified in
the arbitrator's award. IN NO EVENT SHALL THE ARBITRATOR HAVE THE POWER TO
MODIFY, AMEND, OR OTHERWISE CHANGE OR ADD TO ANY OF THE TERMS OR CONDITIONS OF
TMS AGREEMENT OR ANY EXHIBIT HERETO WITHOUT THE EXPRESS WRITTEN APPROVAL OF BOTH
PARTIES. The internal laws of the State of New Jersey shall govern the
enforcement of the award and the principles set forth in this Agreement shall be
applied by the arbitrators for both evidence and substantive law questions
during the arbitration, including the rendering of the award. Judgment upon the
award of the arbitrator, enforced in accordance with New Jersey law, shall be
final and binding upon the parties and may be entered in any court in the
country of either of the parties hereto. The parties acknowledge and stipulate
that this is a commercial contract and that any award, judgment or order,
interim or final, shall be enforceable as a commercial award, judgment or order
wherever such enforcement is sought. The arbitrator shall give effect to the
applicable statute of limitation in determining any claim, and any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrators. The arbitration proceeding and all evidence taken shall be treated
as confidential information hereunder.
17.3 Governing Law and Jurisdiction - This Agreement shall be
construed and governed in accordance with the laws of the State of New Jersey,
except for that body of law known as conflicts of law. The parties hereto
hereby irrevocably
32
<PAGE> 33
submit to the exclusive jurisdiction of the New Jersey courts and hereby waive
any present or future objection to any such venue. The parties further agree
that final judgment against either party in any action or proceeding arising out
of or relating to this Agreement or the Security Agreements shall be conclusive
and may be enforced in any other jurisdiction within or outside the United
States of America by suit on the judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and of the amount of the
obligation.
18. Legal Fees. In the event legal proceedings are commenced by the Buyer
against the Seller and/or Best, or by the Seller and/or Best against the Buyer,
in connection with this Agreement or the transactions contemplated hereby, the
party or parties which so not prevail in such proceedings shall pay the
reasonable attorneys' fees and other costs and expenses, including investigation
costs, incurred by the prevailing party in such proceedings.
19. Section Headings. The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
20. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
SELLER:
BEST!WARE, INC.
a Virginia Corporation
By: /s/ Melody S. Ranelli
-------------------------------
Melody S. Ranelli
Treasurer
33
<PAGE> 34
BEST:
BEST PROGRAMS, INC.
By: /s/ Melody S. Ranelli
-------------------------------
Melody S. Ranelli,
Treasurer
BUYER:
BEST!WARE, INC.
a New Jersey Corporation
By: /s/ Andrew Craig Winkler
-------------------------------
Andrew Craig Winkler
President
34
<PAGE> 35
Schedule 1
AS/400 ASSETS
Quantity Device
- -------- ------
1 5494- (56 device capacity)
2 6010si Lasers
1 3196 terminal
1 Kentrox CSU/DSU
2 Pcs used as gateways
5 Andrew Gateway cards
1 Scale
1 Wedge reader
1 Scanner Gun
1 Retix Router
<PAGE> 36
Schedule 2.1(a)(ii)
CONTRACTS, AGREEMENTS, LEASES, LICENSES
- --------------------------------------------------------------------------------
NAME OF THIRD PARTY DATE OF AGREEMENT
- --------------------------------------------------------------------------------
Access Line, Inc. August 3, 1995
300 Brannan Street
Suite 609
San Francisco, California 94107
- --------------------------------------------------------------------------------
Aladdin Systems, Inc. February 13, 1991
Deer Park Center
Suite 23A
Aptos, California 95002
- --------------------------------------------------------------------------------
The Affinity Group, Inc. May 9, 1996
606 Delsea Drive
Sewell, New Jersey 08080
- --------------------------------------------------------------------------------
Jim Ziron March 3, 1995
57 Chesterfield Road
Amston, Connecticut 06231-1233
- --------------------------------------------------------------------------------
Leasing Technologies, Inc (telephone lease)
- --------------------------------------------------------------------------------
Real Property Leases for 101 Round Hill Drive
and 300 Round Hill Drive, as amended
- --------------------------------------------------------------------------------
Cable & Wireless
- --------------------------------------------------------------------------------
Interconsult
Box 880
North Hampton, New Hampshire 03862
- --------------------------------------------------------------------------------
All licenses for third party software located at Seller's New Jersey facilities
and at Seller's remote sales offices currently used by Dale Rolley, Craig
Runeberg, and Eric Cecil, but specifically excluding the AS/400 Assets
As between the parties, management of the above contracts and leases after the
Closing Date shall be handled as specified in Section 11.
<PAGE> 37
Schedule 2.1(a)(v)
FIXED ASSETS
<PAGE> 38
Schedule 2.4
OTHER LIABILITIES, OBLIGATIONS AND COMMITMENTS BEING ASSUMED BY BUYER
Unearned Maintenance as of the Closing Date
<PAGE> 39
CONFIDENTIAL TREATMENT
Confidential material has been omitted
and filed separately with the Securities
and Exchange Commission. Astericks
denote such omissions.
Schedule 2.5
ALLOCATION OF PURCHASE PRICE AND ASSUMED LIABILITIES
*
<PAGE> 40
Schedule 3.3
ENCUMBRANCES
Lien on the Assets held by First National Bank of Maryland, to be released
within a week of Closing
<PAGE> 41
Schedule 3.7
THIRD PARTY SOFTWARE
Software Product Copies
- ---------------- ------
Visual Source Safe
Version 3.3 6
Version 4 1
Metrowerks Code Manager 4
Metrowerks Code Warrior Eight 5
MS Test 3.0 7
MS Test 4.0 1
WinHelp 95 Office 4
Visual Basic 2
NT AS
Version 3.5 25
Upgrade 3.51 1
<PAGE> 42
Schedule 3.8
LITIGATION
None
<PAGE> 43
Schedule 11.5
MIS APPLICATIONS AND RATES
To be provided after the Closing.
<PAGE> 44
Schedule 11.6
NET WORKING CAPITAL PROCEEDS ACCOUNT (NWCPA)
The parties have agreed that the following Accounts and values constitute the
NWCPA:
<TABLE>
<CAPTION>
ACCOUNT VALUE
- ------- -----
<S> <C>
Trade A/R $1,024,096
Accrued A/R 326,550
Return Allowance ($409,364)
A/P ($102,173)
Accrued Payables ($70,000)
Sales Co-op ($53,070)
----------
Total value $ 716,039
</TABLE>
The parties agree that this Total Value is the minimum amount to be received by
Seller through the disposition of these accounts during the six months following
the Effective Date. Trade A/R does not include any allowance for bad debt which
will be Seller's responsibility. Any fluctuations in accrued A/R due to foreign
currency exchange fluctuations in the Data-Tech receivables is the
responsibility of Seller.
The parties further agree that all of the remaining balance sheet accounts will
be the responsibility of the Seller and will be processed in accordance with the
provisions of the Transition Agreement, including the payment of the Settlement
Payment, due not later than 8/15/96. Items marked with * will be included in the
Settlement Payment.
Those accounts and their values as of 5/24/96:
<TABLE>
<CAPTION>
ACCOUNT VALUE
- ------- -----
<S> <C>
Cash $102.5
Petty Cash* .4
PC Benefit* 5.3
Prepaid and Other* 33.9
Other A/R* 2.6
Deposits* 15.8
Fixed Asset Reimbursement* (30.0)
Accrued Payroll (48.0)
Accrued Comm./bonuses (33.8)
Accrued Rebates (20.0)
Payroll Taxes payable (8.4)
4.01 K (12.1)
Accrued Medical/Dental (45.4)
Flex. Benefit W/H (13.7)
Sales Tax Payable (3.1)
Foreign Income Tax Credit 75.4
</TABLE>
<PAGE> 45
<TABLE>
<S> <C>
Access Receivables for April and May 13.5
Coop in Excess of $53,070 (13.5 max.)
</TABLE>
The parties further agree that the NWCPA does not include transactions relating
to Best UK and Best Canada which will be the responsibility of Seller and will
also be processed in accordance with the provisions of the Transition Agreement.
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 17th day of May,
1995, is entered into by Best Programs, Inc., a Virginia Corporation with its
principal place of business at 11413 Isaac Newton Square, Reston, Virginia
22090 (the "Company"), and James F. Petersen, residing at 3614 Oval Drive,
Alexandria, Virginia 22305 (the "Employee").
In consideration of the mutual covenants and promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the Employee,
and the Employee hereby accepts employment with the Company, upon the terms set
forth in this Agreement, for the period commencing on April 1, 1995 (the
"Commencement Date"), and ending on March 30, 2000 (such period, as it may be
extended, the "Employment Period"), unless earlier terminated in accordance
with the provisions of Sections 2 or 4.
2. Title; Capacity. The Employee shall serve as Chairman of the Company
or in such other reasonably similar alternate position as determined from time
to time by the Company's Board of Directors (the "Board"). The Employee shall
be based at the Company's headquarters in Northern Virginia. The Employee
shall be subject
<PAGE> 2
to the supervision of, and shall have such authority delegated to him by, the
Board.
The Employee hereby agrees to undertake the duties responsibilities of his
position. The Employee agrees to devote his entire business time, attention and
energies to the business and interests of the Company during the Employment
Period. Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company as are reason applicable to his
position.
At the election of the Company in the discretion of the Board of Directors
and with or without cause, in lieu of assign Employee to a reasonably similar
alternate position, the Company may terminate the employment of the Employee,
or assign no position and duties to Employee (and if so, the Employee may
resign if elects). Upon any termination or resignation pursuant to preceding
sentence, Employee's then current base salary shall, severance to the Employee,
continue to be paid to Employee by Company for the duration of the original
Employment Period of the Agreement, and the Company shall pay and maintain the
Employee health insurance coverage as provided by Section 5.4 hereof.
3. Compensation and Benefits.
3.1 Salary. The Company shall pay the Employee,
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<PAGE> 3
installments not less than monthly, an annual base salary of $170,280.00 for
the one-year period commencing on the Commencement Date. Such salary shall be
subject to upward adjustment thereafter as determined by the Board consistent
with the annual average rate of upward adjustment of base salary levels of
senior executive employees of the Company.
3.2 Bonus. The Company shall include the Employee in the
bonus plan or plans now existing or hereafter adopted for senior executive
employees of the Company, and Employee shall be entitled to payment of bonuses
in amounts as applicable and as determined under the terms of such plan or
plans. In the absence of any such bonus plan or plans, at least annually, the
Board shall consider the award of a discretionary bonus to the Employee taking
into account the financial results of the Company and the performance and
efforts of the Employee.
3.3 Fringe Benefits. The Employee shall be entitled to
participate in all bonus, retirement, insurance and benefit programs that the
Company establishes and makes available to its senior executive employees, to
the extent that Employee's tenure, salary, age, health and other qualifications
make him eligible to participate.
3.4 Reimbursement of Expenses. The Company shall reimburse
the Employee for all reasonable travel, entertainment and
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<PAGE> 4
other expenses incurred or paid by the Employee in connection with, or related
to, the performance of his duties, responsibilities or services under this
Agreement, upon presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information as the Company
may reasonably request.
4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
4.1 Expiration of the Employment Period in accordance with
Section 1;
4.2 At the election of the Company, for cause, immediately
upon written notice by the Company to the Employee. For the purposes of this
Section 4.2, cause for termination shall be deemed to exist in the event of:
(i) the refusal of the Employee to perform his assigned duties for the Company,
if such refusal continues after notice and reasonable opportunity to cure, or
(ii) dishonesty, gross negligence or gross misconduct that is injurious to the
Company;
4.3 Thirty days after the death or disability of the
Employee. As used in this Agreement, the term "disability" shall mean the
inability of the Employee, due to a physical or mental
4
<PAGE> 5
disability, for a period of 180 days, whether or not consecutive, during any
360-day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Employee and the Company, provided that if the Employee and the Company
do not agree on a physician, the Employee and the Company shall each select a
physician and these two together shall select a third physician, whose
determination as to disability shall be binding on all parties; or
4.4 At the election of either party, at any time within one
year following: (i) the sale or other transfer by the Company of 50% or more of
its assets to an unrelated third party, or (ii) the sale or transfer, other
than through a public offering, of stock representing voting control of the
Company to one or more third parties not presently holding more than 50% of the
outstanding voting stock of the Company.
5. Effect of Termination.
5.1 Termination for Cause. In the event the Employee's
employment is terminated for cause pursuant to Section 4.2, the Company shall
pay to the Employee the compensation and benefits otherwise payable to him
under Section 3 through the last day of his actual employment by the Company.
5
<PAGE> 6
5.2 Termination for Death or Disability. If the Employee's
employment is terminated by death or because of disability pursuant to Section
4.3, the Company shall pay to the estate of the Employee or to the Employee, as
the case may be, the compensation and benefits which would otherwise be payable
to the Employee up to the end of the month in which the termination of his
employment because of death or disability occurs.
5.3 Termination under Section 4.4. In the event of
termination under Section 4.4 hereof, Employee shall be paid the compensation
and fringe benefits which would otherwise be payable to the Employee up to the
end of the month in which the termination occurs. In addition, with respect to
the then current base salary of the Employee and as severance to the Employee:
if the termination is at the election of the Company, such base salary shall be
paid through the end of the original Employment Period; and if the termination
is at the election of the Employee, such base salary shall be paid for a period
of one year from the date he ceases to be employed by the Company.
5.4 Health Insurance. Upon any termination of this
Agreement, other than for cause or death, the Company shall pay and maintain
the Employee's then current health insurance coverage for a period of one year
from the date of termination.
5.5 Transfer of Life Insurance. Upon any termination of
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<PAGE> 7
this Agreement for reasons other than death, the Company at its expense shall
transfer to the Employee any life insurance policies then maintained by the
Company on the Employee's life, paid up through the end of the then current
policy periods of such policies.
5.6 Survival. The provisions of Sections 2, 5, 6 and 7 shall
survive the termination of this Agreement.
6. Non-Compete.
(a) During the Employment Period and for a period of one year
after the termination or expiration thereof, the Employee will not directly or
indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one percent (1%)
of the total outstanding stock of a publicly held company), engage in the
business of developing, producing, marketing or selling products of the kind or
type then being developed, produced, marketed or sold by the Company; or
(ii) recruit, solicit or induce, or attempt to
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<PAGE> 8
induce, any persons then employees of the Company to terminate their employment
with, or otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away from the Company, or
attempt to divert or to take away from the Company, the business or patronage
of any of the clients, customers or accounts, or prospective clients, customers
or accounts, of the Company which were contacted, solicited or served by the
Employee during the Employment Period.
(b) If any restriction set forth in this Section 6 is found
by any court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
(c) The restrictions contained in this Section 6 are
necessary for the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 6 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the
8
<PAGE> 9
right to seek specific performance and injunctive relief.
7. Proprietary Information and Developments.
7.1 Proprietary Information.
(a) Employee agrees that all information and know-how,
whether or not in writing, of a private, secret or confidential nature
concerning the Company's business or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information
may include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs, and customer and
supplier lists. Employee will not disclose any Proprietary Information to
others outside the Company or use the same for any unauthorized purposes
without written approval by an officer of the Company, wither during or after
his employment, unless and until such Proprietary Information has become public
knowledge without fault by the Employee.
(b) Employee agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all his rights,
title and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright
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<PAGE> 10
applications. This Section 7(b), however, shall not apply to Developments
which do not relate to the then existing or planned business or research and
development of the Company and which are made and conceived by the Employee not
during normal working hours, not on the Company's premises and not using the
Company's tools, devices, equipment or Proprietary Information.
(c) Employee agrees to cooperate fully with the Company, both
during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both in the
United States and foreign countries) relating to Developments. Employee shall
sign all papers, including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any Development.
7.2 Other Agreements. Employee hereby represents that he is
not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of his employment with the Company or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party. Employee further represents that his
performance of all the terms of this Agreement and as an
10
<PAGE> 11
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with the Company.
8. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at the such other address which hereafter is specified by
notice in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
11. Amendment. This Agreement may be amended or modified only by
a written instrument executed by both the Company and the Employee.
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<PAGE> 12
12. Governing Law. This Agreement shall construed, interpreted
and enforced in accordance with the laws of the Commonwealth of Virginia.
13. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
14. Miscellaneous.
14.1 No delay or omission by either party in exercising
any right under this Agreement shall operate as a waiver of that or any other
right. A waiver or consent given by either party on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.
14.2 The captions of the sections of this Agreement are
for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
14.3 In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality
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<PAGE> 13
and enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
BEST PROGRAMS, INC.
By: /s/ MELODY RANELLI
---------------------------------
Title: Executive VP and CFO
------------------------------
EMPLOYEE
/s/ JAMES F. PETERSEN
------------------------------------
James F. Petersen
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<PAGE> 1
EXHIBIT 10.16
[BEST LETTERHEAD]
JAMES F. PETERSEN
CHAIRMAN OF THE BOARD AND CEO
Best Programs, Inc.
11413 Isaac Newton Square
Reston, VA 22090
703-709-5200 Ext. 3016
May 4, 1995
Timothy A. Davenport
42 Smithshire Estates
Andover, Massachusetts 01810
Dear Tim,
I am please to confirm our offer of employment to you to join Best Programs,
Inc. as President and Chief Executive Officer. You know how excited I am about
Best's future in the exploding PC business application market. Under your
leadership, I believe Best can come out a winner in the upcoming software
revolution that is about to change this nation's business. The rewards for
success will be great for you, our employees, our customers and shareholders.
For the record, the offer is:
1. The position is President and Chief Executive Officer reporting to the
Board of Directors, assuming and discharging such responsibilities as
mutually agreed upon by you and the Board commensurate with such
office and position. As President and Chief Executive Officer, you
will be appointed to the Board of Directors.
2. You will be paid a salary of $7,693 every two weeks which equates to
$200,000 annually. Your salary will be reviewed by the Board every
July beginning in July 1996. In addition to your base salary, you
will participate in an annual executive incentive plan in which you
are entitled to earn an incentive bonus compensation targeted at up to
50% of your base. This bonus will be pro-rated for your first year of
employment. The actual bonuses, if and when given, shall be as
determined by the Board of Directors in accordance with the then
current incentive plan.
3. Subject to Board approval, at the first Board meeting following your
date of hire, you will be granted a nonqualified stock option under
the Company's 1992 Stock Option Plan to purchase 200,000 shares of the
Company's Common Stock. The option shall have an exercise price of
the current fair market of the Company's Common Stock $4.00. The
option shall vest 20% each year of employment until it is fully vested
after the completion of 5 years of continuous employment.
<PAGE> 2
Mr. Timothy A. Davenport
Page 2
5/9/95
In addition, the Board will grant you another option for 50,000 shares
of Common stock, which shall vest in blocks of 10,000 each year on the
first day of June (beginning June 1996), provided you achieve revenue
and profit objectives set by the Board on an annual basis. The
exercise price for these options will be the fair market value of the
Common Stock on the dates of grant, which shall be the same as your
initial option. The entire 50,000 shares will vest immediately should
Best have a significant liquidity event, such as an Initial Public
Offering of sell the Company for an amount greater than 1.5 times the
then current annual revenue run-rate.
4. You will be an employee at will and, as such, Best shall have the
right to terminate your employment at any time with or without
"cause". In the event your employment is involuntarily terminated
other than for cause, and except in the case of "constructive
termination" which is discussed in paragraph 5 below, Best shall
continue your then current base compensation plus benefits
(excluding 401(k) participation) until the earlier of (a) 6 months
from the date of termination, or (b) the date you begin other
suitable, full time employment. Termination for "cause" shall
mean the willful failure by you to satisfactorily perform your
mutually agreed upon duties; the failure by you to follow the
reasonable and customary directives established by the Board of
Directors; bad faith conduct that is materially detrimental to
Best; or your violation of any federal or state law or material
generally accepted accounting standard. No severance or other
benefits will be paid in connection with any termination for cause
or voluntary termination.
5. For purposes of termination, if Best should undergo a change of
control (as defined below), your employment with Best shall be deemed
to have been "constructively terminated" if any of the following
occur, and, as a result, you elect within sixty days of such event, to
terminate your employment with Best: A reduction in base salary or
target incentive bonus compensation or benefits or other
non-discretionary compensation in excess of 10%; a material change in
responsibility or authority; or a requirement to relocate, except for
office relocation that would not increase your one way commute distance
by more than 20 miles. If you are "constructively terminated" as a
result of a change of control, you shall continue to receive your then
current base compensation and benefits (excluding 401(k)
participation) for twelve months from the date of such constructive
termination event, and the vesting of your options will be accelerated
by 24 months. If less than 24 months of vesting remains, then 100% of
your options will be exercisable for the period specified in your
stock option grant or the option plan, as applicable.
For purposes of the paragraph 5, change of control shall be deemed to
have occurred if Best sells or otherwise disposes of all or
substantially all of its assets; there is a merger or consolidation of
Best with any other corporation or corporations provided that the
shareholders of Best as a group do not hold immediately after such an
event at least 50% of the voting power of the surviving or successor
corporation; any person or entity becomes the beneficial owner of
common stock of Best representing 50% or more of the combined voting
power of the voting securities of Best (exclusive of persons who are
now officers or directors of Best).
<PAGE> 3
Mr. Timothy A. Davenport
Page 3
5/9/95
6. Best shall reimburse you for reasonable relocation expenses with
regard to your move to Northern Virginia. These expenses shall
include movement of household goods, temporary storage of household
goods up to 60 days, reimbursement of customary real estate
commissions for your home in Andover, up to two house hunting trips,
transportation costs for you and your family, temporary living
expenses up to 4 months here in Virginia an reimbursement of mortgage
origination fees of up to two months here in Virginia and
reimbursement of mortgage origination fees of up to two points (not to
exceed $8,000.)
7. As is normal procedure for all employees, you agree to sign Best's
standard Employee Agreement (a copy of which is enclosed.)
Finally, this offer is contingent and subject to change upon Best
satisfactorily conducting interviews with references and review by Best's
legal, financial and tax advisors.
The Board of Directors, key managers and I are very excited about you becoming
part of our team. Should you have any questions about this offer, do not
hesitate to contact me at work or a home (703) 683-1871.
Sincerely,
/s/ JAMES F. PETERSEN
James F. Petersen
Chairman, President and CEO
To indicate your acceptance of this offer, please sign both copies of this
letter and return one to me with your start date indicated.
Accepted by /s/ TIMOTHY DAVENPORT Date 5/18/95
---------------------------------- ----------------------
Start Date
---------------------------
<PAGE> 1
EXHIBIT 10.17
Amendment to Warrant
THIS AMENDMENT is entered into by and among PNC Capital Corp. ("PNC"),
and Best Software, Inc., previously named Best Programs, Inc. ("Best").
WHEREAS, on March 24, 1993 Best issued to PNC a Best Programs, Inc.
Common Stock Purchase Warrant (the "Warrant"); and
WHEREAS, pursuant to a letter dated January 22, 1997, PNC agreed to
waive compliance by Best with the provisions of Section 6.3 of that certain
Loan and Warrant Purchase Agreement by and between PNC and Best dated as of
March 2, 1993 for the express intent of issuing a one-time cash dividend in the
amount of approximately $3.0 million; and
WHEREAS, in consideration of such waiver, Best agreed to amend the
Warrant to reduce the then current per share Exercise Price thereunder.
NOW THEREFORE, Best and PNC hereby agree as follows:
1. Any capitalized term used in this Amendment that is not
defined herein shall have the definition ascribed to such term in the Warrant.
2. The parties agree that, as of the date of this Amendment, and
prior to the execution hereof, the per share exercise price under the Warrant
is $4.00 per share, giving effect to a one-to-ten split of Best's Common Stock
which occurred after the Warrant was issued.
3. The parties hereby agree that, as of the effective date of
this Amendment, the Exercise Price is hereby reduced to $3.3175 per share, a
reduction of $0.6825 per share. Anything in this Amendment notwithstanding,
from the date of this Amendment until expiration or full exercise of the
Warrant, the Exercise Price may be further adjusted from time to time as
provided in the Warrant.
4. Except as expressly modified herein, the provisions of the
Warrant shall remain in full force and effect.
5. This Amendment may be signed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. If this Amendment is signed in counterparts, no signatory
hereto shall be bound until all parties named below have duly executed a
counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
be effective as of the date the last party signs below.
PNC CAPITAL CORP BEST SOFTWARE, INC.
By: By:
----------------------------- --------------------------
Peter V. Del Presto David N. Bosserman
Vice President Chief Financial Officer
Date: Date:
------------------------------ ------------------------
<PAGE> 2
Amendment to Warrant
THIS AMENDMENT is entered into by and among PNC Capital Corp. ("PNC"),
and Best Software, Inc., previously named Best Programs, Inc. ("Best").
WHEREAS, on March 24, 1993 Best issued to PNC a Best Programs, Inc.
Common Stock Purchase Warrant (the "Warrant"); and
WHEREAS, pursuant to a letter dated June 17, 1997, PNC agreed to waive
compliance by Best with the provisions of Section 6.3 of that certain Loan and
Warrant Purchase Agreement by and between PNC and Best dated as of March 2,
1993 for the express intent of issuing a cash dividend to shareholders in the
amount of approximately $8.0 million; and
WHEREAS, in consideration of such waiver, Best agreed to pay PNC a
dividend equivalent payment of $432,337.50 as well as amend the Warrant to
reduce the then current per share Exercise Price thereunder by 20% of the
dividend value.
NOW THEREFORE, Best and PNC hereby agree as follows:
1. Any capitalized term used in this Amendment that is not
defined herein shall have the definition ascribed to such term in the Warrant.
2. PNC hereby confirms its agreement to waive compliance by Best
with the provisions of Section 6.3 of that certain Loan and Warrant Purchase
Agreement by and between PNC and the Company dated as of March 2, 1993 for the
sole and limited purpose of allowing the Company to issue a single cash
dividend to its shareholders in an amount not to exceed Eight Million Dollars
($8,000,000).
3. The parties agree that, as of the date of this Amendment, the
per share exercise price under the Warrant is $3.3175 per share.
4. The parties hereby agree that, as of the effective date of
this Amendment, the Exercise Price is hereby reduced to $3.043, a reduction of
$0.2745 per share. Anything in this Amendment notwithstanding, from the date
of this Amendment until expiration or full exercise of the Warrant, the
Exercise Price may be further adjusted from time to time as provided in the
Warrant.
5. Except as expressly modified herein, the provisions of the
Warrant shall remain in full force and effect.
6. This Amendment may be signed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. If this Amendment is signed in counterparts, no signatory
hereto shall be bound until all parties named below have duly executed a
counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
be effective as of the date the last party signs below.
PNC CAPITAL CORP BEST SOFTWARE, INC.
By: By:
----------------------------- --------------------------
Peter V. Del Presto David N. Bosserman
Vice President Chief Financial Officer
Date: Date:
------------------------------ ------------------------
<PAGE> 1
EXHIBIT 10.18
STOCKHOLDERS' VOTING AGREEMENT
Agreement made this 17th day of May, 1995, by and among Best Programs,
Inc., a Virginia corporation (the "Company"), James F. Petersen (the
"Founder") and Edison Venture Fund L.P. (the "Investor"). The Founder and the
Investor are sometimes referred to in this Agreement collectively as the
"Stockholders".
WHEREAS, Stockholders wish to provide for the Founder's continuing
representation on the Board of Directors of the Company in the manner set forth
below;
NOW THEREFORE, consideration of the mutual covenants contained herein,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Voting of shares.
(a) In any and all elections of directors of the Company
and all votes of stockholders pertaining to the number of directors of the
Company (whether at a meeting or by written consent in lieu of a meeting), each
Stockholder shall vote or cause to be voted all Shares (as defined in Section 2
below) owned by him or it, or over which he or it has voting control, and
otherwise use his or its respective best efforts to: (i) fix the number of
directors at a number designated by the Investor, up to 10; (ii) if the
aggregate number of Shares owned by the Founder or over which the Founder has
voting control is equal to 20% or more of the outstanding voting stock of the
Company, elect to the
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<PAGE> 2
Board of Directors two members designated by the Founder; (iii) if the
aggregate number of shares owned by the Founder or over which the Founder has
voting control is equal or greater than 10% but less than 20% of the
outstanding voting stock of the Company, elect one member designated by the
Founder; and (iv) if for any reason any director designated by the Founder
ceases to serve as a director, to elect a replacement who is designated by the
Founder. The directors initially designated by the Founder are James F.
Petersen and Herbert Brinberg.
(b) The Company shall provide the Stockholders with 30
days' prior written notice of any intended mailing of a notice to stockholders
for a meeting at which directors are to be elected. The Founder shall give
written notice to all other parties to this Agreement, no later than 15 days
prior to such mailing, of the person(s) designated by the Founder as the
nominee or nominees, as the case may be, for election as director or directors.
The Company agrees to nominate and recommend for election as a director the
individual or individuals, as the case may be, designated, or to be designated
pursuant to Section l(a). If the Founder shall fail to give notice to the
Company as provided above, it shall be deemed that the designee(s) of the
Founder then serving as director(s) shall be his designee(s) for reelection.
(c) The Investor shall not vote to remove any director
designated by the Founder, except for bad faith or willful misconduct. Any
director elected to replace a director designated by the Founder shall be
elected in accordance with Section 1(a).
2. Shares. "Shares" shall mean and include any and all shares of
Common Stock and/or shares of capital stock of the Company, by whatever name
called, which carry voting rights (including voting rights
2
<PAGE> 3
which arise by reason of default) and shall include any shares now owned or
subsequently acquired by a Stockholder or other person, however acquired,
including, without limitation, by option exercise, stock splits and stock
dividends.
3. No Revocation. The voting agreements contained herein are
coupled with an interest and may not be revoked, except by written consent of
all of the Stockholders.
4. Indemnification. In the event that any director elected
pursuant to Section 1 of this Agreement shall be made or threatened to be made
a party to any action, suit or proceeding with respect to which he may be
entitled to indemnification by the Company pursuant to its Amended and Restated
Articles of Incorporation or Amended and Restated By-Laws, or otherwise, he
shall be entitled to be represented in such action, suit or proceeding by
counsel of his choice and the reasonable expenses of such representation shall
be reimbursed by the Company to the extent provided in or authorized by said
Amended and Restated Articles of Incorporation or Amended and Restated By-Laws.
Each of the Stockholders agrees not to take any action to amend any provisions
of the Amended and Restated Articles of Incorporation or Amended and Restated
By-Laws of the Company relating to indemnification of directors, as presently
in effect, without the prior written consent of all of the Stockholders.
5. Restrictive Legend. All certificates representing Shares
owned or hereafter acquired by the Stockholders or any transference of the
Stockholders bound by this Agreement shall have affixed thereto a legend
substantially in the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN VOTING AGREEMENTS AS SET FORTH IN A
STOCKHOLDERS'
3
<PAGE> 4
VOTING AGREEMENT BY AND AMONG THE REGISTERED OWNER OF THIS
CERTIFICATE, THE COMPANY AND CERTAIN OTHER STOCKHOLDERS OF THE
COMPANY, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
OFFICES OF THE SECRETARY OF THE COMPANY.
6. Transfers of Rights. Any transferee to whom Shares are
transferred by the Investor, whether voluntarily or by operation of law, shall
be bound by the voting obligations imposed upon the transferor under this
Agreement, and shall be entitled to the rights granted to the transferor under
this Agreement, to the same extent as if such transferee were a Stockholder
hereunder.
7. Termination. This Agreement shall terminate upon the first to
occur of the following: (i) the date when the aggregate number of Shares owned
by the Founder or over which the Founder has voting control is less than 10% of
the outstanding voting stock of the Company; (ii) the date when Common Stock of
the Company becomes publicly traded through completion of an initial public
offering (an "IPO") of Common Stock of the Company pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Act"); or (iii) the date when, through a merger or similar transaction of the
Company with an entity that is publicly traded, securities received by the
Founder and Investor in exchange for their respective Shares are securities
that are registered for public sale under the Act.
8. General.
(a) Severability. The provisions of this Agreement are
severable, so that the invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
term or provision of this Agreement, which shall remain in full force and
effect.
4
<PAGE> 5
(b) Specific Performance. In addition to any and all
other remedies that may be available at law in the event of any breach of this
Agreement, each Stockholder shall be entitled to specific performance of the
agreements and obligations of the Company and the Stockholders hereunder and to
such other injunctive or other equitable relief as may be granted by a court of
competent jurisdiction.
(c) Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Virginia.
(d) Notices. All notices, requests, consents and
other communications under this Agreement shall be in writing and shall be
delivered by hand or mailed by first class certified or registered mail, return
receipt requested, postage prepaid:
If to the Company, at 11413 Isaac Newton Square, Reston,
Virginia 20190-5005, Attention: President, or at such other address or
addresses as may have been furnished in writing by the Company to the
Stockholders, with a copy to David Sylvester, Hale and Dorr, 1455 Pennsylvania
Avenue, NW, Washington, DC 20004;
If to the Investor, at Edison Ventures, 997 Lenox Drive, #3,
Lawrenceville, New Jersey 08648, or at such other address or addresses as may
have been furnished to the Company in writing by the Investor, with a copy to
William Schnoor, Testa, Hurwitz & Thibeault, 125 High Street, Boston,
Massachusetts 02110; or
If to the Founder, at 8034 Galla Knoll Drive, Springfield,
Virginia 22153, or at such other address or addresses as may have been
furnished to the Company in writing by the Founder.
5
<PAGE> 6
Notices provided in accordance with this Section 8 shall be
deemed delivered upon personal delivery or two business days after deposit in
the mail.
(e) Complete Agreement; Amendments. This Agreement
Constitutes the full and complete agreement of the parties hereto with respect
to the subject matter hereof. No amendment, modification or termination of any
provision of this Agreement shall be valid unless in writing and signed by the
Company, the Founder and the holders of 75% of the voting power of the Shares
then held by all Stockholders. This Agreement shall have no effect on the
Consolidating Registration Rights Agreement dated June 3, 1993, as amended, by
and among the Company, the Founder and the other signatories thereto or the
Shareholders Agreement dated October 26, 1988, as amended, by and among the
Company the Founder and the other signatories thereto.
(f) Pronouns. Whenever the content may require, any
pronouns used in the Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural, and vice versa.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute one Agreement binding on
all the parties hereto.
(h) Captions. Captions or sections have been added only
for convenience and shall not be deemed to be a part of this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
THE COMPANY.
BEST PROGRAMS, INC.
By: /s/ MELODY RANELLI
---------------------------------
Name: Melody Ranelli
-------------------------------
Title: CFO
------------------------------
THE FOUNDER:
/s/ JAMES F. PETERSEN
------------------------------------
James F. Petersen
THE INVESTOR:
EDISON VENTURE FUND L.P.
By: /s/ JOHN H. MARTINSON
---------------------------------
Name: John H. Martinson
-------------------------------
Title: General Partner
------------------------------
7
<PAGE> 1
EXHIBIT 11
BEST SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Pro Forma For
For the Year Ended March 31, The Year Ended
------------------------------------ March 31,
1995 1996 1997 1997
---------- ---------- ---------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding... 6,499,222 6,527,869 6,581,029 6,581,029
Common stock equivalents:
Preferred stock............................ 625,005 625,005 625,005 625,005
Cheap stock................................ 1,275,171 1,275,171 1,275,171 1,275,171
Stock options and warrants................. 994,220 1,047,706 766,201 743,887
Warrant exercise........................... -- -- -- 55,694
---------- ---------- ---------- -------------
Weighted average common and common equivalent
shares outstanding......................... 9,393,618 9,475,751 9,247,406 9,280,786
========== ========== ========== =============
<CAPTION>
For the Three Months Pro Forma For
Ended June 30, The Three Months
------------------------- Ended June 30,
1996 1997 1997
----------- ----------- ----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Weighted average common shares outstanding............ 6,529,579 7,006,683 7,006,683
Common stock equivalents:
Preferred stock..................................... 625,005 625,005 625,005
Cheap stock......................................... 1,275,171 1,275,171 1,275,171
Stock options and warrants.......................... 1,047,706 420,300 394,100
Warrant exercise.................................... -- -- 55,694
---------- ---------- --------------
Weighted average common and common equivalent shares
outstanding......................................... 9,477,461 9,327,159 9,356,653
========== ========== ==============
</TABLE>
<PAGE> 1
EXHIBIT 22
Subsidiaries of the Registrant
Abra Software, Inc., a Virginia corporation
BW-VA-Inc., a Virginia corporation
RRB, Inc., a Virginia corporation
Best Software Limited, an Ontario (Canada) corporation
Best Software Limited, a corporation organized under the Companies Act of
England and Wales
<PAGE> 1
EXHIBIT 24.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
August 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF BEST SOFTWARE INC. FOR THE FISCAL YEAR ENDED MARCH 31, 1997 AND
THE THREE MONTHS ENDED JUNE 30, 1997.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997
<CASH> 13,364,929 7,428,808
<SECURITIES> 0 0
<RECEIVABLES> 2,955,775 4,747,669
<ALLOWANCES> 832,059 1,345,766
<INVENTORY> 182,795 221,010
<CURRENT-ASSETS> 16,916,735 12,775,270
<PP&E> 6,801,645 6,950,877
<DEPRECIATION> 5,027,594 5,393,469
<TOTAL-ASSETS> 21,159,764 16,815,165
<CURRENT-LIABILITIES> 17,829,792 20,517,783
<BONDS> 0 0
500,000 500,000
0 0
<COMMON> 454,622 785,332
<OTHER-SE> (598,981) (8,146,008)
<TOTAL-LIABILITY-AND-EQUITY> 21,159,764 16,815,165
<SALES> 20,161,436 5,357,634
<TOTAL-REVENUES> 39,484,423 10,646,085
<CGS> 7,926,505 1,841,475
<TOTAL-COSTS> 33,924,327 9,779,420
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (351,311) 293,067
<INCOME-PRETAX> 5,911,407 573,598
<INCOME-TAX> 1,475,000 225,000
<INCOME-CONTINUING> 4,436,407 348,598
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,436,407 348,598
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0.46 0.03
</TABLE>
