<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION NO. 333-93581
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
OTG SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 52-1769077
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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6701 DEMOCRACY BOULEVARD, SUITE 800
BETHESDA, MD 20817
(301) 897-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD A. KAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OTG SOFTWARE, INC.
6701 DEMOCRACY BOULEVARD, SUITE 800
BETHESDA, MD 20817
(301) 897-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
DAVID SYLVESTER, ESQ. EDWIN M. MARTIN, JR., ESQ.
BRENT B. SILER, ESQ. JANE K. P. TAM, ESQ.
SCOTT E. PUESCHEL, ESQ. PIPER MARBURY RUDNICK & WOLFE LLP
HALE AND DORR LLP 1200 19TH STREET, N.W.
1455 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20036
WASHINGTON, D.C. 20004 TELEPHONE: (202) 861-3900
TELEPHONE: (202) 942-8400 TELECOPY: (202) 223-2085
TELECOPY: (202) 942-8484
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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,
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 number of the earlier effective registration statement for the same
offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] __________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 2000
4,000,000 Shares
[OTG LOGO]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. We are selling 4,000,000 shares of our common stock. We expect the
initial public offering price to be between $12.00 and $14.00 per share. We have
applied to list the common stock on The Nasdaq Stock Market's National Market
under the symbol "OTGS."
The underwriters have an option to purchase a maximum of 600,000 additional
shares of common stock from Richard A. Kay, our chairman, president and chief
executive officer, to cover over-allotments.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
6.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS OTG
----------- ------------- -------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
SG COWEN
FRIEDMAN BILLINGS RAMSEY
The date of this prospectus is , 2000.
<PAGE> 3
Graphics on inside front cover.
Title "Online Data Storage and Data Access Solutions." The graphic depicts
three computer screens illustrating OTG's product suite, one for DiskXtender,
one for ApplicationXtender and one for WebXtender, with arrows surrounding each
computer screen. The center computer screen for DiskXtender also contains
arrows illustrating inputs and outputs from CD/DVD optical storage, tape
libraries and local storage, each with a corresponding icon. The text in the
bottom left corner of the inside front cover beneath OTG's logo states "Online
data storage, tracking and retrieval; secure Web access; interactive access
through applications; enhanced efficiency of traditional back-up systems and
scaleable from single storage devices to enterprise storage systems."
<PAGE> 4
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 2
RISK FACTORS.......................... 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 15
TERMINATION OF S CORPORATION STATUS
AND RELATED DISTRIBUTION............ 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS.............................. 32
MANAGEMENT............................ 43
RELATED PARTY TRANSACTIONS............ 51
PRINCIPAL STOCKHOLDERS................ 54
DESCRIPTION OF CAPITAL STOCK.......... 56
SHARES ELIGIBLE FOR FUTURE SALE....... 59
UNDERWRITING.......................... 61
NOTICE TO CANADIAN RESIDENTS.......... 63
LEGAL MATTERS......................... 65
EXPERTS............................... 65
CHANGE OF AUDITORS.................... 65
WHERE YOU CAN FIND MORE INFORMATION... 65
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL
THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY NOT BE ACCURATE AFTER THE
DATE OF THIS DOCUMENT. WE WILL FILE AN AMENDMENT TO THIS REGISTRATION STATEMENT
IF MATERIAL CHANGES OCCUR TO OUR BUSINESS OR THIS OFFERING.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1
<PAGE> 5
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information,
including our consolidated financial statements and the related notes, appearing
elsewhere in this prospectus.
OTG SOFTWARE, INC.
We are a leading provider of online data storage management and data access
software solutions. Our software enables enterprises to move, store, manage and
access data quickly and efficiently over a variety of network architectures,
including the Web and storage area networks. Our software supports many
different types of storage devices, is easy to install and use, and can manage
storage systems ranging in size from a single storage device to an
enterprise-wide network storage system.
The growth of data-intensive computing functions such as e-commerce,
e-mail, multimedia applications, complex enterprise computer applications and
the conversion from paper to electronic storage has fueled rapid growth in the
amount of data stored by enterprises. This growth has increased the demand for
data storage management software. International Data Corporation, an independent
information technology research firm referred to as IDC, estimates that the
overall market for data protection and management software will grow from $3.5
billion in 1998 to $6.7 billion in 2003.
Traditionally, enterprises have focused on protecting data by backing it up
on secondary storage devices. This process restricts direct access to data by
users and software applications and results in repetitively backing up the same
data. One response to these limitations has been the emergence of storage area
networks. A storage area network is a network of servers and data storage
devices that are interconnected at high speeds, allowing network resources to be
located at remote and diverse locations. IDC estimates that the overall storage
area network market will grow from $3.4 billion in 1999 to more than $13.8
billion in 2003. Storage area networks are designed to store more data more
quickly but not to make the data storage and access process more efficient.
Our solutions enhance the performance of both traditional storage and
back-up methods and storage area networks by:
- automatically applying policies that determine whether, or for how long,
data should be stored;
- providing efficient transfer of data to and from storage devices
throughout networks, including storage area networks;
- providing a detailed index of stored data;
- enabling rapid and easy retrieval of stored data selected by users and
software applications;
- maximizing the effective capacity of existing storage devices; and
- providing secure Web access to stored data.
We market our products primarily through more than 13 original equipment
manufacturers and more than 235 domestic and international value-added resellers
and distributors, as well as through our direct sales force. We have licensed
our products to more than 6,000 corporations, government agencies and other
organizations across a broad spectrum of industries. Our customers include
American Airlines, Citicorp, Dow Chemical, Mayo Clinic, Nabisco, the National
Association of Securities Dealers, Nortel Networks, PSINet, the University of
Miami and the U.S. Department of Defense.
We have a history of losses and a significant accumulated deficit. For the
year ended December 31, 1999, we had a pro forma net loss of $1.5 million. As of
December 31, 1999, we had an accumulated deficit of $22.4 million. We operate in
a highly competitive market characterized by rapid technological change. We are
controlled by Mr. Kay, our chairman, president and chief executive officer, who
beneficially owns 61.5% of our common stock outstanding prior to this offering
and will beneficially own 51.5% of our outstanding common stock after this
offering.
2
<PAGE> 6
THE OFFERING
Common stock offered by us............... 4,000,000 shares
Common stock to be outstanding after this
offering................................. 24,476,188 shares
Use of proceeds.......................... For repayment of debt, payment of
S corporation tax distributions,
and general corporate purposes,
including working capital and
capital expenditures. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol... OTGS
The number of shares to be outstanding after this offering is based on
shares outstanding at February 7, 2000 and excludes:
- 3,923,606 shares subject to outstanding options at a weighted average
exercise price of $3.83 per share;
- 30,000 shares subject to an outstanding warrant at an exercise price of
$1.84 per share; and
- 1,729,616 additional shares reserved for issuance under our stock plans.
------------------------
Except as otherwise indicated, information in this prospectus gives effect
to:
- a 2-for-1 stock split of all outstanding shares of our common stock
effected on February 7, 2000; and
- the automatic conversion of all outstanding convertible notes issued by
us into 4,161,506 shares of our common stock upon the closing of this
offering.
------------------------------
Our principal executive offices are located at 6701 Democracy Boulevard,
Suite 800, Bethesda, Maryland 20817 and our telephone number is (301) 897-1400.
We were initially incorporated as a Maryland corporation in March 1992. We
reincorporated in Delaware in June 1998. When we refer to ourselves or OTG
Software, Inc., these references include the predecessor Maryland corporation.
Our Web address is www.otg.com. We do not intend the information on our website
to constitute part of this prospectus.
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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table is a summary of the financial data for our business.
You should read this information together with the consolidated financial
statements and the related notes appearing at the end of this prospectus and the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The pro forma statement of operations data reflects
federal and state income taxes based on applicable tax rates as if we had not
elected S corporation status for the periods indicated. See note 1 to our
consolidated financial statements appearing elsewhere in this prospectus for
information regarding shares used in computing pro forma net income (loss) per
share -- basic and diluted. The pro forma balance sheet data gives effect to the
automatic conversion of all outstanding convertible notes issued by us on the
closing of this offering and the distribution at the closing of $1.6 million,
reflecting estimated S corporation tax liabilities of the existing stockholders.
The pro forma as adjusted balance sheet data also reflects the sale of the
common stock offered by us, after deducting estimated underwriting discounts and
estimated offering expenses payable by us, and our use of a portion of the
proceeds to repay debt.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998 1999
------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................................. $6,075 $ 8,543 $12,089 $18,208
Services........................................... 1,321 3,361 5,230 7,232
------ ------- ------- -------
Total revenues.................................. 7,396 11,904 17,319 25,440
Cost of revenues:
Software licenses.................................. 848 579 532 1,062
Services........................................... 442 1,219 1,639 3,017
------ ------- ------- -------
Total cost of revenues.......................... 1,290 1,798 2,171 4,079
------ ------- ------- -------
Gross profit......................................... 6,106 10,106 15,148 21,361
Operating expenses:
Research and development........................... 2,012 2,455 3,958 5,137
Sales and marketing................................ 2,979 5,313 8,986 11,487
General and administrative......................... 1,940 1,709 2,150 4,139
------ ------- ------- -------
Total operating expenses........................ 6,931 9,477 15,094 20,763
------ ------- ------- -------
Income (loss) from operations........................ (825) 629 54 598
Interest expense, net................................ (143) (162) (1,261) (2,053)
------ ------- ------- -------
Net income (loss).................................... $ (968) $ 467 $(1,207) $(1,455)
====== ======= ======= =======
Pro forma statement of operations data:
Net income (loss) before income taxes as
reported........................................ $ (968) $ 467 $(1,207) $(1,455)
Pro forma income tax provision (benefit)........... -- -- -- --
------ ------- ------- -------
Pro forma net income (loss)........................ $ (968) $ 467 $(1,207) $(1,455)
====== ======= ======= =======
Pro forma net income (loss) per share -- basic and
diluted......................................... $ (.04) $ .02 $ (.06) $ (.09)
====== ======= ======= =======
Pro forma weighted average shares
outstanding -- basic and diluted................ 25,928 26,208 20,378 16,315
====== ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,494 $ 894 $30,654
Working capital (deficit)................................. (19,983) (12,718) 33,642
Total assets.............................................. 12,589 10,989 40,749
Total debt................................................ 24,301 16,665 165
Total stockholders' equity (deficit)...................... (21,706) (14,441) 32,169
</TABLE>
5
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following factors could harm our business and materially adversely affect our
future operating results and could result in a partial or complete loss of your
investment.
RISKS RELATED TO OUR BUSINESS
WE MAY NOT BE ABLE TO SUSTAIN OUR CURRENT REVENUE GROWTH RATES, WHICH COULD
CAUSE OUR STOCK PRICE TO DECLINE
Although our revenues have grown rapidly in recent years, we may not be
able to maintain this rate of revenue growth because of the difficulty of
maintaining high percentage increases as our base of revenue increases. In
addition, growing competition, lower-than-expected market acceptance of Windows
NT and the expected next version of Windows NT, known as Windows 2000, or the
failure of the market for storage area networks to develop, could also affect
our revenue growth. Our inability to maintain our rate of revenue growth could
cause our stock price to decline.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY CAUSE OUR STOCK PRICE
TO DECLINE
Fluctuations in our operating results are likely to affect our stock price
in a manner that may be unrelated to our long-term operating performance.
Our revenues in any quarter will depend substantially on orders we receive
and ship in that quarter. In addition, we typically receive a significant
portion of orders during the last month of each quarter, and we cannot predict
whether those orders will be placed, fulfilled and shipped in that period. If we
have lower revenues than we expect, we probably will not be able to reduce our
operating expenses in time to compensate for any revenue shortfall. Therefore,
any significant shortfall in revenues or delay of customer orders could have an
immediate adverse effect on our operating results in that quarter.
Our operating results have fluctuated in the past, and they are likely to
fluctuate significantly in the future. Quarterly comparisons of our financial
results are not necessarily meaningful and you should not rely on them as an
indication of our future performance. Factors that could affect our operating
results include:
- the unpredictability of the timing and level of sales through our
indirect sales channels;
- the timing and magnitude of large orders;
- changes in the mix of our sales, including the mix between higher margin
software licenses and lower margin services;
- the timing and amount of our marketing, sales and product development
expenses;
- the cost and time required to develop new software products;
- the introduction, timing and market acceptance of new products introduced
by us or our competitors;
- changes in data storage and networking technology or the introduction of
new operating system upgrades, which could require us to modify our
products or develop new products;
- the growth rate of Windows NT;
- the rate of adoption of Windows 2000;
6
<PAGE> 10
- the rate of adoption of storage area networks;
- pricing policies and distribution terms; and
- the timing and size of acquisitions.
In addition, our efforts to expand our software product suite, sales and
marketing activities, direct and indirect distribution channels and maintenance
and technical support functions and to pursue strategic relationships or
acquisitions may not succeed or may prove more expensive than we anticipate. As
a result, we cannot predict our future operating results with any degree of
certainty and our operating results may vary significantly from quarter to
quarter.
OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF WINDOWS NT AND WINDOWS 2000 TO RUN
COMPUTER NETWORKS, AND A DECREASE IN THEIR RATES OF ACCEPTANCE COULD CAUSE OUR
REVENUES TO DECLINE
For the foreseeable future, we expect a substantial majority of our
revenues to continue to come from sales of our Windows NT-based data storage
software products. As a result, we depend on the growing use of Windows NT for
computer networks. If the deployment of Windows NT does not increase as we
anticipate, or if it decreases, our revenues could decline. In addition, if
users do not accept Windows 2000, or if there is a wide acceptance of other
existing or new operating systems, our business would suffer.
Windows 2000 may not gain market acceptance if its expected commercial
release date is delayed. In addition, users of previous versions of Windows NT
may decide to migrate to another operating system due to these delays or
improved functionality of another operating system. We have expended significant
resources on the development of Windows 2000-compatible versions of our product
suite and our future success depends upon sales of this product suite. If users
of Windows 2000 networks do not widely adopt and purchase our products, our
revenue and business will suffer. Furthermore, if we fail to introduce Windows
2000-compatible versions of our product suite within a short time after the
commercial release of Windows 2000, the delay may cause customers to forego
purchases of our products and instead purchase those of our competitors.
OUR SUCCESS DEPENDS UPON THE DEVELOPMENT OF THE EMERGING MARKET FOR STORAGE AREA
NETWORKS, AND IF THIS MARKET FAILS TO DEVELOP, OR DEVELOPS MORE SLOWLY THAN WE
ANTICIPATE, OR IF OUR PRODUCTS ARE NOT WIDELY ACCEPTED IN THIS MARKET, OUR
BUSINESS WILL SUFFER
Our future growth and profitability will depend upon the widespread
acceptance of storage area networks as an enterprise-wide data storage method
and the acceptance of our products for use in such networks. Accordingly,
widespread adoption of storage area networks is critical to our future success.
The market for storage area networks has only recently begun to develop and
evolve. Because this market is new, it is difficult to predict its potential
size or growth rate. Potential customers that have invested substantial
resources in their existing data storage management systems may be reluctant or
slow to adopt a new approach like storage area networks. Our success in
generating revenues in this emerging market will depend, among other things, on
our ability to educate potential original equipment manufacturers and system
integrators, as well as potential end-users, about the benefits of storage area
networks and our data storage management solutions when deployed in the storage
area network environment. Furthermore, although we are attempting to position
our products as a standard for data storage management on storage area networks,
if we are unsuccessful in doing so, competing standards may emerge that will be
preferred by original equipment manufacturers, systems integrators or end-users.
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<PAGE> 11
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS AND OUR FAILURE TO MANAGE
THIS GROWTH OR ANY FUTURE GROWTH COULD HARM OUR BUSINESS
We continue to increase the scope of our operations and have grown our
headcount substantially. As of June 30, 1998, we had a total of 104 employees,
as of December 31, 1998 we had a total of 144 employees and as of December 31,
1999 we had a total of 172 employees. Our productivity and the quality of our
products may be adversely affected if we do not integrate and train our new
employees quickly and effectively. We also cannot be sure that our revenues will
continue to grow at a rate sufficient to absorb the costs associated with a
larger overall headcount.
Our future success and our ability to sustain our revenue growth also
depend upon the continued service of our executive officers and other key sales
and research and development personnel. The loss of any of our executive
officers or key employees, especially Richard A. Kay, F. William Caple and
Ronald W. Kaiser, could adversely affect our business and slow our product
development processes. Although we have employment agreements with these
executives, these agreements do not obligate them to remain employed by us. We
do not have key person life insurance policies covering any of our employees.
Furthermore, we must continue to hire large numbers of highly qualified
individuals. Competition for these individuals is intense, and we may not be
able to attract, assimilate or retain additional highly qualified personnel in
the future.
To achieve our business objectives, we may recruit and employ skilled
technical professionals from other countries to work in the United States.
Limitations imposed by federal immigration laws and the availability of visas
could compromise our ability to attract necessary qualified personnel. This may
have a negative effect on our business and future operating results.
OUR REVENUES PRIMARILY DEPEND ON SALES OF LICENSES FOR ONE PRODUCT LINE, OUR
XTENDERSOLUTIONS PRODUCT SUITE, AND A DECLINE IN SALES OF LICENSES FOR THIS
PRODUCT SUITE COULD CAUSE OUR REVENUES TO FALL
We have derived the substantial majority of our revenue from the sale of
our XtenderSolutions product suite. During 1997, 1998 and 1999, sales of our
XtenderSolutions products accounted for approximately 72%, 70% and 72% of our
total revenues, respectively. We expect that these products will continue to
account for a large portion of our revenues for the foreseeable future.
Accordingly, our business and future operating results depend on the continued
market acceptance of our XtenderSolutions products and future enhancements to
these products. Any factors adversely affecting the pricing of, demand for or
market acceptance of our XtenderSolutions products, including competition or
technological change, could cause our revenues to decline and our business and
future operating results to suffer.
OUR MULTIPLE DISTRIBUTION CHANNELS ARE SUBJECT TO MANY RISKS THAT COULD
ADVERSELY AFFECT OUR SALES
Direct sales. We have a growing direct sales force to sell our products,
especially to large customers. Direct sales involve a number of risks,
including:
- longer sales cycles, typically three to six months;
- our need to hire, train, retain and motivate our sales force; and
- the length of time it takes our new sales representatives to begin
generating sales.
Indirect sales. We expect that a significant portion of our revenues will
continue to come from indirect sales. These include sales to original equipment
manufacturers that incorporate our data storage management software into systems
they sell. We also expect future revenues from distributors and value-added
resellers that sell our software, often bundled with their own software or
services. We have no control over the shipping dates or volumes of systems our
original equipment
8
<PAGE> 12
manufacturers, value-added resellers or distributors ship, and they have no
obligation to ship systems incorporating our software. They generally have no
minimum sales requirements and can terminate their relationship with us on short
notice. We develop customized versions of our products for some of our original
equipment manufacturers to be included in their systems software and other
products. Developing products for these original equipment manufacturers causes
us to divert resources from other activities which are also important to our
business. If these versions do not result in substantial revenues, our business
and financial results could be adversely affected.
OUR ORIGINAL EQUIPMENT MANUFACTURERS COULD CHOOSE TO COMPETE WITH US OR WITH
EACH OTHER, WHICH COULD HARM OUR BUSINESS
Our original equipment manufacturers, value-added resellers and
distributors could choose to develop their own data storage management products
and incorporate those products into their systems or product offerings in lieu
of our products. In addition, the original equipment manufacturers that we do
business with may compete with one another. To the extent that one of our
original equipment manufacturer customers views the products we have developed
for another original equipment manufacturer as competitive, it may decide to
stop doing business with us, which could harm our business.
OVERLAPPING SALES EFFORTS MAY LEAD TO INEFFICIENCIES AND MAY ADVERSELY AFFECT
OUR RELATIONSHIPS WITH THOSE WHO SELL OUR PRODUCTS
Our original equipment manufacturers, value-added resellers, distributors
and direct sales force might target the same sales opportunities, which could
lead to an inefficient allocation of sales resources. This would result in us
marketing similar products to the same end-users. These overlapping sales
efforts could also adversely affect our relationships with our original
equipment manufacturers, value-added resellers, distributors and other sales
channels and result in them being less willing to market our products
aggressively.
THE MARKET FOR OUTSOURCED DATA STORAGE SOLUTIONS OVER THE WEB IS NEW AND
EVOLVING, AND IF THIS MARKET FAILS TO DEVELOP, OUR BUSINESS COULD SUFFER
Part of our strategy is to offer outsourced data storage solutions to
customers over the Web. In this business model, customers who wish to reduce
their in-house hardware and maintenance costs would pay us or a third party
using our products to provide metered or leased data storage capacity and
management. If this business model does not gain acceptance among potential
customers, we will not be able to implement this strategy successfully. The
market for electronic outsourced data storage solutions has only recently begun
to emerge and we cannot be sure that it will develop or grow. Among other
things, the development of this market could be limited by:
- concerns over the reliability and security of the Web, especially as a
means of moving data that is critical to the customer's business; and
- customer reluctance to cede control over the hardware and network
infrastructure used to store important data and to rely on systems
provided by a third party.
We do not currently provide outsourced data storage services and do not have any
significant experience in the market for these services. We are expending
significant resources to develop products for this market, and if this market
fails to develop, or if we are unable to enter it successfully, we will not
realize any return on this investment, and our business may suffer.
9
<PAGE> 13
IF WE ENCOUNTER SYSTEM FAILURES OR OTHER DIFFICULTIES IN PROVIDING OUTSOURCED
DATA STORAGE SERVICES, WE COULD BE EXPOSED TO LIABILITY AND OUR REPUTATION COULD
SUFFER
We will depend upon a hardware and networking infrastructure to deliver
outsourced data storage capacity to our customers. If this infrastructure fails,
or customers otherwise experience difficulties or delays in retrieving data, we
could face liability claims from them and our reputation could be damaged. We
currently expect that we will not develop the hardware and networking
infrastructure ourselves, but rather will contract with third parties, such as
Internet service providers and application service providers, to supply these
components on our behalf. For this reason, we will be dependent on the
performance of the systems deployed and maintained by these parties, whom we
will not control. In some cases, we might contract directly with the customer to
provide the outsourced services; in other cases, we might act as a reseller for
application service providers, Internet service providers or others. In either
case, we would expect to include contractual provisions limiting our liability
to the customer for system failures and delays, but we cannot be sure that these
limits will be enforceable or will be sufficient to shield us from liability. We
also expect that we would carry liability insurance to cover problems of this
nature, but we cannot guarantee that insurance will be available or that the
amounts of our coverage will be sufficient to cover all potential claims.
OTHER COMPANIES HAVE DEVELOPED OR MAY CHOOSE TO DEVELOP COMPETING PRODUCTS AND
POTENTIAL CUSTOMERS FOR OUR PRODUCTS MAY CHOOSE TO DEVELOP INTERNAL DATA STORAGE
MANAGEMENT CAPABILITIES OR SATISFY THEIR NEEDS WITH A TRADITIONAL DATA BACK-UP
SOLUTION, ANY OF WHICH COULD CAUSE OUR REVENUES AND OUR BUSINESS TO SUFFER
We face a variety of competitors that offer products with some of our
products' features. Some potential customers may elect to internally develop
capabilities similar to those provided by our products rather than buying them
from us or another outside vendor. Although our products generally enhance
traditional data back-up capabilities offered by companies such as Veritas,
Legato Systems, Computer Associates and IBM, our products may compete against
traditional back-up solutions when a potential customer seeks to address its
storage needs with only a data back-up solution. Furthermore, Veritas has
recently begun to offer a Windows NT-based product that competes with
DiskXtender. If potential customers choose to develop their own capabilities,
choose a traditional data back-up solution or purchase a competing product, our
revenues and business will suffer.
In addition, Microsoft could develop competing products. Windows 2000 will
include basic data storage management capabilities. Microsoft could compete with
us by enhancing and expanding these capabilities to offer an integrated storage
management capability within their basic operating system. This would reduce or
eliminate the need to purchase our products, which would cause our revenues and
business to suffer.
OUR PRODUCTS MUST REMAIN COMPATIBLE WITH OPERATING SYSTEM SOFTWARE, NETWORK
HARDWARE AND SOFTWARE CONFIGURATIONS, WHICH ARE CURRENTLY UNDERGOING, AND WILL
LIKELY CONTINUE TO UNDERGO, SIGNIFICANT CHANGE THAT COULD RENDER OUR PRODUCTS
OBSOLETE
The market for our data storage management software is characterized by
rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. Our products could be rendered obsolete if products based on new
technologies are introduced or new industry standards emerge. We have expended
significant resources to allow our products to take advantage of the release of
Windows 2000 and to prepare our products for the emergence of storage area
networks, and we expect to continue to do so. If Windows 2000 and storage area
networks are not widely adopted, our business and future operating results will
suffer.
10
<PAGE> 14
As the emergence of storage area networks demonstrates, the computing
environments in which our products must operate are complex and change rapidly.
As a result, we cannot accurately estimate the life cycles of our software
products. New products and product enhancements can require long development and
testing periods, and depend significantly on our ability to hire and retain
increasingly scarce technically competent personnel. Significant delays in new
product releases or significant problems in installing or implementing new
product releases could result in lost revenues and significant additional
expense.
Our future success also depends, in part, on the compatibility of our
products with other vendors' software and hardware products, particularly those
provided by Microsoft. Developers of these products may change their products so
that they will no longer be compatible with our products. These other vendors
may also decide to bundle their products with other competing products for
promotional purposes. If that were to happen, our business and future operating
results might suffer as we might be priced out of the market or no longer be
able to offer commercially viable products.
WE HAVE EXPERIENCED ERRORS IN OUR PRODUCTS IN THE PAST, AND ANY SUCH ERRORS IN
THE FUTURE COULD HARM OUR REPUTATION AND COULD CAUSE CUSTOMERS TO DEMAND REFUNDS
FROM US OR ASSERT CLAIMS FOR DAMAGES AGAINST US, WHICH COULD HARM OUR BUSINESS
AND FUTURE OPERATING RESULTS
Because our software products are complex, they have in the past, and could
in the future, contain errors or bugs. Bugs can be detected at any point in a
product's life cycle. In the past, we have devoted significant resources to the
detection and correction of errors and we expect to do so in the future. While
we continually test our products for errors and work with customers through our
customer support services and engineering personnel to identify and correct bugs
in our software, we expect that errors in our products, especially new releases
of our current products and new product offerings, will continue to be found in
the future. Any of these errors could be significant and could harm our business
and future operating results. Detection of any significant errors may result in:
- the loss of or delay in market acceptance and sales of our products;
- diversion of development resources;
- injury to our reputation; or
- increased maintenance and warranty costs.
Because customers use our products to store and retrieve critical
information, we may be subject to significant liability claims if our products
do not work properly. Our agreements with customers typically contain provisions
intended to limit our exposure to liability claims. However, these limitations
may not preclude all potential claims. Liability claims could require us to
spend significant time and money in litigation or pay significant damages.
Claims of this nature, whether or not successful, could seriously damage our
reputation and our business.
OUR SOFTWARE PRODUCTS RELY ON OUR INTELLECTUAL PROPERTY, AND ANY FAILURE BY US
TO PROTECT, OR ANY MISAPPROPRIATION OF, OUR INTELLECTUAL PROPERTY COULD ENABLE
OUR COMPETITORS TO MARKET PRODUCTS WITH SIMILAR FEATURES THAT MAY REDUCE DEMAND
FOR OUR PRODUCTS
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or technology.
Policing unauthorized use of our products is difficult, and we cannot be certain
that the steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where we are seeking to expand our operations
and where the laws may not protect our proprietary rights as fully as those in
the United States. Our success and ability to compete depend substantially upon
our internally developed technology, which is incorporated in the source code
for our products. We protect our intellectual property through a combination of
copyright, trade secret and trademark law. We have registered, or are in the
process
11
<PAGE> 15
of registering, all of our trademarks under applicable law. We generally enter
into confidentiality or license agreements with our employees, consultants and
corporate partners, and control access to our source code and other intellectual
property and the distribution of our software, documentation and other
proprietary information. These measures afford only limited protection and may
be inadequate, especially because employees such as ours are highly sought after
and may leave our employ with significant knowledge of our proprietary
information. Others may develop technologies that are similar or superior to our
technology or design around the copyrights and trade secrets we own.
OUR PRODUCTS EMPLOY TECHNOLOGY THAT MAY INFRINGE THE PROPRIETARY RIGHTS OF
OTHERS, AND WE MAY BE LIABLE FOR SIGNIFICANT DAMAGES AS A RESULT
We expect that our software products may be increasingly subject to
third-party infringement claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. We do not conduct comprehensive patent searches to determine whether
technologies used in our products infringe upon patents or patent applications
held by others. In addition, we hire employees who may be privy to the
proprietary information of their prior employers. Although we believe that our
products do not employ technology that infringes any proprietary rights of third
parties, third parties nevertheless may claim that we infringe their
intellectual property rights. Regardless of whether these claims have any merit,
they could:
- be time-consuming to defend;
- result in costly litigation;
- divert our management's attention and resources;
- cause product shipment delays; or
- require us to enter into royalty or licensing agreements, which may not
be available on terms acceptable to us, if at all.
A successful claim of product infringement against us or our failure or
inability to license the infringed or similar technology could damage our
business because we would not be able to sell our products without redeveloping
them or incurring significant additional expenses.
THE EXPANSION OF OUR INTERNATIONAL OPERATIONS SUBJECTS OUR BUSINESS TO
ADDITIONAL ECONOMIC RISKS WHICH COULD HAVE AN ADVERSE IMPACT ON OUR REVENUE AND
BUSINESS
In both 1998 and 1999, products we sold to customers outside North America
accounted for 6% of our total revenues. We plan to increase our international
sales activities, but these activities are subject to a number of risks,
including:
- greater difficulty in accounts receivable collection and longer
collection periods;
- political and economic instability;
- greater difficulty in attracting distributors that market and support our
products effectively;
- the need to comply with varying employment policies and regulations which
could make it more difficult and expensive to manage our headcount if we
need to establish more direct sales staff outside the United States;
- weaker operating results from our international operations in our
quarters ending each September 30 due to the summer slowdown in Europe;
and
- the effects of currency fluctuations.
As we seek to expand our international operations, if any of these risks
materialize, our revenues and our business could be adversely affected.
12
<PAGE> 16
ANY YEAR 2000 PROBLEMS WITH OUR PRODUCTS OR OUR INTERNAL SYSTEMS AND SOFTWARE
COULD RESULT IN THIRD-PARTY CLAIMS
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
determine whether "00" means 1900 or 2000. This may result in software failures
or the creation of erroneous results even though the transition between 1999 and
2000 has passed.
Our software products operate in complex system environments and directly
and indirectly interact with a number of other hardware and software systems.
Despite investigation and testing by us, our software products and the
underlying systems and protocols running our products may contain errors or
defects associated with Year 2000 date functions. Our vendors may also
experience Year 2000 problems that could affect our business. We are unable to
predict to what extent our business may be affected if our software or the
systems that operate in conjunction with our software experience a material Year
2000 failure or if our vendors experience Year 2000 problems. Known or unknown
errors or defects that affect the operation of our software could result in:
- delay or loss of revenues, cancellation of customer contracts;
- diversion of development resources;
- damage to our reputation;
- increased maintenance and warranty costs; and
- litigation costs.
Any of these negative effects could adversely affect our business and future
results of operations. Furthermore, if our vendors experience Year 2000
problems, we could experience disruption in the provision of products and
services to our customers, which could have many of the negative effects
described above. In addition, if our customers experience their own Year 2000
problems, they may delay or forego purchases of our products until they have
addressed such problems, which could have an adverse effect on our business and
future operating results.
Despite investigation and testing by us, our internal systems and/or
software may contain errors or defects associated with Year 2000 date functions
that we have not detected and corrected. We are unable to predict to what extent
our core business functions may be affected if our internal systems or software
experience a material Year 2000 failure. The section of this prospectus headed
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Year 2000 Readiness" contains a description of our Year 2000
readiness efforts.
RISKS RELATED TO THIS OFFERING
OUR STOCK MAY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS DUE TO A
NUMBER OF FACTORS, INCLUDING THE FACT THAT WE ARE A TECHNOLOGY COMPANY, THAT MAY
PREVENT OUR STOCKHOLDERS FROM RESELLING OUR COMMON STOCK AT A PROFIT
The securities markets have experienced significant price and volume
fluctuations, and the market prices of the securities of software and other
technology companies such as ours have been especially volatile. This market
volatility, as well as general economic, market or political conditions, could
reduce our stock price in spite of our operating performance. In addition, our
operating results could be below the expectations of public market analysts and
investors, and in response our stock price could decrease significantly.
Investors may be unable to resell their shares of our common stock at or above
the offering price. In the past, companies that have experienced volatility in
their stock
13
<PAGE> 17
price have faced securities class action litigation. If we become the object of
securities class action litigation, it could result in substantial costs and a
diversion of management's attention and resources.
OUR OFFICERS, DIRECTORS AND PERSONS AFFILIATED WITH THEM CONTROL OUR BUSINESS
AND HOLD A MAJORITY OF OUR STOCK AND COULD REJECT MERGERS OR OTHER BUSINESS
COMBINATIONS THAT A STOCKHOLDER MAY BELIEVE ARE DESIRABLE
We anticipate that our directors, officers and individuals or entities
affiliated with our directors as a group will beneficially own approximately
76.9% of our outstanding common stock after this offering closes. As a result,
these stockholders acting together would be able to determine the outcome of all
matters that our stockholders vote upon, including the election of directors and
mergers or other business combinations.
THE PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT POTENTIAL
ACQUISITION BIDS THAT STOCKHOLDERS MAY BELIEVE ARE DESIRABLE, AND THE MARKET
PRICE OF OUR COMMON STOCK MAY BE LOWER AS A RESULT
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock. The board of directors can fix the price, rights, preferences,
privileges and restrictions of the preferred stock without any further vote or
action by our stockholders. The issuance of shares of preferred stock may delay
or prevent a change in control transaction. As a result, our stock price and the
voting and other rights of our stockholders may be adversely affected. The
issuance of preferred stock may result in the loss of voting control to other
stockholders. We have no current plans to issue any shares of preferred stock.
Our charter documents contain anti-takeover devices including:
- only one of the three classes of directors is elected each year;
- stockholders have limited ability to remove directors without cause;
- stockholders cannot act by written consent;
- stockholders cannot call a special meeting of stockholders; and
- stockholders must give advance notice to nominate directors or submit
proposals for consideration at stockholder meetings.
In addition, we are subject to the anti-takeover provisions of Section 203 of
the Delaware corporate statute, which regulates corporate acquisitions. These
provisions could discourage potential acquisition proposals and could delay or
prevent a change in control transaction. They could also have the effect of
discouraging others from making tender offers for our common stock. As a result,
these provisions may prevent our stock price from increasing substantially in
response to actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
THE SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK THAT WILL BE ELIGIBLE FOR
SALE IN THE NEAR FUTURE COULD CAUSE OUR STOCK PRICE TO FALL
Our current stockholders hold a substantial number of shares of our common
stock, which they will be able to sell in the public market in the near future.
Sales of a substantial number of shares of our common stock could cause our
stock price to fall. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional stock. The section
headed "Shares Eligible for Future Sale" appearing later in this prospectus
contains more information regarding the number of shares that may be sold in the
future by our existing stockholders and option holders.
14
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will" and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of operations
or of our financial position or state other forward-looking information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
predict or control accurately. The factors listed above in the section headed
"Risk Factors," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, results of
operations and financial position.
15
<PAGE> 19
TERMINATION OF S CORPORATION STATUS
AND RELATED DISTRIBUTION
Since inception, we have elected to operate under subchapter S of the
Internal Revenue Code and comparable provisions of some state income tax laws.
An S corporation generally is not subject to income tax at the corporate level,
with some exceptions under state income tax laws. Instead, an S corporation's
income generally passes through to its stockholders and is taxed on their
personal income tax returns. As a result, our earnings have been taxed for
federal and state income tax purposes, with some exceptions, directly to our
existing stockholders.
Prior to the closing of this offering, we will terminate our S corporation
status. Following the closing of this offering, we will make a distribution to
our existing stockholders of their aggregate federal and state income tax
liabilities attributable to our S corporation pass-through income for the years
1998, 1999 and the portion of 2000 prior to the termination of our S corporation
status of up to $1.6 million. This distribution will be made using a portion of
the net proceeds of this offering. The actual amount of this distribution will
be reduced to the extent distributions of accumulated earnings are made by us to
the existing stockholders prior to the date of this offering with other
corporate funds.
The existing stockholders have agreed to indemnify us should our S
corporation status during any portion of the period for which we claimed such
status in federal or state income tax filings ever be successfully challenged,
up to an aggregate of $1.6 million. We cannot assure you that the amount of any
indemnity we recover from our existing stockholders would be sufficient to cover
the amount of any tax liability if our S corporation status is successfully
changed.
In connection with the termination of our S corporation status, we may be
obligated to record a deferred tax asset or liability, which will be recognized
in the quarter during which this offering occurs.
16
<PAGE> 20
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock we are offering will be approximately $46.6 million, assuming an
initial public offering price of $13.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. We will not receive any of the proceeds from the sale of shares by the
selling stockholder.
We will use a portion of the net proceeds of this offering to make the
following payments:
- approximately $4.4 million to pay our outstanding senior subordinated
notes, including notes held by a party which is an affiliate of a
director and two parties which will be significant stockholders following
this offering. The senior subordinated notes accrued interest at the rate
of 8% per annum through June 9, 1999 and accrue interest at a rate of 10%
after June 9, 1999. These notes become due upon the closing of this
offering. As of January 31, 2000, the outstanding balance of principal
and interest on the senior subordinated notes was $4.4 million;
- approximately $2.0 million to repay loans from Richard A. Kay, our
chairman, president and chief executive officer. These loans were made to
provide working capital and bear interest at the rate of 8% per year. As
of January 31, 2000, the outstanding balance of principal and interest on
these loans was $2.0 million;
- approximately $5.0 million to repay all outstanding balances under our
commercial credit facility, which bears interest at the bank's prime rate
plus 0.5% and becomes due on July 21, 2000. As of January 31, 2000, the
outstanding balances of principal and interest on this credit facility
was $5.0 million;
- approximately $5.2 million to repay a note issued to a former stockholder
in connection with the repurchase of his shares. This note bears interest
at the rate of 10% per annum and becomes due 60 days after the closing of
this offering. As of January 31, 2000, the outstanding balance of
principal and interest under this note was $5.2 million;
- approximately $250,000 to a former employee in respect of a deferred
bonus due to him upon the closing of this offering; and
- an amount, not to exceed $1.6 million, to our existing stockholders as a
distribution to cover the aggregate federal and state income tax
liabilities for 1998, 1999 and the portion of 2000 prior to termination
of our S corporation status.
We intend to use the remaining net proceeds of this offering for working
capital and general corporate purposes. Although we may use a portion of the net
proceeds to acquire businesses, products or technologies that are complementary
to our business, we have no specific acquisitions planned. Pending these uses,
we plan to invest the net proceeds in investment grade, interest-bearing
securities.
DIVIDEND POLICY
We made distributions to our stockholders of approximately $60,000,
$600,000, $5.5 million and $34,000 during the years ended December 31, 1996,
1997, 1998 and 1999, respectively. Other than the estimated distribution of up
to $1.6 million to cover S corporation tax liabilities of our existing
stockholders following the closing of this offering, we do not anticipate paying
cash dividends in the foreseeable future. We currently intend to retain all
future earnings, if any, for use in the operation of our business. Our
commercial credit facility currently prohibits the payment of dividends other
than S corporation distributions.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization and other financial
information as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the automatic conversion of all
outstanding convertible notes into common stock on the closing of this
offering and the distribution at the closing of $1.6 million reflecting
estimated S corporation tax liabilities of our existing stockholders; and
- on a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered by us in this offering, our receipt and application
of the estimated net proceeds, after deducting the estimated underwriting
discounts and commissions and the estimated offering expenses that we
expect to pay in connection with this offering, and our use of a portion
of the net proceeds to repay debt.
This table also gives effect to an amendment to our charter filed after December
31, 1999 that increased the number of shares of common stock and preferred stock
authorized for issuance. You should read this table along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
financial statements and the related notes and the other financial information
in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 2,494 $ 894 $ 30,654
======== ======== ========
Short-term debt:
Note payable to bank..................................... 5,000 5,000 --
Current portion of long-term debt........................ 13,803 6,167 42
Subordinated notes payable -- stockholders............... 1,969 1,969 --
-------- -------- --------
Total short-term debt............................... $ 20,772 $ 13,136 $ 42
======== ======== ========
Long-term debt -- net of current portion................... $ 3,529 $ 3,529 $ 123
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding, actual,
pro forma and pro forma as adjusted................... -- -- --
Common stock, $.01 par value; 65,000,000 shares
authorized; 16,314,682 shares issued and outstanding,
actual; 20,476,188 shares issued and outstanding, pro
forma; 24,476,188 shares issued and outstanding, pro
forma as adjusted..................................... 163 205 245
Additional paid-in capital............................... 4,081 11,304 57,874
Deferred compensation.................................... (2,557) (2,557) (2,557)
Accumulated deficit...................................... (22,416) (22,416) (22,416)
Less stock subscriptions receivable................... (977) (977) (977)
-------- -------- --------
Total stockholders' equity (deficit)................ (21,706) (14,441) 32,169
-------- -------- --------
Total capitalization............................. $(18,177) $(10,912) $ 32,292
======== ======== ========
</TABLE>
The outstanding share information excludes:
- 3,489,106 shares of common stock issuable on exercise of outstanding
options and a warrant as of December 31, 1999, at a weighted average
exercise price of $2.65 per share; and
- 594,116 shares of common stock reserved at that date for future issuance
under our stock plan.
After December 31, 1999, we issued options exercisable to purchase up to
464,500 shares of common stock at a weighted average exercise price of $12.64
per share. In addition, after December 31, 1999, we reserved an additional
1,600,000 shares for issuance under new stock plans.
18
<PAGE> 22
DILUTION
Our pro forma net tangible deficit value as of December 31, 1999 was $14.4
million, or $(.71) per share of common stock. We have calculated this amount by:
- subtracting our pro forma total liabilities from our pro forma total
tangible assets, after giving effect to the automatic conversion of the
convertible notes into common stock upon the closing of this offering and
the distribution at the closing of $1.6 million, reflecting estimated S
corporation tax liabilities of the existing stockholders; and
- then dividing the difference by the total pro forma number of shares of
common stock outstanding, including the number of shares of common stock
that will be issued upon the conversion of the convertible notes issued
by us when we complete this offering.
If we give effect to our sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $13.00 per share, after
deducting the estimated underwriting discounts and commissions and the estimated
offering expenses payable by us, our adjusted pro forma net tangible book value
as of December 31, 1999 would have been $32.2 million, or $1.31 per share. This
amount represents an immediate dilution of $11.69 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma net tangible book value per share before this
offering............................................... $ (.71)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 2.02
------
Pro forma net tangible book value per share after this
offering.................................................. 1.31
------
Dilution per share to new investors......................... $11.69
======
</TABLE>
The following table summarizes, as of December 31, 1999, after giving
effect to the conversion of the convertible notes into common stock, the
difference between the number of shares of common stock purchased from us, the
total consideration paid to us, and the average price per share paid by existing
stockholders and by new investors, at an assumed initial public offering price
of $13.00 per share before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 20,476,188 83.7% $ 9,568,239 15.8% $ 0.47
New investors....................... 4,000,000 16.3 52,000,000 84.2 $ 13.00
---------- ----- ----------- -----
Total..................... 24,476,188 100.0% $61,568,239 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters exercise their over-allotment option in full, the
number of shares held by new investors will increase to 4,600,000 shares, or
18.8% of the total shares of common stock outstanding after this offering, and
the number of shares held by existing stockholders will be reduced to 19,876,188
shares, or 81.2% of the total shares of common stock outstanding after this
offering.
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<PAGE> 23
The table above assumes no exercise of stock options and a warrant
outstanding at December 31, 1999. As of December 31, 1999, there were options
and a warrant outstanding to purchase 3,489,106 shares of common stock at a
weighted average exercise price of $2.65 per share and 594,116 shares reserved
for future grant or award under our stock plan. To the extent any of these
options or warrants are exercised, there will be further dilution to new
investors. To the extent all of these outstanding options or the warrant had
been exercised as of December 31, 1999, net tangible book value per share after
this offering would have been $1.13 and total dilution per share to new
investors would have been $11.87.
20
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our financial statements and the related notes, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1997, 1998 and 1999 and the balance sheet
data at December 31, 1998 and 1999 are derived from, and are qualified by
reference to, audited consolidated financial statements included in this
prospectus. The statement of operations data for the years ended December 31,
1995 and 1996, and the balance sheet data at December 31, 1995, 1996 and 1997,
are derived from our consolidated financial statements that are not included in
this prospectus. Historical results are not necessarily indicative of results
that may be expected for any future period. The pro forma statement of
operations data reflects federal and state income taxes based on applicable tax
rates as if we had not elected S corporation status for the periods indicated.
See note 1 to our consolidated financial statements appearing elsewhere in this
prospectus for information regarding shares used in computing pro forma net
income (loss) per share -- basic and diluted.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses................................ $ 4,079 $ 6,075 $ 8,543 $12,089 $18,208
Services......................................... 908 1,321 3,361 5,230 7,232
------- ------- ------- ------- -------
Total revenues................................. 4,987 7,396 11,904 17,319 25,440
Cost of revenues:
Software licenses................................ 633 848 579 532 1,062
Services......................................... 581 442 1,219 1,639 3,017
------- ------- ------- ------- -------
Total cost of revenues......................... 1,214 1,290 1,798 2,171 4,079
------- ------- ------- ------- -------
Gross profit....................................... 3,773 6,106 10,106 15,148 21,361
Operating expenses:
Research and development......................... 983 2,012 2,455 3,958 5,137
Sales and marketing.............................. 1,916 2,979 5,313 8,986 11,487
General and administrative....................... 604 1,940 1,709 2,150 4,139
------- ------- ------- ------- -------
Total operating expenses....................... 3,503 6,931 9,477 15,094 20,763
------- ------- ------- ------- -------
Income (loss) from operations...................... 270 (825) 629 54 598
Interest expense, net.............................. (140) (143) (162) (1,261) (2,053)
------- ------- ------- ------- -------
Net income (loss).................................. $ 130 $ (968) $ 467 $(1,207) $(1,455)
======= ======= ======= ======= =======
Pro forma statement of operations data:
Net income (loss) before income taxes, as
reported....................................... $ 130 $ (968) $ 467 $(1,207) $(1,455)
Pro forma income tax provision (benefit)......... -- -- -- -- --
------- ------- ------- ------- -------
Pro forma net income (loss)...................... $ 130 $ (968) $ 467 $(1,207) $(1,455)
======= ======= ======= ======= =======
Pro forma net income (loss) per share -- basic
and diluted.................................... $ .01 $ (.04) $ .02 $ (.06) $ (.09)
======= ======= ======= ======= =======
Pro forma weighted average shares
outstanding -- basic and diluted............... 20,748 25,928 26,208 20,378 16,315
======= ======= ======= ======= =======
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 4 $ 287 $ 1,098 $ 437 $ 2,494
Working capital (deficit)....................... (1,330) (1,946) (3,227) (6,120) (19,983)
Total assets.................................... 1,086 2,079 5,143 7,284 12,589
Total debt...................................... 1,346 254 3,774 22,047 24,301
Total stockholders' equity (deficit)............ (1,139) (2,166) (2,699) (20,876) (21,706)
</TABLE>
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and the related notes included elsewhere
in this prospectus.
OVERVIEW
We are a leading provider of online data storage management and data access
software solutions. Our software enables enterprises to move, store, manage and
access data quickly and efficiently over a variety of network architectures,
including the Web and storage area networks. Our software supports many
different types of storage devices, is easy to install and use, and can manage
storage systems ranging in size from a single storage device to an
enterprise-wide data storage network.
We were founded in March 1992. Since our inception, we have incurred
significant losses. For 1999, our net loss was $1.5 million. As of December 31,
1999, we had an accumulated deficit of $22.4 million. We expect to incur
significant research and development, sales and marketing and general and
administrative expenses, and, as a result, we will need to generate significant
revenues to achieve and maintain profitability. Although our revenues have
grown, we may not be able to sustain these growth rates, and we may not realize
sufficient revenues to achieve profitability.
We generate revenues principally from licensing our software products and
providing related professional services including maintenance and technical
support, consulting and training.
We derive software license revenues from licenses of our software programs
to customers primarily through indirect sales channels, including original
equipment manufacturers, value-added resellers and distributors. We also sell
through our direct sales force. Original equipment manufacturers either bundle
our products with the products they offer or resell our products under their own
label. We receive software license revenues each time an original equipment
manufacturer licenses a copy of its products that incorporates one or more of
our products. Our license agreements with original equipment manufacturers
generally contain no minimum sales requirements and we cannot assure you that
any original equipment manufacturer will either commence or continue shipping
our products in the future. Moreover, following the execution of new license
agreements, a significant period of time may elapse before any revenues are
generated due to the development work which we often undertake under these
agreements and the time needed for the sales and marketing groups within these
original equipment manufacturers, customers and resellers to become familiar
with our products.
Our services revenues consist of fees derived from annual maintenance
agreements, consulting and training and other services. The maintenance
agreements covering our products provide for technical support and minor
unspecified product upgrades for fees based on the number of software licenses
purchased and the level of service chosen by the customer. Maintenance fees are
recognized ratably over the term of the maintenance contract. We provide
consulting services, for which we charge a fee based upon the amount of time
worked and the cost of the materials used in providing the services. We provide
classroom and on-site training to our customers on a daily fee basis.
Our international sales are primarily generated through indirect sales
channels. Revenues derived from customers located outside the United States and
Canada, most of which are denominated in U.S. currency, accounted for
approximately 6% of our total revenues in each of 1998 and 1999. Our
international revenues increased 32% from $1.1 million for 1998 to $1.5 million
for 1999.
We currently have sales and services offices in the United States and
provide sales and services support in Europe through employees located in
Germany and the Netherlands. We plan to expand our international operations by
establishing additional foreign offices, hiring additional personnel and
recruiting additional international resellers.
23
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth items from our statements of operations
expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.................................. 82% 82% 72% 70% 72%
Services........................................... 18 18 28 30 28
--- --- --- --- ---
Total revenues.................................. 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software licenses.................................. 13 11 5 3 4
Services........................................... 12 6 10 10 12
--- --- --- --- ---
Total cost of revenues.......................... 25 17 15 13 16
--- --- --- --- ---
Gross profit......................................... 75 83 85 87 84
Operating expenses:
Research and development........................... 20 27 21 23 20
Sales and marketing................................ 38 40 45 52 45
General and administrative......................... 12 26 14 12 16
--- --- --- --- ---
Total operating expenses........................ 70 93 80 87 81
--- --- --- --- ---
Income (loss) from operations........................ 5 (10) 5 0 3
Interest expense, net................................ (3) (2) (1) (7) (8)
--- --- --- --- ---
Net income (loss).................................... 2% (12)% 4% (7)% (5)%
</TABLE>
The following table sets forth, for each component of revenues, the cost of
these revenues as a percentage of the related revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost of software license revenues................... 16% 14% 7% 4% 6%
Cost of services revenues........................... 64 33 36 31 42
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenues
Total revenues increased 47% from $17.3 million for 1998 to $25.4 million
for 1999. We believe that the percentage increase in total revenues achieved in
this period is not necessarily indicative of future results. Our revenues
consist of software license revenues and services revenues. Software license
revenues are derived primarily from licenses of our software products. Services
revenues are derived primarily from contracts for software maintenance and
technical support and, to a lesser extent, consulting, training and other
services. We also experienced an increase in demand for consulting and training
services directly associated with the sale of new software licenses. Software
license revenues were 70% of total revenues for 1998, and 72% of total revenues
for 1999.
Software License Revenues. Software license revenues increased 51% from
$12.1 million for 1998 to $18.2 million for 1999. The increase was primarily due
to an increase in overall demand for data storage management products,
increasing market acceptance of our products, introduction of new products and
increasing revenues generated through our indirect sales channels.
Services Revenues. Services revenues increased 38% from $5.2 million for
1998 to $7.2 million for 1999. The increase was primarily due to increased sales
of services and support contracts on new
24
<PAGE> 28
license sales, increased renewals of these contracts by our installed base of
licensees and, to a lesser extent, increased demand for consulting and training
services.
Cost of Revenues
Cost of software license revenues consists primarily of royalties, media,
manuals and distribution costs. Cost of services revenues consists primarily of
personnel-related costs in providing maintenance and technical support,
consulting and training to customers. Gross margin on software license revenues
is substantially higher than gross margin on services revenues, reflecting the
low materials, packaging and other costs of software products compared with the
relatively high personnel costs associated with providing maintenance and
technical support, consulting and training services. Cost of services revenues
varies based upon the mix of maintenance and technical support, consulting and
training services.
Cost of Software License Revenues. Cost of software license revenues
increased 100% from $532 for 1998 to $1,062 for 1999. Gross margin on software
license revenues decreased from 96% for 1998 to 94% for 1999, primarily because
of higher product packaging and distribution costs in 1999. The gross margin on
software license revenues may vary from period to period based on the software
license revenues mix and certain products having higher royalty rates than other
products. We do not expect significant improvements in gross margin on software
license revenues.
Cost of Services Revenues. Cost of services revenues increased 84% from
$1.6 million for 1998 to $3.0 million for 1999. Gross margin on services
revenues decreased from 69% for 1998 to 58% for 1999. The increased cost and the
reduced margin was primarily due to personnel additions in our customer support
and training and consulting organizations, in anticipation of increased demand
for these services. The gross margin on services revenues may vary from period
to period based upon the mix of maintenance and technical support, consulting
and training services.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of salaries, related benefits and other engineering-related costs.
Research and development expenses increased 30% from $4.0 million for 1998 to
$5.1 million for 1999. The increase was due primarily to increased staffing
levels. As a percentage of total revenues, research and development expenses
decreased from 23% for 1998 to 20% for 1999. We believe that a significant level
of research and development investment is required to remain competitive, and
expect that the dollar amount of these expenses will continue to increase in
future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees, tradeshow, advertising
and other costs associated with our sales and marketing efforts. Sales and
marketing expenses increased 28% from $9.0 million for 1998 to $11.5 million for
1999, which includes $36,000 in non-cash compensation expense. The increase in
sales and marketing expenses is attributable to an increase in the number of
sales and marketing employees and increases in marketing programs. Sales and
marketing expenses as a percentage of total revenues decreased from 52% for 1998
to 45% for 1999. The decrease as a percentage of total revenues was primarily
due to the increase in total revenues. We intend to continue to expand our
global sales and marketing infrastructure and, accordingly, we expect our sales
and marketing expenses to increase in the future.
General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
93% from $2.2 million for 1998 to $4.1 million for 1999, which includes $623,000
in non-cash compensation expense. General and administrative expenses as a
percentage of total revenues increased from 12% for 1998 to 16% for 1999. The
increase was
25
<PAGE> 29
primarily due to additional personnel costs and other expenses associated with
enhancing our infrastructure to support expansion of our operations. We expect
that the dollar amount of general and administrative expenses will increase as
we expand our operations.
Interest Expense, Net. We incur interest expense on debt from a revolving
credit agreement, which bears interest at a rate of 0.5% over the bank's prime
lending rate, on notes payable to certain current and previous stockholders,
which bear interest at various rates from 8% to 10%, and on senior debt and
convertible debt from our investors. Our senior debt and convertible debt was
established in the amounts of approximately $4.4 million and $7.6 million,
respectively, in the second quarter of 1998 and bear interest at various rates
from 8% to 12%. Interest expense increased 63% from $1.3 million for 1998 to
$2.1 million for 1999.
Pro Forma Income Tax Provision (Benefit). Because we incurred net
operating losses in 1998 and in 1999, our pro forma effective tax rate in each
year was zero.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenues
Total revenues increased 45% from $11.9 million in 1997 to $17.3 million in
1998. We believe that the percentage increase in total revenues achieved in this
period is not necessarily indicative of future results.
Software License Revenues. Software license revenues increased 42% from
$8.5 million in 1997 to $12.1 million in 1998. The increase was primarily the
result of continued growth in market acceptance of our software products, a
greater volume of large end-user transactions, increased revenues from original
equipment manufacturer resales of bundled and unbundled products and the
introduction of new products. Software license revenues growth also resulted
from increases in direct sales and indirect sales other than through original
equipment manufacturers.
Services Revenues. Services revenues increased 56% from $3.4 million in
1997 to $5.2 million in 1998. The increase was primarily due to increased sales
of services and support contracts on new licenses, renewal of services and
support contracts on existing licenses and the growth in services provided by
our professional services staff.
Cost of Revenues
Cost of Software License Revenues. Cost of software license revenues
decreased 8% from $579,000 in 1997 to $532,000 in 1998. The decrease was
primarily the result of lower product packaging and distribution costs. Gross
margin on software license revenues was 93% and 96%, respectively, in 1997 and
1998.
Cost of Services Revenues. Cost of services revenues increased 34% from
$1.2 million in 1997 to $1.6 million in 1998. Gross margin on services revenues
was 64% and 69% in 1997 and 1998, respectively. The change in gross margin was
primarily due to personnel additions in our customer support and training and
consulting organizations, in anticipation of increased demand for these
services, as well as to a change in the mix of contracts for services with
varying margins.
Operating Expenses
Research and Development. Research and development expenses increased 61%
from $2.5 million in 1997 to $4.0 million in 1998. The increase in both periods
was due primarily to increased staffing levels. As a percentage of total
revenues, research and development expenses were 21% and 23% in 1997 and 1998,
respectively.
Sales and Marketing. Sales and marketing expenses increased 69% from $5.3
million in 1997 to $9.0 million in 1998. Sales and marketing expenses as a
percentage of total revenues were 45% and
26
<PAGE> 30
52% in 1997 and 1998, respectively. The dollar increase was primarily
attributable to increased sales and marketing staffing and, to a lesser extent,
increased costs associated with new marketing programs.
General and Administrative. General and administrative expenses increased
26% from $1.7 million in 1997 to $2.2 million in 1998. General and
administrative expenses as a percentage of total revenues were 14% and 12% in
1997 and 1998, respectively. The dollar increase in 1998 was primarily due to
additional personnel costs and other expenses associated with enhancing our
infrastructure to support expansion of our operations.
Interest Expense, Net. Interest expense, net was $162,000 for 1997 and
$1.3 million for 1998.
Pro Forma Income Tax Provision (Benefit). As a result of net loss
carryforwards in 1997 and as a result of our net operating losses in 1998, our
pro forma effective tax rate in each year was zero.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth items from our statements of operations for
the last eight quarters, as well as that data expressed as a percentage of our
total revenues. This data has been derived from unaudited combined financial
statements that, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information. We believe that period-to-period comparisons
of our financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses........... $2,656 $2,795 $2,859 $3,779 $3,842 $3,648 $5,115 $5,603
Services.................... 1,119 1,115 1,431 1,565 1,592 1,913 1,506 2,221
------ ------ ------ ------ ------ ------ ------ ------
Total revenues........... 3,775 3,910 4,290 5,344 5,434 5,561 6,621 7,824
Cost of revenues:
Software licenses........... 73 98 91 270 249 230 191 392
Services.................... 290 350 556 443 729 678 781 829
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues... 363 448 647 713 978 908 972 1,221
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 3,412 3,462 3,643 4,631 4,456 4,653 5,649 6,603
Operating expenses:
Research and development.... 698 1,031 992 1,237 1,306 1,177 1,242 1,412
Sales and marketing......... 1,678 2,540 2,142 2,626 2,189 2,979 2,791 3,528
General and
administrative........... 371 572 526 681 855 919 906 1,459
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 2,747 4,143 3,660 4,544 4,350 5,075 4,939 6,399
Income (loss) from
operations.................. 665 (681) (17) 87 106 (422) 710 204
Interest expense, net......... (46) (154) (514) (547) (480) (512) (527) (534)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)............. $ 619 $ (835) $ (531) $ (460) $ (374) $ (934) $ 183 $ (330)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses........... 70% 71% 67% 71% 71% 66% 77% 72%
Services.................... 30 29 33 29 29 34 23 28
------ ------ ------ ------ ------ ------ ------ ------
Total revenues........... 100 100 100 100 100 100 100 100
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Software licenses........... 2 3 2 5 5 4 3 5
Services.................... 8 8 13 8 13 12 12 11
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues... 10 11 15 13 18 16 15 16
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 90 89 85 87 82 84 85 84
Operating expenses:
Research and development.... 18 26 23 23 24 21 19 18
Sales and marketing......... 44 65 50 49 40 54 42 45
General and
administrative........... 11 15 12 13 16 17 14 19
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 73 106 85 85 80 92 75 82
Income (loss) from
operations.................. 17 (17) (0) 2 2 (8) 10 2
Interest expense, net......... (1) (4) (12) (10) (9) (9) (8) (7)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)............. 16% (21)% (12)% (8)% (7)% (17)% 2% (5)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The trends discussed in the period-to-period comparisons above generally
apply to the results of operations for our seven most recent quarters, except
for certain differences discussed below.
Services revenues increased every quarter since March 31, 1998, except for
the quarter ended September 30, 1999. This exception was because we performed an
unusually large amount of consulting services during the prior quarter ended
June 30, 1999.
Cost of software license revenues have remained relatively constant quarter
to quarter as a percentage of software license revenues. Cost of software
license revenues increased substantially in absolute terms in the quarter ended
December 31, 1998 due to a substantial investment in our shipping and packaging
infrastructure. Cost of services revenues as a percentage of services revenues
has fluctuated as the mix of services performed for our customers has varied
among higher and lower margin services.
Total operating expenses have fluctuated primarily as a result of
variations in our sales and marketing expenses. In each of the quarters ended
June 30, 1998, December 31, 1998, June 30, 1999 and December 31, 1999, we
incurred additional sales and marketing expenses associated with trade shows and
significant marketing programs. To a lesser extent, our operating expenses have
fluctuated as a result of costs associated with recruiting and hiring research
and development personnel.
We expect to experience significant fluctuations in future quarterly
operating results that may be caused by many factors including, among other
things, the release of software products by us or our competitors, market
acceptance of our products, the mix of our products and services sold, demand
for our products or the timing of customer acceptance of our products, renewal
of service agreements, software quality, changes in the level of operating
expenses and general economic conditions. Due to these and other factors, our
quarterly revenues and operating expenses are difficult to forecast accurately.
28
<PAGE> 32
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents totaled $2.5 million at December 31, 1999,
and represented 20% of total assets. Cash equivalents are highly liquid
instruments with original maturities of 90 days or less. At December 31, 1999,
we had $17.3 million of long-term obligations, and stockholders' deficit was
approximately $21.7 million.
For 1999, cash provided by operating activities of $765,000 resulted
primarily from an increase in accounts payable, non-cash expenses, accrued
expenses and deferred revenues. This was partially offset by a net loss and an
increase in prepaid expenses. For 1998, net cash used in operating activities of
$1.3 million resulted primarily from net losses and increases in accounts
receivable and prepaid expenses. This was partially offset by increases in
accounts payable, accrued expenses and deferred revenues. For 1998, cash used in
operating activities resulted primarily from net losses and an increase in
accounts receivable, prepaid assets and other assets. This was partially offset
by increases in accrued expenses and deferred revenues. Net cash provided by
operating activities was $896,000 in 1997. Increases in cash provided by
operating activities in 1997 resulted from increases in accounts payable,
accrued expenses, deferred revenues and net income.
Our investing activities used cash of $928,000, $667,000 and $654,000 in
1999, 1998 and 1997, respectively, primarily for capital expenditures.
Financing activities provided cash of $2.2 million in 1999, primarily from
increased net borrowings from the bank of $2.7 million, and provided cash of
$1.3 million in 1998 primarily from the net proceeds of $12.1 million under the
Company's senior subordinated notes and convertible subordinated debt, which
were issued on June 9, 1998. Borrowings from the bank bear interest at the
bank's prime rate plus 1% and become due on July 21, 2000. The senior
subordinated notes and convertible subordinated debt bore interest at 8% through
June 1999, bear interest at 10% from June 9, 1999 through June 9, 2000 and bear
interest at 12% from June 9, 2000 through maturity, and are due and payable on
December 9, 2000, with interest payments due quarterly after inception. In
specified events, such as the closing of this offering, the notes are
accelerated and become due in full. In specified events, such as the closing of
this offering, the convertible subordinated debt is converted into shares of
common stock at a rate of $3.67 per share, and interest, which has been accrued
cumulatively since the inception of the convertible subordinated debt, is
forgiven. Financing activities provided cash of $570,000 in 1997, primarily from
borrowings under notes payable to the bank and borrowings under long term debt,
offset by distributions to stockholders and redemptions of common stock.
In March 1992, we entered into a loan agreement and related promissory note
with Mr. Kay in order to secure working capital for our operations. As amended,
the loan agreement and promissory note provide for a maximum principal amount of
indebtedness of $1,000,000 and make the promissory note payable upon demand.
Amounts that we borrow under the loan agreement bear simple interest at a rate
of 8% per year. As of January 31, 2000, we owed Mr. Kay $469,000 as a result of
borrowings and accrued interest under this arrangement.
In addition, on June 16, 1998, we borrowed an aggregate principal amount of
$1,500,000 from Mr. Kay in order to secure working capital for our operations
pursuant to two promissory notes. These notes earn 8% interest which is payable
quarterly. The principal amount of these notes is due and payable upon the
earlier of December 16, 2000 or 60 days after the closing of this offering, a
qualified merger or a sale of substantially all of our assets.
We believe that our current cash, cash equivalents, cash flow from
operations, and loans from our principal stockholder, will be sufficient to meet
our expected working capital and capital expenditure requirements for at least
the next twelve months. After that, we may require additional funds to support
our working capital requirements or for other purposes and may seek to raise
such
29
<PAGE> 33
additional funds through public or private equity financing or from other
sources. We cannot assure you that additional financing will be available at all
or that, if available, we will be able to obtain it on terms favorable to us.
YEAR 2000 READINESS
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
determine whether "00" means 1900 or 2000. This may result in software failures
or the creation of erroneous results. Although the transition from 1999 to 2000
has passed and we are not aware of any Year 2000 problems with our products, our
internal systems or our vendors, it is possible that Year 2000 problems could be
discovered in the future.
Our software products operate in complex system environments and directly
and indirectly interact with a number of other hardware and software systems. We
have tested the current versions of our products and the versions of our
products under development, as well as our internal systems, and believe that
they are Year 2000 compliant. In addition, we have inquired of our vendors who
provide us with goods and services as to their state of Year 2000 readiness.
Despite testing and investigation by us, our software products and the
underlying systems and protocols running our products may contain errors or
defects associated with Year 2000 date functions. Our vendors may also
experience Year 2000 problems that could affect our business. We are unable to
predict to what extent our business may be affected if our software or the
systems that operate in conjunction with our software experience a material Year
2000 failure or if our vendors experience Year 2000 problems. Known or unknown
errors or defects that affect the operation of our software could result in:
- delay or loss of revenues, cancellation of customer contracts;
- diversion of development resources;
- damage to our reputation;
- increased maintenance and warranty costs; and
- litigation costs.
Any of these negative effects could adversely affect our business and future
results of operations. Furthermore, if our vendors experience Year 2000
problems, we could experience disruption in the provision of products and
services to our customers which could have many of the negative effects
described above. In addition, if our customers experience their own Year 2000
problems, they may delay or forego purchases of our products until they have
addressed such problems, which could have an adverse effect on our business and
future operating results.
The total cost of our Year 2000 compliance activities was not material to
our business, results of operations and financial conditions. We estimate
specific Year 2000 expenses did not exceed $300,000. While we believe that we
have completed our Year 2000 readiness process, we cannot assure you that we
have identified and remedied all significant Year 2000 problems, that we will
not incur significant additional time and expense or that such problems will not
harm our business.
QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISK
We do not currently have any derivative financial instruments and do not
intend to invest in derivatives. We invest our cash in short-term highly liquid
cash equivalents. All of our indebtedness will be automatically converted into
equity or repaid upon completion of this offering. As a result, we believe that
our exposure to interest rate risk is not material to our results of operations.
30
<PAGE> 34
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We will be required to
implement SFAS No. 133 for the year ending December 31, 2001. We have not
entered into any foreign currency exchange rate hedging activities to date and
we do not believe that the impact of SFAS No. 133 will be material to our
financial position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
entities capitalize certain costs related to internal-use software once certain
criteria have been met. We adopted SOP 98-1 as of January 1, 1999. The impact of
adopting SOP 98-1 was not material, and we do not expect SOP 98-1 to have a
material impact on our financial position, results of operations and cash flows.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 "Software Revenue Recognition" to require recognition of revenue
using the "residual method" when certain criteria are met. We will be required
to implement these provisions of SOP 98-9 for the year ending December 31, 2000.
Effective in December 1998, SOP 98-9 also amends SOP 98-4, an earlier amendment
to SOP 97-2, to extend the deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4. We do not believe the impact of SOP 98-9 will be
material to our financial position, results of operations and cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101-Revenue Recognition in Financial Statements. This
SAB expresses the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Companies can apply
the accounting and disclosure requirements of this SAB retrospectively, or may
report a change in accounting principle no later than the first fiscal quarter
of the fiscal year beginning after December 15, 1999. We do not expect the
application of this SAB to have a material impact on our financial statements.
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BUSINESS
OVERVIEW
We are a leading provider of online data storage management and data access
software solutions. Our software enables enterprises to move, store, manage and
access data quickly and efficiently over a variety of network architectures,
including the Web and storage area networks. Our software supports many
different types of storage devices, is easy to install and use, and can manage
storage systems ranging in size from a single storage device to an
enterprise-wide network storage system.
INDUSTRY BACKGROUND
The growth of data storage
The growth of data-intensive computing functions such as e-commerce,
e-mail, multimedia applications, complex enterprise computer applications and
the conversion from paper to electronic storage has fueled rapid growth in the
amount of data stored within an enterprise. For example, International Data
Corporation, an independent information technology research firm referred to as
IDC, projects that the number of e-mail messages sent per day in the United
States will grow from approximately 3.5 billion in 1999 to 9.2 billion in 2003.
This growth has resulted in an increased demand for more efficient methods to
store and retrieve data. IDC estimates that multi-user disk storage grew from
more than 7,000 terabytes in 1993 to more than 188,000 terabytes in 1999, and
will reach more than 1.9 million terabytes in 2003. A byte is the amount of
computer memory required to store one number, letter or symbol; a terabyte is
equal to one trillion bytes.
This dramatic growth in data storage is driving the demand for many types
of storage technology, such as new storage devices, networking hardware, network
transmission technology and software. Many enterprises are trying to manage
larger amounts of data, creating a demand for solutions that can automate this
task. Industry analysts predict that demand for data storage software in
particular will grow significantly. IDC estimates that the overall market for
data protection and management software grew from $2.1 billion in 1996 to $3.5
billion in 1998 and will grow to $6.7 billion in 2003.
Traditional data storage and back-up
Users traditionally have stored data on hard disks or other storage devices
connected to their personal computers or computer networks, a configuration
referred to as primary storage. In addition to primary storage, enterprises have
widely adopted back-up processes to insure against the loss of data by creating
and storing duplicates of existing data files. The traditional back-up process
moves data to secondary storage devices not directly accessible by users and
applications. Typically, an enterprise will perform a full back-up of all data
once a week and incremental back-ups on each of the other six days of the week.
An incremental back-up operation copies only those files that have changed since
the last full back-up. There are several significant problems with traditional
data storage and back-up methods:
- Expensive primary storage capacity is consumed rapidly. Hard drives and
other storage devices used for primary storage are more expensive than
remote and back-up storage devices and have a limited capacity. This
capacity is often quickly exhausted, and the user or the enterprise must
then either purchase additional capacity or delete data. An enterprise
incurs additional expense not only for the purchase of additional storage
devices, but also for the administrative time required to install,
allocate and manage this additional primary storage capacity.
- Repetitive back-up consumes network transmission capacity. As the amount
of data increases, repeatedly backing up the same data consumes
increasing amounts of network transmission
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capacity, or bandwidth. Computer networks have a limited amount of
bandwidth, and most of this capacity is consumed during business hours by
the demands of the network's users. As a result, networks lack the
capacity to transmit data to storage devices for back-up during business
hours. In addition, as enterprises expand their operations
internationally, as the Internet makes networks more accessible and as
the workday becomes longer, the number of hours available each day for
back-up is shrinking. As a result, network administrators have smaller
windows of time in which they can back up increasing amounts of data
without impairing the performance or accessibility of the network.
- Failure to manage data results in an inefficient back-up process. Most
files on a typical file server are not frequently accessed more than 30
days after they are created. Repeatedly backing up the same unchanged
data consumes more back-up storage capacity unnecessarily, and requires
an enterprise to expand its storage capacity with each subsequent
back-up. In addition, because network administrators cannot determine
which files are important, they either save most files or randomly delete
them.
- Access to stored data is limited. Infrequently accessed data is
typically migrated from primary storage devices to secondary storage
devices, such as tape libraries. Once this process has occurred, the time
and effort necessary to retrieve a migrated file is significant. A user
will need to know information such as the file name, the original storage
location and the date of the back-up. When this information has been
determined, the network administrator will then use this information to
retrieve the file manually. This process is inefficient for the user, who
must wait for the needed file, and for the network administrator, who
must act as an intermediary and retrieve the file. In addition, files
that have been deleted from primary storage and only reside on secondary
storage devices are not readily accessible to software applications that
may need the data contained in the file.
The emergence of storage area networks
In response to the limitations of traditional data storage and back-up
methods, storage area networks have emerged. A storage area network is a network
of servers and data storage devices that are interconnected at high speeds,
typically using Fibre Channel transport technology, which allows network
resources to be located at remote and diverse locations. Enterprises are
increasingly deploying storage area networks in an effort to move data storage
operations off of their local area networks to a separate network dedicated to
data storage. Moving these operations to storage area networks frees up
bandwidth on the local area network for more efficient operation of enterprise
software applications and communications. Storage area networks can be
significantly less expensive to maintain and expand than traditional data
storage systems because they enable shared, high-speed access to stored data.
IDC estimates that the overall storage area network market will grow from $3.4
billion in 1999 to $13.8 billion in 2003.
Despite the greater capacity and speed offered by storage area networks,
storage area networks do not address the need to make management and access of
data more efficient. In particular, storage area networks fail to determine
which data should be stored, do not provide efficient transfer of data to the
storage area network, do not enable immediate access to backed-up data and
cannot provide an effective index of stored data.
The need for data storage management software
In order to address the problems of traditional storage and back-up
methods, and to take advantage of the power of storage area networks, a data
storage solution must:
- automatically apply policies that determine whether, or for how long,
data should be stored;
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- provide efficient transfer of data to and from storage devices throughout
networks, including local area networks and storage area networks;
- provide a detailed index of stored data;
- enable rapid and easy retrieval of stored data selected by users and
software applications;
- maximize the effective capacity of existing storage devices; and
- provide secure Web access to stored data.
THE OTG SOLUTION
We are a leading provider of online data storage management and data access
solutions. Our Windows NT-based solutions provide customers with the following
benefits:
- Efficient use of storage capacity. We enable automated data migration to
less expensive remote storage devices and networks.
- Fast data access. We provide quick and easy access to data for users and
software applications, including secure Web access.
- Increased efficiency of back-up systems. We reduce the time required for
data back-up, maximize use of back-up storage capacity and increase
available network bandwidth by eliminating the repetitive back-up of
unchanged data.
- Diverse storage options. We support many different types of data storage
devices within the same data storage system to maximize performance and
minimize cost.
- Fast and easy installation and use. We make installation, configuration
and use quick and easy, using an intuitive graphical user interface,
which allows a user to interact with our product through the use of
windows and icons in a point-and-click system.
- Flexibility and scalability. Our solutions expand quickly and easily to
accommodate changes in the size of a data storage system from a single
storage device to an enterprise-wide network storage system and to
support additional users and applications.
THE OTG STRATEGY
Our objective is to extend our position as a leading provider of online
data storage management and data access solutions. To achieve this objective, we
intend to:
Expand our presence in the storage area network market. We intend to
expand the current use of our XtenderSolutions product suite in the storage area
network market by introducing SANXtender. This product will customize our
existing technology to maximize the capabilities of storage area networks.
SANXtender will provide data storage management over the storage area network by
linking storage area network technologies to local area network applications. In
developing SANXtender, we are conducting quality assurance and compatibility
testing of our products with the products of manufacturers of storage area
network technologies, such as ATL Products, Chaparral Network Storage, Advanced
Digital Information Corporation, Emulex Corporation and Hewlett-Packard, to
ensure that SANXtender will be certified as compatible with leading storage area
network hub, switch, router and storage technologies. In addition, we are
pursuing alliances with other leading storage area network companies.
Capitalize on the release of Windows 2000. We plan to introduce a new
version of DiskXtender, called DiskXtender 2000, shortly after the release of
Windows 2000. DiskXtender 2000 will allow our existing technology to operate on
the Windows 2000 platform. We believe our engineering history with the Windows
NT code and our access to pre-release versions of Windows
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2000 will enable us to offer a closely integrated version of DiskXtender 2000 in
a timely fashion. Over time, we will integrate the XtenderSolutions product
suite with new features provided by Windows 2000.
Provide solutions to address e-mail storage management. To meet
accelerating demand for e-mail storage management solutions, we are building on
our DiskXtender technology to develop eMailXtender, an e-mail indexing,
archiving and retrieval application, and integrating it with leading e-mail
applications. A preliminary version of this product, currently being implemented
by Merrill Lynch, allows users to conduct full-text searches, archive to
secondary or removable storage devices, and retrieve e-mail messages and
e-commerce transaction documents.
Offer our storage solutions over the Web through Internet service provider
and application service provider relationships. We intend to expand our
capability to enable our customers to outsource data storage management and
capacity over the Web, through relationships with Internet service providers and
application service providers. As Internet access becomes faster and more
secure, we anticipate that increasing numbers of enterprises will turn to leased
or metered online storage solutions as a cost-effective alternative to in-house
capabilities. We intend to offer this capability through Internet service
providers and application service providers under the name OnlineStor.com.
OnlineStor.com will enable individual users and enterprises to store and manage
data over the Web with functionality similar to that of DiskXtender at
substantial hardware and maintenance cost savings over in-house storage systems.
Enable our core technology to run on additional operating systems. We are
currently modifying our DiskXtender technology to operate on the UNIX and Linux
operating systems. These new versions of our products will provide the ability
to manage data on UNIX and Linux file servers in addition to the Windows NT
servers currently supported today.
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PRODUCTS AND SERVICES
The XtenderSolutions product suite includes a number of application-focused
products to provide customers with the ability to move, store, manage and access
data on the Windows NT platform. The following table summarizes our
XtenderSolutions product suite:
<TABLE>
CURRENT PRODUCTS DESCRIPTION
- --------------------------------------------------------------------------------------------
<S> <C>
DiskXtender Our core product; enables comprehensive data storage
management throughout an enterprise's network
ApplicationXtender Organizes and stores data used by Windows-based applications
and enables users to display, print, fax, e-mail or annotate
the stored data
WebXtender Provides access to data over an intranet or the Internet
using a standard Web browser
ColdXtender Manages the storage of computer-generated data for use in
preparing forms and reports in standardized formats
- --------------------------------------------------------------------------------------------
PRODUCTS UNDER DEVELOPMENT DESCRIPTION
- --------------------------------------------------------------------------------------------
SANXtender Will provide technology to move, store, manage and access
data interactively in a storage area network environment
(expected release during third quarter of 2000)
OnlineStor.com Will provide leased or metered data storage management and
capacity over the Web through Internet service providers and
application service providers (expected release during
second quarter of 2000)
eMailXtender Will provide intelligent e-mail storage, indexing, archiving
and retrieval, integrated with leading e-mail applications
(expected release during second quarter 2000)
</TABLE>
Our product pricing is generally established on a per license basis. An
example of a representative customer's requirements would include the need to
move, store, manage and access approximately 10 terabytes of data by 25 users
accessing the data from the customer's network and 100 users accessing data over
the Web supported by three servers. Under this scenario, a product configuration
would include:
- DiskXtender. The list price of DiskXtender for two Storage Tek
9740-100 tape libraries (representing 10 terabytes of data) is
approximately $50,000. In addition, the customer would need to
purchase four additional DiskXtender agent licenses to support the
remote storage servers required in its network for a total list
price of $56,000.
- ApplicationXtender. To support 25 users accessing the data from the
network, the customer would need to purchase 25 concurrent
ApplicationXtender licenses at a list price of approximately
$25,000.
- WebXtender. To support 100 Web users, the customer would need to
purchase both a Web server component at a list price of
approximately $10,000 and 100 concurrent WebXtender licenses at a
list price of approximately $41,000.
The list price for this XtenderSolutions configuration would be
approximately $132,000, with annual maintenance fees of approximately $25,000.
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Current products
DiskXtender. The cornerstone of our product suite is DiskXtender.
DiskXtender is a server-based, Windows NT solution that enables management of
data throughout an enterprise's network while tracking and managing stored file
locations. DiskXtender enhances a data storage system by increasing its primary
storage capacity and providing constant accessibility to data while integrating
stored files with other enterprise applications. DiskXtender uses advanced
features such as caching technologies, which temporarily store frequently
accessed or recently accessed data and thereby speed up an application's access
to data. DiskXtender is currently the only Windows NT storage solution that
manages all major types of storage devices, from optical and tape to CD-ROM and
DVD. We provide a DiskXtender application programming interface allowing
end-users and original equipment manufacturers to integrate DiskXtender with
software applications, such as Web browsers, word processing, accounting and
imaging.
DiskXtender has won the following awards, among others:
- 1999 Solutions Integrator Impact Award for Best Storage Product from
International Data Group, the parent of IDC; and
- 1998 and 1999 Product of the Year Awards from Imaging & Document
Solutions magazine.
ApplicationXtender. ApplicationXtender organizes and stores data used by
Windows-based applications and enables users to display, print, fax, e-mail or
annotate the stored data. Because ApplicationXtender integrates the host
applications chosen by the end-user with DiskXtender technology, end-users can
access, retrieve, control and view data through the host applications. As with
DiskXtender, an application programming interface toolkit allows customers and
original equipment manufacturers to integrate ApplicationXtender with existing
applications.
WebXtender. WebXtender provides access to data over an enterprise's
intranet or the Internet using standard Web browser interfaces. WebXtender
offers data display and search functionality in any ApplicationXtender
application, while providing remote access to stored data. Because WebXtender
requires only a standard Web browser to be installed on the user's workstation,
WebXtender minimizes overhead and costs of client software distribution and
configuration.
ColdXtender. ColdXtender manages the storage of computer-generated output
data for use in preparing forms and reports in standardized formats, such as
insurance claims and reports. ColdXtender stores, compresses and catalogues
report data in searchable databases.
Products under development
We plan to introduce several products in the near future to address
emerging storage management requirements. These include:
SANXtender. SANXtender will apply our XtenderSolutions technology to
maximize the performance of a storage area network. SANXtender will provide data
storage management over a storage area network by linking storage area network
technologies to local area network applications. This will allow data transfer
and storage without moving data through servers on the local area network,
thereby freeing the resources of the local area network for user applications.
As part of our development efforts, we are conducting quality assurance and
compatibility testing of our products with the products of manufacturers of
storage area network technologies, such as ATL Products, Chaparral Network
Storage, Advanced Digital Information Corporation, Emulex Corporation and
Hewlett-Packard, to ensure that SANXtender will be certified as compatible with
leading storage area network hub, switch, router and back-up technologies. In
addition, we are pursuing alliances with other leading storage area network
companies. SANXtender is primarily based on our existing technologies and
products. Our current efforts are focused on developing DiskXtender storage
management for storage area networks, while connecting storage area networks
with the Internet and
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other applications. We anticipate general commercial availability of this
product during the third quarter of 2000.
OnlineStor.com. We are adapting our products to be offered as an outsourced
data storage and management service under the name OnlineStor.com. These
services will be offered on a metered or leased basis through Internet service
providers and application service providers. OnlineStor.com will enable
enterprises to store and manage data over the Web with functionality similar to
that of the XtenderSolutions product suite. We expect that our customers will
realize substantial hardware and maintenance cost savings over in-house storage
systems by using this service. We currently are engaged in discussions with
various Internet service providers and application service providers regarding
OnlineStor.com. We anticipate general commercial availability of OnlineStor.com
during the second quarter of 2000.
eMailXtender. eMailXtender is an e-mail indexing, archiving and retrieval
application that will be integrated with leading e-mail applications. It will
allow users to satisfy their legal, auditing and archiving requirements without
investing in expensive, fixed storage resources. A preliminary version of this
product, currently being implemented by Merrill Lynch, allows users to conduct
full-text searches, and archive and retrieve e-mail messages and e-commerce
transaction documents. EMailXtender is primarily based on our DiskXtender
technology, with additional development efforts focused on integrating other
technologies. We anticipate general commercial availability of this product
during the second quarter of 2000.
Professional services and support
We maintain a professional services division responsible for providing
customers with maintenance and technical support, consulting and training
services related to our XtenderSolutions products, which consist of:
- analysis of a customer's requirements for data storage and management;
- software design and implementation;
- business process analysis and implementation;
- product installation and upgrading;
- custom documentation; and
- training.
When a customer licenses our products, we provide a 30-day support package
that includes installation, configuration and testing, access to an on-call
technical help desk, a technical support website and software updates. We also
host regularly scheduled training seminars in the Washington D.C. metropolitan
area, on the West Coast and, upon request, at a customer's site. In addition to
our own capabilities, our value-added resellers and system integrators perform
professional services for our customers.
TECHNOLOGY
DiskXtender employs a variety of advanced technology features. DiskXtender
uses software agents that prevent the file server hard disk from running out of
free space by checking space utilization against a watermark, or threshold
setting, that can be established by the customer. Migration, space management
and retention policies are defined by the user and can be customized for any
application requirements, based, for example, on age, size or file name. Based
on these rules, DiskXtender will migrate eligible files to secondary storage. In
addition, based on defined watermarks, DiskXtender will truncate the original
file data to make space for additional data. File truncation
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removes the original file data from the file server hard disk, leaving behind a
stub file, or place marker, freeing the space for other use.
When the contents of a file server hard disk are viewed by an application,
such as Windows Explorer, DiskXtender displays the contents of the file server
hard disk in a way that makes the application see the original file size instead
of the stub file. When an application attempts to open the original file,
DiskXtender:
- captures the request to open the file;
- refers to the stub file associated with the file;
- determines the library and storage device to which the file was migrated;
and
- retrieves the file from the extended storage system by copying it back to
the original file server hard disk for use by the application that
requested it.
DiskXtender manages all file migration based on incoming file requests and
defined storage policies. Recall of file data from secondary storage devices is
performed automatically.
When the contents of a file server hard disk are accessed by a back-up
application, DiskXtender recognizes the back-up application and intelligently
manages the back-up data. Instead of backing up all data on the extended storage
system, it allows the back-up application to back up only the stub files, which
represent a significantly smaller amount of data. This feature reduces the time
required for back-up and also reduces the amount of data that must be backed up.
[Title "Future Products for Emerging Storage Management Requirements." The
graphic depicts OTG's logo surrounded by a circle of fibre channels. There are
three smaller circles contained within the fibre channels for three of OTG's
other products, SanXtender, emailXtender and OnlineStor.com. The SanXtender icon
contains three lines indicating input from a tape library, CD/DVD optical juke
boxes and hard drives. The text next to the SanXtender icon states "Linking
storage area networks with online applications; connecting storage area networks
with the Web." The text next to the emailXtender icon states "E-mail indexing,
archiving and retrieving; full-text e-mail search capacity." The text next to
the OnlineStor.com icon states "Outsourced data storage and management service;
offered through Internet service providers and application service providers."]
CUSTOMERS
We have licensed our products to over 6,000 corporations, government
agencies and other organizations across a broad spectrum of industries. The
following table lists some of our customers, each of which has accounted for
more than $25,000 of our revenues since January 1998.
Automobile Association of America
American Airlines
State of California
Citicorp
Delta Airlines
Dow Chemical
Marathon Oil
Mayo Clinic
McKesson/HBOC
Merrill Lynch
Nabisco
NASD
NationsBank (now Bank of America)
Nortel Networks
Parker Hannifin
PSINet
Raytheon
Unisys
U.S. Department of Defense
U.S. Federal Aviation Administration
U.S. Navy
University of Miami
Veterans Administration Hospitals
Westinghouse (now General Electric)
How two of our customers have used our data storage management solutions
CONVERTING FROM PAPER TO ELECTRONIC STORAGE AT PSINET. PSINet, a provider
of business Internet access, has over 3,000 employees and annual revenue of more
than $560 million. With growing worldwide operations, PSINet experienced an
increasing volume of paper files generated by contracts, legal documents,
financial records and customer provisioning files. As a result of this
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growth in paper, PSINet realized the need to increase automation of their data
storage and reduce the space and retrieval time associated with files.
In 1998, PSINet engaged us to provide a data storage management solution
including access to critical files, document imaging and a Web-based retrieval
solution to handle the electronic contract files. We have helped PSINet convert
some areas where paper files were used to optical disk, and have installed an
optical storage management system utilizing DiskXtender, ApplicationXtender and
WebXtender for records generated by its domestic operations. We are currently
working with PSINet to extend these capabilities to many areas within their
international operations.
AUTOMATING DATA STORAGE AT NABISCO. Nabisco, an $8.7 billion marketer of
biscuit, snack and premium food products, makes thousands of deliveries every
day to grocery stores, convenience stores and other food outlets across the
United States and in 85 other countries worldwide. With each delivery, Nabisco
issues a proof of delivery document that lists the products delivered and the
total amount due for those products.
Nabisco had been keeping a copy of the proof of delivery on file and using
a manual system to retrieve, copy and fax proofs of delivery whenever customers
had questions or disputes on delivery. As the volume of proofs of delivery grew,
Nabisco needed to automate the process and provide improved access and
distribution.
In 1997, Nabisco engaged us to replace their existing data storage system
with DiskXtender to effectively manage increasingly large amounts of data,
provide for easy access on the Internet and work with their high volume,
automated tape library. The new system, deployed in Nabisco's Customer Financial
Services Department, makes the proofs of delivery quickly accessible, increasing
customer service, improving access time, and cutting down on delayed payments.
Nabisco processes 120,000 images a day, and it estimates that it has processed
25 to 30 million documents since DiskXtender was installed. Another benefit for
Nabisco is that DiskXtender, with its capability to support multiple
applications, links to a second imaging system that replaces all manual
microfilm archiving systems.
SALES AND MARKETING
We sell our products primarily through relationships with original
equipment manufacturers, value-added resellers and distributors. Our
distribution through these channels accounted for 85% of our total revenues in
1998 and 84% of our total revenues in 1999, with no single original equipment
manufacturer, value-added reseller or distributor accounting for more than 10%
of our total revenues in either year. We are also expanding our direct sales
force to provide better coverage for larger clients.
Original Equipment Manufacturer Relationships. We currently have more than
13 original equipment manufacturer relationships. These original equipment
manufacturers buy our products to incorporate into their own product offerings
or resell our products under their own label. We have original equipment
manufacturer relationships with Advanced Financial Solutions, Agilent
Technologies, which is a subsidiary of Hewlett-Packard, Cerner, Data General,
which is a division of EMC, FileNet, Imation, Legato Systems and StorageTek,
among others.
Value-added Reseller and Distributor Relationships. We currently have more
than 235 value-added reseller and distributor agreements, including agreements
with Affiliated Computer Systems, Cranel, Datalink, Electronic Data Systems,
Envision, GE Capital, IKON, Law Cypress, National Computer Systems, Optical
Laser. These resellers service North America, Europe, East Asia and
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Latin America. Pursuant to these alliances, our value-added resellers and
distributors typically market the entire XtenderSolutions product suite,
receiving a discount on products sold.
Direct Sales Force. We maintain a direct sales staff with responsibilities
for pursuing and managing larger customers, as well as providing support to our
distributors, value-added resellers and original equipment manufacturers. We
have been hiring additional salespersons and expect to continue to do so.
Marketing. Our marketing department consists of marketing professionals
dedicated to advertising, public relations, marketing communications, events and
channel partner programs. Our marketing efforts focus on building brand
recognition and developing leads for our sales force. To achieve these
objectives, we maintain a strategic marketing program which includes the
following elements:
- a national advertising campaign promoting the XtenderSolutions brand;
- a comprehensive Web marketing program and website;
- programs to enhance communication with our original equipment
manufacturers, value-added resellers and distributors, including our
XpertPartner conference;
- seminars to increase the visibility of our executives and generate leads
for our sales force;
- participation in trade shows; and
- direct marketing to targeted corporate customers.
COMPETITION
We face a variety of competitors that offer products with some of our
products' features. Some potential customers may elect to internally develop
capabilities similar to those provided by our products rather than buying them
from us or another outside vendor. Although our products generally enhance
traditional data back-up capabilities offered by companies such as Veritas,
Legato Systems, Computer Associates and IBM, our products may compete against
such traditional back-up solutions when a potential customer seeks to address
its storage needs with only a data back-up solution. Furthermore, Veritas has
recently begun to offer a Windows NT-based product that competes with
DiskXtender.
In addition, Microsoft could develop competing products. Windows 2000 will
include basic data storage management capabilities. Microsoft could compete with
us by enhancing and expanding these capabilities to offer an integrated storage
management capability within their basic operating system. This would reduce or
eliminate the need to purchase our products, which would cause our revenues and
our business to suffer.
Many of our competitors and potential competitors have substantially
greater financial and technical resources than we do. Our competitors may
attempt to increase their presence in the data storage management software
market by acquiring or forming strategic alliances with other competitors or
business partners. This competition may cause us to lose sales and may limit the
growth of our revenues and business.
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INTELLECTUAL PROPERTY
Our products are based upon our internally developed intellectual property
and other proprietary rights. We rely on a combination of copyright, trademark
and trade secret laws, confidentiality agreements and contractual provisions to
protect our intellectual property. However, we believe that these laws and
agreements afford us only limited protection. Despite our efforts to protect our
intellectual property, unauthorized parties may infringe upon our proprietary
rights. In addition, the laws of some foreign countries do not provide as much
protection of our proprietary rights as do the laws of the United States.
EMPLOYEES
As of December 31, 1999, we had a total of 172 employees. Of these
employees, 54 were involved in sales and marketing; 29 were involved in product
development; 46 were involved in quality assurance and product support; 25 were
involved in professional services; and 18 were involved in administrative and
corporate functions.
FACILITIES
Our operations are headquartered in one 35,000 square foot facility in
Bethesda, Maryland that is leased under an agreement expiring on September 30,
2002. We also lease field offices in Irvine, California and Longmont, Colorado.
We believe that these facilities are suitable to meet our needs for the
foreseeable future.
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and some other key employees, and their
ages as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Executive officers and directors:
Richard A. Kay........................ 43 Chairman of the Board, President and
Chief Executive Officer
F. William Caple...................... 41 Executive Vice President, Secretary and
Director
Ronald W. Kaiser...................... 46 Chief Financial Officer and Treasurer
Gabriel A. Battista (2)............... 55 Director
John Burton (2)....................... 48 Director
Joseph R. Chinnici (1)................ 45 Director
Geaton A. DeCesaris, Jr. (1)(2)....... 44 Director
Donald B. Hebb, Jr. (1)............... 57 Director
Key employees:
Mark L. Hanson........................ 35 Vice President of Development -- Web
Solutions
Gerald Held, Jr....................... 39 Vice President of Business Development
Scott R. Nickel....................... 33 Vice President of Technology
Grant Wagner.......................... 37 Vice President of Sales
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Richard A. Kay, our founder, has served as our chairman, president and
chief executive officer since our inception in 1992. Prior to founding OTG, Mr.
Kay co-founded National Operator Services, Inc., a reseller of telephone
operator services, and NOS Communications, a reseller of AT&T long distance
services.
F. William Caple has served as our executive vice president since May 1996.
Mr. Caple has served as a member of our board of directors since December 1997.
From January 1994 to April 1996, Mr. Caple was a partner of the law firm of
Galland, Kharasch, Morse & Garfinkel.
Ronald W. Kaiser has served as our chief financial officer and treasurer
since June of 1998. From April 1998 to June 1998, Mr. Kaiser was an employee of
Network Associates, Inc., an Internet security company, following the
acquisition of Trusted Information Systems, Inc. by Network Associates, Inc.
From May 1996 to April 1998, Mr. Kaiser served as the chief financial officer of
Trusted Information Systems, Inc., an information security company. From January
1996 to April 1996, Mr. Kaiser served as a consultant to American Communication
Services, Inc., now known as e.spire Communications, Inc. From November 1994 to
January 1996, Mr. Kaiser served as the chief financial officer of ACSI.
Gabriel A. Battista has served as a member of our board of directors since
June 1998. Mr. Battista has served as the chairman of the board of directors,
president and chief executive officer of Talk.com, Inc., an e-commerce and
telecommunications services company, since January 1999. From October 1996 to
December 1998, Mr. Battista served as the chief executive officer of Network
Solutions, Inc., an Internet domain name registration company. From February
1991 to October 1996, Mr. Battista served as the president and chief executive
officer of
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<PAGE> 47
Cable & Wireless, Inc., a telecommunications company. Mr. Battista currently
serves as a director of AXENT Technologies, Inc. and Systems and Computer
Technology Corporation.
John Burton has served as a member of our board of directors since June
1998. Mr. Burton has served as managing director of Updata Capital, Inc., an
investment banking firm, since March 1997. From February 1995 to February 1997,
Mr. Burton served as president of Burton Technology Partners, Ltd. From March
1984 to January 1995, Mr. Burton served as president and chief executive officer
of Legent Corporation, a vendor of software development products. Mr. Burton
currently serves as a director of AXENT Technologies, Inc., Banyan Systems, Inc.
and Map Info Corporation.
Joseph R. Chinnici has served as a member of our board of directors since
June 1998. Since September 1994, Mr. Chinnici has served in a number of
positions at Ciena Corp., and currently serves as Ciena Corp.'s senior vice
president, finance and chief financial officer.
Geaton A. DeCesaris, Jr. has served as a member of our board of directors
since June 1998. Mr. DeCesaris has served as the president, chief executive
officer and a director of Washington Homes, Inc., a national homebuilding
company, since August 1988, and as the chairman of the board of directors of
Washington Homes, Inc. since April 1999.
Donald B. Hebb, Jr. has served on our board of directors since June 1998.
Mr. Hebb has served as a general partner of ABS Capital Partners since November
1995. Mr. Hebb has served as the managing member of ABS Partners II, LLC, the
general partner of ABS Capital Partners II, L.P. since March 1993. Prior to
that, Mr. Hebb served as a managing director of Alex. Brown Incorporated. Mr.
Hebb currently serves as a director of T. Rowe Price Associates, Inc. and SBA
Communications Corporation.
Mark L. Hanson has served as our vice president of development -- Web
solutions since October 1999. From November 1992 to September 1999, Mr. Hanson
served as one of our senior developers.
Gerald Held, Jr. has served as our vice president of business development
since January 1998. From April 1996 to January 1998, Mr. Held served as a
director of business development at Eastman Software, a document imaging
management company. From January 1984 to April 1996, Mr. Held served as a
manager of product management at Rexon, Inc., a storage hardware company.
Scott R. Nickel has served as our vice president of technology since
October 1999. From November 1992 to September 1999, Mr. Nickel served as one of
our senior developers.
Grant Wagner has served as our vice president of sales since July 1999.
From January 1999 to July 1999, Mr. Wagner served as vice president of sales for
Remedial Technologies Network, an Internet publishing company. From January 1990
to January 1999, Mr. Wagner served in various sales positions, including, most
recently, vice president of global sales, at Computer Associates International,
Inc., a software company.
Pursuant to the voting agreement dated June 9, 1998, by and among ABS
Capital Partners II, L.P., Greylock IX Limited Partnership and Michael P.
Murray, as purchasers, Richard A. Kay and OTG, the purchasers were given the
right to designate one director and Mr. Kay was given the right to designate six
directors. Mr. Hebb was elected to our board of directors as the designee of the
purchasers and Mr. Kay, Mr. Battista, Mr. Burton, Mr. Caple, Mr. Chinnici and
Mr. DeCesaris were elected to our board of directors as the designees of Mr.
Kay. These rights terminate upon the closing of this offering.
ELECTION OF DIRECTORS
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a three-year term. Mr. Hebb and
Mr. Chinnici will serve in the class which term expires in 2001. Mr. Caple and
Mr. Burton will serve in the class which term expires in 2002;
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<PAGE> 48
and Mr. Kay, Mr. Battista and Mr. DeCesaris will serve in the class which term
expires in 2003. Upon the expiration of the term of a class of directors,
directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which that term expires.
COMPENSATION OF DIRECTORS
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors. We may, in our discretion, grant
stock options and other equity awards to our non-employee directors from time to
time pursuant to our stock incentive plans. In June 1999, we granted options to
purchase 10,000 shares of our common stock to each of Mr. Battista, Mr. Burton,
Mr. Chinnici, Mr. DeCesaris and Mr. Hebb, our non-employee directors, at an
exercise price of $2.75 per share. These options vested upon grant. We have not
yet determined the amount and timing of any future grants or awards.
BOARD COMMITTEES
The board of directors has established a compensation committee and an
audit committee. The compensation committee, which consists of Mr. Burton, Mr.
Battista and Mr. DeCesaris, reviews executive salaries, administers our bonus,
incentive compensation and stock plans and approves the salaries and other
benefits of our executive officers. In addition, the compensation committee
consults with our management regarding our pension and other benefit plans and
compensation policies and practices.
The audit committee, which consists of Mr. Chinnici, Mr. Hebb and Mr.
DeCesaris, reviews the professional services provided by our independent
accountants, the independence of our accountants from our management, our annual
financial statements and our system of internal accounting controls. The audit
committee also reviews other matters with respect to our accounting, auditing
and financial reporting practices and procedures as it may find appropriate or
may be brought to its attention.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We did not have a compensation committee until November 1999. Prior to that
time, the entire board of directors performed the function of a compensation
committee. No member of our compensation committee is an officer or employee. No
interlocking relationships exist between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors
and officers. Their indemnification agreements will require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law.
EMPLOYMENT AGREEMENTS
Mr. Kay serves as our chairman, president and chief executive officer
pursuant to the terms of an employment agreement dated June 9, 1999. The term of
the agreement continues until December 31, 2003. Pursuant to the terms of the
agreement, Mr. Kay's initial annual compensation consists of a base salary of
$485,000 and a bonus of at least $115,000. After the first year, Mr. Kay's
annual compensation will be determined by the board of directors. Upon
termination without cause, as defined in the agreement, Mr. Kay is entitled to
severance payments equal to (1) the greater of (a) the remaining portion of his
compensation for the remaining term of the agreement, or (b) the amount of his
then current annual salary, to be paid in monthly installments over a 12 month
period and (2) the annual bonus that would otherwise have been paid to Mr. Kay
for the fiscal year in
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<PAGE> 49
which he was terminated, to be paid in one lump sum payment within 90 days of
the date of termination. Upon termination without cause, Mr. Kay is entitled to
continue to receive the same health, disability and term life insurance benefits
as were provided prior to termination until the earlier of his employment by a
third party or December 31, 2003. Under the agreement, Mr. Kay agreed not to
compete with us during the term of his employment and for two years after his
termination. In addition, Mr. Kay agreed not to solicit our employees or
customers during the same period. However, if we terminate Mr. Kay without
cause, or he terminates his employment because we demoted him, because he is not
elected or is removed as chairman of the board or because we have relocated our
principal executive offices more than 50 miles from Bethesda, Maryland, the non-
competition and non-solicitation provisions of the agreement expire upon the
date of termination his employment.
Mr. Caple serves as our executive vice president pursuant to the terms of
an employment agreement dated January 1, 1998, as amended. The term of the
agreement continues until December 31, 2002. Pursuant to the terms of the
agreement, Mr. Caple's annual compensation consists of a base salary of $175,000
and a bonus of at least 33.3% of his base salary. Mr. Caple's base salary will
automatically increase by 10% on January 1, 2001 and each January 1 thereafter
throughout the term of the agreement. Upon termination without cause, as defined
in the agreement, Mr. Caple is entitled to severance payments equal to the
amount of his then current annual salary, to be paid in two installments, the
first of which must be paid on the date of termination and the second of which
must be paid within 90 days of the date of termination. Mr. Caple agreed not to
compete with us during the term of his employment and for a period after the
termination of his employment equal to the lesser of two years or the length of
his employment period, if less than two years. In addition, Mr. Caple agreed not
to solicit our employees or customers during the same period.
Mr. Kaiser serves as our chief financial officer pursuant to the terms of
an employment agreement dated May 28, 1998, as amended. The term of the
agreement continues until May 31, 2001. Pursuant to the terms of the agreement,
Mr. Kaiser's annual compensation consists of a base salary of $187,000 and a
bonus of at least 30% of his base salary. Upon termination without cause, as
defined in the agreement, Mr. Kaiser is entitled to severance payments equal to
12 months of his then current annual salary, to be paid in monthly installments
over a 12 month period, and health insurance benefits for the same period. In
addition, the agreement provides Mr. Kaiser's options will continue to vest for
a period of 12 months after termination without cause. Pursuant to the
agreement, Mr. Kaiser received an option to purchase 329,412 shares of our
common stock at a price of $1.84 per share vesting over four years, and the
right to future option grants in specified circumstances to prevent dilution of
Mr. Kaiser's shareholdings. This right terminates upon an initial public
offering. Mr. Kaiser agreed not to compete with us during the term of his
employment and for a period after the termination of his employment equal to the
lesser of two years or the length of his employment period, if less than two
years. In addition, Mr. Kaiser agreed not to solicit our employees or customers
during the same period.
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<PAGE> 50
EXECUTIVE COMPENSATION
The following table sets forth, for the years ended December 31, 1998 and
1999, the cash compensation earned and shares underlying options granted to (1)
our chairman, president and chief executive officer and (2) each of the other
two most highly compensated executive officers who received annual compensation
in excess of $100,000 in 1999, collectively referred to as the named executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SHARES
NAME AND -------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Richard A. Kay........................... 1998 $485,000 $115,000 -- $ --
Chairman, President and Chief 1999 485,000 115,000 -- 6,030
Executive Officer
F. William Caple......................... 1998 125,000 50,200 -- --
Executive Vice President and 1999 155,503 49,950 200,000 6,030
Secretary
Ronald W. Kaiser......................... 1998 81,231 -- -- --
Chief Financial Officer and 1999 192,524 41,076 100,000 6,030
Treasurer
</TABLE>
(1) These amounts represent health insurance premiums.
STOCK OPTIONS
The table below contains information concerning the grant of options to
purchase shares of our common stock to each of the named executive officers
during the year ended December 31, 1999. The percentage of total options granted
to employees set forth below is based on an aggregate of 1,024,900 shares
subject to options granted to our employees in 1999. All options were granted at
or above fair market value as determined by the board of directors on the date
of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OF OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME GRANTED YEAR ($/SHARE) DATE 5% 10%
---- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Kay............... -- --% $ -- -- $ -- $ --
F. William Caple............. 200,000 19.5 1.84 1/1/09 231,433 586,497
Ronald W. Kaiser............. 100,000 9.8 2.75 9/15/09 172,946 438,279
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the SEC and does not represent our
prediction of our stock price performance. The potential realizable values
at 5% and 10% appreciation are calculated by assuming that the exercise
price on the date of grant appreciates annually at the indicated rate for
the entire term of the option and that the
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<PAGE> 51
option is exercised at the exercise price and sold on the last day of its
term at the appreciated price.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each of the named executive
officers with respect to the value of options outstanding as of December 31,
1999. None of the named executive officers exercised any options to purchase
shares of common stock during the year ended December 31, 1999.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard A. Kay..................... -- -- $ -- $ --
F. William Caple................... 49,998 150,002 539,978 1,620,021
Ronald W. Kaiser................... 154,921 274,491 1,665,561 2,881,089
</TABLE>
There was no public trading market for our common stock as of December 31,
1999. Accordingly, as permitted by the rules of the SEC, we have calculated the
value of unexercised in-the-money options at fiscal year-end on the basis of the
fair market value of our common stock as of December 31, 1999 of $12.64 per
share, as determined by the board of directors, less the aggregate exercise
price.
BENEFIT PLANS
1998 Stock Incentive Plan and 2000 Stock Incentive Plan. Our 1998 Stock
Incentive Plan was adopted by our Board of Directors and received stockholder
approval in August 1998. Our 2000 Stock Incentive Plan was adopted by our Board
of Directors and received stockholder approval in January 2000. Up to 4,529,412
shares and 1,000,000 shares of our common stock, subject to adjustment in the
event of stock splits and other similar events, were reserved for issuance under
the 1998 plan and 2000 plan, respectively. The board of directors has provided,
however, that no additional awards will be made under the 1998 plan after this
offering.
The plans provide for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory stock
options, restricted stock awards and other stock-based awards.
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the plans. Under present
law, however, incentive stock options may only be granted to employees. Under
the 1998 plan, no participant may receive any award for more than 500,000
shares, subject to adjustment in the event of stock splits and other similar
events, in any calendar year.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price, subject to the terms and conditions of
the option grant. We may grant options at an exercise price less than, equal to
or greater than the fair market value of our common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant, or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of our voting power. The plans permit our board of directors to determine
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<PAGE> 52
how optionees may pay the exercise price of their options, including by cash,
check or in connection with a "cashless exercise" through a broker, by surrender
to us of shares of common stock, by delivery to us of a promissory note, or by
any combination of the permitted forms of payment.
Our board of directors administers the plans. Our board of directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the plans and to interpret their provisions. It may
delegate authority under the plans to one or more committees of the board of
directors and, in limited circumstances, to one or more of our executive
officers. Our board of directors has authorized the compensation committee to
administer the plans, including the granting of options to our executive
officers. Subject to any applicable limitations contained in the plans, our
board of directors, our compensation committee or any other committee or
executive officer to whom our board of directors delegates authority, as the
case may be, selects the recipients of awards and determines the:
- number of shares of common stock covered by options and the dates upon
which such options become exercisable;
- exercise price of options;
- duration of options; and
- number of shares of common stock subject to any restricted stock or other
stock-based awards and the terms and conditions of such awards, including
the conditions for repurchase, issue price and repurchase price.
In the event of a merger, liquidation or other acquisition event, our board
of directors must provide that all outstanding options or other stock-based
awards under the plans be assumed or substituted for by the acquiror. If any of
these events constitutes a change in control, the assumed or substituted options
will be immediately exercisable in full upon the occurrence of the acquisition
event if the holders such options has been employed by us for more than one year
prior to the change in control.
No award may be granted under the 1998 plan after August 2008 or under the
2000 plan after January 2010, but the vesting and effectiveness of awards
granted before those dates may extend beyond those dates. Our board of directors
may at any time amend, suspend or terminate the 1998 plan or the 2000 plan,
except that, under the 1998 plan, no award granted after an amendment of the
plan and designated as subject to Section 162(m) of the Internal Revenue Code by
our board of directors shall become exercisable, realizable or vested, to the
extent such amendment was required to grant such award, unless and until such
amendment is approved by our stockholders.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted by our board of directors and received stockholder approval in
January 2000. The purchase plan authorizes the issuance of up to a total of
600,000 shares of our common stock to participating employees.
All of our employees, including our directors who are employees, and all
employees of any participating subsidiaries, whose customary employment is more
than 20 hours per week and for more than five months in any calendar year, are
eligible to participate in the purchase plan. Employees who would immediately
after the grant own 5% or more of the total combined voting power or value of
our stock or that of any subsidiary are not eligible to participate.
On the first day of a designated payroll deduction period, or offering
period, we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize up to 10% of his or her base pay to be
deducted by us from his or her base pay during the offering period. On the last
day of this offering period, the employee is deemed to have exercised the
option, at the option exercise price, to
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<PAGE> 53
the extent of accumulated payroll deductions. Under the terms of the purchase
plan, the option price is an amount equal to 85% of the average market price, as
defined in the purchase plan, per share of our common stock on either the first
day or the last day of the offering period, whichever is lower. The first
offering period under the purchase plan will commence on the date on which
trading of our common stock commences on the Nasdaq National Market, with the
option price on the first day of such offering period equivalent to the initial
public offering price. In no event may an employee purchase in any one-year
period a number of shares that exceeds the number of shares determined by
dividing $25,000 by the average market price of a share of our common stock on
the commencement date of the offering period. Our compensation committee may, in
its discretion, choose an offering period of 12 months or less for each offering
and choose a different offering period for each offering.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason, except that upon termination of
employment because of death, the employee's beneficiary has a right to elect to
exercise the option to purchase the shares which the accumulated payroll
deductions in the participant's account would purchase at the date of death.
Because participation in the purchase plan is voluntary, we cannot now
determine the number of shares of our common stock to be purchased by any of our
current executive officers, by all of our current executive officers as a group
or by our non-executive employees as a group.
401(k) Plan. In May 1996, we adopted an employee savings and retirement
plan qualified under Section 401 of the Internal Revenue Code and covering all
of our employees. Pursuant to the 401(k) plan, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
have the amount of such reduction contributed to the 401(k) plan. We may make
matching or additional contributions to the 401(k) plan in amounts to be
determined annually by our board of directors.
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RELATED PARTY TRANSACTIONS
June 1998 Issuance of Convertible Notes and Senior Subordinated Notes. In
June 1998, we entered into a note purchase agreement with ABS Capital Partners
II, L.P., Greylock IX Limited Partnership and Michael P. Murray, as purchasers.
Under the terms of the note purchase agreement, we issued an aggregate principal
amount of $7,636,364 in subordinated convertible notes and an aggregate
principal amount of $4,363,636 in senior subordinated notes to the purchasers.
The subordinated convertible notes issued by us will convert automatically into
4,161,506 shares of common stock upon the closing of this offering. The senior
subordinated notes provide for accrued interest of 8% per annum through June 9,
1999, 10% until June 9, 2000 and 12% thereafter until maturity. By their terms,
these notes will become immediately due and payable upon the closing of this
offering. As of January 31, 2000, the outstanding balance of principal and
interest on all of the senior subordinated notes was $4.4 million.
Pursuant to the voting agreement, dated June 9, 1998, by and among the
purchasers, Richard A. Kay, F. William Caple, Alexandra Kay, Mr. Kay's daughter,
and us, the purchasers were given the right to designate one member of our board
of directors. The purchasers designated Donald B. Hebb, Jr., to serve on our
board of directors. Mr. Hebb is the managing member of ABS Capital Partners II,
LLC, the general partner of ABS Capital Partners II, L.P. Mr. Murray is a
principal of Deutsche Banc Alex. Brown, one of our managing underwriters.
The following table sets forth
- the principal amount of subordinated convertible notes, the number of
shares of common stock into which such notes will convert, and
- the amount of principal and interest due as of January 31, 2000 pursuant
to the senior subordinated notes issued to each purchaser by us.
<TABLE>
<CAPTION>
SUBORDINATED SHARES OF COMMON
CONVERTIBLE STOCK ISSUABLE SENIOR
NAME NOTES UPON CONVERSION SUBORDINATED NOTES
---- ------------ ---------------- ------------------
<S> <C> <C> <C>
ABS Capital Partners II, L.P.................... $5,717,728 3,115,928 $3,267,274
Greylock IX Limited Partnership................. 1,909,090 1,040,376 1,090,908
Michael P. Murray............................... 9,546 5,202 5,454
---------- --------- ----------
Total........................................... $7,636,364 4,161,506 $4,363,636
========== ========= ==========
</TABLE>
Repurchase of shares from former stockholder. In March 1998, we entered
into a stock purchase agreement with Eugene S. Sandler, a former stockholder of
ours who then held 39.6% of our common stock. Under this agreement, we purchased
all of Mr. Sandler's shares of our common stock for a purchase price of
$6,000,000 in cash and a promissory note in the principal amount of $5,500,000
bearing interest at a rate of 10% per year. Under the terms of the promissory
note, we are obligated to pay Mr. Sandler all outstanding principal and interest
within 60 days of the closing of this offering. As of January 31, 2000, we have
paid Mr. Sandler $2,080,000 and owe $4,269,659 in principal and $23,218 in
interest.
Contribution to capital by OTG Sales, Inc. stockholders. Mr. Kay, Mr.
Caple and Alexandra Kay were all the stockholders of OTG Sales, Inc., an
affiliate of ours. In December 1999, they contributed all their shares of
capital stock of OTG Sales, Inc. to us as a contribution to capital, making OTG
Sales, Inc. our wholly owned subsidiary. We did not pay any consideration for
the contributed shares.
Loans from principal stockholder. In March 1992, we entered into a loan
agreement and related promissory note with Mr. Kay in order to secure working
capital for our operations. The loan
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agreement and the promissory note originally provided for Mr. Kay to make
unsecured loans to us up to a maximum principal amount of $650,000. On December
1, 1993, the promissory note was amended to increase the maximum principal
amount of the promissory note to $700,000. On December 1, 1994, the promissory
note was amended again to increase the maximum principal amount of the
promissory note to $1,000,000 and to make the promissory note payable upon
demand. Amounts that we borrow under the loan agreement bear simple interest at
a rate of 8% per year. Mr. Kay may require us to provide security for
outstanding and future loans at any time. As of January 31, 2000, we owed Mr.
Kay $472,536 as a result of borrowings and accrued interest under this
arrangement.
In addition, on June 16, 1998, we borrowed an aggregate principal amount of
$1,500,000 from Mr. Kay in order to secure working capital for our operations
pursuant to two promissory notes. These notes earn 8% interest which is payable
quarterly. The principal amount of these notes is due and payable upon the
earlier of December 16, 2000 or 60 days after the closing of this offering, a
qualified merger or a sale of substantially all of our assets. These notes are
subordinated to our senior subordinated notes, our subordinated convertible
notes and our credit facility with PNC Bank, collectively our senior
indebtedness. We can not make any payments of principal or interest on these
notes if we are in default under our senior indebtedness. As of January 31,
2000, we owed Mr. Kay $1,510,000 under these notes.
Guarantee of our obligation by principal stockholder. As a condition to
entering into a loan agreement with us, PNC Bank required Mr. Kay to enter into
an escrow agreement, dated July 22, 1999, with us, PNC Bank and Bankers Trust,
as escrow agent. Pursuant to this escrow agreement, Mr. Kay deposited marketable
securities held by him with the escrow agent as security for payments to be made
by us under the promissory note we issued to Mr. Sandler, as described above. If
we fail to make payments under this promissory note when due, or if we become
obligated to make a balloon payment under the terms of the promissory note, the
escrow agreement provides that PNC Bank may direct the escrow agent to sell Mr.
Kay's shares and apply the proceeds of the sale to the required payment. The
escrow agreement terminates when we have paid in full all of our obligations to
PNC Bank under the loan agreement.
Stock Sales by Principal Stockholder. During the period beginning June
1998 through January 2000, Mr. Kay sold an aggregate amount of 795,826 shares of
our common stock to four members of our board of directors at a per share price
ranging from $1.84 to $5.50. During the same period, Mr. Kay issued convertible
promissory notes to ABS Capital Partners II, L.P. and Michael Murray, which will
convert at the closing of this offering into an aggregate amount of 1,962,190
and 1,000 shares of our common stock, respectively. The conversion price of
these convertible notes ranges from $2.75 to $5.50 per share of common stock.
Additionally, in October 1999, Mr. Kay sold 40,000 shares of our common stock at
a per share price of $2.75 to Mr. Kaiser, our chief financial officer.
Option grants to non-employee directors and executive officers. In June
1999, we granted options to purchase 10,000 shares of common stock at an
exercise price of $2.75 per share under our 1998 stock incentive plan to each of
Mr. Battista, Mr. Burton, Mr. Chinnici, Mr. DeCesaris and Mr. Hebb, our
non-employee directors. These options vested upon grant. In October 1998, we
granted Mr. Kaiser, our chief financial officer, an option to purchase 329,412
shares of common stock at an exercise price of $1.84 per share under our 1998
stock incentive plan. This option vests over a four year period. In September
1999, we granted Mr. Kaiser, an option to purchase 100,000 shares of common
stock at an exercise price of $2.75 per share under our 1998 stock incentive
plan. This option vests quarterly over a three year period. In January 1999, we
granted Mr. Caple, our executive vice president, an option to purchase 200,000
shares of common stock at an exercise price of $1.84 per share under our 1998
stock incentive plan. This option vests quarterly over a three year period.
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<PAGE> 56
Sale of stock to our executive vice president. In January 1997, we sold
269,254 shares of common stock to F. William Caple, our executive vice
president, secretary and director, for an aggregate purchase price of $102,698.
Mr. Caple paid for these shares with a promissory note bearing 8% interest per
annum that becomes due January 1, 2002. As of January 31, 2000, the outstanding
balance of Mr. Caple's note to us was $122,315.
Indemnification agreements. We have entered into indemnification
agreements with each of our directors and officers. Such indemnification
agreements will require us to indemnify our directors and officers to the
fullest extent permitted by Delaware law.
Our board of directors has adopted the policy that all future transactions,
including loans between us and our officers, directors, principal stockholders
and their affiliates, will be approved by a majority of the board of directors,
including a majority of the independent and disinterested outside directors on
the board of directors, and will be on terms no less favorable to us than could
be obtained from unaffiliated third parties.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of January 31, 2000, assuming the conversion of
all our outstanding convertible notes, by (1) each person who beneficially owns
more than 5% of the outstanding shares of our common stock, (2) each of our
directors and the named executive officers, and (3) all of our directors and
executive officers as a group.
One of our stockholders, Mr. Kay, has granted to the underwriters an option
to purchase up to 600,000 shares of common stock to cover over-allotments.
Footnote 1 to this table provides information concerning the stock holdings of
Mr. Kay after the offering if the over-allotment option is exercised in full.
The number of shares of common stock deemed outstanding prior to this
offering includes 20,476,188 shares of common stock outstanding as of January
31, 2000. This table gives effect to the conversion of all outstanding
convertible notes issued by Mr. Kay to other parties into shares of our common
stock held by Mr. Kay, which will occur automatically upon the closing of this
offering. The number of shares of common stock deemed outstanding after this
offering includes the shares that are being offered for sale by us in
this offering. Beneficial ownership is determined in accordance with the rules
of the SEC, and includes voting and investment power with respect to shares. The
number of shares beneficially owned by a person includes shares of common stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of January 31, 2000. The shares issuable under those
options are treated as if they were outstanding for computing the percentage
ownership of the person holding those options but are not treated as if they
were outstanding for the purposes of computing the percentage ownership of any
other person. Unless otherwise indicated below, to our knowledge, all persons
named in the table have sole voting and investment power with respect to their
shares of common stock, except to the extent authority is shared by spouses
under applicable law. Unless otherwise indicated, the address of each person
owning more than 5% of the outstanding shares of common stock is c/o OTG
Software, Inc., 6701 Democracy Boulevard, Suite 800, Bethesda, Maryland 20817.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
OUTSTANDING
-------------------
NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
---------------- ------------------ -------- --------
<S> <C> <C> <C>
ABS Capital Partners II, L.P............................... 5,078,118 24.8% 20.7%
1 South Street
Baltimore, Maryland 21202
Greylock IX Limited Partnership............................ 1,040,376 5.1 4.3
One Federal Street
Boston, Massachusetts 02110-2065
Richard A. Kay (1)......................................... 12,596,222 61.5 51.5
F. William Caple (2)....................................... 335,921 1.6 1.4
Ronald W. Kaiser (3)....................................... 221,646 * *
Gabriel A. Battista (4).................................... 144,030 * *
John Burton (5)............................................ 325,000 1.6 1.3
Joseph R. Chinnici (6)..................................... 45,796 * *
Geaton A. DeCesaris, Jr. (7)............................... 321,000 1.6 1.3
Donald B. Hebb, Jr. (8).................................... 5,088,118 24.8 20.8
All executive officers and directors as a group (8 persons)
(9)...................................................... 19,057,733 91.7 76.9
</TABLE>
(footnotes on next page)
54
<PAGE> 58
- ---------------
* Less than 1% of the outstanding common stock.
(1) Includes 20,000 shares owned by Rebecca Kay, Mr. Kay's wife, 467,078 shares
owned by Alexandra Kay, Mr. Kay's minor daughter, and 1,055,000 shares held
by grantor retained annuity trusts organized for the benefit of minor
children of Mr. Kay. If the underwriters exercise their over-allotment
option in full, Mr. Kay will sell 600,000 shares of common stock in this
offering and would beneficially own 11,996,222 shares, representing 49.0% of
the total shares outstanding.
(2) Includes 66,667 shares issuable upon exercise of options.
(3) Includes 181,646 shares issuable upon exercise of options.
(4) Includes 10,000 shares issuable upon exercise of options.
(5) Includes 10,000 shares issuable upon exercise of options.
(6) Includes 10,000 shares issuable upon exercise of options.
(7) Includes 10,000 shares issuable upon exercise of options and 15,000 shares
owned by Mr. DeCesaris' minor children.
(8) Consists of 10,000 shares issuable upon exercise of options and 5,078,118
shares owned by ABS Capital Partners II, L.P. Mr. Hebb is a managing member
of ABS Partners II, LLC, which is the general partner of ABS Capital
Partners II, L.P. Mr. Hebb disclaims beneficial ownership of the 5,078,118
shares owned by ABS Capital Partners II, L.P.
(9) Includes 298,313 shares issuable upon exercise of options.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of 65,000,000 shares of common stock, $.01 par value per share, and 5,000,000
shares of preferred stock, $.01 par value per share. The following is a summary
of the material features of our capital stock. For more detail, please see our
amended and restated certificate of incorporation and our amended and restated
by-laws to be effective after the closing of this offering, filed as exhibits to
the registration statement of which this prospectus is a part.
COMMON STOCK
As of February 7, 2000, after giving effect to the conversion of the
outstanding convertible notes issued by us, there were 20,476,188 shares of
common stock outstanding held by 19 stockholders of record. Based upon the
number of shares outstanding as of that date and after giving effect to the
issuance of the shares of common stock offered by us in this offering, there
will be 24,476,188 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 stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in such election.
Subject to preferences that may be applicable to any outstanding preferred
stock, 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 to pay dividends. Upon our liquidation, dissolution or winding up, the
holders of common stock are entitled to receive ratably all assets after the
payment of our liabilities, subject to the prior rights of any outstanding
preferred stock. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights. They are not entitled to the benefit of any
sinking fund. The outstanding shares of common stock are, and the shares offered
by us in this offering will be, when issued and paid for, validly issued, fully
paid and nonassessable. The rights, powers, preferences and privileges of
holders of common stock are subject to the rights of the holders of shares of
any series of preferred stock which we may designate and issue in the future.
PREFERRED STOCK
The board of directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue up to an aggregate of
5,000,000 shares of preferred stock. The preferred stock may be issued in one or
more series and on one or more occasions. Each series of preferred stock shall
have such number of shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as the board of
directors may determine. These rights and privileges may include, among others,
dividend rights, voting rights, redemption provisions, liquidation preferences,
conversion rights and preemptive rights. Our stockholders have granted the board
of directors authority to issue the preferred stock in order to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting power or other rights of the holders of common stock. In addition, the
issuance of preferred stock could make it more difficult for a third party to
acquire us, or discourage a third party from attempting to acquire us.
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<PAGE> 60
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, consolidations,
asset sales and other transactions involving OTG and an interested stockholder.
In general, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
Our amended and restated certificate of incorporation and amended and
restated by-laws to be effective on the closing of this offering provide that:
- the board of directors be divided into three classes, as nearly equal in
size as possible, with staggered three-year terms;
- directors may be removed only for cause by the affirmative vote of the
holders of at least 75% of the shares of our capital stock entitled to
vote;
- any vacancy on the board of directors, however occurring, including a
vacancy resulting from an enlargement of the board, may only be filled by
vote of a majority of the directors then in office.
The classification of the board of directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making it
more difficult for a third party to acquire us, which could have the effect of
discouraging a third party from attempting to do so.
Our amended and restated certificate of incorporation and amended and
restated by-laws also provide that, after the closing of this offering:
- any action required or permitted to be taken by the stockholders at an
annual meeting or special meeting of stockholders may only be taken if it
is properly brought before such meeting and may not be taken by written
action in lieu of a meeting.
- special meetings of the stockholders may only be called by the chairman
of the board of directors, the president, or by the board of directors.
Our amended and restated by-laws provide that, in order for any matter to
be considered "properly brought" before a meeting, a stockholder must
comply with requirements regarding advance notice to us. These provisions
could delay until the next stockholders' meeting stockholder actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity
from making a tender offer for our common stock, because such person or
entity, even if it acquired a majority of our outstanding voting
securities, would be able to take action as a stockholder (such as
electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
Delaware's corporation law provides generally that the affirmative vote of
a majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our amended and restated certificate of incorporation requires the
affirmative vote of the holders of at least 75% of the shares of our capital
stock entitled to vote to amend or repeal any of the foregoing provisions of our
amended and restated certificate of incorporation. Generally,
57
<PAGE> 61
our amended and restated by-laws may be amended or repealed by a majority vote
of the board of directors or the holders of a majority of the shares of our
capital stock issued and outstanding and entitled to vote. To amend our amended
and restated by-laws regarding special meetings of stockholders, written actions
of stockholders in lieu of a meeting, and the election, removal and
classification of members of the board of directors requires the affirmative
vote of the holders of at least 75% of the shares of our capital stock entitled
to vote. The stockholder vote would be in addition to any separate class vote
that might in the future be required pursuant to the terms of any series
preferred stock that might be outstanding at the time any such amendments are
submitted to stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation provides that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law. This indemnification would cover all expenses and
liabilities reasonably incurred in connection with their services for or on
behalf of us. In addition, our amended and restated certificate of incorporation
provides that our directors will not be personally liable for monetary damages
to us for breaches of their fiduciary duty as directors, unless they violated
their duty of loyalty to us or our stockholders, acted in bad faith, knowingly
or intentionally violated the law, authorized illegal dividends or redemptions
or derived an improper personal benefit from their action as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
58
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 24,476,188 shares of common
stock outstanding assuming no exercise of outstanding options. Of these shares,
the 4,000,000 shares to be sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended, except that any shares purchased by our affiliates, as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
------------------ ------------------------ -------
<S> <C> <C>
On effectiveness................... 4,000,000 Freely tradeable sold in offering
90 days............................ 0 Shares saleable under Rule 144
180 days........................... 17,330,976 Lockup released; shares salable
under Rule 144, 144(k) or 701
Thereafter......................... 3,151,212 Restricted securities held for one
year or less
</TABLE>
In general, under Rule 144, a person, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(1) one percent of the then outstanding shares of common stock, or approximately
244,761 shares immediately after this offering, or (2) 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 is filed,
provided specified requirements concerning availability of public information,
manner of sale and notice of sale have been satisfied. In addition, our
affiliates must comply with the restrictions and requirements of Rule 144, other
than the one-year holding period requirement, in order to sell shares of common
stock which are not restricted securities.
Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell these shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of a
prior owner who was not an affiliate. The one- and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate. Rule 701 provides that currently outstanding shares of common stock
acquired under our employee compensation plans may be resold beginning 90 days
after the date of this prospectus (1) by persons, other than affiliates, subject
only to the manner of sale provisions of Rule 144, and (2) by affiliates under
Rule 144 without compliance with its one-year minimum holding period, subject to
certain limitations.
STOCK OPTIONS
At January 31, 2000, 632,410 shares of common stock were issuable pursuant
to vested options or pursuant to other rights granted under our 1998 Stock
Incentive Plan of which approximately shares are not subject to lock-up
agreements with the underwriters.
We intend to file a registration statement on Form S-8 under the Securities
Act following the date of this prospectus, to register up to 6,129,412 shares of
common stock issuable under our stock plans, including the 3,923,606 shares of
common stock subject to outstanding options as of January 31, 2000. This
registration statement is expected to become effective upon filing.
59
<PAGE> 63
LOCK-UP AGREEMENTS
Subject to limited exceptions, we and our executive officers and directors
have agreed that, without the prior written consent of Credit Suisse First
Boston Corporation, none of us will, during the period ending 180 days after the
date of this prospectus, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (regardless of
whether such shares or any such securities are then owned by such person or are
thereafter acquired), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the common stock, regardless of whether any such transactions
described in clauses (1) or (2) are to be settled by delivery of such common
stock or such other securities, in cash or otherwise. In addition, for a period
of 180 days from the date of this prospectus, except as required by law, we have
agreed that our board of directors will not consent to any offer for sale, sale
or other disposition, or any transaction which is designed or could be expected,
to result in, the disposition by any person, directly or indirectly, of any
shares of common stock without the prior written consent of Credit Suisse First
Boston Corporation. See "Underwriters."
REGISTRATION RIGHTS
After this offering, the holders of approximately 17,123,649 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreement between us and the holders of such registrable
securities, if we propose to register any of our securities under the Securities
Act, either for our own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include shares of such common stock therein.
Additionally, such holders are also entitled to certain demand registration
rights pursuant to which they may require us on up to two occasions to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect such registration. Further, holders may require us to file an unlimited
number of additional registration statements on Form S-3 at our expense. All of
these registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration and our right not to effect a requested
registration within six months following an offering of our securities pursuant
to a Form S-1, including the offering made hereby.
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<PAGE> 64
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc., SG Cowen Securities Corporation and Friedman, Billings, Ramsey
& Co., Inc. are acting as representatives, the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Credit Suisse First Boston Corporation...................
Deutsche Bank Securities Inc.............................
SG Cowen Securities Corporation..........................
Friedman, Billings, Ramsey & Co., Inc....................
---------
Total.......................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
The selling stockholder, Richard A. Kay, has granted to the underwriters a
30-day option to purchase on a pro rata basis up to 600,000 additional shares
from the selling stockholder at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock. Underwriters' discounts and
commissions represent the public offering price of the common stock less the
amount the underwriters pay us for the common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the underwriters. A broker is any person engaged in the business of effecting
transactions in securities for the accounts of others, but does not include a
bank. A dealer is any person engaged in the business of buying and selling
securities for his own account, through a broker or otherwise, but does not
include a bank. A selling group member is a member of the selling syndicate.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us......... $ $ $ $
Expenses payable by us........... $ $ $ $
</TABLE>
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<PAGE> 65
In June 1998, we sold an aggregate principal amount of $9,546 in
subordinated convertible notes and an aggregate amount of $2,727 in senior
subordinated notes to Michael Murray. Mr. Murray is a principal of Deutsche Banc
Alex. Brown, Inc., one of the managing underwriters in this offering.
Friedman, Billings, Ramsey & Co., Inc., one of the managing underwriters in
this offering, has agreed to provide us, in its ordinary course of business,
financial advisory services over the next 12 months for a fee of $160,000.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered by us and the
selling stockholder.
We, the directors, officers and other stockholders have agreed that we will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under the Securities
Act relating to, any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except in our case grants of stock options or issuances of stock pursuant to our
employee stock plans described in this prospectus or issuances pursuant to the
exercise of stock options or warrants outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price up to 400,000 shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We have made application to list the shares of common stock on The Nasdaq
Stock Market's National Market.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price and the underwriters' compensation will
be determined by negotiation between us and the underwriters. The principal
factors to be considered in determining the public offering price will include:
the information set forth in this prospectus and otherwise available to the
underwriters; the history and the prospects for the industry in which we
compete; the ability of our management; the prospects for our future earnings;
the present state of our development and our current financial condition; the
general condition of the securities markets at the time of this offering; and
the recent market prices of, and the demand for, publicly traded common stock of
generally comparable companies. Underwriters' compensation will be determined
based upon what is customary for offerings of securities by companies in our
industry.
The representatives, may engage in over-allotment, stabilizing
transactions, syndicate covering transactions, penalty bids and "passive" market
making in accordance with Regulation M under the Securities Exchange Act of
1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve
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<PAGE> 66
purchases of the common stock in the open market after the distribution
has been completed in order to cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
- In "passive" market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholder prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are effected.
Accordingly, any resale of the common stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling shareholders and the
dealer from whom such purchase confirmation is received that
- such purchaser is entitled under applicable provincial securities laws to
purchase such common stock without the benefit of a prospectus qualified
under such securities laws,
- where required by law, that such purchaser is purchasing as principal and
not as agent, and
- such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the selling shareholder may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a
63
<PAGE> 67
substantial portion of the assets of the issuer and such persons may be located
outside of Canada and, as a result, it may not be possible to satisfy a judgment
against the issuer or such persons in Canada or to enforce a judgment obtained
in Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
64
<PAGE> 68
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Washington, D.C. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Piper
Marbury Rudnick & Wolfe LLP, Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of OTG Software, Inc.
and subsidiary as of December 31, 1998 and 1999, and for each of the years in
the three-year period ended December 31, 1999 have been included in this
prospectus and elsewhere in the registration statement in reliance upon the
reports of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
CHANGE OF AUDITORS
In July 1999, we dismissed our independent auditors, Grant Thornton, LLP,
and retained KPMG LLP to act as our independent public accountants. Grant
Thornton, LLP had been our independent accountants since March 1997. In
connection with Grant Thornton, LLP's audit of the combined financial statements
for the years ended December 31, 1996 and 1997, and in connection with the
subsequent period up to July 1999, there were no disagreements with Grant
Thornton, LLP on any matters of accounting principles or practices, financial
statements disclosure or auditing scope or procedures, nor any reportable
events. Grant Thornton, LLP's report on our combined financial statements for
the years ended December 31, 1996 and 1997 contained no adverse opinion or
disclaimer of opinion and was not modified or qualified as to uncertainty, audit
scope or accounting principles. The decision to change auditors was approved by
our board of directors. We have provided Grant Thornton, LLP with a copy of the
disclosure contained in this section of the prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock we propose to sell in this
offering. This prospectus, which constitutes part of the registration statement,
does not contain all of the information set forth in the registration statement.
For further information about us and the common stock we propose to sell in this
offering, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement. Statements contained in
this prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement are not necessarily complete. If a
contract or document has been filed as an exhibit to the registration statement,
we refer you to the copy of the contract or document that has been filed. The
registration statement may be inspected without charge at the principal office
of the SEC in Washington, D.C. and copies of all or any part of which may be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and
at the SEC's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. The SEC's toll-free telephone number
is 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
65
<PAGE> 69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
Board of Directors
OTG Software, Inc.:
We have audited the accompanying consolidated balance sheets of OTG
Software, Inc. and subsidiary (the "Company") as of December 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OTG
Software, Inc. and subsidiary as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
McLean, Virginia
February 4, 2000
F-2
<PAGE> 71
OTG SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999 PRO FORMA
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 437 $ 2,494
Accounts receivable, net of allowances for doubtful
accounts and returns of $664 and $803, at December 31,
1998 and 1999, respectively............................ 4,862 7,596
Prepaid royalties and other current assets................ 400 693
-------- --------
Total current assets................................. 5,699 10,783
Property and equipment, net................................. 1,010 1,444
Other assets, net........................................... 575 362
-------- --------
Total assets...................................... $ 7,284 $ 12,589
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 1,092 $ 1,509 $ 1,509
Accrued bonuses, compensation and benefits................ 1,466 2,533 2,533
Accrued interest.......................................... 527 1,327 98
Accrued liabilities....................................... 454 1,175 1,175
Note payable to bank...................................... 2,300 5,000 5,000
Current portion of long-term debt......................... 1,437 13,803 6,167
Subordinated notes payable -- stockholders................ 1,969 1,969 1,969
Deferred revenues -- other................................ 574 400 400
Deferred revenues -- maintenance and licenses............. 2,000 3,050 3,050
-------- -------- --------
Total current liabilities............................ 11,819 30,766 21,901
Long-term debt -- net of current portion.................... 16,341 3,529 3,529
-------- -------- --------
Total liabilities................................. 28,160 34,295 25,430
-------- -------- --------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value; 20,000,000 shares
authorized; 16,314,682 shares issued and outstanding at
December 31, 1998 and 1999, and 20,476,188 shares
issued and outstanding, pro forma...................... 163 163 205
Additional paid-in capital................................ 899 4,081 12,904
Deferred compensation..................................... -- (2,557) (2,557)
Accumulated deficit....................................... (20,961) (22,416) (22,416)
-------- -------- --------
Total stockholders' deficit before stock subscriptions
receivable........................................... (19,899) (20,729) (11,864)
Less: stock subscriptions receivable.............. (977) (977) (977)
-------- -------- --------
Total stockholders' deficit..................... (20,876) (21,706) (12,841)
-------- -------- --------
Total liabilities and stockholders'
deficit.................................... $ 7,284 $ 12,589 $ 12,589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 72
OTG SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses......................................... $ 8,543 $ 12,089 $ 18,208
Services.................................................. 3,361 5,230 7,232
----------- ----------- ----------
Total revenues.......................................... 11,904 17,319 25,440
Cost of revenues:
Software licenses......................................... 579 532 1,062
Services.................................................. 1,219 1,639 3,017
----------- ----------- ----------
Total cost of revenues.................................. 1,798 2,171 4,079
----------- ----------- ----------
Gross profit................................................ 10,106 15,148 21,361
Operating expenses:
Research and development.................................. 2,455 3,958 5,137
Sales and marketing....................................... 5,313 8,986 11,487
General and administrative................................ 1,709 2,150 4,139
----------- ----------- ----------
Total operating expenses................................ 9,477 15,094 20,763
----------- ----------- ----------
Income from operations...................................... 629 54 598
Interest expense, net....................................... (162) (1,261) (2,053)
----------- ----------- ----------
Net income (loss)........................................... $ 467 $ (1,207) $ (1,455)
=========== =========== ==========
Pro forma statement of operations data (unaudited):
Net income (loss) before income taxes, as reported...... $ 467 $ (1,207) $ (1,455)
Pro forma income tax provision (benefit)................ -- -- --
----------- ----------- ----------
Pro forma net income (loss)............................. $ 467 $ (1,207) $ (1,455)
=========== =========== ==========
Pro forma net income (loss) per share -- basic and
diluted.............................................. $ .02 $ (.06) $ (.09)
=========== =========== ==========
Pro forma weighted average shares outstanding -- basic
and diluted.......................................... 26,207,608 20,377,628 16,314,682
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 73
OTG SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
-------------------- PAID-IN- DEFERRED ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT RECEIVABLE TOTAL
----------- ------ ---------- ------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............ 25,938,352 $ 259 $ -- $ -- $ (2,825) $ -- $ (2,566)
Distribution to stockholders...... -- -- -- -- (600) -- (600)
Issuance of common stock.......... 269,254 3 100 -- -- (103) --
Net income........................ -- -- -- -- 467 -- 467
----------- ----- ------ ------- -------- ----- --------
Balance, December 31, 1997............ 26,207,606 262 100 -- (2,958) (103) (2,699)
Distribution to stockholders...... -- -- (100) -- (5,400) -- (5,500)
Redemption of shares.............. (10,369,114) (104) -- -- (11,396) -- (11,500)
Issuance of common stock.......... 476,190 5 869 -- -- (874) --
Issuance of warrants.............. -- -- 30 -- -- -- 30
Net loss.......................... -- -- -- -- (1,207) -- (1,207)
----------- ----- ------ ------- -------- ----- --------
Balance, December 31, 1998............ 16,314,682 163 899 -- (20,961) (977) (20,876)
Deferred compensation for stock
options granted (unaudited)..... -- -- 2,886 (2,557) -- -- 329
Distribution to stockholders...... -- -- (34) -- -- -- (34)
Compensation expense on related
party stock transaction......... -- -- 330 -- -- -- 330
Net loss.......................... -- -- -- -- (1,455) -- (1,455)
----------- ----- ------ ------- -------- ----- --------
Balance, December 31, 1999............ 16,314,682 $ 163 $4,081 $(2,557) $(22,416) $(977) $(21,706)
=========== ===== ====== ======= ======== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 74
OTG SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period.......................... $ 467 $ (1,207) $ (1,455)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 109 389 611
Stock compensation expense........................... -- 30 659
Provision for bad debts and returns.................. 327 367 264
Change in assets and liabilities:
Accounts receivable............................... (1,943) (2,015) (2,998)
Prepaid royalties and other assets................ (92) (877) (197)
Accounts payable and accrued expenses............. 1,051 1,001 3,005
Deferred revenues................................. 977 1,044 876
-------- -------- --------
Net cash provided by (used in) operating
activities.................................. 896 (1,268) 765
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment..................... (654) (667) (928)
-------- -------- --------
Cash flows from financing activities:
Borrowings under note payable to bank..................... 1,000 -- 5,000
Repayments on note payable to bank........................ -- -- (2,300)
Borrowings under long-term debt........................... -- 12,136 --
Repayments on long-term debt.............................. (200) (307) (446)
Proceeds from stockholders' notes......................... 770 1,500 --
Repayments of stockholders' notes......................... -- (555) --
Distributions to stockholders............................. (600) (5,500) (34)
Redemption of common stock................................ (400) (6,000) --
-------- -------- --------
Net cash provided by financing activities....... 570 1,274 2,220
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 812 (661) 2,057
Cash and cash equivalents at beginning of period............ 286 1,098 437
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 1,098 $ 437 $ 2,494
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 168 $ 738 $ 1,118
Non-cash investing and financing activities:
Common stock issued for notes receivable.................. $ 103 $ 874 $ --
Common stock redeemed for notes payable................... $ -- $ 5,500 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 75
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
The Company (as defined below) is engaged in the development, production,
sale, maintenance and licensing of data storage and document management software
products designed for managing information and enhancing enterprise
productivity. The Company is headquartered in Bethesda, Maryland and sells its
products primarily through distributors and resellers in the domestic and
international markets. The Company operates in a highly competitive environment
subject to rapid technological change and the emergence of new technology. Rapid
changes in technology could have an adverse financial impact on the Company. The
Company has historically been dependent on its principal stockholder for working
capital funding.
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
OTG Software, Inc. ("OTG Software") and OTG Sales, Inc. ("OTG Sales"). OTG
Software and OTG Sales are collectively referred to as the "Company." OTG
Software develops, produces, maintains and licenses the software. OTG Sales,
provides sales, marketing support and services. Prior to December 30, 1999, OTG
Sales was under common control and majority stock ownership with OTG Software.
On December 30, 1999, in connection with the Company's planned initial public
offering ("IPO"), the stock of OTG Sales was contributed to OTG Software for no
consideration. The combination has been accounted for at historical cost. The
accompanying financial statements have been retroactively restated to give
effect to the consolidation as if it had occurred prior to January 1, 1997.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(c) REVENUE RECOGNITION
Revenues are generated from licensing software and providing services,
including maintenance and technical support, training and consulting.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. Subsequently, in March 1998 and December 1998, the AICPA issued SOP
98-4 and SOP 98-9, respectively, which defer until the Company's fiscal year
beginning January 1, 2000, the application of several paragraphs and examples in
SOP 97-2 that limit the definition of vendor specific objective evidence
("VSOE") for determining fair value of various elements in a multiple element
arrangement. The provisions of SOP 97-2 have been applied to transactions
entered into beginning January 1, 1998. Prior to 1998, the Company's revenue
recognition policy was in accordance with the preceding authoritative guidance
provided by SOP No. 91-1, Software Revenue Recognition. The adoption of SOP 97-2
did not have a material impact on the Company's financial statements. Further,
management of the Company does not believe that the adoption of the remaining
portions of SOP 97-2, which were deferred by SOP 98-4 and SOP 98-9, will have a
material impact on the Company's financial statements.
Software license revenues consist of fees for licenses of the Company's
software products. The Company sells its software products primarily through
distributors and resellers. In some cases, the Company provides extended payment
terms to certain distributors and resellers. For arrangements in which payment
terms are within six months, the Company recognizes the revenue when the
agreement is signed, the arrangement fee is fixed and determinable, delivery of
the software has
F-7
<PAGE> 76
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurred, and collectibility of the fee is considered probable. For arrangements
in which payment terms extend beyond six months, the Company recognizes revenue
when payment by the customer is made or becomes due, if all other revenue
recognition criteria have been met.
Services revenues consist of maintenance and technical support, training
and consulting. Revenues from maintenance and technical support, which consists
of unspecified when-and-if-available product updates and customer telephone
support services, are recognized ratably over the term of the service period.
Other services revenues are recognized as the related services are being
provided.
(d) COST OF REVENUES
The cost of software license revenues consists primarily of royalties,
media, manuals and distribution costs. The cost of services revenues consists
primarily of personnel-related costs.
(e) SOFTWARE DEVELOPMENT COSTS
Software development costs are accounted for in accordance with Statement
of Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and has charged all
such costs to research and development expense. Research and development costs
are expensed as incurred.
(f) PROPERTY AND EQUIPMENT
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, on a
straight-line basis. The estimated service lives used in determining
depreciation are three years for computer hardware and software, and seven years
for furniture and equipment. Leasehold improvements are amortized over the
shorter of the useful life of the asset, generally four years, or the lease
term.
Maintenance and repairs are charged to expense as incurred; additions and
betterments are capitalized. Upon retirement or sale, the cost and related
accumulated depreciation of the disposed assets are removed and any resulting
gain or loss is credited or charged to operations.
(g) RECOVERY OF LONG-LIVED ASSETS
The Company's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The Company recognizes an impairment loss when the sum
of the expected future cash flows is less than the carrying amount of the asset.
The measurement of the impairment losses to be recognized is based upon the
difference between the fair value and the carrying amount of the assets.
(h) INCOME TAXES
OTG Software and OTG Sales each have elected to be treated as an S
corporation under the provisions of the Internal Revenue Code. Under those
provisions, the Company does not pay federal
F-8
<PAGE> 77
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or state corporate income taxes on its taxable income. Instead, the stockholders
are liable for federal and state income taxes on the Company's taxable income.
(i) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents. The carrying values
of cash equivalents approximate fair values. Cash equivalents include overnight
repurchase agreements.
(j) ADVERTISING COSTS
Advertising costs are expensed as incurred. Total advertising expense was
$584,000, $378,000 and $522,000, respectively, for the years ended December 31,
1997, 1998, and 1999.
(k) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
include accounts receivable and cash balances with financial institutions. The
Company extends credit to its customers on an unsecured basis in the normal
course of business and maintains an allowance for potential losses when
identified. Included in accounts receivable at December 31, 1999 is
approximately $1,626,000 due from two customers under arrangements with extended
payment terms. The amounts under these arrangements are all due within six
months from December 31, 1999. There were no significant amounts with extended
payment terms due at December 31, 1998.
Cash balances in financial institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances at December 31, 1998
and 1999 were $337,000 and $2,294,000, respectively. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.
(l) ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(m) PRO FORMA STATEMENT OF OPERATIONS AND BALANCE SHEET DATA, AND NET INCOME
(LOSS) PER SHARE (UNAUDITED)
In connection with the Company's planned initial public offering of common
stock, the Company intends to convert to a Subchapter C corporation under the
Internal Revenue Code. Accordingly, the accompanying pro forma statement of
operations data has been prepared as if the Company were treated as a Subchapter
C corporation for federal and state income tax purposes from January 1, 1997.
The accompanying pro forma balance sheet data has been prepared giving effect to
the conversion of all outstanding convertible debt and related accrued interest
(note 6) into common stock immediately prior to the closing of the initial
public offering.
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin ("SAB") No. 98.
Under the provisions of SFAS No. 128 and SAB No. 98, pro forma basic net income
(loss) per share is computed by
F-9
<PAGE> 78
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividing the pro forma net income (loss) available to common stockholders for
the period by the weighted average number of common shares outstanding during
the period. Pro forma diluted net income (loss) per share is computed by
dividing the pro forma net income (loss) for the period by the weighted average
number of common and dilutive common stock equivalent shares outstanding during
the period.
Certain shares issuable upon the conversion of convertible debt and stock
options and warrants outstanding were not included in the pro forma diluted net
income (loss) per share as such amounts would be anti-dilutive.
(n) STOCK SPLIT
On January 18, 2000, the Board of Directors of the Company approved a
2-for-1 stock split of the Company's common stock. All share, per share and
conversion amounts relating to common stock, stock options and stock purchase
warrants included in the accompanying consolidated financial statements have
been retroactively adjusted to reflect the stock split.
(o) STOCK-BASED COMPENSATION
The Company accounts for equity-based compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
and complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is
based upon the difference, if any, on the date of grant, between the fair value
of the Company's stock and the exercise price. All equity-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.
(p) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and short-term debt approximates the fair values due to the
short-term nature of these instruments. The carrying value of the convertible
subordinated debt and the senior subordinated debt approximate fair value based
on borrowing rates currently available for financial instruments with similar
characteristics and maturities. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
(q) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments embedded in other
contracts and for hedging activities. This statement, as amended, is effective
for all fiscal quarters beginning after June 15, 2000. The Company does not
expect SFAS No. 133 to have a material affect on its financial position or
results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued SAB
No. 101-Revenue Recognition in Financial Statements. This SAB expresses the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Registrants can apply the accounting and
disclosure requirements of this SAB retrospectively, or may report a change in
accounting principle no later than the first fiscal quarter of the fiscal year
F-10
<PAGE> 79
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning after December 15, 1999. The Company does not expect the application
of this SAB to have a material impact on the Company's financial statements.
(r) SEGMENT INFORMATION
The Company operates under one business segment providing data storage
management and data access solutions products and services. The Company's
revenues from foreign countries represent approximately 6% of total revenues for
the years ended December 31, 1997, 1998 and 1999.
NOTE 2 -- COMMON STOCK
The Company is incorporated in the State of Delaware and has the authority
to issue 20,000,000 shares of common stock with a par value of $.01.
In December 1998, the Company issued a warrant to purchase 30,000 shares of
the Company's common stock at $1.84 per share to the estate of a former
employee. The warrant is exercisable for a period of five years. In accordance
with SFAS No. 123, the Company has recorded compensation expense during 1998 of
$30,000 for the estimated fair value of the warrant.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ -------
<S> <C> <C>
Computer software........................................... $ 199 $ 336
Computer hardware........................................... 885 1,406
Furniture, fixtures and office equipment.................... 426 625
Leasehold improvements...................................... 105 176
------ -------
1,615 2,543
Less accumulated depreciation and amortization.............. (605) (1,099)
------ -------
Property and equipment, net................................. $1,010 $ 1,444
====== =======
</TABLE>
NOTE 4 -- NOTES RECEIVABLE
Other assets at December 31, 1998 and 1999 include a $49,142 demand note
receivable from a former employee. The note bears interest at 10%.
The Company had stock subscription notes receivable at December 31, 1998
and 1999 in the amount of approximately $977,000 from certain employees of the
Company with interest rates ranging from 5% to 8%. The notes were issued in
connection with the issuance of 745,444 shares of the Company's common stock.
Approximately 476,190 of the shares were issued in connection with a restricted
stock purchase under the Company's 1998 Stock Incentive Plan (the "Stock Plan").
Approximately $103,000 of the notes are due in January 2002, and approximately
$874,000 are due in October 2004. The Company has full recourse against the
employees to collect these notes. These notes receivable are recorded as an
offset to equity in the accompanying consolidated balance sheets. The Company
has not accrued interest on the notes.
F-11
<PAGE> 80
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DEMAND NOTE PAYABLE -- BANK
At December 31, 1998, the Company had a bank demand note payable of
$2,300,000. The note required only interest payments at the bank's prime rate
plus 0.5% (9% at December 31, 1998) through March 31, 1999. The loan was
collateralized by a security interest in all of the Company's assets and was
further collateralized by the pledge of certain assets of the Company's
principal stockholders. The note required the Company to comply with certain
financial covenants, including limits on debt and maintaining tangible net
worth, as defined. The Company was in violation of certain covenants at December
31, 1998 and had received waivers from the bank for such violations. Subsequent
to December 31, 1998, this agreement was replaced with a new financing
agreement.
In July 1999, the Company entered into a revolving line of credit agreement
which replaced the bank demand note payable at December 31, 1998. The new
agreement provides for borrowings up to $5,000,000 based on eligible accounts
receivable, as defined in the agreement, and expires in July 2000. Interest only
payments are due monthly at the bank's prime rate plus 0.5% (9% at December 31,
1999). This line is collateralized by substantially all of the Company's assets,
and requires the Company to comply with certain financial covenants as defined
by the agreement. The Company was in violation of certain covenants at December
31, 1999, and has received waivers from the bank for such violations.
As a condition to entering into the revolving line of credit agreement, the
lender required the principal stockholder of the Company to enter into an escrow
agreement as security for payments to be made by the Company under a note issued
to a former stockholder.
NOTE 6 -- LONG-TERM DEBT
At December 31, 1998, the Company was obligated under a severance agreement
with a former employee in the amount of $250,000. This obligation was paid in
January 1999.
On June 9, 1998, the Company purchased from a former stockholder all of his
shares for $11,500,000. The Company paid $6,000,000 in cash and issued a note to
the former stockholder with a face value of $5,500,000 and a 10% rate of
interest. The Company recorded the note at its face value which approximated the
fair value at the date of issuance. The note calls for monthly payments of
principal and interest of $60,000 through December 15, 1999, a principal payment
of $1,000,000 on January 15, 2000, and monthly payments of principal and
interest of $100,000 thereafter, until the balance is paid. The note is due in
full 60 days after an IPO of the Company's common stock. The Company recorded
this transaction as the re-purchase and retirement of treasury stock.
On June 9, 1998, the Company borrowed $12,000,000 by issuing notes to fund
payments required under the stock re-purchase as described above, fund
distributions to other stockholders, and to provide working capital to the
Company. The notes are made up of convertible subordinated notes amounting to
$7,636,364 and senior subordinated notes amounting to $4,363,636, as described
below. The notes and the payment of the principal and interest thereon are
subordinate to and subject to prior payment of any bank indebtedness and the
indebtedness to the former stockholder.
The convertible subordinated notes, which are held by three noteholders,
and accrued interest thereon are due December 9, 2000. The notes bear interest
at 8% to June 9, 1999, 10% from June 9, 1999 to June 9, 2000 and 12% from June
9, 2000 to maturity. Principal and interest not paid in full at maturity shall
accrue interest at 14% increasing two percentage points each June 9 thereafter,
until paid in full or converted into common stock. At any time on or before June
9, 1999, upon the occurrence of certain events as defined in the agreement,
including the sale of the Company or
F-12
<PAGE> 81
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
breach of certain covenants, and upon the request of the holders of at least 51%
of the notes, the principal amount of the notes shall be converted into common
stock of the Company. At any time after June 9, 1999, upon request of the
holders of at least 51% of the notes, the principal amount of the notes shall be
converted into common stock of the Company. Further, the principal amount of the
notes shall be automatically converted into common stock of the Company in the
event of an offer and sale by the Company of common stock to the public at a
price not less than the price per share that results from a valuation of the
Company of $100,000,000 and which results in aggregate net proceeds to the
Company of not less than $20,000,000. The notes are convertible into common
stock of the Company at $1.835 per share, subject to anti-dilution provisions.
Upon the conversion of the principal amount of the notes, the Company shall not
be required to pay any accrued but unpaid interest on the amount converted. The
notes cannot be prepaid, in whole or in part, without prior written consent of
the noteholders.
The senior subordinated notes, which are also held by three noteholders,
and accrued interest thereon are due on December 9, 2000. Interest is paid
quarterly on these notes which bear interest at 8% to June 9, 1999, 10% from
June 9, 1999 to June 9, 2000 and 12% from June 9, 2000 to maturity. Principal
and interest not paid in full at maturity shall accrue interest at 14%
increasing two percentage points each June 9 thereafter, until paid in full.
These notes may be prepaid at any time without penalty.
The convertible subordinated and senior subordinated notes are secured by a
pledge of shares of common stock of the Company owned by the principal
stockholder of the Company. The convertible subordinated and senior subordinated
note agreements contain restrictive covenants, which may accelerate the due date
of the notes. The Company was not in compliance with certain of these covenants
at December 31, 1998 and 1999. However, in connection with the revolving line of
credit agreement entered into by the Company in July 1999 (see Note 5), the
holders of the convertible subordinated and senior subordinated notes entered
into "standstill agreements", which prohibit the holders from commencing any
action against the Company to enforce collection of the notes until 180 calender
days after the bank accelerates the bank indebtedness. As a result, at December
31, 1998, the Company has classified the amounts as long-term obligations in the
accompanying consolidated balance sheet.
In accordance with EITF 86-15, "Increasing Rate Debt", the Company is
recognizing the interest related to the convertible subordinated and senior
subordinated notes using the effective interest method over the period it is
estimated that the notes will be outstanding. It is reasonably possible that
this estimate could change.
Annual maturities of long-term debt as of December 31, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
2000............................................... $13,803
2001............................................... 938
2002............................................... 1,007
2003............................................... 1,091
2004............................................... 493
Thereafter......................................... --
-------
$17,332
=======
</TABLE>
F-13
<PAGE> 82
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- SUBORDINATED NOTES PAYABLE -- STOCKHOLDERS
The Company is party to revolving unsecured demand loan agreements with its
principal stockholder. Interest is due monthly at a rate of 8% per annum. In
connection with the Company's issuance of convertible subordinated and senior
subordinated notes (see Note 6), the stockholder has agreed that payment of
these notes is restricted until payment or conversion of the convertible
subordinated and senior subordinated notes.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company has a 401(k) Retirement Plan (the "Plan") covering
substantially all its employees. Participants in the Plan may elect to defer up
to 15% of their compensation. The Company may make a discretionary matching
contribution; the Company elected not to make a contribution in 1997. In 1998,
the Company began to match 25% of employee contributions up to 6% of
compensation. The amount recorded as expense for the years ended December 31,
1998 and 1999 was $60,000 and $114,000, respectively.
The Company has a 419 Benefit Plan covering senior executives,
contributions to which are discretionary. The Company made no contributions to
the plan in 1997, 1998, or 1999.
STOCK OPTION PLAN
During 1998, the Board of Directors adopted the Stock Plan. The Company has
reserved up to 4,529,412 shares for issuance under the Stock Plan. All of the
Company's employees, officers, directors, consultants and advisors are eligible
to be granted options under the Stock Plan. Awards granted to any employee are
limited to 500,000 shares per calendar year. The exercise price and duration of
the option are determined by the Board at the date of grant. The options
generally vest ratably over a period of 4 years, and generally expire in 10
years. During 1998 and 1999, all options were granted to employees and directors
of the Company.
The following table summarizes option activity for the year ended December
31, 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at January 1, 1998...................... -- $ --
Options granted............................................. 2,970,520 1.84
Options exercised........................................... -- --
Options forfeited/expired................................... (94,000) 1.84
---------
Options outstanding at December 31, 1998.................... 2,876,520 1.84
Options granted............................................. 1,024,900 3.14
Options exercised........................................... -- --
Options forfeited/expired................................... (442,314) 1.91
---------
Options outstanding at December 31, 1999.................... 3,459,106 2.65
=========
</TABLE>
Under the Stock Plan, an additional 476,190 shares of restricted stock were
issued in December 1998 at a per share price of $1.84.
F-14
<PAGE> 83
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, all options granted had an exercise price of $1.84.
At December 31, 1999, the range of exercise prices was $1.84 to $12.64. At
December 31, 1998 and 1999, the weighted
F-14.1
<PAGE> 84
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
average remaining contractual life of the outstanding options was 9.8 and 9
years, respectively, and the number of options exercisable was 10,000 and
549,092, respectively. There were 176,702 and 594,102 options available for
grant at December 31, 1998 and 1999, respectively.
The per share weighted average fair value of the options granted during
1998 and 1999 were $0.29, and $7.06, respectively. The fair value of each option
grant is estimated on the date of grant, using the Black-Scholes options-pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1998 1999
----- -----
<S> <C> <C>
Average dividend yield...................................... -- --
Expected life in years...................................... 4 4
Risk free interest rate..................................... 4.25% 5.38%
Expected volatility......................................... -- --
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. As a result, no compensation expense was
recorded for the options granted during 1998. The Company will record
compensation expense of approximately $2,886,000 relating to options to purchase
1,024,900 shares granted in 1999 equal to the difference between the fair market
value of the Company's common stock on the grant date and the exercise price of
the options. The expense will be recognized ratably over the vesting period of
the options, which is generally four years. The Company recorded a $329,000
expense associated with the options granted during 1999 which is included as
compensation expense in the accompanying consolidated statements of operations.
SFAS No. 123 requires pro forma net income (loss) disclosures as if the
Company had accounted for its stock options granted under the fair value method
prescribed by that statement. Had the Company used the fair value methodology
for determining compensation expense, the following table presents the pro forma
net income (loss) that would have been recorded by the Company for the options
granted during 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income:
As reported............................................... $(1,207) $(1,455)
Pro forma................................................. $(1,256) $(1,989)
Net income per share -- basic and diluted:
As reported............................................... $ (.06) $ (.09)
Pro forma................................................. $ (.06) $ (.12)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
F-15
<PAGE> 85
OTG SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- OPERATING LEASES
The Company leases its facilities and certain office equipment under
non-cancelable operating leases. Future minimum lease payments under
non-cancelable operating leases approximate the following:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
2000........................................... $844
2001........................................... 852
2002........................................... 660
2003........................................... 34
</TABLE>
Rent expense of approximately $335,000, $540,000 and $743,000 was charged
to operations for 1997, 1998 and 1999, respectively.
NOTE 10 -- RELATED PARTY TRANSACTIONS
Interest expense on the notes payable to the principal stockholder
approximated $25,000, $88,000 and $158,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
During October 1999, the principal stockholder of the Company sold 40,000
shares of the Company's common stock to an employee of the Company for $2.75 per
share. The Company has recorded compensation expense of approximately $330,000
in the accompanying 1999 statement of operations, reflecting the difference
between the purchase price and the estimated fair value of the common stock at
the time of the purchase.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company has employment contracts with certain officers, directors, and
employees. The Company also has bonus agreements with certain employees based
upon net income, as defined in the agreements.
If the Company consummates an IPO (as defined), the Company is obligated to
pay a former employee bonus compensation of $300,000, less any amounts then due
and outstanding to the Company.
The Company is obligated to make payments in the amount of $80,000 per year
for the years 2000 through 2003 to the estate of a former employee. The payments
are contingent upon the Company meeting certain financial targets and other
criteria as defined in the agreement.
NOTE 12 -- SUBSEQUENT EVENTS
On January 18, 2000, the board of directors of the Company authorized the
adoption of the 2000 Stock Incentive Plan (the "2000 stock plan") and the 2000
Employee Stock Purchase Plan (the "purchase plan"). Under the 2000 stock plan,
1,000,000 shares of common stock were reserved for issuance. The 2000 stock plan
provides for the grant of incentive stock options, nonstatutory stock options,
restricted stock awards, and other stock-based awards. Subsequent to January 18,
2000, no additional stock options will be granted under the Stock Plan. The
purchase plan authorizes the issuance of up to 600,000 shares of common stock to
participating employees. Eligible employees are authorized to purchase common
stock using up to 10% of the employee's base pay at a purchase price equal to
85% of the average market price, as defined in the purchase plan.
Additionally, on January 18, 2000 the board of directors approved an
increase in the authorized number of common stock to 65,000,000, and authorized
5,000,000 shares of preferred stock with a par value of $.01.
F-16
<PAGE> 86
[LOGO]
[PROSPECTUS BACK COVER PAGE]
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,216
NASD filing fee............................................. 7,400
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 310,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 220,000
Blue Sky fees and expenses (including legal fees)........... 15,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 729,384
----------
Total............................................. $1,750,000
==========
</TABLE>
- -------------------------
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provides that, except to the extent prohibited by the
Delaware General Corporation Law (the "DGCL"), the Registrant's directors shall
not be personally liable to the Registrant or its stockholders for monetary
damages for any breach of fiduciary duty as directors of the Registrant. Under
the DGCL, the directors have a fiduciary duty to the Registrant which is not
eliminated by this provision of the Restated Certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws. The
Registrant has obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL including
for an unlawful payment of dividend or unlawful stock purchase or redemption, or
(iv) for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any
II-1
<PAGE> 88
other rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, a vote of stockholders or otherwise. The
Restated Certificate eliminates the personal liability of directors to the
fullest extent permitted by the DGCL and, together with the Registrant's Amended
and Restated By-Laws (the "Restated By-Laws") and Indemnification Agreements to
be entered into with each executive officer and director, provides that the
Registrant shall fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person is or was a director or officer of the
Registrant, or is or was serving at the request of the Registrant as a director
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding. Reference is
made to the Registrant's Form of Amended and Restated Certificate of
Incorporation, Form of Amended and Restated By-Laws and Form of Indemnification
Agreement filed as Exhibits 3.2, 3.4, and 10.6 hereto, respectively.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Restated Certificate. The Registrant is not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information regarding the issuance of the Registrant's
securities gives effect to the two-for-one stock split of the Registrant's
common stock effected on January 18, 2000. Since December 1996, the Registrant
has issued the following securities that were not registered under the
Securities Act as summarized below.
(a) Issuances of Capital Stock, Convertible Notes and Warrants.
1. On January 1, 1997, our predecessor Maryland corporation issued
8.647 shares of common stock to one of its executive officers, for an
aggregate purchase price of $102,698. The purchaser issued our predecessor
Maryland corporation a promissory note for the aggregate purchase price.
The promissory note earns 8% interest per year and principal and interest
become due and payable on January 1, 2002. In connection with the
Registrant's reincorporation into Delaware, the Registrant issued 269,254
shares of common stock in exchange for the 8.647 shares of the common stock
of the Registrant's predecessor corporation. This transaction was exempt
from registration under Section 4(2) of the Securities Act.
2. On June 8, 1998, in connection with the Registrant's
reincorporation into Delaware, the Registrant issued an aggregate of
26,207,606 shares of common stock to four individuals in exchange for all
the outstanding common stock of our predecessor Maryland corporation. This
transaction was exempt from registration under Section 4(2) of the
Securities Act.
3. On June 9, 1998, the Registrant issued convertible subordinated
notes in the aggregate principal amount of $7,636,364 to one individual and
two institutional investors. The convertible subordinated notes earn 8%
interest per year from the date of issuance to June 9, 1999, 10% interest
from June 9, 1999 to June 9, 2000 and 12% interest from June 9, 2000 to
maturity on December 9, 2000. Upon the closing of this offering, the
principal balance of the convertible subordinated notes converts
automatically into 4,161,506 shares of the Registrant's common stock and
the interest
II-2
<PAGE> 89
thereon is forgiven. This transaction was exempt from registration under
Section 4(2) of the Securities Act.
4. On December 1, 1998, the Registrant issued a warrant to purchase
30,000 shares of common stock to one individual in exchange for an executed
release agreement. This transaction was exempt from registration under
Section 4(2) of the Securities Act.
5. On December 22, 1998, the Registrant issued an aggregate of 476,190
shares of common stock to five employees for an aggregate purchase price of
$873,809 pursuant to restricted stock agreements under the Registrant's
1998 Stock Incentive Plan. The employees each issued promissory notes to
the Registrant for their respective shares. This transaction was exempt
from registration under Rule 701 of the Securities Act.
(b) Certain Grants and Exercises of Stock Options. The Registrant's 1998
Stock Incentive Plan was adopted by the Board of Directors and approved by the
stockholders of the Registrant in August 1998. As of December 31, 1999, no
options to purchase shares of common stock had been exercised, options to
purchase 3,459,120 shares of common stock were outstanding and 476,190 shares of
restricted stock had been granted under the 1998 Stock Incentive Plan.
No underwriters were involved in the foregoing sales of securities. All of
the foregoing securities are deemed restricted securities for the purposes of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.3 By-Laws of the Registrant
3.4 Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering
4.1* Specimen common stock certificate
4.2 See Exhibits 3.1 and 3.4 for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the
rights of holders of common stock of the Registrant
5.1* Opinion of Hale and Dorr LLP
10.1 1998 Stock Incentive Plan, as amended
10.2 2000 Stock Incentive Plan
10.3 2000 Employee Stock Purchase Plan
10.5 Lease for 6701 Democracy Boulevard, Suite 805, Bethesda,
Maryland 20817, as amended
10.6 Form of Indemnification Agreement to be executed with
directors and executive officers
10.7 Employment Agreement with Richard A. Kay, as amended
10.8 Employment Agreement with F. William Caple, as amended
10.9 Employment Agreement with Ronald W. Kaiser, as amended
10.10* Subchapter S Tax Indemnification Agreement to be executed
with all existing stockholders
10.11 Registration Rights Agreement dated as of June 9, 1998
16.1 Letter from Grant Thornton LLP
21.1 Subsidiaries of the Registrant
</TABLE>
II-3
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of KPMG LLP
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1+ Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statements:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes 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.
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 Delaware General Corporation Law, the Restated
Certificate of the registrant, the Underwriting Agreement, 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 hereunder, the registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purpose of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For 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> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Bethesda, Maryland, on
this 10(th) day of February, 2000.
OTG SOFTWARE, INC.
By: /s/ RICHARD A. KAY
------------------------------------
Richard A. Kay
President, Chief Executive Officer
and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD A. KAY President, Chief Executive Officer February 10, 2000
- --------------------------------------------- and Chairman of the Board of
Richard A. Kay Directors (Principal Executive
Officer)
* Executive Vice President, February 10, 2000
- --------------------------------------------- Secretary and Director
F. William Caple
* Chief Financial Officer and February 10, 2000
- --------------------------------------------- Treasurer (Principal Financial
Ronald W. Kaiser and Accounting Officer)
* Director February 10, 2000
- ---------------------------------------------
Gabriel A. Battista
* Director February 10, 2000
- ---------------------------------------------
John Burton
* Director February 10, 2000
- ---------------------------------------------
Joseph R. Chinnici
* Director February 10, 2000
- ---------------------------------------------
Geaton A. DeCesaris, Jr.
* Director February 10, 2000
- ---------------------------------------------
Donald B. Hebb, Jr.
*By: /s/ RICHARD A. KAY
----------------------------------------
Richard A. Kay
Attorney-in-fact
</TABLE>
II-5
<PAGE> 92
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER (WRITE- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) OFFS) OF PERIOD
----------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1/1/97 - 12/31/97
Allowance for doubtful accounts........... $184,442 $142,464 $123,838 $(55,442) $395,302
1/1/98 - 12/31/98
Allowance for doubtful accounts........... 395,302 160,000 186,646 (78,111) 663,837
1/1/99 - 12/31/99
Allowance for doubtful accounts........... 663,837 250,771 12,886 (124,674) 802,820
</TABLE>
- ---------------
(1) Revenue returns and allowances.
S-1
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OTG SOFTWARE, INC.
OTG Software, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on May 13, 1998.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Amended and Restated Certificate of Incorporation in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware. The resolution setting forth the Amended and Restated Certificate
of Incorporation is as follows:
RESOLVED: That the Amended and Restated Certificate of Incorporation of the
Corporation, as amended to date, be and hereby is further amended
and restated in its entirety so that the same shall read as
follows:
FIRST. The name of the Corporation is:
OTG Software, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
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<PAGE> 2
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 70,000,000 shares, consisting of
(i) 65,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. 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.
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<PAGE> 3
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate 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 this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
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<PAGE> 4
EIGHTH. 1. Actions, Suits and Proceedings Other than by or in the Right
of the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of
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<PAGE> 5
such liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this
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<PAGE> 6
Article, any expenses (including attorneys' fees) incurred by an Indemnitee in
defending a civil or criminal action, suit, proceeding or investigation or any
appeal therefrom shall be paid by the Corporation in advance of the final
disposition of such matter; provided, however, that the payment of such expenses
incurred by an Indemnitee in advance of the final disposition of such matter
shall be made only upon receipt of an undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article; and further provided that no
such advancement of expenses shall be made if it is determined that (i) the
Indemnitee did not act in good faith and in a manner he reasonably believes to
be in, or not opposed to, the best interests of the Corporation, or (ii) with
respect to any criminal action or proceeding, the Indemnitee had reasonable
cause to believe his conduct was unlawful. Such undertaking shall be accepted
without reference to the financial ability of the Indemnitee to make such
repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1, 2 or 5, as the
case may be. Such determination shall be made in each instance (a) by a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) by a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c), if there are no disinterested directors, or if
disinterested directors so direct, by independent legal counsel (who may, to the
extent permitted by law, be regular legal counsel to the Corporation) in a
written opinion, or (d) by the stockholders of the Corporation.
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to
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<PAGE> 7
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of is
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
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<PAGE> 8
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. Except as otherwise provided herein, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation, and shall become effective
beginning upon, and only upon, the closing of a public offering of the Company's
Common Stock registered under the Securities Act of 1933, as amended (an "IPO").
1. Number of Directors; Election of Directors. The number of directors
of the Corporation shall not be more than thirteen nor less than six. The exact
number of directors within the limitations specified in the preceding sentence
shall be fixed from time to time by, or in the manner provided in, the
Corporation's By-Laws. Election of directors need not be by written ballot,
except as and to the extent provided in the By-Laws of the Corporation.
2. Classes of Directors. 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 designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2001; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2002; and each initial director in Class III shall serve for a
term
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<PAGE> 9
ending on the date of the annual meeting in 2003; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
4. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. 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 or she is a
member (subject to Section 3 above) 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.
5. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors then in office constitute a quorum. If at any meeting of the Board
of Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-Laws of the Corporation or by this
Certificate of Incorporation.
6. Removal. Directors of the Corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
7. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by a 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 to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. Amendments to Article. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal,
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or to adopt any provision inconsistent with, this Article TENTH after it shall
have become effective.
ELEVENTH. Effective beginning upon the closing of the Company's IPO,
stockholders of the Corporation may not take any action by written consent in
lieu of a meeting. Notwithstanding any other provisions of law, the Certificate
of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes
which all the stockholders would be entitled to cast in any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article ELEVENTH after it shall have
become effective.
TWELFTH. Effective beginning upon the closing of the Company's IPO,
special meetings of stockholders may be called at any time only by the Chairman
of the Board of Directors, the President or the Board of Directors.
Notwithstanding any other provision of law, this Certificate of Incorporation or
the By-Laws of the Corporation, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article TWELFTH after it shall have become
effective.
THIRTEENTH: In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present shall be
required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors. Notwithstanding any
other provision of law, this Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article THIRTEENTH.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
Chairman of the Board, President and Chief Executive Officer this _____ day of
January, 2000.
OTG SOFTWARE, INC.
By:
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Richard A. Kay
President
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EXHIBIT 3.3
BY-LAWS
OF
OPTICAL TECHNOLOGY GROUP, INC.
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BY-LAWS
TABLE OF CONTENTS
Page
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BY-LAWS
OF
OPTICAL TECHNOLOGY GROUP, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If
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mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
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1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
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2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled 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, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48
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hours in advance of the meeting, or (iii) by mailing written notice to his last
known business or home address at least 72 hours in advance of the meeting. A
notice or waiver of notice of a meeting of the Board of Directors need not
specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. 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, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any
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absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
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3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who resigns
or is removed shall have any right to any compensation as an officer for any
period following his resignation or removal, or any right to damages on account
of such removal, whether his compensation be by the month or by the year or
otherwise, unless such compensation is expressly provided in a duly authorized
written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he
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is a director, at all meetings of the Board of Directors. Unless the Board of
Directors has designated the Chairman of the Board or another officer as Chief
Executive Officer, the President shall be the Chief Executive Officer of the
corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers as the
Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or
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the President. In addition, the Treasurer shall perform such duties and have
such powers as are incident to the office of treasurer, including without
limitation the duty and power to keep and be responsible for all funds and
securities of the corporation, to deposit funds of the corporation in
depositories selected in accordance with these By-laws, to disburse such funds
as ordered by the Board of Directors, to make proper accounts of such funds, and
to render as required by the Board of Directors statements of all such
transactions and of the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such powers as
the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
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Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the By-laws, applicable
securities laws or any agreement among any number of shareholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
If the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of each certificate representing shares of such class or series of
stock, provided that in lieu of the foregoing requirements there may be set
forth on the face or back of each certificate representing shares of such class
or series of stock a statement that the corporation will furnish without charge
to each stockholder who so requests a copy of the full text of the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such
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indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is properly delivered to the corporation. The record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
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5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
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(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
5.8 Severability. Any determination that any provision of these By-laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 Pronouns. All pronouns used in these By-laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
OF
OTG SOFTWARE, INC.
ARTICLE I - STOCKHOLDERS
1. Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board or the
President or, if not so designated, at the registered office of the corporation.
2. Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
3. Special Meetings. Special meetings of stockholders may be called at
any time only by the Chairman of the Board, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
4. Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
5. Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the
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meeting, during ordinary business hours, for a period of at least 10 days prior
to the meeting, at a place within the city where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting during
the whole time of the meeting, and may be inspected by any stockholder who is
present.
6. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
8. Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by proxy executed in
writing (or in such other manner as permitted under Delaware law) by the
stockholder or his authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
9. Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of that
class of stock representing a majority of the votes cast on a matter) shall
decide any matter to be voted upon by the stockholders at such meeting, except
when a different vote is required by express provision of law, the Certificate
of Incorporation or these By-Laws. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election.
10. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors (except for directors elected to fill vacancies, as provided in
Article II, Section 8). Nomination for election to the Board of Directors of the
corporation at a meeting of stockholders may be made (i) by or at the direction
of the Board of Directors or (ii) by any stockholder of the corporation entitled
to vote for the
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election of directors at such meeting who complies with the notice procedures
set forth in this Section 10.
To be timely, a stockholder's notice must be received by the Secretary
at the principal executive offices of the corporation as follows: (a) in the
case of an election of directors at an annual meeting of stockholders, not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that (i) in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed by
more than 60 days, from such anniversary date, to be timely, a stockholder's
notice must be so received not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of (A) the 60th
day prior to such annual meeting and (B) the 10th day following the day on which
notice of the date of such annual meeting was mailed or public disclosure of the
date of such annual meeting was made, whichever first occurs, or (ii) with
respect to the annual meeting of stockholders of the corporation to be held in
the year 2000, to be timely, a stockholder's notice must be so received not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the 10th day following the day on which notice of the date
of such annual meeting was mailed or public disclosure of the date of such
annual meeting was made, whichever first occurs; or (b) in the case of an
election of directors at a special meeting of stockholders, not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such special meeting and
(B) the 10th day following the day on which notice of the date of such special
meeting was mailed or public disclosure of the date of such special meeting was
made, whichever first occurs.
The stockholder's notice to the Secretary shall set forth (a) as to each
proposed nominee (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed as to nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended; (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder and (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder; and (c) as to the beneficial owner, if any, on whose behalf
the nomination is being made (i) the name and address of such beneficial owner
and (ii) the class and number of shares of the corporation which are
beneficially owned by such person. In addition, to be effective, the
stockholder's notice must be accompanied by the written consent of the proposed
nominee to serve as a director if elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
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Nothing in the foregoing provision shall obligate the corporation or the
Board of Directors to include in any proxy statement or other stockholder
communication distributed on behalf of the corporation or the Board of Directors
information with respect to any nominee for directors submitted by a
stockholder.
11. Notice of Business at Annual Meetings. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, (i)
if such business relates to the election of directors of the corporation, the
procedures in Section 10 of Article I must be complied with and (ii) if such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary in accordance with the procedures set
forth in this Section 11.
To be timely, a stockholder's notice must be received by the Secretary
at the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that (i) in the event that the date of the annual
meeting is advanced by more than 20 days, or delayed by more than 60 days, from
such anniversary date, to be timely, a stockholder's notice must be so received
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of (A) the 60th day prior to such annual
meeting and (B) the 10th day following the day on which notice of the date of
such annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, or (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2000, to be
timely, a stockholder's notice must be so received not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of (A) the 60th day prior to such annual meeting and (B) the 10th day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs.
The stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder and beneficial
owner, if any, and (d) any material interest of the stockholder or such
beneficial owner, if any, in such business. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any annual meeting of
stockholders except in accordance with the procedures set forth in this Section
11; provided that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be
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included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
12. Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
13. Conduct of Meetings. The Board of Directors of the corporation may
adopt by resolution such rules, regulations and procedures for the conduct of
any meeting of stockholders of the corporation as it shall deem appropriate.
Except to the extent inconsistent with such rules, regulations and procedures as
adopted by the Board of Directors, the officer of the corporation presiding at
any meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such officer, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the officer of the corporation presiding at the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as shall be determined; (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the officer of the corporation presiding at the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
The officer of the corporation presiding at any meeting of stockholders
shall announce at the meeting when the polls for each matter to be voted upon at
the meeting will be closed. If no announcement is made, the polls shall be
deemed to have closed upon the final adjournment of the meeting. After the polls
close, no ballots, proxies or votes or any revocations or changes thereto may be
accepted.
ARTICLE II - DIRECTORS
1. General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2. Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be more than thirteen nor less
than three. The number of
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directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
3. Classes of Directors. 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 designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting of stockholders
in 2001; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2002, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2003; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. 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 or she is a
member (subject to Section 4 above) 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.
6. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third (a) of the
number of directors then in office constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the Certificate of Incorporation or
these By-Laws.
7. Removal. Directors of the corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
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8. Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, shall
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 to hold office until the next election of the class
for which such director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
9. Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
10. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
11. Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
12. Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail, or delivering written notice by hand, to his last
known business, home or electronic mail address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
13. Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in
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writing, and the written consents are filed with the minutes of proceedings of
the Board or committee.
15. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
16. Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III - OFFICERS
1. Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
4. Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
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5. Resignation and Removal. Any officer may resign by delivering his
or her written resignation to the corporation at its principal office or to the
Chairman of the Board, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
6. Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
7. Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders, and if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him or her by
the Board of Directors. The person designated as the Chief Executive Officer of
the Company shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation.
8. President. Unless the Board of Directors has designated the
Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
9. Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the Chief Executive Officer and when so performing
shall
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have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
10. Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Secretary
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Secretary, the Assistant Secretary (or if there shall be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him or her by the Board of Directors or the Chief Executive Officer. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Treasurer
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
12. Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE IV - CAPITAL STOCK
1. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
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3. Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4. Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
5. Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V - GENERAL PROVISIONS
1. Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January of each year and end on the last day of December in each
year.
2. Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
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3. Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. Voting of Securities. Except as the directors may otherwise
designate, the Chairman of the Board or Treasurer may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5. Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6. Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
b. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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8. Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
9. Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE IV - AMENDMENTS
These By-Laws may be altered, amended or repealed, in whole or in part,
or new By-Laws may be adopted by the Board of Directors or by the stockholders
as provided in the Certificate of Incorporation.
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EXHIBIT 10.1
OPTICAL TECHNOLOGY GROUP, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Optical Technology
Group, Inc., a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders 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 stockholders. Except where
the context otherwise requires, the term "Company" shall include any present or
future subsidiary corporations of Optical Technology Group, 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
(and any individuals who have accepted an offer for employment) are eligible to
be granted options, restricted stock awards, or other stock-based awards (each,
an "Award") under the Plan. Each 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, $.01 par value
<PAGE> 2
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.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 2,264,706 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 8, for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 250,000 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.
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.
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(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(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, in its sole discretion, otherwise
provide in an option agreement, (i) 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 (ii) 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) while the Common Stock is registered under the Exchange Act,
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved 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;
(4) to the extent permitted by the Board, in its sole discretion (i)
by delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) by payment of such other lawful consideration
as the Board may determine; or
(5) 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.
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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. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, 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 per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding 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 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition and Change in Control Events
(1) Definitions
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive
cash, securities or other property; or
(ii) any exchange of shares of the Company for cash,
securities or other property pursuant to a statutory
share exchange transaction.
(b) A "Change in Control Event" shall mean:
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(i) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) 30% or more of either (x) the then-outstanding
shares of common stock of the Company (the "Outstanding
Company Common Stock") or (y) the combined voting power
of the then-outstanding securities of the Company
entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection
(i), the following acquisitions shall not constitute a
Change in Control Event: (A) any acquisition directly
from the Company (excluding an acquisition pursuant to
the exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging
such security acquired such security directly from the
Company or an underwriter or agent of the Company), (B)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (C) any
acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with
clauses (x) and (y) of subsection (iii) of this
definition or (D) any acquisition by Richard A. Kay
("Exempt Party") of any Shares of Common Stock; or
(ii) such time as the Continuing Directors (as defined
below) do not constitute a majority of the Board (or,
if applicable, the Board of Directors of a successor
corporation to the Company), where the term "Continuing
Director" means at any date a member of the Board (x)
who was a member of the Board on the date of the
initial adoption of this Plan by the Board or (y) who
was nominated or elected subsequent to such date by at
least a majority of the directors who were Continuing
Directors at the time of such nomination or election or
whose election to the Board was recommended or endorsed
by at least a majority of the directors who were
Continuing Directors at the time of such nomination or
election; provided, however, that there shall be
excluded from this clause (y) any individual whose
initial assumption of office occurred as a result of an
actual or threatened election contest with respect to
the election or removal of
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<PAGE> 6
directors or other actual or threatened solicitation of
proxies or consents, by or on behalf of a person other
than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization or statutory share exchange involving
the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), unless, immediately following
such Business Combination, each of the following two
conditions is satisfied: (x) all or substantially all
of the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly
or indirectly, more than 50% of the then-outstanding
shares of common stock and the combined voting power of
the then-outstanding securities entitled to vote
generally in the election of directors, respectively,
of the resulting or acquiring corporation in such
Business Combination (which shall include, without
limitation, a corporation which as a result of such
transaction owns the Company or substantially all of
the Company's assets either directly or through one or
more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as
their ownership of the Outstanding Company Common Stock
and Outstanding Company Voting Securities,
respectively, immediately prior to such Business
Combination and (y) no Person (excluding the Acquiring
Corporation or any employee benefit plan (or related
trust) maintained or sponsored by the Company or by the
Acquiring Corporation or the Exempt Person)
beneficially owns, directly or indirectly, 30% or more
of the then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power
of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior
to the Business Combination).
(2) Effect on Options
(a) Acquisition Event. Upon the occurrence of an Acquisition
Event (regardless of whether such event also constitutes a
Change in Control Event), or the execution by the Company of
any agreement with respect to an Acquisition Event
(regardless of whether such
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event will result in a Change in Control Event), the Board
shall provide that all outstanding Options shall be assumed,
or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof);
provided that if such Acquisition Event also constitutes a
Change in Control Event, except to the extent specifically
provided to the contrary in the instrument evidencing any
Option or any other agreement between a Participant and the
Company, such assumed or substituted options shall be
immediately exercisable in full upon the occurrence of such
Acquisition Event for all Options held by Participants that
have had a relationship with the Company as an employee,
officer, director, consultant or advisor for one year prior
to such Change in Control Event. For purposes hereof, an
Option shall be considered to be assumed if, following
consummation of the Acquisition Event, the Option confers
the right to purchase, for each share of Common Stock
subject to the Option immediately prior to the consummation
of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the
Acquisition Event by holders of Common Stock for each share
of Common Stock held immediately prior to the consummation
of the Acquisition Event (and if holders were offered a
choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if the consideration
received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or
an affiliate thereof), the Company may, with the consent of
the acquiring or succeeding corporation, provide for the
consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or
succeeding corporation (or an affiliate thereof) equivalent
in fair market value to the per share consideration received
by holders of outstanding shares of Common Stock as a result
of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not
agree to assume, or substitute for, such Options, then the
Board shall, upon written notice to the Participants,
provide that all then unexercised Options will become
exercisable in full as of a specified 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 before the consummation
of such Acquisition Event; provided, however, 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"), then
the Board may
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instead provide that all outstanding Options shall terminate
upon consummation of such Acquisition Event and that 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.
(b) Change in Control Event that is not an Acquisition Event.
Upon the occurrence of a Change in Control Event that does
not also constitute an Acquisition Event, except to the
extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement
between a Participant and the Company, all Options
then-outstanding shall automatically become immediately
exercisable in full for all Options held by Participants
that have had a relationship with the Company as an
employee, officer, director, consultant or advisor for one
year prior to such Change in Control Event.
(3) Effect on Restricted Stock Awards
(a) Acquisition Event that is not a Change in Control Event.
Upon the occurrence of an Acquisition Event that is not a
Change in Control Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award
shall inure to the benefit of the Company's successor and
shall apply to the cash, securities or other property which
the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to
the same extent as they applied to the Common Stock subject
to such Restricted Stock Award.
(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement
between a Participant and the Company, all restrictions and
conditions on all Restricted Stock Awards then-outstanding
shall automatically be deemed terminated or satisfied for
all Options held by Participants that have had a
relationship with the Company as an employee, officer,
director, consultant or advisor for one year prior to such
Change in Control Event.
(4) Effect on Other Awards
(a) Acquisition Event that is not a Change in Control Event. The
Board shall specify the effect of an Acquisition Event that
is not a
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Change in Control Event on any other Award granted under the
Plan at the time of the grant of such Award.
(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any other Award or any other agreement between a
Participant and the Company, all other Awards shall become
exercisable, realizable or vested in full, or shall be free
of all conditions or restrictions, as applicable to each
such Award for all Options held by Participants that have
had a relationship with the Company as an employee, officer,
director, consultant or advisor for one year prior to such
Change in Control Event.
9. 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. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award 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 Award
may be made alone or in addition or in relation to any other Award. The terms of
each 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) 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. Except as the Board may otherwise
provide in an Award, Participants may satisfy such tax obligations in whole or
in part by delivery of 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 and to the extent not otherwise
paid, deduct any such tax obligations from any payment of any kind otherwise due
to a Participant.
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(f) 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.
(g) 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.
(h) 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 restrictions in full or in part or that any other 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.
10. 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 Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(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
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Board or (ii) the date the Plan was approved by the Company's stockholders, 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.
(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 State of Delaware, without regard to any applicable conflicts of law.
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EXHIBIT 10.2
OTG SOFTWARE, INC.
2000 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 2000 Stock Incentive Plan (the "Plan") of OTG Software,
Inc., a Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders 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 stockholders. Except where the context
otherwise requires, the term "Company" shall include any of the Company's
present or future subsidiary corporations 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 (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each 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.
<PAGE> 2
(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"). 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.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 1,000,000 shares of common stock, par value $0.01
per share, of the Company (the "Common Stock").
(b) The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of each calendar
year, beginning with the 2001 calendar year and continuing through the term of
this Plan, by an amount equal to three percent (3%) of the shares of Common
Stock outstanding on the last trading day of the preceding calendar year;
provided, however, that in no event shall any such annual increase exceed
1,000,000 shares.
(c) 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.
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;
provided, however, that the exercise price of all Incentive Stock Options shall
not be less than 100% of the fair market value
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of the Common Stock, as determined by the Board, at the time the Incentive Stock
Option is granted.
(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; provided, however, that no Option will be granted
for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(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, in its sole discretion, otherwise
provide in an option agreement, by (i) 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 (ii) 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) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) payment of such other lawful consideration as the Board may
determine; or
(5) by 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, a "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
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<PAGE> 4
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. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock, other than a normal
cash dividend and other than the stock split declared by the Board on January
18, 2000, (i) the number and class of securities available under this Plan, (ii)
the number and class of securities and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per share subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
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 8(a) applies and Section 8(c) also applies to any event, Section 8(c)
shall be applicable to such event, and this Section 8(a) shall not be
applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition and Change in Control Events
(1) Definitions
(a) An "Acquisition Event" shall mean:
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<PAGE> 5
(i) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive
cash, securities or other property; or
(ii) any exchange of shares of the Company for cash,
securities or other property pursuant to a statutory
share exchange transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) more than 50% of either (x) the then-outstanding
shares of common stock of the Company (the "Outstanding
Company Common Stock") or (y) the combined voting power
of the then-outstanding securities of the Company
entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection
(i), the following acquisitions shall not constitute a
Change in Control Event: (A) any acquisition directly
from the Company (excluding an acquisition pursuant to
the exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging
such security acquired such security directly from the
Company or an underwriter or agent of the Company), (B)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (C) any
acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with
clauses (x) and (y) of subsection (iii) of this
definition, or (D) any acquisition by Richard Kay (the
"Exempt Person") of any shares of Common Stock; or
(ii) such time as the Continuing Directors (as defined
below) do not constitute a majority of the Board (or,
if applicable, the Board of Directors of a successor
corporation to the
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Company), where the term "Continuing Director"
means at any date a member of the Board (x) who
was a member of the Board on the date of the
initial adoption of this Plan by the Board or (y)
who was nominated or elected subsequent to such
date by at least a majority of the directors who
were Continuing Directors at the time of such
nomination or election or whose election to the
Board was recommended or endorsed by at least a
majority of the directors who were Continuing
Directors at the time of such nomination or
election; provided, however, that there shall be
excluded from this clause (y) any individual whose
initial assumption of office occurred as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies
or consents, by or on behalf of a person other
than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share
exchange involving the Company or a sale or other
disposition of all or substantially all of the assets
of the Company (a "Business Combination"), unless,
immediately following such Business Combination, each
of the following two conditions is satisfied: (x) all
or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 50% of the then-outstanding shares of common
stock and the combined voting power of the
then-outstanding securities entitled to vote generally
in the election of directors, respectively, of the
resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns
the Company or substantially all of the Company's
assets either directly or through one or more
subsidiaries) (such resulting or acquiring corporation
is referred to herein as the "Acquiring Corporation")
in substantially the same proportions as their
ownership of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y)
no Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or
sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly,
20% or more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the combined
voting power of the then-outstanding securities of such
corporation
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entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior
to the Business Combination).
(2) Effect on Options
(a) Acquisition Event. Upon the occurrence of an Acquisition
Event (regardless of whether such event also constitutes a
Change in Control Event), or the execution by the Company of
any agreement with respect to an Acquisition Event
(regardless of whether such event will result in a Change in
Control Event), the Board shall provide that all outstanding
Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or
an affiliate thereof); provided that if such Acquisition
Event also constitutes a Change in Control Event, except to
the extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement
between a Participant and the Company (A) one-half of the
number of shares subject to the Option which were not
already vested shall be exercisable upon the occurrence of
such Acquisition Event and, the remaining one-half of such
number of shares shall continue to become vested in
accordance with the original vesting schedule set forth in
such option, with one-half of the number of shares that
would otherwise have first become vested becoming so vested
on each subsequent vesting date in accordance with the
original schedule. For purposes hereof, an Option shall be
considered to be assumed if, following consummation of the
Acquisition Event, the Option confers the right to purchase,
for each share of Common Stock subject to the Option
immediately prior to the consummation of the Acquisition
Event, the consideration (whether cash, securities or other
property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held
immediately prior to the consummation of the Acquisition
Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common
Stock); provided, however, that if the consideration
received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or
an affiliate thereof), the Company may, with the consent of
the acquiring or succeeding corporation, provide for the
consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or
succeeding corporation (or an affiliate thereof) equivalent
in fair market value to the per share consideration received
by holders of
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outstanding shares of Common Stock as a result of the
Acquisition Event.
Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not
agree to assume, or substitute for, such Options, then the
Board shall, upon written notice to the Participants,
provide that all then unexercised Options will become
exercisable in full as of a specified 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 before the consummation
of such Acquisition Event; provided, however, that 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"), then the Board may instead provide
that all outstanding Options shall terminate upon
consummation of such Acquisition Event and that 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.
(b) Change in Control Event that is not an Acquisition Event.
Upon the occurrence of a Change in Control Event that does
not also constitute an Acquisition Event, except to the
extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement
between a Participant and the Company, the vesting schedule
of such Option shall be accelerated in part so that one-half
of the number of shares that would otherwise have first
become vested on any date after the date of the Change in
Control Event shall immediately become exercisable. The
remaining one-half of such number of shares shall continue
to become vested in accordance with the original vesting
schedule set forth in such Option, with one-half of the
number of shares that would otherwise have first become
vested becoming so vested on each subsequent vesting date in
accordance with the original schedule.
(3) Effect on Restricted Stock Awards
(a) Acquisition Event that is not a Change in Control Event.
Upon the occurrence of an Acquisition Event that is not a
Change in Control Event, the repurchase and other rights of
the Company under each
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outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the
cash, securities or other property which the Common Stock
was converted into or exchanged for pursuant to such
Acquisition Event in the same manner and to the same extent
as they applied to the Common Stock subject to such
Restricted Stock Award.
(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement
between a Participant and the Company, the vesting schedule
of all Restricted Stock Awards shall be accelerated in part
so that one-half of the number of shares that would
otherwise have first become free from conditions or
restrictions on any date after the date of the Change in
Control Event shall immediately become free from conditions
or restrictions. Subject to the following sentence, the
remaining one-half of such number of shares shall continue
to become free from conditions or restrictions in accordance
with the original schedule set forth in such Restricted
Stock Award, with one-half of the number of shares that
would otherwise have first become free from conditions or
restrictions becoming free from conditions or restrictions
on each subsequent vesting date in accordance with the
original schedule.
(4) Effect on Other Awards
(a) Acquisition Event that is not a Change in Control Event. The
Board shall specify the effect of an Acquisition Event that
is not a Change in Control Event on any other Award granted
under the Plan at the time of the grant of such Award.
(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any Award or any other agreement between a
Participant and the Company, the vesting schedule of all
other Awards shall be accelerated in part so that one-half
of the number of shares that would otherwise have first
become exercisable, realizable, vested or free from
conditions or restrictions on any date after the date of the
Change in Control Event shall immediately become
exercisable, realizable, vested or free from conditions or
restrictions. Subject to the following sentence, the
remaining one-half of such number of shares shall
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continue to become exercisable, realizable, vested or free
from conditions or restrictions in accordance with the
original schedule set forth in such Award, with one-half of
the number of shares that would otherwise have first become
exercisable, realizable, vested or free from conditions or
restrictions becoming so exercisable, realizable, vested or
free from conditions or restrictions on each subsequent
vesting date in accordance with the original schedule.
(5) Limitations. Notwithstanding the foregoing provisions of this
Section 8(c), if the Change in Control Event is intended to be accounted for as
a "pooling of interests" for financial accounting purposes, and if the
acceleration to be effected by the foregoing provisions of this Section 8(c)
would preclude accounting for the Change in Control Event as a "pooling of
interests" for financial accounting purposes, then no such acceleration shall
occur upon the Change in Control Event.
9. 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. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award 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 Award
may be made alone or in addition or in relation to any other Award. The terms of
each 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) 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. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including
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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.
(f) 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.
(g) 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.
(h) 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 restrictions in full or in part or that any other 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.
10. 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 Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired
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upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(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 stockholders, 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.
(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 State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors of the
Company on January 18, 2000.
Approved by the stockholders of the
Company on January 18, 2000.
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EXHIBIT 10.3
OTG SOFTWARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of OTG Software,
Inc. (the "Company") and certain of its subsidiaries with opportunities to
purchase shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"). Six hundred thousand (600,000) shares of Common Stock in the
aggregate have been approved for this purpose. This Plan is intended to qualify
as an "employee stock purchase plan" as defined in Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder, and shall be interpreted consistent therewith.
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. 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 customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than six months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least six 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. Offerings will begin each
January 1 and December
1
<PAGE> 2
1, or the first business day thereafter (the "Offering Commencement Dates").
Each Offering Commencement Date will begin a six-month period (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 (12) months or less for
subsequent Offerings. Notwithstanding anything to the contrary, the first Plan
Period shall begin on the first date that the Company has filed with the United
States Securities and Exchange Commission an effective Registration Statement on
Form S-8 for purposes of registering under the Securities Act of 1933, as
amended, all shares of Common Stock issuable under this Plan, and shall end on
the June 30 or December 31 first thereafter occurring.
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. 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 remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
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 a payroll deduction in any dollar amount up to a
maximum of 10% of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made. Payroll
deductions may be at any percentage (up to 10%) of Compensation, with any change
in Compensation during the Plan Period to result in an automatic corresponding
change in the dollar amount withheld. The minimum payroll deduction is such
percentage of Compensation as may be established from time to time by the Board
or the Committee.
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
employee stock purchase plan (as defined in Section 423(b) of the Code) 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.
2
<PAGE> 3
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, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $2,083 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price is less. Such closing price
shall be (a) the closing price on any national securities exchange on which the
Common Stock is listed, (b) the closing price of the Common Stock on the Nasdaq
National Market or (c) 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. If no sales of Common Stock were made on such a day, the price
of the Common Stock for purposes of clauses (a) and (b) above shall be the
reported price for the next preceding day on which sales were made.
Notwithstanding anything to the contrary contained herein, if the first business
day of the first plan period is the day immediately after the pricing of the
Company's initial public offering, then the purchase price for shares purchased
during that initial period will be 85% of the lower of (i) the price at which
the Common Stock is sold to the public in that offering and (ii) the closing
price of the Common Stock on the Exercise Date.
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, but not in excess of the maximum
number determined in the manner set forth above.
3
<PAGE> 4
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 name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
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 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 Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder 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 exercisable during the employee's lifetime only by the
employee.
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, other than the two-for-one stock split declared by the
Board on January 18, 2000, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be
4
<PAGE> 5
increased proportionately, and such other adjustment shall be made as may be
deemed equitable by the Board 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 or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 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 cancelled 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 cancelled 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 issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
5
<PAGE> 6
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 (to the extent the Common Stock is
then so listed or quoted) and the approval of all governmental authorities
required in connection with the authorization, issuance or sale of such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. 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.
23. 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 two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take
effect on January 18, 2000 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 of
the Company on January 18, 2000.
Approved by the stockholders of the
Company on ______________, 2000.
6
<PAGE> 1
OFFICE BUILDING LEASE
FOR
OPTICAL TECHNOLOGY GROUP, INC.
ONE DEMOCRACY PLAZA
SUITES 205, 803, 805 AND 809
BETHESDA, MARYLAND 20817
CHARLES E. SMITH MANAGEMENT, INC.
2345 CRYSTAL DRIVE
CRYSTAL CITY
ARLINGTON, VIRGINIA 22202
[SMITH LOGO]
CHARLES E. SMITH COMPANIES
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SPECIFIC AND GENERAL PROVISIONS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
1. SPECIFIC PROVISIONS ............................................................... 1
2. RENT .............................................................................. 4
2.1 Base Annual Rent ........................................................... 4
2.2 Additional Rent ............................................................ 4
(a) Real Estate Taxes ...................................................... 4
(b) Operating Expenses ................................................. 4
(c) CPI ................................................................ 4
(d) Changes in Landlord's Fiscal Year .................................. 4
2.3 Additional Rent Estimates and Adjustments .............................. 4
2.4 Rent Adjustment Limit .................................................. 5
2.5 Survival of Rent Obligations ........................................... 5
2.6 Pro Rata Share ......................................................... 5
2.7 Prorated Rent .......................................................... 5
2.8 Applications of Rent ................................................... 5
2.9 Late Payment Fee ....................................................... 5
2.10 Other Tenant Costs and Expenses ........................................ 5
3. CONSTRUCTION OF PREMISES AND OCCUPANCY ............................................ 6
3.1 Tenant Plans, Construction and Rent Liability .......................... 6
3.2 Possession ............................................................. 6
3.3 Occupancy Permits ...................................................... 6
4. SUBLETTING AND ASSIGNMENT ......................................................... 6
4.1 Consent ................................................................ 6
4.2 Recapture of Premises .................................................. 6
4.3 Excess Rent ............................................................ 7
4.4 Tenant Liability ....................................................... 7
5. SERVICES AND UTILITIES ............................................................ 7
5.1 Building Standard Services and Utilities ............................... 7
5.2 Overtime Services ...................................................... 7
5.3 Excessive Electrical Usage ............................................. 7
5.4 Excessive Heat Generation .............................................. 7
5.5 Security ............................................................... 8
6. USE AND UPKEEP OF PREMISES ........................................................ 8
6.1 Use .................................................................... 8
6.2 Illegal and Prohibited Uses ............................................ 8
6.3 Insurance Rating ....................................................... 8
6.4 Alterations ............................................................ 8
6.5 Maintenance By Landlord ................................................ 9
6.6 Signs & Advertising .................................................... 9
6.7 Excessive Floor Load ................................................... 9
6.8 Moving & Deliveries .................................................... 9
6.9 Rules and Regulations .................................................. 9
6.10 Tenant Maintenance & Conditions of Premises Upon Surrender ............. 10
6.11 Tenant Equipment ....................................................... 10
7. ACCESS ............................................................................ 10
7.1 Landlord's Access ...................................................... 10
7.2 Restricted Access ...................................................... 10
8. LIABILITY ......................................................................... 10
8.1 Personal Property ...................................................... 10
8.2 Criminal Acts of Third Parties ......................................... 10
8.3 Public Liability ....................................................... 10
8.4 Tenant Insurance ....................................................... 10
9. DAMAGE ............................................................................ 11
9.1 Damages Caused by Tenant ............................................... 11
9.2 Fire or Casualty Damage ................................................ 11
9.3 Untenantability ........................................................ 11
</TABLE>
-i-
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<TABLE>
<S> <C> <C>
10. CONDEMNATION ...................................................................... 11
10.1 Landlord Rights to Award ............................................... 11
10.2 Tenant Right to File Claim ............................................. 12
11. BANKRUPTCY ........................................................................ 12
11.1 Events of Bankruptcy ................................................... 12
11.2 Landlord's Remedies .................................................... 12
12. DEFAULTS & REMEDIES ............................................................... 13
12.1 Default ................................................................ 13
12.2 Remedies ............................................................... 13
12.3 Landlord's Right to Relet .............................................. 13
12.4 Recovery of Damages .................................................... 13
12.5 Waiver ................................................................. 13
12.6 Anticipatory Repudiation ............................................... 14
12.7 Tenant Abandonment of Premises ......................................... 14
13. SUBORDINATION ..................................................................... 14
13.1 Subordination .......................................................... 14
13.2 Estoppel Certificate ................................................... 14
13.3 Attornment ............................................................. 15
13.4 Mortgagee Rights ....................................................... 15
14. TENANT HOLDOVER ................................................................... 15
14.1 With Landlord Consent .................................................. 15
14.2 Without Landlord Consent ............................................... 15
15. SECURITY DEPOSIT .................................................................. 16
16. QUIET ENJOYMENT ................................................................... 16
17. SUCCESSORS ........................................................................ 16
18. WAIVER OF JURY TRIAL .............................................................. 16
19. REASONABLENESS OF LANDLORD AND TENANT ............................................. 16
20. PRONOUNS & DEFINITIONS ............................................................ 16
21. NOTICES ........................................................................... 16
21.1 Addresses for Notices .................................................. 16
21.2 Effective Date of Notice ............................................... 16
22. EXHIBITS; SPECIAL PROVISIONS ...................................................... 16
22.1 Incorporation in Lease ................................................. 16
22.2 Conflicts .............................................................. 17
23. CAPTIONS .......................................................................... 17
24. ENTIRE AGREEMENT; MODIFICATION .................................................... 17
25. SEVERABILITY ...................................................................... 17
</TABLE>
-ii-
<PAGE> 4
This Lease, made this 25th day of January, 1996, between FIRST ROCK
SPRING PARK LIMITED PARTNERSHIP, a Maryland 1imited partnership, (hereinafter
referred to as "Landlord"), and OPTICAL TECHNOLOGY GROUP, INC., a Maryland
corporation, (hereinafter referred to as "Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, for the use set forth and for the term and at the rent
reserved herein.
1. SPECIFIC PROVISIONS
1.1 DEMISED PREMISES
(a) SPACE DESCRIPTION: Suites 205, 803, 805 and 809, all as
presently constructed.
(b) FLOOR AREA: For the period January 1, 1996, through April
30, 1996, Suite 205, consisting of
approximately 1,796 square feet; and for the
remainder of the term, Suite 205 together with
Suite 803, consisting of approximately 1,871
square feet, Suite 805, consisting of
approximately 3,444 square feet, and Suite 809,
consisting of approximately 1,153 square feet,
for a combined total of approximately 8,264
square feet (Washington D.C. Association of
Realtors Standard Floor Area Measure in effect
at the time of execution of this Lease).
(c) BUILDING: ONE DEMOCRACY PLAZA
(d) ADDRESS: 6701 Democracy Boulevard
Bethesda, Maryland 20817
1.2 TERM OF LEASE: Five (5) years and Four (4) months, commencing on
January 1, 1996 ("Lease Commencement Date"), and expiring on April
30, 2001, both dates inclusive.
1.3 BASE ANNUAL RENT: (a) Forty-Nine Thousand Three Hundred Ninety and
08/100 Dollars ($49,390.08), payable in equal monthly installments
of Four Thousand One Hundred Fifteen and 84/100 Dollars
($4,115.84), hereinafter referred to as "base monthly rent", for
the period beginning January 1, 1996, and expiring April 30, 1996.
(b) Two Hundred Twenty-Seven Thousand Two Hundred Sixty and 08/100
Dollars ($227,260.08), payable in equal monthly installments of
Eighteen Thousand Nine Hundred Thirty-Eight and 34/100 Dollars
($18,938.34), hereinafter referred to as "base monthly rent", for
the period beginning May 1, 1996, and expiring April 30, 2001.
1.4 BASE YEAR: "Base Year" shall mean fiscal year of Landlord ending
December 31, 1996.
1.5 ADDITIONAL RENT: Payable in equal monthly installments,
commencing on May 1, 1997, consisting of the following:
(a) Tenant's pro rata share equal to Four and Four Hundredths
Percent (4.04%) of any increase in Real Estate Taxes over
the Base Year Real Estate Taxes; and
(b) Tenant's pro rata share equal to Four and Nine Hundredths
Percent (4.09%) of any increase in Operating Expenses over
the Base Year Operating Expenses; and
1
<PAGE> 5
(c) A percentage of the Base Annual Rent set forth in
Subsection 1.3(b) equal to Thirty Percent (30%) of the
percentage increase in the CPI over the CPI for "the base
period" in the year 1996.
1.6 SECURITY DEPOSIT: None.
1.7 (a) DATE TENANT APPROVED PRELIMINARY PLANS TO BE FURNISHED: Not
Applicable.
(b) WORKING DAYS TO PREPARE WORKING DRAWINGS AND COST
ESTIMATE: Not Applicable.
(c) WORKING DAYS TO SUBSTANTIALLY COMPLETE CONSTRUCTION OF
DEMISED PREMISES: Not Applicable.
1.8 STANDARD BUILDING OPERATING DAYS AND HOURS:
8:00 AM to 6:00 PM Monday - Friday
8:00 AM to 1:00 PM Saturday
1.9 USE OF PREMISES:
General office use in keeping with the quality and nature of this
first class office building.
1.10 (a) ADDRESS FOR NOTICES TO TENANT:
Optical Technology Group, Inc.
6701 Democracy Boulevard
Suite 805
Bethesda, Maryland 20817
(b) ADDRESS FOR NOTICES TO LANDLORD:
First Rock Spring Park Limited Partnership
c/o Charles E. Smith Management, Inc.
2345 Crystal Drive
Arlington, Virginia 22202
ADDRESS FOR PAYMENT OF RENT:
First Rock Spring Park Limited Partnership
c/o Charles E. Smith Management, Inc.
P.O. Box 641472
Pittsburgh, Pennsylvania 15264-1472
1.11 SPECIAL PROVISIONS:
Additional Rent Section 26
Pro Rata Share Section 27
Waiver of Rent Section 28
Reimbursement for Tenant's Improvements Section 29
Acceptance of Space Section 30
Parking Section 31
Renewal Option Section 32
Subletting and Assignment Section 33
Services and Utilities Section 34
2
<PAGE> 6
Use and Upkeep of Premises Section 35
Access to Premises Section 36
Liability Section 37
Damage Section 38
Condemnation Section 39
Defaults and Remedies Section 40
Subordination Section 41
Tenant's Holdover Section 42
Limitation of Liability Section 43
Execution of Document Section 44
1.12 EXHIBITS TO LEASE:
Exhibit "A" - Not Applicable
Exhibit "B" - Not Applicable
Exhibit "C" - Building Rules and Regulations
Exhibit "D" - Not Applicable
IN WITNESS WHEREOF, Landlord has caused this Lease, comprised of Specific
Provisions, General Provisions, Special Provisions and Exhibits to be signed and
sealed by one or more of its Officers, General Partners, Trustees, or Agents,
and Tenant has caused this Lease, as described above, to be signed in its
corporate name by its duly authorized officer and its corporate seal to be
hereto affixed and duly attested by its Secretary.
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
[SIG] BY /s/ Robert P. Kogod (SEAL)
- ---------------------------------- -----------------------------
General Partner
ATTEST: TENANT: OPTICAL TECHNOLOGY GROUP
INC.
CORPORATE [SIG] BY /s/ Richard Kay (SEAL)
SEAL ------------------------- -----------------------------
Secretary Name:
Title:
3
<PAGE> 7
GENERAL PROVISIONS
2. RENT
2.1 BASE ANNUAL RENT. Tenant shall pay the first monthly installment of
Base Annual Rent upon execution of this Lease. Tenant shall pay the remaining
monthly installments of Base Annual Rent specified in Section 1.3 in advance
without deduction or demand, on the first day of each and every calendar month
throughout the entire term of the Lease, as specified in Section 1.2, to and at
the office of Landlord's Agent, Charles E. Smith Management, Inc., 2345 Crystal
Drive, Arlington, Virginia 22202, or to such other person or at such other place
as Landlord may hereafter designate in writing.
2.2 ADDITIONAL RENT. For purposes of computing additional rent hereunder,
the Base Year as used in this Section 2 is stipulated in Section 1.4. If dollar
amounts for Base Year real estate taxes and operating expenses are stipulated
under Section 1.4, such dollar amounts shall be used in calculating
additional rent for the purposes of this Lease and shall prevail regardless of
actual historical dollar amounts for the Base Year. Commencing on the date
specified in Section 1.5. and continuing throughout the term of this
Lease, Tenant shall pay to Landlord as additional rent each of the following:
(a) REAL ESTATE TAXES. Tenant's pro rata share, as indicated in
Section 1.5(a), of any increase in real estate taxes during each fiscal year of
Landlord over the Base Year real estate taxes. The term "real estate taxes"
shall mean all taxes, general and special, levied or assessed on the land and
the building improvements of which the Demised Premises is a part, and on any
land and/or improvements now or hereafter owned by Landlord that provide the
building or the Demised Premises with parking or other services.
(b) OPERATING EXPENSES. Tenant's pro rata share, as indicated in
Section 1.5 (b), of any increase in operating expenses during each fiscal year
of Landlord over the Base Year operating expenses.
(i) The term "operating expenses" shall mean any and all
expenses incurred by Landlord in connection with the servicing, operation,
maintenance and repair of the building and related interior and exterior
appurtenances of which the Demised Premises is a part, and the cost of any
services incurred in order to achieve a reduction of or to minimize the increase
in operating expenses, including without limitation, management fees, capital
expenditures for equipment or systems installed to reduce or minimize increases
in operating expenses and capital expenditures required by any governmental
ordinance, or depreciation or amortization based on the useful life expectancy
of such equipment or systems or expenditures, the cost of contesting the
validity or amount of real estate taxes, and periodic increases in ground rent
payments under any ground Lease existing at the execution of this Lease. Certain
of these expenses may be apportioned among two or more buildings in the same
complex or locality owned by Landlord and/or managed by Landlord's Agent.
(ii) Operating expenses shall not include any of the following,
except to the extent that such costs and expenses are included in operating
expenses as described in Subsection 2.2(b)(i) above: capital expenditures and
depreciation of the building; painting or decorating of tenant space; interest
and amortization of mortgages; ground rent; compensation paid to officers or
executives of Landlord; taxes as measured by the net income of Landlord
from the operation of the building; increases in real estate taxes; and
brokerage commissions.
(c) CPI. A percentage of the Base Annual Rent equal to the percent
stipulated in section 1.5(c) of the percentage increase in the Index now known
as "United States Bureau of Labor Statistics, Consumer Price Index for Urban
Wage Earners and Clerical Workers," (CPI-W) for Washington, DC-MD-VA, all items
Index (1982-84=100) (hereinafter referred to as the "Index"), between the last
published Index published for each calendar year and the Index for the same
period in the year stipulated in Section 1.5(c) (hereinafter "base period"). If
such Index shall be discontinued or revised without substitution of a comparable
successor Index, the parties shall attempt to agree upon a substitute formula.
If the parties are unable to agree upon a substitute formula, then the matter
shall be determined by arbitration in accordance with the rules of the American
Arbitration Association then prevailing. Any substitute formula determined by
arbitration shall include all of the same items included in the Index effective
at the execution of this Lease and shall be so designed as to achieve a result
as close as possible to the result that would have been achieved if the
discontinued Index were available. Costs of any such arbitration shall be shared
equally by Tenant and Landlord.
(d) Landlord shall have the right to change its fiscal year from time
to time. If Landlord changes its fiscal year during the term of this Lease,
thereby creating a fiscal year with fewer than twelve (12) months (hereinafter
"short year"), the real estate taxes and operating expenses for the short year
shall be determined on an annualized basis by taking the monthly average of the
actual real estate taxes and operating expenses, respectively, and multiplying
each by twelve. The amounts determined by this method shall be used in
determining the increases described in Subsections 2.2(a) and (b) for the "short
year".
2.3 ADDITIONAL RENT ESTIMATES AND ADJUSTMENTS.
(a) In order to provide for current monthly payments of additional
rent, Landlord shall submit to Tenant prior to January 1st of each year a
statement of Landlord's estimate of the amount of the increases described in
Section 2.2 above together with the amount of Tenant's additional rent which is
estimated to result from such increases. Commencing on the date stipulated in
Section 1.5, and continuing throughout the remaining term of this Lease, Tenant
shall pay each month one-twelfth (1/12th) of Tenant's pro rata share of
Landlord's estimate of the increase in each year for (i) real estate taxes and
(ii) operating expenses, over such items for the Base Year. In addition, Tenant
shall pay each month one-twelfth (1/12th) of Landlord's estimate of the annual
rent increase due to the percentage increase in the Consumer Price Index over
the Base Period.
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(b) If payment of additional rent begins on a date other than January
1st under this Lease, in order to provide for current payments of additional
rent through December 31st of that partial calendar year, Landlord shall submit
to Tenant a statement of Landlord's estimate of Tenant's additional rent for
that partial year, stated in monthly increments, resulting from the increases
described in Section 2.2 above. Tenant shall make these payments of estimated
additional rent together with its installments of base monthly rent.
(c) After the end of each calendar year, Landlord will as soon as
practicable submit to Tenant a statement of the actual increases incurred in
real estate taxes and operating expenses for the fiscal year ended during such
calendar year over such costs for the Base Year and the actual increase
attributable to the increase in the Consumer Price Index over the Base Period.
Such statement shall also indicate the amount of Tenant's excess payment or
underpayment based on Landlord's estimate. If additional rent paid by Tenant
during the preceding calendar year shall be in excess of, or less than, the
aggregate of its share of the actual increase incurred by Landlord for real
estate taxes and operating expenses, and the actual increase attributable to the
increase in the Consumer Price Index, Landlord and Tenant agree to make the
appropriate adjustment following the submission of Landlord's statement. Tenant
shall either pay any additional rent due with the installment of rent due for
the month following submission of Landlord's statement, or pay any additional
rent due within thirty (30) days if the Lease term has expired or is otherwise
terminated. Tenant shall deduct its excess payment, if any, from the installment
of rent for such month, or following the final year of the Lease term, Tenant
shall be reimbursed for any excess payments made.
(d) Within ten (10) days after receipt of Landlord's statement
showing actual figures for the year, Tenant shall have the right to request
copies of real estate bills and an unaudited statement of "operating expenses
of the building" prepared by Landlord's certified public accountant, which shall
be supplied to Tenant within a reasonable time after Tenant's written request.
Unless Tenant asserts specific error(s) within thirty (30) days after Landlord
has complied with Tenant's request, Tenant shall have no right to contest the
statement of actual figures for the year submitted by Landlord. No such request
shall extend the time for payments as set forth in this Section 2.3 above. If
Tenant has given proper notice, and if it shall be determined that there is an
error in Landlord's statement, Tenant shall be entitled to a credit for any
overpayment, which shall be applied to the next installment of rent or refunded
to a Tenant who has vacated the premises, or Tenant shall be billed for any
underpayment and shall remit any amount owing to Landlord within ten (10) days
of receipt of such statement.
(e) In the event Tenant questions the validity of the statement of
operating expenses submitted by Landlord, Tenant shall have the right to examine
or have its accountant examine at the office of Landlord's accountant the books
and records from which such statement has been prepared. No such examination
shall extend the time for payments due in accordance with this Section 2.3,
however. Tenant shall pay upon demand a reasonable sum to reimburse Landlord
for the costs of services of Landlord's accountant in cooperating and assisting
in the examination. If any error amounting to more than five (5) percent in the
operating expenses statement is found, Landlord shall bear its accountant's
costs as aforesaid.
2.4 RENT ADJUSTMENT LIMIT. Notwithstanding any adjustments to rent as
provided for above, in no event shall the total rent to be paid by tenant in any
month during the term of this Lease or any extension thereof be less than the
base monthly rent stipulated in Section 1.3.
2.5 SURVIVAL OF RENT OBLIGATION. The obligation of Tenant with respect to
the payment of rent, or additional rent as defined in Sections 2.2 and 2.10,
accrued and unpaid during the term of the Lease, shall survive the expiration
or earlier termination of the Lease.
2.6 PRO RATA SHARE. Tenant's "pro rata share" stipulated in Section 1.5(a)
and (b) represents the ratio that the area of the Demised Premises bears to the
total rentable area of office space contained in the building.
2.7 PRORATED RENT. Any rent or additional rent payable for one or more
full calendar months in a partial calendar year at the beginning or end of the
Lease term shall be prorated based upon the number of months. Any rent or
additional rent payable for a portion of a month shall be prorated based upon
the number of days in the applicable calendar month.
2.8 APPLICATION OF RENT. No payment by Tenant or receipt by Landlord of
lesser amounts of rent or additional rent than those herein stipulated shall be
deemed to be other than on account of the earliest unpaid stipulated rent. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such rent or pursue any other remedy provided in this Lease. Any
credit due to Tenant hereunder by reason of overpayment of additional rent shall
first be applied to any damages or rent owed to Landlord by Tenant if Tenant
shall be in default when said credit shall be owed.
2.9 LATE PAYMENT FEE. In the event any installment of rent or additional
rent due hereunder is not paid within ten (10) calendar days after it is due,
then Tenant shall also pay to Landlord as additional rent a late payment fee
equal to five percent (5%) of such delinquent rent for each and every month or
part thereof such rent remains unpaid.
2.l0 OTHER TENANT COSTS & EXPENSES. All costs and expenses which Tenant
assumes or agrees to pay to Landlord pursuant to this Lease, including without
limitation costs of construction and alterations, shall be deemed additional
rent and, in the event of nonpayment thereof, Landlord shall have all the
rights and remedies herein provided for in case of nonpayment of rent,
including assessment of late payment fees.
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3. CONSTRUCTION OF PREMISES AND OCCUPANCY
3.1 TENANT PLANS, CONSTRUCTION AND RENT LIABILITY. Tenant shall deliver to
Landlord for its approval, by the date specified in Section 1.7(a),
preliminary plans approved in writing by Tenant showing its partition,
electrical, telephone and all other requirements set forth in Tenant Plans
Guidelines (which shall have been provided by Landlord to Tenant). Tenant
preliminary plans shall permit the preparation of working drawings and cost
estimate, and shall be certified by Tenant's architects or engineers to be in
compliance with applicable building and fire codes. Landlord's approval of
Tenant plans or work does not constitute certification by Landlord that said
plans or work meet the applicable requirements of any building codes, laws,
or regulations, nor shall it impose any liability whatsoever upon Landlord. If
Tenant's plans are not in compliance with applicable building and fire codes,
they shall not be deemed acceptable to Landlord. If Tenant's plans are
acceptable to Landlord, Landlord shall have working drawings prepared. Nothing
contained in this Section 3.1, nor any delay in completing the Demised
Premises, shall in any manner affect the commencement date of this Lease set
forth in Section 1.2 or Tenant's liability for the payment of rent from such
commencement date, except as follows. If Landlord requires longer than the
number of working days stipulated in Section 1.7(b) to prepare working
drawings and prepare the cost estimate following receipt of Tenant's approved
preliminary drawings, or if Landlord requires longer than the number of
working days stipulated in Section 1.7(c) to substantially complete construction
improvements in the Demised Premises, then the date for payment of rent
covenanted and reserved to be paid herein shall be put off by one day for each
extra day Landlord requires for the foregoing preparation of working drawings
and cost estimate and/or substantial completion of construction improvements.
For purposes of this Section 3.1, substantial completion of construction
improvements shall mean when all work to be performed by Landlord pursuant to
the approved working drawings has been completed, except for minor items of work
and minor adjustments of equipment and fixtures that can be completed after
occupancy of the Demised Premises without causing undue interference with
Tenant's reasonable use of the Demised Premises (i.e., so-called "punch-list"
items). In the event Tenant's plans specify any improvements that are not
building standard, however, the delivery and installation of which precludes
Landlord from completing the Demised Premises for Tenant's occupancy by the
commencement date hereof, or in the event any work to be performed by Tenant or
Tenant's contractors delays Tenant's occupancy by the commencement date
hereof, Tenant shall nevertheless remain liable for the payment of rent from
such commencement date.
3.2 POSSESSION. If Landlord shall be unable to tender possession of the
Demised Premises on the date of the commencement of term hereof, set forth in
Section 1.2, by reason of: (a) the fact that the premises are located in a
building being constructed and which has not been sufficiently completed to make
the premises ready for occupancy; (b) the holding over or retention of
possession of any tenant or occupant; or (c) for any other reason beyond control
of Landlord, Landlord shall not be subject to any liability for the failure to
tender possession on said date. In the case of holding over, provided Landlord
shall promptly institute suit for recovery of the premises and diligently pursue
the same, Landlord shall have no responsibility for any delay in tendering
possession of the Demised Premises. Under such circumstances the rent reserved
and covenanted to be paid herein shall not commence until possession of the
Demised Premises is tendered to Tenant. No such failure to give possession on
the date of commencement of the term shall in any other respect affect the
validity of this Lease or the obligations of Tenant hereunder, nor shall same be
construed to extend the termination date of this Lease set forth in Section
1.2. If permission is given to Tenant to enter into possession of the Demised
Premises prior to the date specified as the commencement of the term of this
Lease, Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this Lease, except
that Tenant shall be responsible for payment of rent, in advance, at the rate of
1/30th of the base monthly rent set forth in Section 1.3 for each day of such
occupancy prior to the date for the commencement of the term of this Lease.
3.3 OCCUPANCY PERMITS. Tenant shall be responsible for obtaining occupancy
permits and any other permits or licenses necessary for its lawful occupancy of
the Demised Premises.
4. SUBLETTING AND ASSIGNMENT
4.1 CONSENT. Tenant will not sublet the Demised Premises or any part
thereof or transfer possession or occupancy thereof to any person, firm or
corporation, or transfer or assign this Lease, without the prior written consent
of Landlord, which consent shall be in Landlord's sole discretion to give or
withhold. No subletting or assignment hereof shall be effected by operation of
law or in any other manner unless with prior written consent of Landlord. Tenant
further agrees that any permitted subletting of the Demised Premises shall be
subject to the provisions of Section 4.3. No assignment shall be made except
for the entire premises demised by this Lease. Tenant further agrees that any
permitted assignment of the Lease may be conditioned upon payment of
consideration to be agreed upon by Landlord and Tenant. Any subletting or
assignment consented to by Landlord shall be evidenced in writing in a form
acceptable to Landlord. Consent by Landlord to any assignment or subletting by
Tenant shall not operate as a waiver of the necessity for obtaining Landlord's
consent in writing to any subsequent assignment or subletting; nor shall the
collection or acceptance of rent from any such assignee, subtenant or occupant
constitute a waiver or release of Tenant of any covenant or obligation
contained in this Lease. In the event that Tenant defaults under this Lease in
the payment or rent or additional rent, Tenant hereby assigns to Landlord the
rent due from any subtenant of Tenant and hereby authorizes each such
subtenant to pay said rent directly to Landlord.
4.2 RECAPTURE OF PREMISES. In the event Tenant desires to sublet the
Demised Premises or assign the Lease, Tenant shall give the Landlord written
notice of Tenant's intended subtenant or assignee in order to secure Landlord's
written consent in accordance with Section 4.1. Within ninety (90) days of
receipt of said notice, Landlord shall have the right: (i) to terminate this
Lease by giving Tenant not less than thirty (30) days' notice in the case of an
assignment of the entire Lease or a subletting of more than fifty percent (50%)
of the Demised Premises; or (ii) to) terminate this Lease and simultaneously
to enter into a new Lease with
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Tenant for that portion of the Demised Premises Tenant may desire to retain upon
the same terms, covenants and conditions of the existing Lease as applicable to
the space retained. If Landlord exercises its right to terminate this Lease,
Tenant agrees that Landlord shall have access to all or a portion of the
Demised Premises sixty (60) days prior to the effective termination date for
remodeling or redecorating purposes.
4.3 EXCESS RENT. In the event Landlord does not exercise its right to
terminate this Lease, and Landlord has granted its written consent, Tenant may
sublet all or a portion of the Demised Premises. Any rent accruing to Tenant as
the result of such sublease, which is in excess of the pro rata share of rent
then being paid by Tenant for the portion of the Demised Premises being
sublet, shall be paid by Tenant to Landlord monthly as additional rent.
4.4 TENANT LIABILITY. In the event of any subletting of the Demised
Premises or assignment of this Lease by Tenant, with or without Landlord's
consent, Tenant shall remain liable to Landlord for payment of the rent
stipulated herein and all other covenants and conditions contained herein.
5. SERVICES AND UTILITIES
5.1 BUILDING STANDARD SERVICES AND UTILITIES. Landlord shall furnish
sufficient electric current for lighting and office equipment, such as
typewriters, calculators, small copiers and similar items, subject to the
limitations of Section 5.3, water for lavatory and drinking purposes, lavatory
supplies, fluorescent tube replacements, automatically operated elevator
service and nightly cleaning service in accordance with Landlord's prevailing
practices, as they may be established from time to time, except that Landlord
shall not be responsible for cleaning Tenant kitchens or private bathrooms,
Tenant rugs, carpeting and drapes. Landlord further agrees to furnish heating
and cooling during the appropriate seasons of the year, between the hours and
on the days set forth in Section 1.8 (exclusive of legal public holidays as
defined in Section 6103 (a) and (c) of Title 5 of the United States Code, as it
may be hereafter be amended, with holidays falling on Saturday observed on the
preceding Friday and holidays falling on Sunday observed on the following
Monday). All of the aforesaid services shall be provided without cost to Tenant
except as such expenses may be included in calculating the additional rent
pursuant to the provisions of Sections 2.2 and 2.3. Landlord shall not be
liable for failure to furnish, or for suspension or delays in furnishing, any
of such services caused by breakdown, maintenance or repair work, strike, riot,
civil commotion, governmental regulations or any other cause or reason whatever
beyond the control of Landlord. Suspension or interruption of services shall
not result in any abatement of rent, be deemed an eviction or relieve Tenant of
performance of Tenant's obligations under this Lease.
5.2 OVERTIME SERVICES. Should Tenant require heating and cooling services
beyond the hours and/or days stipulated in Section 1.8, upon receipt of at
least 72 hours prior written notice from Tenant, Landlord will furnish such
additional service at the then prevailing hourly rates, as established by
Landlord from time to time; provided, further, that there will be a minimum
charge of four (4) hours each time overtime services are required.
5.3 EXCESSIVE ELECTRICAL USAGE.
(a) Tenant will not install or operate in the Demised Premises any
heavy duty electrical equipment or machinery without first obtaining prior
written consent of Landlord. Landlord may, among other conditions, require
as a condition to its consent for the installation of such equipment or
machinery, payment by Tenant as additional rent for excess consumption of
electricity that may be occasioned by the operation of said equipment or
machinery. Landlord may make periodic inspections of the Demised Premises at
reasonable times to determine that Tenant's electrically operated equipment
and machinery complies with the provisions of this Section and Section
5.4.
(b) The total average consumption of electricity, including lighting,
in excess of five (5) watts per square foot for the Demised Premises shall be
deemed excessive. Additionally, any individual piece of electrically operated
machinery or equipment having a name plate rating in excess of two (2) kilowatts
shall also be deemed as requiring excess electric current.
(c) Landlord may require that one or more separate meters be
installed to record the consumption or use of electricity, or shall have the
right to cause a reputable independent electrical engineer to survey and
determine the quantity of electricity consumed by such excessive use. The cost
of any such survey or meters and of installation, maintenance and repair
thereof shall be paid for by Tenant. Tenant agrees to pay Landlord (or the
utility company, if direct service is provided by the utility company),
promptly upon demand therefor, for all such electric consumption and
demand as shown by said meters, or a flat monthly charge determined by the
survey, as applicable, at the rates charged for such service by the local
public utility company. If Tenant's cost of electricity based on meter
readings is to be paid to Landlord, Tenant shall pay a service charge related
thereto.
5.4 EXCESSIVE HEAT GENERATION. Landlord shall not be liable for its
failure to maintain comfortable atmospheric conditions in all or any portion of
the Demised Premises due to heat generated by any equipment, machinery or
additional lighting installed by Tenant (with or without Landlord's consent)
that exceeds design capabilities for the building of which the Demised Premises
are a part. If Tenant desires additional cooling to offset excessive heat
generated by such equipment or machinery, Tenant shall pay for auxiliary
cooling equipment, and its operating costs including without limitation
electricity, gas, oil and water, or for excess electrical consumption by the
existing cooling system, as appropriate.
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5.5 SECURITY. Any security measures that Landlord may undertake, are for
protection of the building only and shall not be relied upon by Tenant to
protect Tenant, Tenant's property, or employees, or their property.
6. USE AND UPKEEP OF PREMISES
6.1 USE. Tenant shall use and occupy the Demised Premises for the purposes
specified in Section 1.9 and only in accordance with applicable zoning and other
municipal regulations and for no other purpose whatsoever.
6.2 ILLEGAL AND PROHIBITED USES. Tenant will not use or permit the
Demised Premises or any part thereof to be used for any disorderly, unlawful or
extra hazardous purpose and will not manufacture any commodity therein. Tenant
will not use or permit the Demised Premises to be used for any purposes that
interfere with the use and enjoyment by other tenants of the building
nor which, in Landlord's opinion, impair the reputation or character of the
building of which the Demised Premises form a part. Tenant shall refrain from
and discontinue such use upon receipt of written notice from Landlord or
no later than three (3) days after mailing thereof.
6.3 INSURANCE RATING. Tenant will not do or permit anything to be done in
the Demised Premises or the building of which they form a part or bring or keep
anything therein which shall in any way increase the rate of fire or other
insurance in said building, or on the property kept therein, or obstruct, or
interfere with the rights of other tenants, or in any way injure or annoy them,
or those having business with them, or conflict with them, or conflict with the
fire laws or regulations, or with any insurance policy upon said building or
any part thereof, or with any statutes, rules or regulations enacted or
established by the appropriate governmental authority.
6.4 ALTERATIONS.
(a) Tenant will not make any alterations, installations, changes,
replacements, repairs, additions or improvements (structural or otherwise) in or
to the Demised Premises or any part thereof, without the prior written consent
of Landlord. All Tenant plans and specifications shall be submitted to Landlord
for prior approval. Landlord may, among other things, condition its consent upon
Tenant's agreement that any construction up-gradings required by any
governmental authority as a the result of Tenant's work, either in the Demised
Premises or in any other part of the building, will be paid for by Tenant.
Tenant shall not install any equipment of any kind or nature whatsoever which
will or may necessitate any changes, replacements or additions to the water
system, plumbing system, heating system, air-conditioning system or the
electrical system of the Demised Premises without the prior written consent of
the Landlord. Tenant shall not install or use in the building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator or any other similar apparatus without the
prior written consent of Landlord, and then only as Landlord may direct. Tenant
shall not modify or interfere with the heating, ventilating and
air-conditioning supply, return or control systems without the prior written
consent of Landlord, and then only as Landlord may direct. Landlord may
condition its consent upon Tenant's payment of all costs to make such changes,
replacement or modifications. Landlord's consent to any work by Tenant or
approval of Tenant plans or specifications shall not be deemed a certification
that such work complies with applicable building codes, laws or regulations, nor
shall it impose any liability whatsoever upon Landlord.
(b) All of Tenant's approved work shall be done in accordance with
Landlord's Supplemental Rules and Regulations for Contractors and shall be done
by duly licensed contractors in accordance with all applicable laws, codes,
ordinances, rules and regulations, and Tenant shall obtain at its cost any
required permits, licenses or inspections for performance of its work. Tenant
must obtain an executed waiver of lien from each contractor or vendor that
will perform or furnish to Tenant work, labor, services or materials for any
alterations, installations, replacements, additions or improvements in or to the
Demised Premises, prior to the commencement of such work. Notwithstanding the
aforesaid, if any mechanic's lien shall at any time, whether before, during
or after the Lease term, be filed against any part of the building by reason to
work, labor, services or materials performed for or furnished to Tenant, Tenant
shall forthwith cause the lien to be discharged of record or bonded off to the
satisfaction of Landlord. If Tenant shall fail to cause such lien to be
discharge or bonded off within five (5) days after being notified of the filing
thereof, then, in addition to any other right to remedy of Landlord, Landlord
may discharge the lien by paying the amount claimed to be due. The amount
paid by Landlord, and all costs and expenses, including reasonable attorney's
fees incurred by Landlord in procuring the discharge of the lien, shall be
due and payable by Tenant to Landlord as additional rent on the first day of
the next following month, or if the Lease term has expired, upon demand.
(c) All alterations, installations, including without limitation wall
to wall carpet and drapery and drapery accessories, changes, replacements,
repairs, additions, or improvements to or within the Demised Premises (whether
with or without Landlord's consent), shall at the election of Landlord remain
upon the Demised Premises and be surrendered with the Demised Premises at the
expiration of this Lease without disturbance, molestation or injury. Should
Landlord elect that alterations, installations, changes, replacements, repairs,
additions to or improvements made by or for Tenant upon the Demised Premises
be removed upon termination of this Lease or upon termination of any renewal
period hereof, Tenant hereby agrees that Landlord shall have the right to cause
same to be removed at Tenant's sole cost and expense. Tenant hereby agrees to
reimburse Landlord for the cost of such removal together with the cost of
repairing any damage
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resulting therefrom, and the cost of restoring the premises to its condition and
commencement of the term of this Lease as initially improved by Landlord.
Approximately sixty (60) days prior to Tenant's scheduled vacation of the
Demised Premises, Landlord and Tenant shall meet to decide what items shall be
removed and what items shall remain. At such time Tenant shall deposit with
Landlord an amount equal to the estimated costs of removal and/or restoration of
the Demised Premises, which work shall be performed by or for Landlord at
Tenant's expense.
(d) In the event that either Landlord or Tenant, during the term
hereby demised, shall be required by the order or decree of any court, or any
other governmental authority, or by law, code or ordinance, to repair, alter,
remove reconstruct, or improve any part of the Demised Premises or of the
building of which said premises are a part, then Tenant shall make or Tenant
shall be required to permit Landlord to perform such repairs, alterations,
removals, reconstructions, or improvements without effect whatsoever to the
obligations or covenants of Tenant herein contained, and Tenant hereby waives
all claims for damages or abatement of rent because of such repairing,
alteration, removal, reconstruction, or improvement.
6.5 MAINTENANCE BY LANDLORD. Landlord shall maintain all public or
common areas located in the building, including external and structural parts of
the building that do not comprise a part of the Demised Premises and are not
Leased to others. Such maintenance shall be provided without cost to Tenant
except as such expenses may be included in calculating the additional rent
pursuant to the provisions of Sections 2.2 and 2.3.
6.6 SIGNS & ADVERTISING. No sign, advertisement or notice shall be
inscribed, painted or affixed on any part of the outside of the building, or
inside of the Demised Premises where it may be visible from the public areas of
the building, except on the directories and doors of offices, and then only in
such size, color and style as Landlord shall approve. Landlord shall have the
right to prohibit any advertisement or publication of Tenant on-or off-premises
which in Landlord's opinion tends to impair the reputation or character of the
building, Landlord or its agent. Tenant shall refrain from and discontinue such
advertisement or publication upon receipt of written notice from Landlord or no
later than three (3) days after mailing hereof.
6.7 EXCESSIVE FLOOR LOAD. Landlord shall have the right to prescribe
the weight and method of installation and position of safes, computer equipment,
or other heavy fixtures or equipment. Tenant will not install in the Demised
Premises any fixtures, equipment or machinery that will place a load upon the
floor exceeding the designed floor load capacity of the building. Landlord may
prescribe the placement and positioning of all such objects within the building,
and such objects shall be placed upon platforms, plates or footings of such size
as Landlord shall prescribe if necessary. All damage done to the building by
installing or removing a safe or any other article of Tenant's office equipment,
or due to its being in the Demised Premises, shall be repaired at the expense
of Tenant.
6.8 MOVING & DELIVERIES.
(a) Moving in or out of the building is prohibited on days and
hours specified in Section 1.8. Tenant shall provide Landlord with forty-eight
(48) hours advanced written notice of any move and obtain Landlord's approval
therefor in order to facilitate scheduling use of freight elevators and loading
area.
(b) No freight, furniture or other bulky matter of any description
shall be received into the building or carried in the elevators, except as
authorized by Landlord. All moving of furniture, material and equipment shall be
under the direct control and supervision of Landlord, who shall, however, not be
responsible for any damage to or charges for moving same. Tenant shall promptly
remove from the public area adjacent to said building any of Tenant's property
delivered or deposited there.
(c) Any and all damage or injury to the Demised Premises or the
building caused by moving the property of Tenant into or out of the Demised
Premises shall be repaired at the sole cost of Tenant. Deliveries from lobby and
freight areas requiring use of hand carts shall be restricted to freight
elevators. All hand carts used in delivery, receipt or movement of freight,
supplies, furniture, or fixtures shall be equipped with rubber tires and side
guards. Tenant shall cooperate identifying delivery contractors and movers
causing damage to the building.
6.9 RULES AND REGULATIONS. Tenant shall, and shall insure that
Tenant's agents, employees, invitees and guests, faithfully keep, observe and
perform the Building Rules and Regulations set forth in Exhibit C, attached
hereto and made a part hereof, and such other reasonable rules and regulations
as Landlord may make, which shall not substantially interfere with the intended
use of the Demised Premises, which in Landlord's judgment are needful for the
general well being, operation and maintenance of the Demised Premises and the
building of which they are a part, together with their appurtenances, unless
waived in writing the Landlord. In addition to any other remedy provided for
herein, Landlord shall have the right to impose a fine of $200 per incident for
violations of Building Rules and Regulations. Nothing contained in this
Lease shall be construed to impose upon Landlord any duty or obligation to
enforce such rules and regulations, or the terms, conditions or covenants
contained in any other Lease, as against any other tenant, and Landlord
shall not be liable to Tenant for violation of the same by any other tenant, its
employees, agents, business invitees, licensees, customers, clients family
members or guests. Further, it shall be in Landlord's reasonable judgment to
determine whether Tenant is in compliance with the Rules and Regulations.
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6.10 TENANT MAINTENANCE & CONDITIONS OF PREMISES UPON SURRENDER.
Tenant will keep the Demised Premises and the fixtures and equipment therein in
good order and condition, will suffer no waste or injury thereto, and will, at
the expiration or other termination of the term hereof, surrender and deliver
up the same in like good order and condition as the premises shall be at the
commencement of the term of this Lease, subject to the provisions of Section
6.4(c), ordinary wear and tear excepted.
6.11 TENANT EQUIPMENT. Maintenance and repair of equipment such as
special light fixtures, kitchen fixtures, auxiliary heating, ventilation, or
air-conditioning equipment, private bathroom fixtures and any other type of
special equipment together with related plumbing or electrical services, or
Tenant rugs, carpeting and drapes within the Demised Premises, whether installed
by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility
of Tenant, and Landlord shall have no obligation in connection therewith.
Notwithstanding the provisions hereof, in the event that repairs required to
be made by Tenant become immediately necessary to avoid possible injury or
damage to persons or property, Landlord may, but shall not be obligated to,
make repairs to Tenant equipment at Tenant's expense. Within ten (10) days
after Landlord renders a bill for the cost of said repairs, Tenant shall
reimburse Landlord.
7. ACCESS
7.1 LANDLORD'S ACCESS. Landlord, its agent or employees, shall have
the right to enter the Demised Premises at all reasonable times (a) to make
inspections or to make such repairs and maintenance to the Demised Premises or
repairs and maintenance to other premises as Landlord may deem necessary; (b) to
exhibit the premises to prospective tenants during the last six (6) months of
the term of this Lease; and (c) for any purpose whatsoever relating to safety,
protection or preservation of the building of which the Demised Premises form
a part.
7.2 RESTRICTED ACCESS. No additional locks, other devices or systems
which would restrict access to the Demised Premises shall be placed upon any
doors without the prior consent of Landlord. Landlord's consent to installation
of anti-crime warning devices or security systems shall not be unreasonably
withheld; provided Landlord shall not be required to give such consent unless
Tenant provides Landlord with a means of access to the demised premised for
emergency and routine maintenance purposes. Unless access to the Demised
Premises is provided during the hours when cleaning service is normally
rendered, Landlord shall not be responsible for providing such service to the
Demised Premises or to those portions thereof which are inaccessible. Such
inability by Landlord to provide cleaning services to inaccessible areas shall
not entitle Tenant to any adjustment in rent.
8. LIABILITY
8.1 PERSONAL PROPERTY. All personal property of Tenant in the Demised
Premises or in the building of which the Demised Premises is a part shall be at
the sole risk of Tenant. Landlord shall not be liable for any damage thereto or
for the theft or misappropriation thereof, unless such damage, theft or
misappropriation is directly attributable to the negligence of Landlord, its
agents or employees. Landlord shall not be liable for any accident to or damage
to property of Tenant resulting from the use or operation of elevators or of the
heating, cooling, electrical or plumbing apparatus, unless caused by and due to
the negligence of Landlord, its agents or employees. Landlord shall not, in any
event, be liable for damages to property resulting from water, steam or other
causes. Tenant hereby expressly releases Landlord from any liability incurred or
claimed by reason of damage to Tenant's property, unless said damages are proved
to be the direct result of negligence of Landlord, its agents or employees.
Landlord shall not be liable in damages, nor shall this Lease be affected, for
conditions arising or resulting, and which affect the building of which the
Demised Premises is a part, due to construction on contiguous premises.
8.2 CRIMINAL ACTS OF THIRD PARTIES. Landlord shall not be liable in
any manner to Tenant, its agents, employees, invitees or visitors for any injury
or damage to Tenant, Tenant's agents, employees, invitees, or visitors, or their
property, caused by the criminal or intentional misconduct of third parties or
of Tenant, Tenant's employees, agents, invitees, or visitors. All claims against
Landlord for any such damage or injury are hereby expressly waived by Tenant,
and Tenant hereby agrees to hold harmless and indemnify Landlord from all such
damages and the expense of defending all claims made by Tenant's employees,
agents, invitees, or visitors arising out of such acts.
8.3 PUBLIC LIABILITY. Landlord assumes no liability or responsibility
whatsoever with respect to the conduct and operation of the business to be
conducted upon the Demised Premises. Landlord shall not be liable for any
accident to or injury to any person or persons or property in or about the
Demised Premises which are caused by the conduct and operation of said business
or by virtue of equipment or property of Tenant in said premises. Tenant agrees
to hold Landlord harmless against all such claims, and indemnify Landlord from
all damages and the expense of defending all such claims.
8.4 TENANT INSURANCE.
(a) Tenant at its cost shall maintain as named insured, during
the term of this Lease, public liability and property damage insurance with at
least a single combined liability and property damage limit of $1,000,000.00,
insuring against all liability of Tenant and its authorized representatives
arising out of and in connection with Tenant's use or occupancy of the
premises. All public liability insurance and property damage insurance
shall insure performance by Tenant of the indemnity provisions of Section
8.1, 8.2 and 8.3. Landlord and Landlord's Agent shall be named as additional
insureds. The policy shall contain cross-liability endorsements, and an
assummed contractural liability endorsement that refers expressly to this Lease.
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(b) Tenant at its cost shall maintain as named insured, during the
term of this Lease, fire and extended coverage insurance of the Demised Premises
and its contents, including any Leasehold improvements made by Tenant, in an
amount sufficient so that no co-insurance will be payable in case of loss.
(c) Tenant shall increase its insurance coverage as required not
more frequently than each three (3) years, if in the opinion of the mortgagee of
the building or Landlord's insurance agent the amount of public liability and
property damage insurance coverage at that time is not adequate.
(d) All insurance required under this Lease shall be insurance
companies authorized to do business in the jurisdiction where the building of
which the Demised Premises is a part is located. Such companies shall have a
policyholder rating of at least "A" and be assigned a financial size category of
a least "Class XIV" as rated in the most recent edition of "Best's Key Rating
Guide" for insurance companies. Each policy shall contain an endorsement
requiring 30 days' written notice from the insurance company to Landlord
before cancellation or any charge in the coverage, scope or amount of any
policy. Each policy, or a certificate showing it is in effect, together with
evidence of payment of premiums, shall be deposited with Landlord at least
thirty (30) days prior to the expiration date of any policy.
(e) Notwithstanding the fact that any liability of Tenant to
Landlord may be covered by Tenant's insurance, Tenant's liability shall in no
way be limited by the amount of its insurance recovery.
9. DAMAGE
9.1 DAMAGES CAUSED BY TENANT. Subject to the provision of Section 9.2,
all injury to the Demised Premises and other portions of the building of which
it is a part, caused by Tenant, its agents, employees, invitees and visitors,
will be repaired by Landlord at the expense of Tenant, except as otherwise
provided in Section 6.11, or repaired by Tenant with Landlord's approval in
accordance with Section 6. Tenant shall reimburse Landlord for such repairs
within ten (10) days of receipt of invoice from Landlord of the costs. At its
election, Landlord may regard the same as additional rent, in which event the
cost shall become additional rent payable with the installment of rent next
becoming due after notice is received by Tenant from Landlord. This provision
shall be construed as an additional remedy granted to Landlord and not in
limitation of any other rights and remedies which Landlord has or may have in
said circumstances.
9.2 FIRE OR CASUALTY DAMAGE. In the event of damage or destruction of
the Demised Premises by fire or any other casualty without the fault or neglect
of Tenant, its agents, employees, invitees or visitors, this Lease shall not
be terminated, but structural damage to the premises including demising
partitions and doors shall be promptly and fully repaired and restored as the
case may be by Landlord at its own cost and expense. Due allowance, however,
shall be given for reasonable time required for adjustment and settlement of
insurance claims, and for such other delays as may result from government
restrictions, and controls on construction, if any, and for strikes, national
emergencies and other conditions beyond the control of Landlord. Restoration by
Landlord shall not include replacement of furniture, equipment or other items
that do not become part of the building or any improvements to the Demised
Premises in excess of those provided for as building standard items as of the
commencement date of this Lease. Tenant shall be responsible for the repair and
restoration of the Demised Premises and Tenant's property beyond Landlord's
obligation at no cost to Landlord, in accordance with the provisions of Section
6, for which it shall maintain adequate insurance pursuant to Section 8.4
herein. In the event of fire or casualty damage to the Demised Premises caused
by the fault or neglect of Tenant, its agents, employees, invitees or visitors,
Landlord shall restore structural damages as described herein at Tenant's cost
and expense. It is agreed that in any of the aforesaid events, this Lease
shall continute in full force and effect.
9.3 UNTENANTABILITY. If the condition referred to in Section 9.2 is
such so as to make the entire premises untenantable, then the rental which
Tenant is obligated to pay hereunder shall abate as of the date of the
occurrence until the premises have been fully and completely restored by
Landlord. Any unpaid or prepaid rent for the month in which said condition
occurs shall be prorated. If the premises are partially damaged or
destroyed, then during the period that Tenant is deprived of the use of the
damaged portion of said premises, Tenant shall be required to pay rental
covering only that part of the premises that it is able to occupy, based on the
portion of the total rent which the amount of square foot area remaining that
can be occupied bears to the total square foot area of all premises covered
by this Lease. In the event the premises are substantially or totally
destroyed by fire or other casualty so as to be entirely untenantable, and
it shall require more than ninety (90) days from the date of said fire or
other casualty for Landlord to complete restoration of same, then Landlord,
upon written notice to Tenant, may terminate this Lease, in which case the
rent shall be apportioned and paid to the date of said fire or other
casualty. Due allowance, however, shall be given for reasonable time
required for adjustment and settlemnent of insurance claims, and for such
other delays as may result from government restrictions, and controls on
construction, if any, and or strikes, national emergencies and other conditions
beyond the control of Landlord. No compensation, or claim, or diminution of
rent will be allowed or paid by Landlord, by reason of inconvenience,
annoyance, or injury to business, arising from the necessity of repairing the
Demised Premises or any portion of the building of which they are a
part.
10. CONDEMNATION
10.1 LANDLORD RIGHTS TO AWARD. Tenant agrees that if the whole or a
substantial part of the Demised Premises shall be taken or condemned for
public or quasi-public use or purpose by any competent authority, Tenant
shall have no claim against Landlord and shall not have any claim or right
to any portion of the amount that may be awarded as damages paid as a result of
any such condemnation. All rights of
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Tenant to damages (therefore if any), are hereby assigned by Tenant to Landlord.
Upon such condemnation or taking, the term of this Lease shall cease and
terminate from the date of such government taking or condemnation. If a portion
of the building or the Demised Premises is taken or condemned, and the remainder
in Landlord's opinion is not economically usable, Landlord shall notify Tenant
of the termination of this Lease effective as of the date of such governmental
taking or condemnation. Tenant shall have no claim against Landlord for the
value for any unexpired term of this Lease. If less than a substantial part of
the Demised Premises is taken or condemned by any governmental authority for
public or quasi-public use or purpose and the remainder is usable by Tenant,
the rent shall be equitably adjusted on the date when title vests in such
governmental authority and the Lease shall otherwise continue in full force
and effect. For the purposes of this Section 10, a substantial part of the
Demised Premises shall be considered to have been taken if more than fifty
percent (50%) of the Demised Premises are unusable by Tenant.
10.2 TENANT RIGHT TO FILE CLAIM. Nothing in Section 10.1 shall preclude
Tenant from filing a separate claim against the condemning authority for the
undepreciated value of its Leasehold improvements and relocation expenses,
provided that any award to Tenant will not result in a diminution of any award
to Landlord.
11. BANKRUPTCY
11.1 EVENTS OF BANKRUPTCY. The following shall be Events of Bankruptcy
under this Lease:
(a) Tenant's becoming insolvent, as the term is defined in Title
11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all of
Tenant's property or assets, or the institution of a foreclosure action upon
any of Tenant's real or personal property;
(c) The filing of a voluntary petition under the provisions of
the Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within thirty (30) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is later; or
(e) Tenant's making or consenting to an assignment for the
benefit of creditors of a common law composition of creditors.
11.2 LANDLORD'S REMEDIES.
(a) Termination of Lease. Upon occurrence of an Event of
Bankruptcy, Landlord shall have the right to terminate this Lease by giving
written notice to Tenant; provided, however, that this Section 11.2(a) shall
have no effect while a notice in which Tenant is the subject debtor under
the Bankruptcy Code is pending, unless Tenant or its Trustee is unable to
comply with the provisions of Section 11.2(d) and (e) below. At all other times
this Lease shall automatically cease and terminate, and Tenant shall be
immediately obligated to quit the premises upon the giving of notice
pursuant to this Section 11.2(a). Any other notice to quit, or notice of
Landlord's intention to re-enter is hereby expressly waived. If Landlord
elects to terminiate this Lease, everything contained in this Lease on the
part of Landlord to be done and performed shall cease without prejudice,
subject, however, to the rights of Landlord to recover from Tenant all rent
and other sums accrued up to the time of termination or recovery of
possession by Landlord, whichever is later, and any other monetary
damages or loss of reserved rent sustained by Landlord.
(b) Suit for Possession. Upon termination of this Lease
pursuant to Section 11.2(a), Landlord may proceed to recover possession under
and by virtue of the provisions of the laws of any applicable jurisdiction,
or by such other proceedings, including reentry and possession, as may be
applicable.
(c) Non-Exclusive Remedies. Without regard to any action by
Landlord as authorized by Section 11.2(a) and (b) above, Landlord may at its
discretion exercise all the additional provisions set forth below in Section 12.
(d) Assumption or Assignment by Trustee. In the event Tenant
becomes the subject debtor in a case pending under the Bankruptcy Code,
Landlord's right to terminate this Lease pursuant to Section 11.2(a) shall be
subject to the rights of the Trustee in Bankruptcy to assume or assign this
Lease. The Trustee shall not have the right to assume or assign this Lease
unless the Trustee (i) promptly cures all defaults under this Lease, (ii)
promptly compensates Landlord for monetary damages, incurred as a result of
such default, and (iii) provides adequate assurance of future performance
on the part of Tenant as debtor in possession or on the part of the
assignee Tenant.
(e) Adequate Assurance of Future Performance. Landlord and Tenant
hereby agree in advance that adequate assurance of future performance, as used
in Section 11.2(d) above, shall mean that all of the following minimium criteria
must be met: (i) Tenant's gross receipts in the ordinary course of business
during the thirty-day period immediately preceding the initiation of the
case under the Bankruptcy Code must be at least two times greater than the
next payment of rent due under this Lease; (ii) Both the average and median
of Tenant's gross receipts in the ordinary course of business during the
six-month period immediately preceding the initiation of the case under
the Bankruptcy Code must be at least two times greater than the next
payment of rent due under this Lease; (iii) Tenant must pay its estimated
pro rata share of cost of all
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services provided by Landlord (whether directly or through agents or contractors
and whether or not previously included as part of the base rent), in advance of
the performance or provision of such services; (iv) The Trustee must agree that
Tenant's business shall be conducted in a first class manner, and that no
liquidating sales, auctions, or other non-first class business operations shall
be conducted on the premises; (v) The Trustee must agree that the use of the
premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; and (vi) The Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the building.
(f) Failure to Provide Adequate Assurance. In the event Tenant is
unable to (i) cure its defaults, (ii) reimburse the Landlord for its monetary
damages, (iii) pay the rent due under this Lease, and all other payments
required of Tenant under this Lease on time (or within five (5) days), or (iv)
meet the criteria and obligations imposed by Section 11.2(e) above, Tenant
agrees in advance that it has not met its burden to provide adequate assurance
of future performance, and this Lease may be terminated by Landlord in
accordance with Section 11.2(a) above.
12. DEFAULTS & REMEDIES
12.1 DEFAULT. It is agreed that Tenant shall be in default if: Tenant
shall fail to pay the rent, or any installments thereof as aforesaid, at the
time shall become due and payable and/or any additional rent as herein provided
although no demand shall have been made for the same; or Tenant shall violate or
fail or neglect to keep and perform any of the covenants, conditions and
agreements, or rules and regulations herein contained on the part of Tenant
to be kept and performed.
12.2 REMEDIES. In each and every such event set forth in Section 12.1
above, from thenceforth and at all times thereafter, at the option of Landlord,
Tenant's right of possession shall thereupon cease and terminate, and Landlord
shall be entitled to the possession of the Demised Premises and to re-enter the
same without demand of rent or demand of possession of said premises and may
forthwith proceed to recover possession of the Demised Premises by process of
law, any notice to quit being hereby expressly waived by Tenant. In the event of
such re-entry by process of law or otherwise, Tenant nevertheless agrees to
remain answerable for any and all damage, deficiency or loss of rent which
Landlord may sustain by such re-entry, including reasonable attorney's fees and
court costs. If, under the provisions hereof, seven (7) days summons or other
applicable summary process shall be served, and a compromise or settlement
therefor shall be made, such action shall not be constituted as a waiver of any
breach of any covenant, condition or agreement herein contained. No waiver of
any breach of any covenant, condition or agreement, herein contained, on one or
more occasions shall operate as a waiver of the covenant, condition or agreement
itself, or of any subsequent breach thereof. No provision of this Lease shall be
deemed to have been waived by Landlord unless such waiver shall be in writing
signed by Landlord.
12.3 LANDLORD'S RIGHT TO RELET. Should this Lease be terminated before
the expiration of the term of this Lease by reason of Tenant's default as
provided in Section 11 or 12, or if Tenant shall abandon or vacate the premises
before the expiration or termination of the term of this Lease, the Demised
Premises may be relet by Landlord for such rent and upon such terms as are
reasonable under the circumstances. If the full rent reserved under this Lease
(and any of the costs, expenses or damages indicated below) shall not be
realized by Landlord, Tenant shall be liable for all damages sustained by
Landlord, including, without limitation, deficiency in rent, reasonable
attorney's fees, other collection costs, brokerage fees, and expenses of placing
the premises in first-class rentable condition. Landlord, in putting the
premises in good order or preparing the same for rerental may, at Landlord's
option, make such alterations, repairs, or replacements in the premises, and the
making of such alterations, repairs, or replacements in the premises as
Landlord, in Landlord's sole judgment, considers advisable and necessary for the
purpose of reletting the premises, and the making of such alternations, repairs,
or replacements shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Landlord shall in no event be liable in any
way whatsoever for failure to relet the premises, or in the event that the
premises are relet, for failure to collect the rent thereof under such
reletting. In no event shall Tenant be entitled to receive any excess, if any,
of such net rent collected over the sums payable by Tenant to Landlord
hereunder.
12.4 RECOVERY OF DAMAGES. Any damage or loss of rent sustained by
Landlord may be recovered by Landlord, at Landlord's option, in separate
actions, from time to time, as said damage shall have been ascertained or, at
Landlord's option, may be deferred until the expiration of the term of this
Lease (in which event Tenant hereby agrees that the cause of action shall not be
deemed to have accrued until the date of expiration of said term). The
provisions contained in this paragraph shall be in addition to and shall not
prevent the enforcement of any claim Landlord may have against Tenant for
anticipatory breach of the unexpired term of this Lease. All rights and
remedies of Landlord under this Lease shall be cumulative and shall not be
exclusive of any rights and remedies provided to Landlord under applicable law.
In the event Tenant becomes the subject debtor in a case under the Bankruptcy
Code, the provisions of this Section 12.4 may be limited by the limitations
of damage provisions of the Bankruptcy Code.
12.5 WAIVER. If under the provisions hereof Landlord shall institute
proceedings and a compromise or settlement thereof shall be made, the same shall
not constitute a waiver of any covenant, rule or regulation herein contained nor
of any of Landlord's rights hereunder. No waiver by Landlord of any breach of
any covenant, condition, agreement, rule or regulation herein contained shall
operate as a waiver of such covenant, condition, agreement, rule or regulation
itself, or of any subsequent breach thereof.
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12.6 ANTICIPATORY REPUDIATION. If, prior to the commencement of the
term of this Lease, Tenant notifies Landlord of or otherwise unequivocally
demonstrates as intention to repudiate this Lease, Landlord may, at its option,
consider such anticipatory repudiation a breach of this Lease. In addition to
any other remedies available to it hereunder or at law or in equity, Landlord
may retain all rent paid upon execution of the Lease and the security deposit,
if any, shall be applied to Landlord's damages: reletting, loss of rent, etc. It
is agreed between the parties that for the purpose of calculating Landlord's
damages, in a building which has other available space at the time of Tenant's
breach, the premises covered by this Lease shall be deemed the last space
rented, even though the premises may be rerented prior to such other vacant
space. Tenant shall pay in full for all tenant improvements constructed or
installed within the Demised Premises to the date of the breach, and for
materials ordered at its request for the Demised Premises.
12.7 TENANT ABANDONMENT OF PREMISES.
(a) Abandonment. If the Demised Premises shall be deserted or
vacated by Tenant for thirty (30) consecutive days or more without notice to
Landlord, and Tenant shall have failed to make the current rental payment, the
premises may be deemed abandoned. Landlord may consider Tenant in default
under this Lease and may pursue all remedies available to it under this Lease or
at law.
(b) Landlord Right to Enter and to Relet. If Tenant vacates or
abandons the premises as defined above, Landlord may, at its option, enter into
the premises without being liable for any prosecution therefor or for damages by
reason thereof. In addition to any other remedy, Landlord, as agent of Tenant,
may relet the whole or any part of the premises for the whole or any part of the
then unexpired Lease term. For the purposes of such reletting, Landlord may make
any alterations or modifications of the premises considered desirable in its
sole judgment.
(c) Rights to Dispose of Tenant Property. If Tenant vacates or
abandons the premises as defined above, any property that Tenant leaves on the
premises shall be deemed to have been abandoned and may either be retained by
Landlord as the property of Landlord or may be disposed of at public or private
sale in accordance with applicable law as Landlord sees fit. The proceeds of any
public or private sale of Tenant's property, or the then current fair market
value of any property retained by Landlord, shall be applied by Landlord against
(i) the expenses of Landlord for removal, storage or sale of the property; (ii)
the arrears of rent or future rent payable under this Lease; and (iii) any
other damages to which Landlord may be entitled hereunder.
(d) Transfer of Tenant Property to Creditors. If Tenant vacates or
abandons the premises, as defined above, Landlord may, upon presentation of
evidence of a claim valid upon its face of ownership or of a security interest
in any of Tenant's property abandoned in the premises, turn over such property
to the claimant with no liability to Tenant.
13. SUBORDINATION
13.1 SUBORDINATION. This Lease is subject and subordinate to all ground
or underlying Leases and to all mortgages and/or deeds of trust and/or other
security interests which may now or hereafter affect the real property of which
the Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required to
effect this subordination. Notwithstanding the foregoing, in confirmation of
such subordination, Tenant shall at Landlord's request execute and deliver to
Landlord within ten (10) business days after Landlord's request, any requisite
or appropriate certificate, subordination agreement or other document that may
be reasonably requested by Landlord or any other party requiring such
certificate, subordination agreement or document. If Tenant fails to execute
such certificate, subordination agreement or other document within said ten (10)
day period, Tenant by such failure irrevocably constitutes and appoints Landlord
as its special attorney-in-fact to execute such certificate, subordination
agreement or other document on Tenant's behalf. Notwithstanding the foregoing
subordination, Tenant agrees that any landlord under any ground or underlying
Lease, and any mortgagee or trustee under any security agreement to which this
Lease is now, or may hereafter, become subject or subordinate, may elect to
continue this Lease and Tenant agrees that in such event neither the
cancellation nor termination of any ground or underlying Lease, nor the
foreclosure under any mortgage or deed of trust, nor the sale at foreclosure,
nor the transfer by a deed in lieu of foreclosure, shall, by operation of law or
otherwise, result in cancellation or termination of this Lease or the
obligations of Tenant hereunder and this Lease shall continue as a direct Lease
between Tenant and such landlord, mortgagee, purchaser or trustee.
13.2 ESTOPPEL CERTIFICATES. Tenant shall execute and return within ten
(10) business days any certificate that Landlord may request from time to time,
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modification. The certificate also
shall state (a) the amount of base monthly rent and the dates to which the rent
has been paid in advance; (b) the amount of any security deposit or prepaid
rent; (c) that there is no present default on the part of Landlord, or attach a
memorandum stating any such instance of default; (d) that Tenant has no right
to setoff and no defense or counterclaim against enforcement of its obligations
under this Lease; (e) that Tenant has no other notice of any sale, transfer or
assignment of this Lease or of the rentals; (f) that all work required of
Landlord has been completed and that the work is accepted as satisfactory; (g)
that Tenant is in full and complete possession of the Demised Premises; (h)
the date on which rent commenced and the date to which it is paid; (i) that
Tenant has not advanced any amounts to or on behalf of Landlord which have not
been reimbursed; (j) that Tenant understands that this Lease has been
collaterally assigned to Landlord's mortgagee as security for a loan to
Landlord; (k) that rent may not be prepaid without the prior written approval of
Landlord's mortgagee; and
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(l) such other items as Landlord may reasonably request. Failure to deliver the
certificate within the ten (10) business days shall be (conclusive) upon Tenant
for the benefit of Landlord and any successor to Landlord that this Lease is in
full force and effect and has not been modified except as may be represented by
the party requesting the certificate. If Tenant fails to deliver the certificate
within the ten (10) business days, Tenant by such failure irrevocably
constitutes and appoints Landlord as its special attorney-in-fact to execute and
deliver the certificate to any third party.
13.3 ATTORNMENT. Tenant covenants and agrees that, in the event of any
foreclosure under any mortgage or deed of trust, or any renewal, modification,
consolidation, replacement or extension thereof, or in the event of any
acceptance of any deed in lieu of foreclosure, which may now or hereafter affect
the real property of which the Demised Premises are a part, Tenant shall attorn
to the party secured by such mortgage or deed of trust, or any renewal,
modification, consolidation, replacement or extension thereof, and to any
purchaser at any foreclosure sale or party taking a deed in lieu of foreclosure.
Tenant covenants and agrees to attorn to any successor to Landlord's interest in
any ground or underlying Lease. In any case, such landlord or successor under
such ground or underlying Lease or such secured party or purchaser at
foreclosure sale or party taking a deed in lieu of foreclosure shall not be
bound by any prepayment on the part of Tenant of any rent for more than one
month in advance, so that rent shall be payable under this Lease in accordance
with its terms, from the date of the termination or transfer of the ground or
underlying Lease or the foreclosure under such mortgage or deed of trust, or the
date of foreclosure sale or transfer by deed in lieu of foreclosure, as if such
prepayment had not been made. Further, such landlord or successor in interest
shall not be liable for damages for any act or omission of Landlord or any prior
landlord or be subject to any offsets or defenses which Tenant may have against
Landlord or any prior landlord. Tenant shall, upon request of such landlord or
successor landlord, execute and deliver an instrument or instruments confirming
Tenant's attornment.
13.4 MORTGAGEE RIGHTS.
(a) Tenant shall, at its own expense, comply with all reasonable
notices of Landlord's mortgagee or other financial institution providing funds
which are secured by a mortgage or deed of trust placed on the whole or any part
of the real property of which the Demised Premises are a part, respecting all
matters of occupancy, use, condition or maintenance of the Demised Premises,
provided the same shall not unreasonably interfere with the conduct of Tenant's
business nor materially limit or affect the rights of the parties under this
Lease. Notwithstanding acceptance and execution of this Lease by the parties
hereto, the terms hereof shall be deemed automatically modified, if so
required, for the purpose of complying with or fulfilling the reasonable
requirements of any mortgagee or trustee named or secured by a mortgage or
deed of trust that may now or hereafter be placed upon or secured by the real
property of which the Demised Premises are a part or any part thereof, or any
other financial institution providing funds to finance or refinance the real
property of which the Demised Premises are a part, provided, however, that such
modifications(s) shall not be in material derogation or diminution of any of the
rights of the parties hereunder, nor materially increase any of the obligations
or liabilities of the parties hereunder.
(b) Tenant agrees to give Landlord's mortgagee and any trustee
named or secured by a mortgage or deed of trust a copy of any notice of default
served upon Landlord by Tenant, provided that prior to such notice Tenant has
been notified in writing (by way of Notice of Assignment of Rents and Leases, or
otherwise) of addresses of such mortgagees and trustees. Notice shall be
provided to the mortgagees and trustees by registered mail. Tenant further
agrees that if Landlord shall have failed to cure such default within the cure
period provided in this Lease, if any, then the mortgagees and/or trustees shall
have an additional thirty (30) days within which to cure such default, or if
such default cannot be cured within that time, then such additional time as
may be necessary if within such thirty (30) days any mortgagee and/or trustee
has commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure proceedings
if necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being diligently pursued.".
14. TENANT HOLDOVER
14.1 WITH LANDLORD CONSENT. If Tenant continues, with the knowledge and
written consent of Landlord obtained at least thirty (30) days prior to the
expiration of the term of this Lease, to remain in the premises after the
expiration of the term of this Lease, then and in that event, Tenant shall, by
virtue of this holdover agreement, become a tenant by the month at the rent
stipulated by Landlord in said holdover agreement, commencing said monthly
tenancy with the first day next after the end of the term above demised. Tenant
shall give to Landlord at least thirty (30) days' written notice of any
intention to quit said premises. Tenant shall be entitled to thirty (30) days'
written notice to quit said premises, except in the event of nonpayment of rent
in advance or of the breach of any other covenant by Tenant, in which event
Tenant shall not be entitled to any notice to quit, the usual thirty (30) days'
notice to quit being hereby expressly waived.
14.2 WITHOUT LANDLORD CONSENT. In the event that Tenant, without the
consent of Landlord, shall hold over the expiration of the term hereby created,
then Tenant hereby waives all notice to quit and agrees to pay to Landlord for
the period that Tenant is in possession after the expiration of this Lease, a
monthly rent which is three times the total rent (base monthly rent, as
stipulated in Section 1.3, plus additional rent, as stipulated in Section 1.5)
applicable to the last month of this Lease. Tenant expressly agrees to hold
Landlord harmless from all loss and damages, direct and consequential, which
Landlord may suffer in defense of claims by other parties against Landlord
arising out of the holding over by Tenant, including without limitation
attorneys fees which may be incurred by Landlord in defense of such claims.
Acceptance of rent by Landlord subsequent to the expiration of the term of this
Lease shall not constitute consent to any holding over. Landlord shall have
the right to apply all payments received after the expiration date of this
Lease or any renewal thereof toward payment for use and occupancy of the
premises subsequent to the expiration of the term and toward any other sums owed
by Tenant to Landlord. Landlord, at its option, may forthwith re-
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enter and take possession of said premises without process, or by any legal
process in force. Notwithstanding the foregoing, Tenant's holdover without
Landlord consent due to acts of God, riot, or war shall be at the total rent
applicable to the last month of the term for the duration of the condition (but
not to exceed ten days), but such continued occupancy shall not create any
renewal of the term of this Lease or a tenancy from year-to-year, and Tenant
shall be liable for any loss and damages suffered by Landlord as described
above.
15. SECURITY DEPOSIT
15.1 Tenant shall deposit with Landlord simultaneously with the
execution of this Lease, the amount stipulated in Section 1.6 as a security
deposit. Provided Tenant is not in default in the payment of rent or any other
charges due Landlord, and further provided the Demised Premises are left in good
condition, reasonable wear and tear excepted, as described in Section 6.10, said
deposit (which shall not bear interest to Tenant) shall be returned to Tenant
within thirty (30) days after the termination of this Lease. If Tenant is in
default or if the premises are not left in good condition, then the security
deposit shall be applied to the extent available on account of sums due
Landlord or the cost of repairing damages to the Demised Premises. In the event
of the sale or transfer of Landlord's interest in the building, Landlord shall
have the right to transfer the security deposit to such purchaser or transferee,
in which event Tenant shall look only to the new Landlord for the return of the
security deposit and Landlord shall thereupon be released from all liability to
Tenant for the return of such security deposit.
16. QUIET ENJOYMENT
16.1 So long as Tenant shall observe and perform the covenants and
agreements binding on it hereunder, Tenant shall at all times during the term
herein granted, peacefully and quietly have and enjoy possession of the premises
without any encumbrance or hindrance by, from or through Landlord, except as
provided for elsewhere under this Lease. Nothing in this Section shall prevent
Landlord from performing alterations or repairs on other portions of the
building not Leased to Tenant, nor shall performance of such alterations or
repairs be construed as a breach of this covenant by Landlord.
17. SUCCESSORS
17.1 All rights, remedies and liabilities herein given to or imposed
upon either of the parties hereto, shall extend to their respective heirs,
executors, administrators, successors, and assigns. This provision shall not be
deemed to grant Tenant any right to assign this Lease or to sublet the premises.
18. WAIVER OF JURY TRIAL
18.1 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other one or in respect of any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenants's use or occupancy of the Demised Premises, and/or any claim of "injury
or damage."
19. LIMITATION OF LIABILITY
19.1 Notwithstanding anything to the contrary contained in this Lease,
if any provision of this Lease expressly or impliedly obligates Landlord not to
unreasonably withhold its consent or approval, an action for declaratory
judgment or specific performance will be Tenant's sole right and remedy in any
dispute as to whether Landlord has breached such obligation.
20. PRONOUNS & DEFINITIONS
20.1 Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution or
substitutions. Landlord and Tenant herein for convenience have been referred to
in the neuter form.
20.2 Wherever the word "premises" is used in this Lease, it shall refer
to the Demised Premises described in Section 1.1, unless the context clearly
requires otherwise.
21. NOTICES
21.1 ADDRESSES FOR NOTICES. All notices required or desired to be given
hereunder by either party to the other shall be personally delivered or given by
certified or registered mail and addressed as specified in Section 1.10. Either
party may, by like written notice, designate a new address to which such notices
shall be directed.
21.2 EFFECTIVE DATE OF NOTICE. Notice shall be deemed to be effective
when personally delivered or received or rejected unless otherwise stipulated
herein.
22. EXHIBITS; SPECIAL PROVISIONS
22.1 INCORPORATION IN LEASE. It is agreed and understood that any
Exhibits and Special Provisions referred to in Sections 1.11 and 1.12,
respectively, and attached hereto, form an integral part of this Lease and are
hereby incorporated by reference.
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<PAGE> 20
22.2 CONFLICTS. If there is a conflict between a Special Provision
hereto and the Specific Provisions or General Provisions of the Lease, the
Special Provision shall govern.
23. CAPTIONS
23.1 All Section and paragraph captions herein are for the convenience
of the parties only, and neither limit nor amplify the provisions of this Lease.
24. ENTIRE AGREEMENT; MODIFICATION
24.1 This Lease, all Exhibits hereto, and Special Provisions
incorporated herein by reference contain all the agreements and conditions made
between the parties and may not be modified orally or in any other manner than
by an agreement in writing, signed by the parties hereto.
25. SEVERABILITY
25.1 The unenforceability, invalidity, or illegality of any provision
herein shall not render any other provision herein unenforceable, invalid, or
illegal.
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<PAGE> 21
26. ADDITIONAL RENT
26.1 In Subsection 2.2(b)(i), in the eighth line, after 'taxes' insert
a period and delete the rest of the sentence.
26.2 In Subsection 2.2(b)(ii), in the fifth line, after 'taxes;' insert
the following:
"costs of alterations or improvements of the premises, or the premises of
other tenants; interest, principal payments, and other costs of any indebtedness
encumbering the Building; legal fees, space planner fees, architectural fees,
engineering fees, and marketing and advertising expenses incurred in connection
with the leasing of the Building; costs for which Landlord is reimbursed by
insurance or by its carriers or any tenant carrier; any bad debt loss, rent loss
or reserves for bad debt or rent loss; costs associated with the operation of
the business of the legal entity which constitutes the Landlord as the same is
distinguished from the costs and operations of the Building, including legal
entity formation, internal entity accounting and legal matters; costs of
defending any lawsuits with mortgagees (except as actions of any tenant may be
an issue); cost of selling, syndicating, financing, mortgaging or hypothecating
any of Landlord's interests in the Building; costs of disputes between Landlord
and any third party not relating to the Building; wages of employees who do not
devote the majority of their time to the Building, provided however, the costs
associated with such employees who do not devote the majority of their time to
the Building may be prorated and such an amount shall be included as an
Operating Expense to the extent that such employees do devote their time to the
Building; lease payments for rented equipment, the cost of which equipment would
constitute a capital expenditure if the equipment were purchased; insurance
premiums to the extent Landlord is reimbursed for the same other than through
Operating Expenses; the costs of any HVAC services provided to other tenants
other than during normal business hours; charges (including applicable taxes)
for electricity or any other utilities for which Landlord is reimbursed by any
tenant; the cost of any work or service performed for any tenant (including
Tenant) at such tenant's cost; capital costs of complying with governmental
regulations if such regulations are applicable to all buildings generally
without regard to use; cost of artwork in the Building other than artwork in the
common areas of the Building; charitable contributions; salaries for personnel
above the position of building manager; expenses resulting from Landlord's gross
negligence or willful misconduct; the costs of clean up of hazardous materials,
if caused by Landlord's or any tenant's gross negligence or willful
misconduct;".
26.3 In Subsection 2.3(c), in the eleventh line, change 'thirty (30)'
to "sixty (60)".
26.4 In Subsection 2.3(d), in the first line, change 'ten (10)' to
"thirty (30)"; and in the fourth and fifth lines, change 'thirty (30)' to
"ninety (90)".
27. PRO RATA SHARE
27.1 The definition of Tenant's pro rata share in Section 2.6 shall
apply only to that pro rata share stipulated in Subsection 1.5(b). Tenant's pro
rata share stipulated in Subsection 1.5(a) represents the ratio that the area
of the demised premises bears to the total area of office and retail space
contained in the building.
28. WAIVER OF RENT
28.1 Provided Tenant is not then in default under any of the terms and
conditions of this Lease, then notwithstanding anything to the contrary in
Section 2.1, Landlord agrees to waive Seven Hundred Seventy and 78/100 Dollars
($770.78) of Base Annual Rent due in each of the first (1st) through the fourth
(4th) months of the initial Lease term, and Three Thousand Five Hundred
Forty-Six and 63/100 Dollars ($3,546.63) of Base Annual Rent due in each of the
fifth (5th) through the sixty-fourth (64th) months of the initial Lease term.
Notwithstanding anything herein, Additional Rent, if any, payable pursuant to
Subsections 1.5(c) and 2.2(c) shall be calculated without regard to any waiver
of rent or rent credit provided to Tenant.
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<PAGE> 22
29. REIMBURSEMENT FOR TENANT'S IMPROVEMENTS
29.1 Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Landlord shall reimburse Tenant for improvements
completed by Tenant in the demised premises and/or for professional fees related
thereto or for moving expenses, in an amount which, together with sums owed by
Tenant to Landlord's contractors, does not exceed Forty-One Thousand Three
Hundred Twenty and 00/100 Dollars ($41,320.00). Such reimbursement shall be
paid upon presentation by Tenant of paid receipted invoices approved by Tenant
for such improvements, professional fees or moving expenses, any required
certificate of occupancy or inspection approval and final waiver of lien forms
from all of Tenant's contractors.
30. ACCEPTANCE OF SPACE
30.1 Tenant accepts the demised premises in its existing "as is"
condition and shall be obligated for the payment of rent on the Lease
Commencement Date, regardless of any time required by Tenant to construct, alter
or redecorate the demised premises to Tenant's requirements.
31. PARKING
31.1 Landlord agrees to arrange for parking in the garage of the
building described in Section 1.1 for up to thirty-five (35) automobiles of
Tenant or Tenant's employees at the prevailing monthly rate for such service.
32. RENEWAL OPTION
32.1 Provided that Tenant is in compliance with all of the terms and
conditions of this Lease, and further provided that Tenant gives written notice
to Landlord on or before October 31, 2000, time being of the essence, Tenant
shall have the right to extend the term of this Lease for a further term of
three (3) years, from May 1, 2001, to April 30, 2004. This provision shall be
contingent upon Tenant occupying a substantial portion (51% or more) of the
demised premises. upon the commencement date of the extended term. Such
extension shall be under terms, covenants and conditions, including the then
fair market value base annual rent and additional rent, to be mutually agreed
upon between the parties. In no event, however, shall the base annual rent
for the extended term be less than the base annual rent applicable to the last
year of the existing lease term plus any Additional Rent applicable to the last
year pursuant to the provisions of Sections 1.5 and 2.2. If Landlord and
Tenant fail to agree upon such new terms, covenants and conditions, including
the then fair market value base annual rent and additional rent, for the
extended term by December 31, 2000, then Landlord shall have no further
obligation to Tenant with respect to extension of the term.
33. SUBLETTING AND ASSIGNMENT
33.1 Notwithstanding the requirement to the contrary in Section 4.1,
provided Tenant is not then in default of any of the terms or conditions of this
Lease, Tenant shall not be required to obtain Landlord's consent to assign this
Lease or sublet all or any part of the demised premises to any successor,
parent, subsidiary or affiliated company, but Tenant shall furnish Landlord with
written notice and a fully-executed copy of any such assignment agreement, or
sublease together with a floor plan of the sublet area. Any such subletting or
assignment shall be subject to the remaining provisions of Sections 4.1 and 4.4.
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33.2 In the event Landlord does not exercise its right to terminate
this Lease, provided Tenant is not then in default of any of the terms or
conditions of this Lease, Tenant may sublet all or a portion of the demised
premises after first obtaining the written consent of the Landlord, provided
that Fifty Percent (50%) of the excess of any rent accruing to Tenant as a
result of such sublease over the rent then being paid by Tenant for the sublet
area shall be paid by Tenant to Landlord as additional monthly rent. Tenant
shall be permitted to deduct the reasonable expenses it incurs in subleasing
such space, limited to reasonable advertising costs, reasonable brokerage
commissions and remodeling costs (which remodeling costs shall not exceed Five
Dollars ($5.00) per square foot), before arriving at the net excess rent to be
shared with Landlord pursuant to this paragraph. Tenant shall provide
documentation of such expenses prior to Landlord giving its written consent
for subletting.
33.3 In Section 4.1, in the third line, after 'Landlord,' insert
"which shall not be unreasonably withheld, conditioned or delayed." and delete
the rest of the sentence.
33.4 in Section 4.2, in the first line, delete 'or assign'; in the
second line, delete 'or assignee'; in the third line, change 'ninety (90)' to
"thirty (30)"; in the fourth line, change 'thirty (30)' to "sixty (60)"; in the
fifth line, delete 'an assignment..or a' and change 'fifty percent (50%)' to
"eighty percent (80%)"; and delete the last sentence entirely.
34. SERVICES AND UTILITIES
34.1 In Section 5.1, in the second line, after 'calculators,' insert
"personal computer equipment, servers, web site,"; and in the last line, after
'Lease' insert "unless the demised premises are untenantable for five (5)
consecutive business days due to Landlord's negligence, in which event Tenant
may abate paying rent until such service is restored".
34.2 In Section 5.2, in the second line, change '72' to "24".
34.3 In Subsection 5.3(c), in the fourth line, after the first
'Tenant' insert "only if excess consumption is established".
35. USE AND UPKEEP OF PREMISES
35.1 In Subsection 6.4(a), in the first line, before 'Tenant' insert
"Except for cosmetic changes and decorations,"; and in the third line, after
'Landlord' insert "which shall not be unreasonably withheld or delayed".
35.2 In Subsection 6.4(b), in the eleventh line, change 'five (5)' to
"ten (10)".
35.3 In Subsection 6.4(c), in the eighth line, after 'expense' insert
"provided Landlord so advised Tenant when Tenant requested Landlord's consent
thereto"; and delete the last two sentences entirely.
36. ACCESS TO PREMISES
36.1 In Section 7.1, in the second line, after 'times' insert "after
reasonable notice(except in emergencies)"; and in the fourth line, change 'six
(6)' to "three (3)".
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37. LIABILITY
37.1 In Section 8.1, in both the fourth and seventh lines, after
'negligence' insert "or willful misconduct".
37.2 In Section 8.2, in the fifth line, after the first 'Tenant'
insert a period and delete the rest of the sentence.
37.3 In Section 8.3, delete the last sentence entirely.
38. DAMAGE
38.1 In Section 9.2, in the second line, delete 'fault or neglect' and
substitute "negligence", after 'agents' change the comma to "or" and delete
'invitees or visitors,'; in the ninth and tenth lines, delete 'for as building
standard items' and insert "at Landlord's expense"; and in the penultimate
sentence, delete 'fault or neglect' and substitute "negligence", after 'agents'
change the comma to "or" and delete 'invitees or visitors,'.
38.2 In Section 9.3, in eleventh line, after 'Landlord' insert "or
Tenant" and change 'Tenant' to "the other".
39. CONDEMNATION
39.1 In Section 10.1, after the second sentence, insert "Tenant shall
have the right to file a separate claim pursuant to Section 10.2"; and in the
last line, change 'fifty percent (50%)' to "thirty-five percent (35%)".
40. DEFAULTS AND REMEDIES
40.1 Notwithstanding anything to the contrary in Sections 2.1 and
12.1, if Tenant defaults in the payment of rent, or defaults in the performance
of any other covenants, conditions and agreements, or rules and regulations
herein contained, Landlord shall give Tenant written notice of such default. If
Tenant fails to cure any rent (or additional rent) default within ten (10) days,
or fails to cure any other default within twenty (20) days after such notice
(or if such other default is of such nature that it cannot be completely cured
within said twenty (20) days, if Tenant fails to commence to cure within said
twenty (20) days and thereafter proceed with reasonable diligence and in good
faith), then Landlord, in addition to all other rights pursuant to this Lease,
may terminate this Lease on not less than ten (10) days notice to Tenant. On
the date specified in such notice, the term of this Lease shall terminate, and
Tenant shall then quit and surrender the premises to Landlord. If this Lease
shall have been so terminated by Landlord, Landlord may at any time thereafter
take possession of the demised premises by any lawful means and remove Tenant
or other occupants and their effects. Nevertheless, in the event Tenant fails to
pay rent or otherwise defaults in the performance of any of the covenants,
conditions and agreements or rules and regulations herein contained, more than
two (2) times in any twelve (12) month period, Landlord shall not be
required during the remainder of the term of this Lease to send written
notice before proceeding with its remedies under Section 12. Tenant
acknowledges that the purpose of the preceding sentence is to prevent
repetitive defaults by Tenant under the Lease, which work a hardship upon
Landlord and deprive Landlord of the timely performance by Tenant hereunder.
40.2 In Section 12.3, in the eleventh line, delete 'sole' and
substitute "reasonable".
40.3 In Section 12.6, delete the third sentence entirely.
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<PAGE> 25
41. SUBORDINATION
41.1 In Section 13.1, delete the fourth sentence entirely; and in the
sixth line, change 'ten (10)' to "fifteen (15)".
41.2 In Section 13.2, in each of the first, fourteenth and seventeenth
lines, change 'ten (10)' to "fifteen (15)".
42. TENANT'S HOLDOVER
42.1 In Section 14.2, in the fourth line, delete 'three' and
substitute "two"; and in the sixth line, delete ',direct and consequential,'.
43. LIMITATION OF LIABILITY
43.1 Section 19.1 is hereby deleted entirely.
44. EXECUTION OF DOCUMENT
44.1 In the event Tenant does not execute and return this document by
the close of business on December 19, 1995, then Landlord may market the subject
space to others without further notice to Tenant.
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<PAGE> 26
ADDITIONAL SPACE
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE made this 3rd day of April, 1997, by and
between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP, a Maryland limited
partnership (hereinafter "Landlord"), and OPTICAL TECHNOLOGY GROUP, INC., a
Maryland corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend that certain lease agreement
dated January 25, 1996 (the "Lease"), which provides for the leasing of Suites
205, 803, 805, and 809, consisting of approximately 8,264 square feet on the
second (2nd) and eighth (8th) floors of One Democracy Plaza, located at 6701
Democracy Boulevard, Bethesda, Maryland, for a term expiring April 30, 2001; and
WHEREAS, Tenant desires to lease an additional area of 824 square feet on
the second (2nd) floor of said building known as Suite 208, as delineated on the
attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. AREA. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 208, containing approximately 824 square feet of additional
space on the second (2nd) floor (the "Additional Leased Space"), making the
total demised premises 9,088 square feet.
2. TERM. The term of the Additional Leased Space shall commence
April 1, 1997, and shall expire contemporaneously with the term of the Lease.
3. RENT. The base monthly rent for the Additional Leased Space
shall be One Thousand Eight Hundred Eighty-Eight and 33/100 Dollars ($1,888.33),
thereby increasing the total base monthly rent from Eighteen Thousand Nine
Hundred Thirty-Eight and 34/100 Dollars ($18,938.34) to Twenty Thousand Eight
Hundred Twenty-Six and 67/100 Dollars ($20,826.67), payable in advance in
accordance with the terms of the Lease.
4. ACCEPTANCE OF SPACE. Tenant shall accept the Additional Leased
Space in its existing "as is" condition and shall be obligated for the payment
of rent hereunder, on April 1, 1997, regardless of any time required to
construct, alter or redecorate the Additional Leased Space to Tenant's
requirements.
5. RENT WAIVER. Provided Tenant is not then in default under any
of the terms and conditions of the Lease, then notwithstanding anything to the
contrary in Section 2.1 of the Lease, Landlord agrees to waive payment of One
Hundred Sixty and 02/100 Dollars ($160.02) of Base Annual Rent due each month of
the initial term for the Additional Leased Space only.
6. PARKING. Landlord agrees to arrange for parking in the garage
of the building for up to eleven (11) additional automobiles of Tenant or
Tenant's employees at the prevailing monthly rate for such service thereby
increasing Tenant's parking allocation from thirty-five (35) to forty-six (46)
automobiles.
7. LANDLORD'S CONTRIBUTION. Landlord agrees to contribute the sum
of up to Eight Thousand Two Hundred Forty and 00/100 Dollars ($8,240.00)
towards the cost of Tenant's remodeling of the Additional Leased Space, which
amount Tenant shall receive in the form of a credit toward such remodeling
costs.
<PAGE> 27
FIRST AMENDMENT TO LEASE
PAGE TWO
8. RENEWAL OPTION. Provided that Tenant is in compliance with all
of the terms and conditions of the Lease on the date Tenant gives written notice
as provided below and thereafter through the commencement date of the extended
term, and further provided that Tenant gives written notice to Landlord on or
before July 31, 2000, time being of the essence, Tenant shall have the right to
extend the term of the Lease for a further term of five (5) years, from May 1,
2001, to April 30, 2006. This provision shall be contingent on Tenant occupying
a substantial portion (51% or more) of the Demised Premises on the date Tenant
gives written notice as provided above and on the commencement date of the
extended term. Such extension shall be under the terms, covenants and
conditions, including the fair market value base annual rent then in effect for
the length of the extended term, and a formula for additional rent which shall
be agreed to by the parties. In no event, however, shall the base annual rent
for the extended term be less than the Base Annual Rent applicable to the last
year of the initial Lease Term plus any Additional Rent applicable to said year
pursuant to the provisions of Sections 1.5 and 2.2 of the Lease. If Landlord and
Tenant fail to agree on such new terms, covenants and conditions, including the
fair market value base annual rent and a formula for additional rent for the
extended term, by August 31, 2000, then Landlord shall have no further
obligation to Tenant with respect to extension of the Lease Term.
9. EXECUTION OF DOCUMENT. In the event Tenant does not execute and
return this document by the close of business on March 31, 1997, then Landlord
may market the subject space to others without further notice to Tenant.
10. LEASE. All of the terms and conditions of the Lease, as
modified by this First Amendment to Lease, shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
/s/ Kimberley N. Halston BY /s/ Robert P. Kogod
- ----------------------------- ---------------------------------(SEAL)
General Partner
ATTEST: TENANT: OPTICAL TECHNOLOGY
GROUP, INC.
/s/ Patricie M. Alston BY /s/ Richard Kay
- ----------------------------- ---------------------------------(SEAL)
Secretary Name:
(Corporate Seal) Title:
<PAGE> 28
ADDITIONAL SPACE
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE made this 15th day of April, 1997 by and
between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP, a Maryland limited
partnership (hereinafter "Landlord"), and OPTICAL TECHNOLOGY GROUP, INC., a
Maryland corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend that certain lease
agreement dated January 25, 1996 (the "Lease"), as amended by a First Amendment
to Lease of even date herewith, which provides for the leasing of Suites 205,
208, 803, 805, and 809, consisting of approximately 9,088 square feet on the
second (2nd) and eighth (8th) floors of One Democracy Plaza, located at 6701
Democracy Boulevard, Bethesda, Maryland, for a term expiring April 30, 2001; and
WHEREAS, Tenant desires to lease an additional area of 2,635 square feet
on the second (2nd) floor of said building known as Suite 206, as delineated on
the attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. AREA. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 206, containing approximately 2,635 square feet of additional
space on the second (2nd) floor (the "Additional Leased Space"), making the
total demised premises 11,723 square feet.
2. TERM. The term of the Additional Leased Space shall commence
June 1, 1997, and shall expire contemporaneously with the term of the Lease.
3. RENT. The base monthly rent for the Additional Leased Space
shall be Six Thousand Thirty-Eight and 55/100 Dollars ($6,038.55), thereby
increasing the total base monthly rent from Twenty Thousand Eight Hundred
Twenty-Six and 67/100 Dollars ($20,826.67) to Twenty-Six Thousand Eight Hundred
Sixty-Five and 22/100 Dollars ($26,865.22), payable in advance in accordance
with the terms of the Lease.
5. ACCEPTANCE OF SPACE. Tenant shall accept the Additional Leased
Space in its existing "as is" condition and shall be obligated for the payment
of rent hereunder, on June 1, 1997, regardless of any time required to
construct, alter or redecorate the Additional Leased Space to Tenant's
requirements.
6. RENT WAIVER. Provided Tenant is not then in default under any
of the terms and conditions of the Lease, then notwithstanding anything to the
contrary in Section 2.1 of the Lease, Landlord agrees to waive payment of
$482.30 of Base Annual Rent due each month of the initial term for the
Additional Leased Space only.
7. LANDLORD'S CONTRIBUTION. Landlord agrees to contribute the sum
of up to Twenty-Six Thousand Three Hundred Fifty and 00/100 Dollars
($26,350.00) towards the cost of Tenant's remodeling of the Additional Leased
Space, which amount Tenant shall receive in the form of a credit toward such
remodeling costs.
<PAGE> 29
SECOND AMENDMENT TO LEASE
PAGE TWO
8. ADDITIONAL RENT. Tenant's pro rata share of any increases in
Real Estate Taxes and Operating Expenses commencing June 1, 1998, shall be
increased by 1.70 percentage points, from 4.09% to 5.79%.
9. EXECUTION OF DOCUMENT. In the event Tenant does not execute and
return this document by the close of business on March 31, 1997, then Landlord
may market the subject space to others without further notice to Tenant.
10. LEASE. All of the terms and conditions of the Lease, as
modified by a First Amendment to Lease, and by this Second Amendment to Lease,
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
/s/ Kimberly N. Halston BY /s/ Robert P. Kogod
- ----------------------------- ---------------------------------(SEAL)
General Partner
ATTEST: TENANT: OPTICAL TECHNOLOGY
GROUP, INC.
/s/ Patricie M. Alston BY /s/ Richard Kay
- ----------------------------- ---------------------------------(SEAL)
Secretary Name:
(Corporate Seal) Title:
<PAGE> 30
ADDITIONAL SPACE
THIRD AMENDMENT TO LEASE
AND LEASE EXTENSION AGREEMENT
THIS THIRD AMENDMENT TO LEASE AND LEASE EXTENSION AGREEMENT made this 1st
day of October, 1997, by and between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP,
a Maryland limited partnership (hereinafter "Landlord"), and OPTICAL TECHNOLOGY
GROUP, INC., a Maryland corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to further amend that certain lease
agreement dated January 25, 1996 (the "Lease"), as amended by a First Amendment
to Lease dated April 3, 1997, and by a Second Amendment to Lease dated April 15,
1997, which provides for the leasing of Suites 205, 206, 208, 803, 805 and 809,
consisting of approximately 11,723 square feet on the second (2nd) and eighth
(8th) floors (the "Existing Demised Premises") of One Democracy Plaza, located
at 6701 Democracy Boulevard, Bethesda, Maryland, for a term expiring April 30,
2001; and
WHEREAS, Tenant desires to lease an additional area of 14,937 square feet
on the eighth (8th) floor of said building known as Suite 800, as delineated on
the attached plan, and return 5,255 square feet on the second (2nd) floor of
said building known as Suites 205, 206 and 208, for a net gain of 9,682 square
feet; and
WHEREAS, the parties hereto desire to extend the term of the aforesaid
Lease.
NOW, THEREFORE, the parties hereto agree as follows:
1. TERM OF EXTENSION. The Lease is hereby extended for a further
period of one (1) year and five (5) months, commencing May 1, 2001, and expiring
September 30, 2002 (the "Extended Term").
2. BASE ANNUAL RENT AND ADDITIONAL RENT FOR THE EXISTING AMOUNT OF
DEMISED PREMISES. The Base Annual Rent and Additional Rent for the existing
amount of Demised Premises, that is, 11,723 square feet, commencing May 1, 2001,
shall be at the same rates and under the same terms as specified in the Lease
and the First and Second Amendments thereto.
3. PARKING FOR THE EXISTING DEMISED PREMISES. Tenant shall continue to
have parking in the garage of the Building for up to forty-six (46) automobiles
of Tenant or Tenant's employees at the prevailing monthly rate for such service
during the extended term for the existing amount of the Demised Premises.
4. INCREMENTAL ADDITIONAL LEASED SPACE AREA. Landlord hereby leases to
Tenant and Tenant leases from Landlord, Suite 800, containing an incremental
amount of approximately 9,682 square feet (and actual amount of 14,937 square
feet) of additional space on the eighth (8th) floor (the "Incremental Additional
Leased Space"). Tenant hereby returns to Landlord, effective September 30, 1997,
Suites 205, 206 and 208, containing approximately 5,255 square feet, on the
second (2nd) floor of the Building.
5. TERM FOR THE INCREMENTAL ADDITIONAL LEASED SPACE. The term of the
Incremental Additional Leased Space shall commence October 1, 1997, and shall
expire contemporaneously with the term of the Lease, as hereby extended.
<PAGE> 31
THIRD AMENDMENT TO LEASE
AND LEASE EXTENSION AGREEMENT
PAGE TWO
6. BASE RENT FOR THE INCREMENTAL ADDITIONAL LEASED SPACE. The Base
Annual Rent for the existing and extended terms for the Incremental Additional
Leased Space shall be Two Hundred Sixty-One Thousand Four Hundred Fourteen and
00/100 Dollars ($261,414.00), payable in equal monthly installments of
Twenty-One Thousand Seven Hundred Eighty-Four and 50/100 Dollars ($21,784.50),
in accordance with the terms of the Lease. On October 1, 1998, and each
subsequent October 1, the Base Annual Rent for the Incremental Additional Leased
Space shall be increased by Two Percent (2%) of the Base Annual Rent for the
Incremental Additional Leased Space in effect during the previous Lease year.
The escalated Base Annual Rent for the Incremental Additional Leased Space so
determined shall be the "Base Annual Rent" for all purposes of respecting the
Incremental Additional Leased Space, including the calculation of the increase
in Base Annual Rent for the Incremental Additional Leased Space for the
subsequent Lease year. The increase in Base Annual Rent shall be calculated
without regard to any waiver of rent or rent credit provided to Tenant. For
purposes of the Incremental Additional Leased Space only, Subsections 1.5(c)
and 2.2(c) of the Lease are deleted entirely; in Subsection 2.3(a) of the Lease,
the last sentence of the paragraph is deleted entirely; in Subsection 2.3(c) of
the Lease, in the third line, insert a period after `Year' and delete the rest
of the sentence; in the seventh and eighth lines, delete `and the actual
increase attributable to the increase in the Consumer Price Index'.
7. ADDITIONAL RENT FOR THE INCREMENTAL ADDITIONAL LEASED SPACE.
Tenant's pro rata share of any increases in Real Estate Taxes and Operating
Expenses for the Incremental Additional Leased Space commencing October 1, 1998,
shall be Four and Seventy-Six Hundredths Percent (4.76%). For purposes of
calculating Additional Rent for the Incremental Additional Leased Space based on
Tenant's pro rata share of increases in Operating Expenses and Real Estate
Taxes, the base year shall be Landlord's fiscal year ending December 31, 1997,
and Tenant's obligation to pay such Additional Rent shall accrue and commence
October 1, 1998.
8. RENT WAIVER FOR THE INCREMENTAL ADDITIONAL LEASED SPACE. Provided
Tenant is not then in default under the Lease, Landlord agrees to waive Nine
Hundred Three and 65/100 Dollars ($903.65) of Base Annual Rent due in each month
of the for the Incremental Additional Leased Space only.
9. LANDLORD'S CONTRIBUTION FOR THE INCREMENTAL ADDITIONAL LEASED
SPACE. Provided Tenant is not then in default of any of the terms or conditions
of the Lease, Landlord agrees to contribute the sum of up to One Hundred
Fifteen Thousand Four Hundred Ten Dollars ($115,410.00) toward the cost of
Tenant's remodeling of the Incremental Additional Leased Space, which amount
Tenant shall receive in the form of a credit toward remodeling expenses owed by
Tenant to Landlord's contractors. Landlord acknowledges that Tenant has an
unused allowance of Thirty-Four Thousand Five Hundred Ninety and 00/100 Dollars
($34,590.00) from Suites 206 and 208, which may also be used for the
Incremental Additional Leased Space.
10. ACCRUAL OF RENT OBLIGATION. Tenant shall be obligated for the
payment of Rent hereunder on October 1, 1997, regardless of any time required to
construct, alter or redecorate any part of the Demised Premises to Tenant's
requirements.
11. PARKING FOR THE INCREMENTAL ADDITIONAL LEASED SPACE. Landlord
agrees to arrange for parking commencing October 1, 1997, in the garage of the
Building for up to twenty-nine (29) automobiles of Tenant or Tenant's employees
at the prevailing monthly rate for such service.
<PAGE> 32
THIRD AMENDMENT TO LEASE
AND LEASE EXTENSION AGREEMENT
PAGE THREE
12. RENEWAL OPTION. Provided that Tenant is in compliance with all of
the terms and conditions of the Lease on the date Tenant gives written notice as
provided below and thereafter through the commencement date of the extended
term, and further provided that Tenant gives written notice to Landlord on or
before January 31, 2002, time being of the essence, Tenant shall have the right
to extend the term of this Third Amendment to Lease for a further term of five
(5) years, from October 1, 2002, to September 30, 2007. This provision shall be
contingent on Tenant occupying a substantial portion (51% or more) of the
Demised Premises on the date Tenant gives written notice as provided above and
on the commencement date of the extended term. Such extension shall be under the
terms, covenants and conditions, including the fair market value Base Annual
Rent then in effect for the length of the extended term, and a formula for
Additional Rent which shall be agreed to by the parties. In no event, however,
shall the Base Annual Rent for the extended term be less than the Base Annual
Rent applicable to the last year of the previous Lease Term plus any Additional
Rent applicable to said year pursuant to the provisions of Sections 1.5 and 2.2
of the Lease. If Landlord and Tenant fail to agree on such new terms, covenants
and conditions, including the fair market value Base Annual Rent and a formula
for Additional Rent for the extended term, by March 31, 2002, then Landlord
shall have no further obligation to Tenant with respect to extension of the
Lease Term.
13. EXECUTION OF DOCUMENT. In the event Tenant does not execute and
return this document by the close of business on September 30, 1997, then
Landlord may market the subject space to others without further notice to
Tenant.
14. LEASE. All of the terms and conditions of the Lease, as previously
amended, except Sections 1.5(c), 29 and 32, which are deleted, as amended and
extended by this Third Amendment to Lease and Lease Extension Agreement, shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
<TABLE>
<S> <C>
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
/s/ Kimberley N. Halston BY [SIG] (SEAL)
- ----------------------------- ----------------------------
General Partner
ATTEST TENANT: OPTICAL TECHNOLOGY
GROUP, INC.
/s/ F. William Caple BY /s/ Richard Kay (SEAL)
- ----------------------------- ----------------------------
Secretary Name:
(Corporate Seal) Title:
</TABLE>
<PAGE> 33
ADDITIONAL SPACE
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE made this 4th day of January, 1999, by
and between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP, a Maryland limited
partnership (hereinafter "Landlord"), and OPTICAL TECHNOLOGY GROUP, INC., a
Maryland corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend further that certain lease
agreement dated January 25, 1996 (the "Lease"), as amended by a First Amendment
to Lease dated April 3, 1997, a Second Amendment to Lease dated April 15, 1997
and a Third Amendment to Lease and Lease Extension Agreement dated October 28,
1997, which provides for the leasing of Suite 800, consisting of approximately
21,405 square feet on the Eighth (8th) floor of One Democracy Plaza, located at
6701 Democracy Boulevard, Bethesda, Maryland, for a term expiring September 30,
2002; and
WHEREAS, Tenant desires to lease an additional area of 1,660 square feet
on the Seventh (7th) floor of said building known as Suite 705, as delineated on
the attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. AREA. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 705, containing approximately 1,660 square feet of additional
space on the Seventh (7th) floor (the "Additional Leased Space"), making the
total demised premises 23,065 square feet.
2. TERM. The term of the Additional Leased Space shall commence
December 15, 1998 (the "Effective Date"), and shall expire contemporaneously
with the term of the Lease.
3. BASE RENT. The Base Annual Rent for the Additional Leased Space
shall be Forty-Eight Thousand Nine Hundred Seventy and 08/100 Dollars
($48,970.08), payable in equal monthly installments of Four Thousand Eighty and
84/100 Dollars ($4,080.84), in advance in accordance with the terms of the
Lease. On December 15, 1999 and each subsequent December 15, the Base Annual
Rent for the Additional Leased Space only shall be increased by Two Percent (2%)
of the Base Annual Rent for the Additional Leased Space only in effect during
the previous Lease year. The escalated Base Annual Rent for the Additional
Leased Space only so determined shall be the "Base Annual Rent" for all purposes
of this Fourth Amendment to Lease, including the calculation of the increase in
Base Annual Rent for the Additional Leased Space only for the subsequent Lease
Year. The increase in Base Annual Rent for the Additional Leased Space only
shall be calculated without regard to any waiver of rent or rent credit provided
to Tenant.
4. ADDITIONAL RENT. Commencing on the Effective Date, Tenant's pro
rata share of any increases in Real Estate Taxes and Operating Expenses for the
Additional Leased Space only shall be Eighty--Two Hundredths of One Percent
(0.82%). For purposes of calculating Additional Rent for the Additional Leased
Space only, based on Tenant's pro rata share of increases in Real Estate Taxes
and Operating Expenses, the base year shall be Landlord's fiscal year ending
December 31, 1998, and Tenant's obligation to pay such Additional Rent for the
Additional Leased Space only shall accrue and commence on December 15, 1999.
5. ACCEPTANCE OF SPACE. Tenant shall accept the Additional Leased
Space in its existing "as is" condition and shall be obligated for the payment
of rent hereunder on the Effective Date, regardless of any time required to
construct, alter or redecorate the Additional Leased Space to Tenant's
requirements.
<PAGE> 34
FOURTH AMENDMENT TO LEASE
PAGE TWO
6. LANDLORD'S CONTRIBUTION. Landlord agrees to contribute the sum
of up to Eight Thousand Three Hundred and 00/100 Dollars ($8,300.00) towards the
cost of Tenant's remodeling of the Additional Leased Space, which amount Tenant
shall receive in the form of a credit toward such remodeling costs.
7. PARKING. Landlord agrees to arrange for parking in the garage
of the building for up to Five (5) additional automobiles of Tenant or Tenant's
employees at the prevailing monthly rate for such service.
8. SECURITY DEPOSIT. Upon lease execution, Tenant shall deliver to
Landlord the equivalent of two (2) months base rent, with one (1) month to be
applied as the first month's rent, and one (1) to be held as security deposit.
Additional security may be required by Landlord based on the financial terms
hereof and Landlord's review of Tenant's financial information.
9. EXECUTION OF DOCUMENT. In the event Tenant does not execute and
return this document by the close of business on December 14, 1998, then
Landlord may market the subject space to others without further notice to
Tenant.
10. LEASE. All of the terms and conditions of the Lease, as
previously amended and as modified by this Fourth Amendment to Lease, shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
<TABLE>
<S> <C>
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
/s/ Kimberley N. Halston By: /s/ Robert P. Kogod (SEAL)
- -------------------------- ----------------------------------------
General Partner
ATTEST: TENANT: OPTICAL TECHNOLOGY GROUP,
INC.
/S/ PATRICIE M. ALSTEN BY /s/ F. WILLIAM CAPLE (SEAL)
- --------------------------- ----------------------------------------
Secretary Name: F. William Caple
(Corporate Seal) Title: Ex. Vice President
</TABLE>
<PAGE> 35
[SMITH LETTERHEAD]
CHARLES E. SMITH COMMERCIAL REALTY
1666 K STREET. N.W. - WASHINGTON. D.C. 20006 - 202-833-5800
May 19, 1999 VIA FAX: 202-624-8555
---------------------
Mr. Gary J. Stein
Associate Director
Julian J. Studley, Inc.
555 Thirteenth Street, N.W.
Suite 420 East
Washington, D.C 20004-1115
Re: One Democracy Plaza
6701 Democracy Boulevard
Optical Technology Group (OTG)
Dear Gary:
On behalf of Charles E. Smith Real Estate Services L.P. and First Rock Spring
Park Limited Partnership ("Landlord"), we are pleased to submit this revised
proposal which outlines the basic terms and conditions upon which we propose to
lease space at One Democracy Plaza, Bethesda, Maryland ("Building") to your
client, Optical Technology Group (OTG).
BUILDING: One Democracy Plaza is located at 6701 Democracy
Boulevard, Bethesda, Maryland. The building contains
201,344 gross rentable square feet located on ten (10)
floors.
LEASED PREMISES: Approximately 1,332 rentable square feet on the seventh
(7th) floor, Suite 709.
LEASE COMMENCEMENT: The "Lease Commencement Date" shall be July 15, 1999,
or sooner if possible. Landlord and Tenant shall
mutually agree upon a schedule in which all necessary
lease documents will be completed so as to permit
Tenant's occupancy by lease commencement date.
LEASE TERM: Three (3) years and two and one-half (2 1/2) months to
coordinate with Tenant's existing lease expiration of
September 30, 2002.
<PAGE> 36
Mr. Gary J. Stein
May 19, 1999
Page 2
RENT: The Initial Base Rental shall be thirty dollars and
twenty-five cents ($30.25) per rentable square foot,
full service.
TENANT IMPROVEMENTS: Landlord shall contribute a total of four dollars
($4.00) per rentable square foot towards the cost of
Tenant Improvements, and architectural and engineering
fees for the leased Premises.
PARKING: Tenant shall have the right to lease three (3) parking
spaces in the parking garage for One Democracy Plaza at
the prevailing monthly rate, which is currently
fifty-five dollars ($55.00) per space per month.
ACCESS: Tenant shall have access to One Democracy Plaza, 24
hours a day, 7 days a week, 52 weeks a year.
BUILDING OPERATIONS: The building standard hours of operation are as follows:
Monday through Friday, 8:00 a.m. to 6:00 p.m. and
Saturday, 8:00 a.m. to 1:00 p.m.
Should Tenant require HVAC services beyond the standard
operating hours, Landlord shall furnish such additional
services at the then prevailing hourly rates as
established by Landlord from time to time. An advance
notice of 72 hours for HVAC overtime is requested, but
services will be provided within a shorter time frame.
SECURITY FOR THE Upon lease execution, Tenant shall deliver to Landlord
LEASE: the equivalent of two (2) months base rent, one (1)
month to be applied as the first month's rent, and one
(1) month to be held as a security deposit. Additional
security may be required by Landlord in accordance with
the financial terms of the lease and Landlord's review
of Tenant's financial information.
BROKER AGREEMENT: Landlord recognizes Julien J. Studley, Inc. as OTG's
exclusive broker for this transaction and agrees to pay
Julien J. Studley, Inc. a commission pursuant to the
terms and conditions of a separate agreement.
<PAGE> 37
Mr. Gary J. Stein
May 19, 1999
Page 3
This proposal is submitted subject to prior leasing or withdrawal from the
market without notice. Neither Landlord nor Optical Technology Group shall have
any obligations regarding any provisions of this lease proposal unless a lease
is executed between the parties. This proposal shall expire on June 1, 1999.
It is further subject to Landlord's satisfactory of Tenant's financial
statements, which shall be submitted prior to lease negotiations.
We look forward to working with you and to expanding Optical Technology Group
within One Democracy Plaza.
Sincerely,
CHARLES E. SMITH REAL ESTATE SERVICES, L.P.,
BY: SMITH COMMERCIAL MANAGEMENT L.L.C.
/s/ ROBERTA LEVY
Roberta Levy
Associate Vice President
(202) 833-5824
RL/tcb
cc: Jim Creedon
Kent Gubler
AGREED & ACCEPTED:
OPTICAL TECHNOLOGY GROUP
By: /s/ Richard Kay Title: President
------------------------------ ---------------------------
Date: May 24, 1999
-------------------
<PAGE> 38
OTG SOFTWARE
===============================================================================
FACSIMILE TRANSMITTAL SHEET
===============================================================================
TO: FROM:
Gary Stein Pat Akstin
- -------------------------------------------------------------------------------
COMPANY: DATE:
OTG Software May 25, 1999
- -------------------------------------------------------------------------------
FAX NUMBER: TOTAL NO. OF PAGES INCLUDING COVER:
202-624-8555 4
- -------------------------------------------------------------------------------
PHONE NUMBER: SENDER'S REFERENCE NUMBER:
202-624-8545
- -------------------------------------------------------------------------------
RE: SENDER'S FAX NUMBER:
301-897-4974
===============================================================================
[] URGENT [] FOR REVIEW [] PLEASE COMMENT [] PLEASE REPLY [] PLEASE RECYCLE
===============================================================================
NOTES/COMMENTS:
Please call sender's number above if you have any problems or questions
regarding this transmission.
[OTG LOGO]
===============================================================================
6701 DEMOCRACY BLVD.
BETHESDA, MARYLAND 20817
301-897-1400 OR 800-324-4222
WWW.OTG.COM
<PAGE> 39
[CHARLES E. SMITH COMMERCIAL REALTY LETTERHEAD]
June 21, 1999
Ms. Patricia Akstin
Vice President of Operations
Optical Technology Group
6701 Democracy Boulevard, Suite 800
Bethesda, MD 20817
Dear Patricia:
Enclosed is a copy of your fully-executed Fifth Amendment to Lease covering One
Democracy Plaza located at 6701 Democracy Boulevard, Bethesda, MD.
We appreciate your interest in our property, and we look forward to a continued
pleasant relationship. If you have any questions, please contact me.
Sincerely,
/s/ ROBERTA LEVY
Roberta Levy
Associate Vice President
(202) 833-5824
RL/nc
Enclosure
cc: Gary J. Stein, w/full enclosures
File, w/full enclosures
Dean Neiman, w/full enclosures
<PAGE> 40
ADDITIONAL SPACE
FIFTH AMENDMENT TO LEASE
THIS FIFTH AMENDMENT TO LEASE made this 17th day of June, 1999 by and
between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP, a Maryland limited
partnership (hereinafter "Landlord"), and OPTICAL TECHNOLOGY GROUP, INC., a
Maryland corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend further that certain lease
agreement dated January 25, 1996 (the "Lease"), which provides for the leasing
of Suites 800 and 705, consisting of approximately 23,065 square feet on the
Seventh (7th) and Eighth (8th) floors of One Democracy Plaza, located at 6701
Democracy Boulevard, Bethesda, Maryland, for a term expiring September 30, 2002;
and
WHEREAS, Tenant desires to lease an additional area of 1,332 square feet on
the Seventh (7th) floor of said building known as Suite 709, as delineated on
the attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. AREA. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 709, containing approximately 1,332 square feet of additional
space on the Seventh (7th) floor (the "Additional Leased Space"), making the
total demised premises 24,397 square feet.
2. TERM. The term of the Additional Leased Space shall commence on
the earlier of July 15, 1999, or when the space becomes available (the
"Effective Date"), and shall expire contemporaneously with the term of the
Lease.
3. BASE RENT. The Base Annual Rent for the Additional Leased Space
shall be Forty Thousand Two Hundred Ninety-Three and 00/100 Dollars
($40,293.00), payable in equal monthly installments of Three Thousand Three
Hundred Fifty-Seven and 75/100 Dollars ($3,357.75), in advance in accordance
with the terms of the Lease. On the first (1st) anniversary of the Effective
Date, and each subsequent anniversary thereof, the Base Annual Rent for the
Additional Leased Space only shall be increased by Two and One-Half Percent
(2 1/2%) of the Base Annual Rent for the Additional Leased Space only in effect
during the previous Lease year. The escalated Base Annual Rent for the
Additional Leased Space only so determined shall be the "Base Annual Rent" for
all purposes of this Fifth Amendment to Lease, including the calculation of the
increase in Base Annual Rent for the Additional Leased Space only for the
subsequent Lease Year. The increase in Base Annual Rent for the Additional
Leased Space only shall be calculated without regard to any waiver of rent or
rent credit provided to Tenant.
4. ADDITIONAL RENT. Commencing on the Effective Date, Tenant's pro
rata share of any increases in Real Estate Taxes and Operating Expenses for the
Additional Leased Space only shall be Sixty-Six Hundredths of One Percent
(.66%). For purposes of calculating Additional Rent for the Additional Leased
Space only, based on Tenant's pro rata share of increases in Real Estate Taxes
and Operating Expenses, the base year shall be Landlord's fiscal year ending
December 31, 1999, and Tenant's obligation to pay such Additional Rent for the
Additional Leased Space only shall accrue and commence on the first (1st)
anniversary of the Effective Date.
5. ACCEPTANCE OF SPACE. Tenant shall accept the Additional Leased
Space in its existing "as is" condition and shall be obligated for the payment
of rent hereunder on the Effective Date, regardless of any time required to
construct, alter or redecorate the Additional Leased Space to Tenant's
requirements.
<PAGE> 41
FIFTH AMENDMENT TO LEASE
PAGE TWO
6. PARKING. Landlord agrees to arrange for parking in the garage of
the building for up to three (3) additional automobiles of Tenant or Tenant's
employees at the prevailing monthly rate for such service.
7. LANDLORD'S CONTRIBUTION. Landlord agrees to contribute the total
sum of up to Nine Thousand Two Hundred Six and 20/100 Dollars ($9,206.20) toward
the cost of Tenant's remodeling of the Additional Leased Space, which amount
Tenant shall receive in the form of a credit toward such remodeling costs.
Tenant has directed Landlord to convert the real estate broker's fee of Three
Thousand Eight Hundred Seventy-Eight and 20/100 Dollars ($3,878.20) into
Tenant's improvement allowance, which is included in the aforesaid Nine Thousand
Two Hundred Six and 20/100 Dollars ($9,206.20).
8. SECURITY DEPOSIT. Tenant shall provide Landlord with an
additional security deposit in amount equal to Three Thousand Three Hundred
Fifty-Seven and 75/100 Dollars ($3,357.75).
9. EXECUTION OF DOCUMENT. In the event Tenant does not execute and
return this document by the close of business on June 10, 1999, then Landlord
may market the subject space to others without further notice to Tenant.
10. LEASE. All of the terms and conditions of the Lease, as modified
by this Fifth Amendment to Lease, shall remain in full force and effect;
expressly provided however that, notwithstanding anything to the contrary, any
cancellation option, renewal option, right of first offer or additional space
option, however denominated, that Tenant has, or may be deemed to have, under
the Lease or any amendment thereto shall be null, void and of no further force
or effect as to the premises herein described.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
<TABLE>
<S> <C>
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
/s/ Kimberly N. Halston BY /s/ ROBERT P. KOGOD (SEAL)
- -------------------------------- ----------------------------
General Partner
ATTEST: TENANT: OPTICAL TECHNOLOGY
GROUP, INC.
/s/ PATRICIE M. ALSTEN BY /s/ F. WILLIAM CAPLE (SEAL)
- -------------------------------- ----------------------------
Secretary NAME:F. William Caple
(Corporate Seal) TITLE:Executive Vice President
</TABLE>
<PAGE> 42
[CHARLES E. SMITH COMMERCIAL REALTY LETTERHEAD]
October 7, 1999 VIA OVERNIGHT MAIL
Ms. Patricia Akstin
Vice President of Operations
Optical Technology Group
6701 Democracy Boulevard, Suite 800
Bethesda, MD 20817
Re: Additional Space Amendment
One Democracy Plaza
6701 Democracy Plaza, Suite 704
Bethesda, Maryland
Dear Patricia:
Enclosed is a copy of your fully-executed Additional Space Amendment
covering Suite 704 located at 6701 Democracy Boulevard, Bethesda, Maryland.
We appreciate your interest in our property, and we look forward to a continued
pleasant relationship. If you have any questions, please contact me.
Sincerely,
/s/ ROBERTA LEVY LISS
Roberta Levy Liss
Associate Vice President
(202) 833-5824
RL/slj
Enclosure
<PAGE> 43
ADDITIONAL SPACE
SIXTH AMENDMENT TO LEASE
THIS SIXTH AMENDMENT TO LEASE made this 6th day of October, 1999 by
and between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP, a Maryland limited
partnership (hereinafter "Landlord"), and OPTICAL TECHNOLOGY GROUP, INC., a
Maryland corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend further that certain
lease agreement dated January 25, 1996 (the "Lease"), which provides for the
leasing of Suites 800, 705 and 709, consisting of approximately 24,397 square
feet on the Eighth (8th) and Seventh (7th) floors of One Democracy Plaza,
located at 6701 Democracy Boulevard, Bethesda, Maryland, for a term expiring
September 30, 2002; and
WHEREAS, Tenant desires to lease an additional area of 1,186 square
feet on the Seventh (7th) floor of said building known as Suite 704, as
delineated on the attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. AREA. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 704, containing approximately 1,186 square feet of additional
space on the Seventh (7th) floor (the "Additional Leased Space"), making the
total Demised Premises 25,583 square feet.
2. TERM. The term of the Additional Leased Space shall commence
September 24, 1999 (the "Effective Date"), and shall expire contemporaneously
with the term of the Lease.
3. BASE RENT. The Base Annual Rent for the Additional Leased
Space shall be Thirty-Six Thousand Eight Hundred Eighty-Four and 60/100 Dollars
($36,884.60), payable in equal monthly installments of Three Thousand
Seventy-Three and 72/100 Dollars ($3,073.72), in advance in accordance with the
terms of the Lease. On the first (1st) anniversary of the Effective Date, and
each subsequent anniversary thereof, the Base Annual Rent for the Additional
Leased Space only shall be increased by Two and One-Half Percent (2 1/2%) of the
Base Annual Rent for the Additional Leased Space only in effect during the
previous Lease year. The escalated Base Annual Rent for the Additional Leased
Space only so determined shall be the "Base Annual Rent" for all purposes of
this Sixth Amendment to Lease, including the calculation of the increase in Base
Annual Rent for the Additional Leased Space only for the subsequent Lease Year.
The increase in Base Annual Rent for the Additional Leased Space only shall be
calculated without regard to any waiver of rent or rent credit provided to
Tenant.
4. ADDITIONAL RENT. Commencing on the Effective Date, Tenant's
pro rata share of any increases in Real Estate Taxes and Operating Expenses for
the Additional Leased Space only shall be Fifty-Nine Hundredths of One Percent
(.59%). For purposes of calculating Additional Rent for the Additional Leased
Space only, based on Tenant's pro rata share of increases in Real Estate Taxes
and Operating Expenses, the base year shall be Landlord's fiscal year ending
December 31, 1999, and Tenant's obligation to pay such Additional Rent for the
Additional Leased Space only shall accrue and commence on the first (1st)
anniversary of the Effective Date.
5. LANDLORD'S CONTRIBUTION. Landlord agrees to contribute the
total sum of up to Eight Thousand Sixty-Three and 61/100 Dollars ($8,063.61)
toward the cost of Tenant's remodeling of the Additional Leased Space, which
amount Tenant shall receive in the form of a credit toward such remodeling
costs. Tenant has directed Landlord to convert the real estate broker's fee of
Three Thousand Three Hundred Nineteen and 61/100 Dollars ($3,319.61) into
Tenant's improvement allowance, which is included in the aforesaid Eight
Thousand Sixty-Three and 61/100 Dollars ($8,063.61).
<PAGE> 44
SIXTH AMENDMENT TO LEASE
PAGE TWO
6. ACCEPTANCE OF SPACE. Tenant shall accept the Additional
Leased Space in its existing "as is" condition and shall be obligated for the
payment of rent hereunder on the Effective Date, regardless of any time required
to construct, alter or redecorate the Additional Leased Space to Tenant's
requirements.
7. PARKING. Landlord agrees to arrange for parking in the garage
of the building for two (2) additional automobiles of Tenant or Tenant's
employees at the prevailing monthly rate for such service.
8. EXECUTION OF DOCUMENT. In the event Tenant does not execute
and return this document by the close of business on September 22, 1999, then
Landlord may market the subject space to others without further notice to
Tenant.
9. SECURITY DEPOSIT. Tenant shall provide Landlord with an
additional security deposit in amount equal to Three Thousand Seventy-Three and
72/100 Dollars ($3,073.72).
10. LEASE. All of the terms and conditions of the Lease, as
modified by this Sixth Amendment to Lease, shall remain in full force and
effect; expressly provided however that, notwithstanding anything to the
contrary, any cancellation option, renewal option, right of first offer or
additional space option, however denominated, that Tenant has, or may be deemed
to have, under the Lease or any amendment thereto shall be null, void and of no
further force or effect as to the premises herein described.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed as of the day and year hereinbefore first written.
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
/s/ Kimberley N. Halston BY: /s/ ROBERT P KOGOD (SEAL)
- ------------------------------ --------------------------------
General Partner
ATTEST: TENANT: OPTICAL TECHNOLOGY
GROUP, INC.
/s/ PATRICIE M. ALSTEN BY /s/ F. WILLIAM CAPLE (SEAL)
- ------------------------------ --------------------------------
Secretary Name: F. William Caple
(Corporate Seal) Title: Executive Vice President
<PAGE> 45
ADDITIONAL SPACE
SEVENTH AMENDMENT TO LEASE
THIS SEVENTH AMENDMENT TO LEASE made this 8th day of December, 1999, by and
between FIRST ROCK SPRING PARK LIMITED PARTNERSHIP, a Maryland limited
partnership (hereinafter "Landlord"), and ONLINE TECHNOLOGIES GROUP, INC., a
Delaware corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant desire to amend further that certain lease
agreement dated January 25, 1996 (the "Lease"), which provides for the leasing
of Suites 800, 704, 705 and 709, consisting of approximately 25,583 square feet
on the Eighth (8th) and Seventh (7th) floors of One Democracy Plaza, located at
6701 Democracy Boulevard, Bethesda, Maryland, for a term expiring September 30,
2002; and
WHEREAS, Tenant desires to lease an additional area of 971 square feet on
the Seventh (7th) floor of said building known as Suite 707, as delineated on
the attached plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. AREA. Landlord hereby leases to Tenant and Tenant leases from
Landlord, Suite 707, containing approximately 971 square feet of additional
space on the Seventh (7th) floor (the "Additional Leased Space"), making the
total Demised Premises 26,554 square feet.
2. TERM. The term of the Additional Leased Space shall commence on the
day after the date the existing occupant of Suite 707 vacates the same and
terminates its lease therefor, which is projected to be on or about February 1,
2000 (the "Effective Date"), and shall expire contemporaneously with the term of
the Lease.
3. BASE RENT. The Base Annual Rent for the Additional Leased Space
shall be Thirty-One Thousand Seventy-Two and 08/100 Dollars ($31,072.08),
payable in equal monthly installments of Two Thousand Five Hundred Eighty-Nine
and 34/100 Dollars ($2,589.34), in advance in accordance with the terms of the
Lease. On the first (1st) anniversary of the Effective Date, and each subsequent
anniversary thereof, the Base Annual Rent for the Additional Leased Space only
shall be increased by Two and One-Half Percent (2 1/2%) of the Base Annual Rent
for the Additional Leased Space only in effect during the previous Lease year.
The escalated Base Annual Rent for the Additional Leased Space only so
determined shall be the "Base Annual Rent" for all purposes of this Seventh
Amendment to Lease, including the calculation of the increase in Base Annual
Rent for the Additional Leased Space only for the subsequent Lease Year. The
increase in Base Annual Rent for the Additional Leased Space only shall be
calculated without regard to any waiver of rent or rent credit provided to
Tenant.
4. ADDITIONAL RENT. Commencing on the Effective Date, Tenant's pro
rata share of any increases in Real Estate Taxes and Operating Expenses for the
Additional Leased Space only shall be Thirty-Seven Hundredths of One Percent
(.37%). For purposes of calculating Additional Rent for the Additional Leased
Space only, based on Tenant's pro rata share of increases in Real Estate Taxes
and Operating Expenses, the base year shall be Landlord's fiscal year ending
December 31, 2000, and Tenant's obligation to pay such Additional Rent for the
Additional Leased Space only shall accrue and commence on the first (1st)
anniversary of the Effective Date.
5. LANDLORD'S CONTRIBUTION. Landlord agrees to contribute the total
sum of up to Seven Thousand Six Hundred Sixty-One and 19/100 Dollars ($7,661.19)
toward the cost of Tenant's remodeling of the Additional Leased Space, which
amount Tenant shall receive in the form of a credit toward such remodeling
costs. Tenant has directed Landlord to convert the real estate broker's fee of
Two Thousand Four Hundred Eighty-Five and 76/100 Dollars ($2,485.76) into
Tenant's improvement allowance, which is included in the aforesaid Seven
Thousand Six Hundred Sixty-One and 19/100 Dollars ($7,661.19).
<PAGE> 46
SEVENTH AMENDMENT TO LEASE
PAGE TWO
6. PARKING. Landlord agrees to arrange for parking in the garage of
the building for two (2) additional automobiles of Tenant or Tenant's employees
at the prevailing monthly rate for such service.
7. SECURITY DEPOSIT. Tenant shall provide Landlord with an additional
security deposit in amount equal to Two Thousand Five Hundred Eighty-Nine and
33/100 Dollars ($2,589.33).
8. EXECUTION OF DOCUMENT. In the event Tenant does not execute and
return this document by the close of business on November 16, 1999, then
Landlord may market the subject space to others without further notice to
Tenant.
9. LEASE. All of the terms and conditions of the Lease, as modified by
this Seventh Amendment to Lease, shall remain in full force and effect;
expressly provided however that, notwithstanding anything to the contrary, any
cancellation option, renewal option, right of first offer or additional space
option, however denominated, that Tenant has, or may be deemed to have, under
the Lease or any amendment thereto shall be null, void and of no further force
or effect as to the premises herein described.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year hereinbefore first written.
WITNESS: LANDLORD: FIRST ROCK SPRING PARK
LIMITED PARTNERSHIP
By: /s/ Robert P. Kogod (SEAL)
- ----------------------- --------------------------------
GENERAL PARTNER
ATTEST: TENANT: ONLINE TECHNOLOGIES
GROUP, INC.
/s/ Patricie M. Alsten By /s/ F. William Caple (SEAL)
- ----------------------- --------------------------------
Secretary Name:
(Corporate Seal) Title:
<PAGE> 47
================================================================================
OFFICE BUILDING LEASE
FOR
INFORMATION SCIENCES GROUP
ONE DEMOCRACY PLAZA
Suites 706 and 706-A
Bethesda, Maryland 20817
CHARLES E. SMITH REAL ESTATE SERVICES L.P.
2345 Crystal Drive
Crystal City
Arlington, Virginia 22202
[SMITH LOGO]
Charles E. Smith Companies
================================================================================
<PAGE> 48
TABLE OF CONTENTS
SPECIFIC AND GENERAL PROVISIONS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. SPECIFIC PROVISIONS.............................................................. 1
2. RENT............................................................................. 4
2.1 Base Annual Rent
(a) Payment of Base Annual Rent.......................................... 4
(b) Escalation of Base Annual Rent....................................... 4
2.2 Additional Rent.......................................................... 4
(a) Real Estate Taxes.................................................... 4
(b) Operating Expenses................................................... 5
2.3 Additional Rent Estimates and Adjustments................................ 5
(a) Initial Additional Rent Adjustments.................................. 5
(b) Annual Budget........................................................ 5
(c) Additional Rent Reconciliations...................................... 5
(d) Verification of Additional Rent...................................... 6
(e) Fiscal Year.......................................................... 6
2.4 Rent Adjustment Limit.................................................... 6
2.5 Survival of Rent Obligation.............................................. 6
2.6 Pro Rata Share........................................................... 6
2.7 Prorated Rent............................................................ 6
2.8 Application of Rent...................................................... 6
2.9 Late Payment Fee and Interest Charge..................................... 6
2.10 Other Tenant Costs and Expenses.......................................... 6
3. CONSTRUCTION OF PREMISES AND OCCUPANCY........................................... 6
3.1 Tenant Plans, Construction and Rent Liability............................ 6
(a) Preparation of Tenant Plans.......................................... 6
(b) Extension of Construction Timetable.................................. 7
(c) Substantial Completion............................................... 7
3.2 Possession............................................................... 7
3.3 Permits.................................................................. 7
3.4 Demised Premises......................................................... 7
4. SUBLETTING AND ASSIGNMENT........................................................ 8
4.1 Consent.................................................................. 8
4.2 Recapture of Premises.................................................... 8
4.3 Excess Rent and Other Consideration...................................... 8
4.4 Tenant Liability......................................................... 8
4.5 Reasonable Standards of Consent.......................................... 8
4.6 Other Transfers.......................................................... 9
4.7 Rights on Default........................................................ 9
5. SERVICES AND UTILITIES........................................................... 9
5.1 Building Standard Services and Utilities................................. 9
5.2 Overtime Services........................................................ 9
5.3 Excessive Usage.......................................................... 9
(a) Equipment Restrictions............................................... 9
(b) Excess Electrical Usage...............................................10
(c) Additional Utility Costs..............................................10
5.4 Excessive Heat Generation.................................................10
5.5 Building Security.........................................................10
5.6 Roof and Auxiliary Spaces.................................................10
5.7 Trash Removal.............................................................10
6. USE AND UPKEEP OF PREMISES........................................................10
6.1 Use.......................................................................10
6.2 Illegal and Prohibited Uses...............................................10
6.3 Insurance Rating..........................................................10
6.4 Alterations...............................................................11
(a) Approval Required.....................................................11
(b) Alteration Requirements...............................................11
(c) Removal of Leasehold Improvements and Tenant's Property...............11
(d) Compliance with Laws..................................................11
6.5 Maintenance by Landlord...................................................12
(a) Landlord Repairs and Maintenance......................................12
(b) Use of Demised Premises by Landlord...................................12
6.6 Signs and Publications....................................................12
6.7 Excessive Floor Load......................................................12
6.8 Moving and Deliveries.....................................................12
(a) Prohibitions/Notices..................................................12
(b) Coordination with Landlord............................................12
(c) Moving Damages........................................................12
</TABLE>
(i)
<PAGE> 49
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C> <C>
6.9 Rules and Regulations.....................................................13
6.10 Tenant Maintenance and Condition of Demised Premises Upon Surrender.......13
6.11 Tenant Property and Leasehold Improvements................................13
6.12 Landlord's Right to Perform Tenant's Duties...............................13
6.13 Medical Waste.............................................................13
7. ACCESS ..........................................................................13
7.1 Landlord's Access.........................................................13
7.2 Restricted Access.........................................................13
7.3 Tenant's Access...........................................................13
8. LIABILITY.........................................................................14
8.1 Tenant's Property.........................................................14
8.2 Criminal Acts of Third Parties............................................14
8.3 Public Liability..........................................................14
8.4 Construction on Contiguous Property.......................................14
8.5 Tenant Insurance..........................................................14
(a) Liability Insurance...................................................14
(b) Fire and Casualty Insurance...........................................14
(c) Increases in Coverage.................................................14
(d) Policy Requirements...................................................14
(e) No Limitation of Liability............................................14
(f) Waiver of Subrogation.................................................15
(g) Business Interruption.................................................15
8.6 Incident Reports..........................................................15
9. DAMAGE ..........................................................................15
9.1 Damages Caused by Tenant..................................................15
9.2 Fire or Casualty Damage...................................................15
9.3 Untenantability...........................................................15
(a) Restoration Requirements..............................................15
(b) Casualty Near Expiration of Lease Term................................16
10. CONDEMNATION......................................................................16
10.1 Landlord's Right to Award.................................................16
10.2 Tenant's Right to File Claim..............................................16
11. BANKRUPTCY........................................................................16
11.1 Events of Bankruptcy......................................................16
11.2 Landlord's Remedies.......................................................16
(a) Termination of Lease..................................................16
(b) Suit for Possession...................................................17
(c) Non-Exclusive Remedies................................................17
(d) Assumption or Assignment by Trustee...................................17
(e) Adequate Assurance of Future Performance..............................17
(f) Failure to Provide Adequate Assurance.................................17
11.3 Guarantors................................................................17
11.4 Damages...................................................................17
12. DEFAULTS AND REMEDIES.............................................................17
12.1 Default...................................................................17
12.2 Remedies..................................................................17
12.3 Landlord's Right to Relet.................................................18
12.4 Recovery of Damages.......................................................18
(a) Quantification of Damages.............................................18
(b) Non-Exclusive Rights..................................................19
12.5 Waiver....................................................................19
12.6 Anticipatory Repudiation..................................................19
(a) Repudiation Prior to Commencement Date................................19
(b) Repudiation of Any Obligation of Tenant During Lease Term.............19
12.7 Tenant Abandonment of Demised Premises....................................19
(a) Abandonment...........................................................19
(b) Landlord Right to Enter and to Relet..................................19
12.8 Tenant's Property.........................................................19
12.9 Landlord's Lien...........................................................20
(a) Right of Distress/Landlord's Lien.....................................20
(b) UCC Security Interest.................................................20
(c) UCC Remedies Not Mandatory............................................20
12.10 Injunctive Relief.....................................................20
12.11 Independent Covenants.................................................20
</TABLE>
(ii)
<PAGE> 50
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C> <C>
12.12 Waiver of Redemption..................................................20
12.13 Attorneys' Fees.......................................................20
13. SUBORDINATION.....................................................................21
13.1 Subordination.............................................................21
13.2 Estoppel Certificates.....................................................21
13.3 Attornment................................................................21
13.4 Mortgagee Rights..........................................................21
(a) Mortgagee Requirements................................................21
(b) Notices to Mortgagee..................................................22
14. TENANT'S HOLDOVER.................................................................22
14.1 With Landlord Consent.....................................................22
14.2 Without Landlord Consent..................................................22
15. SECURITY DEPOSIT..................................................................22
16. QUIET ENJOYMENT...................................................................23
17. SUCCESSORS........................................................................23
18. WAIVER OF JURY TRIAL AND STATUTE OF LIMITATIONS...................................23
19. LIMITATION OF LANDLORD'S LIABILITY; NOTICE........................................23
19.1 Landlord's Consent........................................................23
19.2 Individual Liability......................................................23
19.3 Notice in Event of Landlord's Default.....................................23
20. AUTHORITY.........................................................................23
21. TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES............................23
21.1 Hazardous Substances......................................................23
21.2 Tenant's Restrictions.....................................................24
(a) Violations............................................................24
(b) Use...................................................................24
21.3 Affirmative Obligations...................................................24
(a) Compliance with Laws..................................................24
(b) Clean-Up Plans........................................................24
(c) Information Requests..................................................24
21.4 Tenant's Indemnity........................................................24
21.5 Survival of Obligations...................................................24
22. JOINT AND SEVERAL LIABILITY.......................................................24
23. DEFINITIONS.......................................................................25
23.1 Pronouns..................................................................25
23.2 Demised Premises..........................................................25
23.3 Lease Term................................................................25
23.4 Tenant's Property.........................................................25
23.5 Leasehold Improvements....................................................25
24. NOTICE TO PARTIES.................................................................25
24.1 Addresses for Notices.....................................................25
24.2 Effective Date of Notice..................................................25
25. NOTICE TO MORTGAGEES..............................................................25
26. SPECIAL PROVISIONS; EXHIBITS......................................................25
26.1 Incorporation in Lease....................................................25
26.2 Conflicts.................................................................25
27. CAPTIONS..........................................................................25
28. ENTIRE AGREEMENT; MODIFICATION....................................................25
29. GOVERNING LAW; SEVERABILITY.......................................................26
30. BINDING EFFECT OF LEASE...........................................................26
31. FORCE MAJEURE.....................................................................26
32. RECORDATION.......................................................................26
33. TIME OF ESSENCE...................................................................26
34. BROKERS ..........................................................................26
35. RELATIONSHIP OF LANDLORD AND TENANT...............................................26
</TABLE>
(iii)
<PAGE> 51
This Lease, made this 23rd day of June, 1998 between FIRST ROCK
SPRING PARK LIMITED PARTNERSHIP, a Maryland limited partnership (hereinafter
referred to as "Landlord"), and INFORMATION SCIENCES GROUP, a Maryland
corporation (hereinafter referred to as "Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, for the use set forth and for the term and at the rent
reserved herein.
1. SPECIFIC PROVISIONS
1.1 PREMISES
(a) DEMISED PREMISES: Suites 706 and 706-A.
(b) RENTABLE AREA: Approximately 2,710 square feet (Modified
Washington D.C. Association of Realtors
standard floor area measure as defined in
Exhibit G).
(c) COMPLEX: The buildings, improvements and grounds known
as Democracy Plaza, of which the Building is
a part.
(d) BUILDING: ONE DEMOCRACY PLAZA
(e) ADDRESS: 6701 Democracy Boulevard
Bethesda, Maryland 20817
1.2 LEASE DATES
(a) LEASE TERM: The term of this Lease ("Lease Term") shall
be Five (5) years, commencing on June 1, 1998
("Commencement Date"), and expiring on May
31, 2003, both dates inclusive, unless sooner
terminated in accordance with the provisions
of this Lease.
(b) BASE YEAR: Base Year shall be defined as the period
commencing on January 1, 1998, and ending on
December 31, 1998.
(c) FISCAL YEAR: Fiscal Year shall be defined as each annual
period, or portion thereof, included within
the Lease Term commencing on January 1, and
ending on December 31.
(d) LEASE YEAR: The first Lease Year shall commence on the
Commencement Date and shall terminate at
11:59 p.m. on the day before the first
anniversary of the Commencement Date. All
subsequent Lease Years shall be for twelve
calendar months, except that the last Lease
Year shall terminate on the date this Lease
expires or is terminated in accordance with
the provisions hereof.
(e) CALENDAR
YEAR: Calendar Year (sometimes appearing as
`calendar year') shall be defined as each
annual period from January 1 through the
immediately following December 31.
1.3 BASE ANNUAL RENT
(a) INITIAL BASE ANNUAL RENT: Seventy-Three Thousand One Hundred
Seventy and 00/100 Dollars ($73,170.00), payable in equal monthly
installments of Six Thousand Ninety-Seven and 50/100 Dollars
($6,097.50), hereinafter referred to as "base monthly rent", for the
first Lease Year.
(b) PERCENTAGE FACTOR: Three Percent (3%).
1
<PAGE> 52
1.4 BASE YEAR COSTS
Not Applicable.
1.5 ADDITIONAL RENT
Additional Rent shall be payable by Tenant in accordance with
Section 2, commencing June 1, 1999, consisting of each of the
following:
(a) INCREASES IN REAL
ESTATE TAXES: Tenant's pro rata share (based on 223,967
square feet of office space in the
Building), equal to One and Twenty-One
Hundredths Percent (1.21%), of the amount of
Real Estate Taxes in excess of the Base Year
Real Estate Taxes.
(b) INCREASES IN
OPERATING
EXPENSES: Tenant's pro rata share (based on 223,967
square feet of office space in the
Building), equal to One and Twenty-One
Hundredths Percent (1.21 %), of the amount
of Operating Expenses in excess of the Base
Year Operating Expenses.
1.6 SECURITY DEPOSIT
Two Thousand Eight Hundred Thirty-Two and 63/100 Dollars
($2,832.63), to be transferred from Tenant's present security
deposit account.
1.7 STANDARD BUILDING OPERATING DAYS AND HOURS
8:00 A.M. to 6:00 P.M. Monday - Friday
8:00 A.M. to 1:00 P.M. Saturday
1.8 USE OF PREMISES
General office use in keeping with the quality and nature of this
first class office building.
1.9 (a) ADDRESS FOR NOTICES TO TENANT
Information Sciences Group
6701 Democracy Boulevard
Suite 706
Bethesda, Maryland 20817
(b) ADDRESS FOR NOTICES TO LANDLORD
First Rock Spring Park Limited Partnership
c/o Charles E. Smith Real Estate Services L.P.
2345 Crystal Drive
Arlington, VA 22202
(c) ADDRESS FOR PAYMENT OF RENT
First Rock Spring Park Limited Partnership
c/o Charles E. Smith Real Estate Services L.P.
P.O. Box 641472
Pittsburgh, PA 15264-1472
2
<PAGE> 53
1.10 SPECIAL PROVISIONS
Rent Section 36
Landlord's Contribution Section 37
Accrual of Rent Obligation Section 38
Parking Section 39
Construction of Premises and Occupancy Section 40
Subletting and Assignment Section 41
Services and Utilities Section 42
Use and Upkeep of Premises Section 43
Access Section 44
Liability Section 45
Damage Section 46
Defaults and Remedies Section 47
Subordination Section 48
Tenant's Holdover Section 49
Tenant's Responsibility Regarding Hazardous Substances Section 50
Brokers and Commissions Section 51
Legal Compliance Section 52
Execution of Document Section 53
1.11 EXHIBITS TO LEASE
Exhibit A- Not Applicable
Exhibit B- Not Applicable
Exhibit C- Building Rules and Regulations
Exhibit D- Cleaning Specifications
Exhibit E- Not Applicable
Exhibit F- Not Applicable
Exhibit G- Rentable Area Definition
IN WITNESS WHEREOF, Landlord has caused this Lease, composed of Specific
Provisions, General Provisions, Special Provisions and Exhibits, to be signed
and sealed by one or more of its Officers, General Partners, Trustees, or
Agents, and Tenant has caused this Lease, as described above, to be signed in
its corporate name by its duly authorized officer and its corporate seal to be
hereto affixed and duly attested by its Secretary.
WITNESS: LANDLORD: FIRST ROCK SPRING PARK LIMITED
PARTNERSHIP
/s/ Kimberly N. Halston BY:
- ----------------------- -------------------------------------(SEAL)
General Partner
ATTEST: TENANT: INFORMATION SCIENCES GROUP
CORPORATE /s/ Erin K. Murphy BY /s/ Charles Oakley, President
--------------------- ------------------------------------(SEAL)
SEAL Secretary Name:
Title:
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GENERAL PROVISIONS
2. RENT
2.1 BASE ANNUAL RENT
(a) Payment of Base Annual Rent. Tenant shall pay the first monthly
installment of Base Annual Rent specified in Section 1.3 upon execution of this
Lease. After the Commencement Date, Tenant shall pay the remaining monthly
installments of Base Annual Rent in advance without deduction, demand, right of
set-off or recoupment, in immediately available funds, on the first day of each
and every calendar month throughout the entire Lease Term specified in Section
1.2(a), to Charles E. Smith Real Estate Services L.P. ("Landlord's Agent"), by
electronic funds transfer if requested by Landlord, or otherwise at the address
specified in Section 1.9(b) or 1.9(c), as applicable, or to such other person or
at such other place as Landlord may hereafter designate in writing.
(b) Escalation of Base Annual Rent. Commencing on the first anniversary
date of the Commencement Date and continuing on each subsequent anniversary
thereof, the Base Annual Rent shall be increased by the Percentage Factor
stipulated in Section 1.3(b) times the Base Annual Rent payable for the
preceding Lease Year (all of which shall be calculated without giving effect to
any waiver of rent or rent credit otherwise provided to Tenant). The escalated
Base Annual Rent so determined shall be the "Base Annual Rent" for all purposes
of this Lease, including the calculation of the increase in Base Annual Rent for
the subsequent Lease Year.
2.2 ADDITIONAL RENT. Commencing on the date set forth in Section 1.5 and
continuing throughout the Lease Term, Tenant shall pay as Additional Rent
Tenant's pro rata share of any (i) Real Estate Taxes and (ii) Operating
Expenses, in excess of the (i) Real Estate Taxes and (ii) Operating Expenses,
respectively, paid by Landlord in the Base Year. Additional Rent shall be
determined as follows:
(a) Real Estate Taxes. Tenant shall pay Tenant's pro rata share, as
defined in Section 1.5(a), of any Real Estate Taxes paid during each Fiscal Year
falling entirely or partly within the Lease Term, in excess of the amount of
Real Estate Taxes paid during the Base Year.
(i) The term "Real Estate Taxes" shall mean (1) all taxes,
assessments (including all assessments for public improvements or benefits,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Lease Term), water, sewer, transportation or
other excises, levies, license fees, permit fees, impact fees, inspection fees,
and other authorization fees and other similar charges, in each case whether
general or special, levied or assessed, ordinary or extraordinary, foreseen or
unforeseen, of every character (including all interest and penalties thereon),
which at any time during or in respect of the Lease Term, may, by any
governmental or taxing authority, be assessed, levied, confirmed, or imposed on
or in respect of, or be a lien upon, the land and the building improvements of
which the Demised Premises are a part, and on any land and/or improvements now
or hereafter owned by Landlord and/or others that provide the Complex or
locality or the Demised Premises with other services, programs, amenities or
common facilities, together with (2) any other tax imposed on real estate or on
owners of real estate generally, including taxes imposed on leasehold
improvements which are assessed against the Landlord and taxes upon or with
respect to any activity conducted on the land and improvements of which the
Demised Premises are a part, upon this Lease or any rent reserved or payable
hereunder, upon the revenues or receipts from the land and improvements of which
the Demised Premises are a part, or upon the use or occupancy thereof, and (3)
to the extent the following taxes are in lieu of or a substitute for any other
taxes which are, or would be, payable by Landlord as Real Estate Taxes, (a) any
income, excess profits, or other taxes of Landlord determined on the basis of
its income, receipts, or revenues, (b) any estate, inheritance, succession,
gift, capital levy, or similar tax of Landlord, (c) any franchise, capital
stock, or similar taxes of Landlord and (d) any income, excess profits, or other
taxes of Landlord determined on the basis of its income or revenue derived
pursuant to this Lease.
(ii) If Real Estate Taxes paid during the Base Year are subsequently
reduced by any application or proceeding brought by or on behalf of Landlord for
reduction in the amount of Real Estate Taxes payable by Landlord, the Real
Estate Taxes deemed to have been paid during the Base Year shall be decreased
and Landlord may promptly bill Tenant for the Additional Rent not previously
paid by Tenant for any Fiscal Year during the Lease Term, based upon the reduced
amount of Real Estate Taxes deemed paid during the Base Year.
(iii) If the Building's occupancy level is seventy percent (70%) or
less for six (6) months or more during any Fiscal Year other than the Base Year,
or if all land and improvements upon which Real Estate Taxes are or may be
assessed pursuant to Section 2.2(a)(i) above are not fully assessed during any
portion of any Fiscal Year other than any portion of the Base Year, then the
Real Estate Taxes paid during such Fiscal Year or portion thereof (other than
the Base Year) may be adjusted, at Landlord's sole option, to project the Real
Estate Taxes as if the Building were one hundred percent (100%) occupied and/or
all land and improvements are fully assessed during such Fiscal Year as
reasonably estimated by Landlord using standard accounting procedures so that
Tenant's share of the Real Estate Taxes is the amount which Tenant would bear if
the Building were fully occupied and/or if all land and improvements upon which
Real Estate Taxes may be assessed were fully assessed during the entire such
Fiscal Year. For example, if the occupancy rate for the Building during at least
six (6) months of a Fiscal Year is seventy percent (70%), and if the real estate
tax bill to Landlord is $240,000 based on the less-than-complete occupancy of
the Building, and if Landlord estimates that the Real Estate Taxes that would
have been paid if the Building had been one hundred percent (100%) occupied by
tenants would have been Three Hundred Thousand Dollars ($300,000), then Tenant
would pay as Additional Rent pursuant to Section 1.5(a) its pro rata share of
the amount by which $300,000 exceeds the Real Estate Taxes which were paid
during the Base Year.
(iv) In addition to the pro rata share of any increase in Real Estate
Taxes to be paid by Tenant pursuant to Sections 2.2(a)(i), (ii) and (iii) above,
Tenant shall reimburse Landlord upon demand for any and all taxes required to be
paid by Landlord upon, measured by, or reasonably attributable to the cost or
value of Tenant's Property or by the cost or value of any Leasehold Improvements
made in or to the Demised Premises by or for Tenant, regardless of whether title
to such Leasehold Improvements shall be in Tenant or Landlord, and for all taxes
required to be paid by Landlord upon, measured by, or reasonably attributable to
or with respect to the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Demised Premises or any
portion thereof to the extent such taxes are not included in Real Estate Taxes.
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(b) Operating Expenses. Tenant shall pay Tenant's pro rata share, as
indicated in Section 1.5(b), of any Operating Expenses paid during each Fiscal
Year falling entirely or partly within the Lease Term, in excess of the
Operating Expenses paid during the Base Year.
(i) The term "Operating Expenses" shall mean any and all expenses of
Landlord in connection with the servicing, insuring, operation, maintenance,
replacement and repair of the Building and related interior and exterior
appurtenances of which the Demised Premises are a part, or for health, welfare
or safety; expenses, if any, of Landlord either alone or in conjunction with
others to maintain common facilities, amenities, programs and services required
or approved by jurisdictional authorities for the Building, the building site,
the Complex or the locality in which the Complex is situated; the cost of any
services to achieve a reduction of, or to minimize the increase in, Operating
Expenses or Real Estate Taxes; management fees; vault rentals; business license,
personal property and other taxes; capital expenditures and other costs of
Landlord for equipment or systems installed to reduce or minimize increases in
Operating Expenses or to comply with any governmental or quasi-governmental
ordinance or requirement (at the option of Landlord, such costs, with interest,
may be recovered from Tenant in installments simultaneous with the payment of
monthly installments of Base Annual Rent in accordance with a cost repayment
schedule based on the useful life of such equipment or systems). At the sole
discretion of Landlord, certain of these expenses may be equitably apportioned
among two or more buildings in the Complex.
(ii) The term "Operating Expenses" shall not include any of the
following, except to the extent that such costs and expenses are specifically
included in Operating Expenses as described in Section 2.2(b)(i) above: capital
expenditures and depreciation of the Building; painting and decorating of tenant
space; interest and amortization of mortgages; ground rent; compensation paid to
officers or executives of Landlord; taxes as measured by the net income of
Landlord from the operation of the Building; insurance reimbursements of
Operating Expenses to Landlord; Real Estate Taxes; brokerage commissions; and
marketing expenses.
(iii) If the Building's occupancy level is seventy percent (70%) or
less for six (6) months or more during any Fiscal Year other than the Base Year,
or if all land and improvements upon which Operating Expenses are calculated or
may be calculated pursuant to Section 2.2(b)(i) above were not fully complete
and operational, or if any tenant is separately paying for services or utilities
furnished to its premises or is provided with fewer services than customarily
provided for tenants of general office space in the Building, then Operating
Expenses paid during such Fiscal Year or portion thereof (other than the Base
Year) may be adjusted, at Landlord's sole option, to include all additional
expenses, as estimated by Landlord applying standard accounting procedures, so
that Tenant's share of Operating Expenses is the amount which Tenant would bear
if the Building were fully occupied by tenants and all land and improvements
upon which Operating Expenses are calculated or may be calculated pursuant to
Section 2.2(b)(i) above were fully complete and operational during the entire
such Fiscal Year using services and utilities customarily provided for general
office use. For example, if the occupancy rate for the Building during at least
six (6) months of a Fiscal Year is seventy percent (70%), and if the janitorial
contractor charges $1.00 per square foot of occupied rentable area per year, and
if the Building contains 100,000 square feet of rentable area, and if Landlord
estimates that the Operating Expenses that would have been paid if the Building
had been one hundred percent (100%) occupied by tenants, using such customary
janitorial services during such year, would have been $100,000, then Tenant
would pay as Additional Rent pursuant to Section 1.5(b) its pro rata share of
the amount by which $100,000 exceeds the Operating Expenses which were paid
during the Base Year.
2.3 ADDITIONAL RENT ESTIMATES AND ADJUSTMENTS.
(a) Initial Additional Rent Adjustments. Landlord at its option may submit
to Tenant prior to the date set forth in Section 1.5 a statement of Landlord's
reasonable estimate of the increases described in Sections 2.2(a) and (b)
above, together with the amount of Tenant's Additional Rent which is estimated
to result from such increases, in which event Tenant shall pay such estimated
Additional Rent to Landlord in equal monthly installments beginning on the date
set forth in Section 1.5, on the dates and in the manner required for the
payment of Tenant's monthly installments of Base Annual Rent. In the
alternative, as soon as practicable after the end of the calendar year in which
Tenant's obligation to pay Additional Rent pursuant to Sections 2.2(a) and (b)
commences, Landlord may submit a lump sum statement to Tenant of the actual
increases in Real Estate Taxes and/or Operating Expenses, if any, which were
paid during the Fiscal Year which ended during such calendar year over the Real
Estate Taxes and Operating Expenses which were paid during the Base Year, all
as prorated based upon that portion of the Fiscal Year falling within the
initial partial year of the Lease Term, and Tenant shall pay its pro rata share
as Additional Rent on the date and in the manner required for the next monthly
installment of Base Annual Rent due after submission of Landlord's statement.
(b) Annual Budget. Subsequent to the Calendar Year in which Tenant's
obligation to pay each component of Additional Rent pursuant to Section 2.2
commences, Tenant shall thereafter pay each such component of Additional Rent in
twelve equal monthly installments based upon Landlord's estimates. In order to
provide for the current monthly payment of each component of Additional Rent
described herein, Landlord shall submit to Tenant a statement of Landlord's
reasonable estimate of the increases described in Section 2.2 above, together
with the amount of Tenant's Additional Rent which is estimated to result from
such increases. Tenant agrees to pay each such estimated component of Additional
Rent to Landlord in twelve equal installments beginning on January 1, on the
dates and in the manner required for the payment of Tenant's monthly
installments of Base Annual Rent.
(c) Additional Rent Reconciliations. After the end of each Calendar Year,
Landlord will submit to Tenant an audited financial statement of the actual
increases in Real Estate Taxes and Operating Expenses paid during the Fiscal
Year which ended during such Calendar Year over the Real Estate Taxes and
Operating Expenses which were paid during the Base Year, respectively. Such
statement shall also indicate the amount of Tenant's excess payment or
underpayment of Additional Rent based on Landlord's estimate described in
Sections 2.3(a) and 2.3(b). If Additional Rent paid by Tenant during the
preceding Calendar Year shall be in excess of, or less than, the aggregate of
its share of the actual increase in Real Estate Taxes and Operating Expenses,
Landlord and Tenant agree to make the appropriate adjustment following the
submission of Landlord's statement. Tenant shall either pay any Additional Rent
due with the installment of Base Annual Rent due for the month following
submission of Landlord's statement, or pay any Additional Rent due within thirty
(30) days if the Lease Term has expired or has otherwise been terminated. Tenant
shall deduct its excess payment, if any, from the installment of Base Annual
Rent due for the month following submission of Landlord's statement, or
following the expiration or earlier termination of the Lease Term, Tenant shall
be reimbursed for any excess payments made, less any amounts then due Landlord
under this Lease, upon demand.
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(d) Verification of Additional Rent. Unless Tenant asserts
specific errors within thirty (30) days after Landlord has submitted the audited
financial statement for a Fiscal Year to Tenant, Tenant shall have no right to
contest the amount of Tenant's pro rata share of Real Estate Taxes and/or
Operating Expenses or the statement submitted by Landlord. No such assertion of
error by Tenant shall extend the time for payments as set forth in Sections 2.2
and 2.3 above. If Tenant has given a timely assertion of error and if it shall
be determined by Landlord there is an error in Landlord's statement, Tenant
shall be entitled to a credit for any overpayment, which shall be applied to any
sums then due Landlord under this Lease and then to the next installment(s) of
Additional Rent until fully credited for the overpayment, or refunded if Tenant
has vacated the Demised Premises, or Tenant shall be billed for any underpayment
and shall remit any amount owing to Landlord within ten (10) business days of
Tenant's receipt of such statement.
(e) Fiscal Year. Landlord shall have the right to change its
Fiscal Year from time to time. If Landlord changes its Fiscal Year during the
Lease Term, thereby creating a Fiscal Year with fewer than twelve (12) months
(hereinafter "short year"), the Real Estate Taxes and Operating Expenses for the
short year shall be determined on an annualized basis by taking the monthly
average of the actual Real Estate Taxes and Operating Expenses, respectively,
and multiplying each by twelve. The amounts determined by this method shall be
used in determining the increases described in Sections 2.2(a) and 2.2(b) for
the short year.
2.4 RENT ADJUSTMENT LIMIT. Notwithstanding any deductions from or
adjustments to Base Annual Rent and Additional Rent as provided for above, in no
event shall the total monthly installment of Base Annual Rent and Additional
Rent to be paid by Tenant in any month during the Lease Term or any extension
thereof be less than the monthly installment of Base Annual Rent stipulated in
Section 1.3, except as required as the result of the Landlord's application of a
credit due to Tenant pursuant to Section 2.3(c).
2.5 SURVIVAL OF RENT OBLIGATION. The obligation of Tenant with respect
to payment of Base Annual Rent, as defined in Section 2.1, and Additional Rent
as defined in Sections 2.2 and 2.10, together with all other sums due hereunder,
accrued and unpaid during the Lease Term, shall survive the expiration or
earlier termination of this Lease.
2.6 PRO RATA SHARE. Tenant's "pro rata share" stipulated in Sections
1.5(a) and 1.5(b) represent the ratio that the total rentable area of the
Demised Premises bears to the total rentable area of the Building. In the event
of any dispute as to the Tenant's "pro rata share", certification of the "pro
rata share" by Landlord's architect shall be binding on both Landlord and
Tenant.
2.7 PRORATED RENT. Any Base Annual Rent or Additional Rent payable
pursuant to Sections 2.1 and 2.2 for one or more full calendar months in a
partial Fiscal Year at the beginning or end of the Lease Term shall be prorated
based upon the number of months in the Fiscal Year. Any Base Annual Rent or
Additional Rent payable pursuant to Sections 2.1 and 2.2 for a portion of a
calendar month shall be prorated based upon the number of days in the applicable
calendar month.
2.8 APPLICATION OF RENT. No payment by Tenant or receipt by Landlord
of lesser amounts of Base Annual Rent or Additional Rent than those required by
this Lease shall be deemed to be other than on account of the earliest unpaid
stipulated Base Annual Rent or Additional Rent. No endorsement or statement on
any check or any letter accompanying any check or payment as Base Annual Rent or
Additional Rent shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such Base Annual Rent and Additional Rent or pursue any other
remedy provided in this Lease. Any credit due to Tenant hereunder by reason of
overpayment of Base Annual Rent or Additional Rent shall first be applied to any
Base Annual Rent, Additional Rent or other sums owed to Landlord by Tenant as
set forth elsewhere in this Lease or if Tenant shall be in default when said
credit shall be owed.
2.9 LATE PAYMENT FEE AND INTEREST CHARGE. In the event any installment
of Base Annual Rent or Additional Rent due hereunder is not paid within ten (10)
calendar days after it is due, then Tenant shall also pay to Landlord as
Additional Rent (a) a late payment fee equal to five percent (5%) of the payment
as liquidated damages for the additional administrative costs incurred by
Landlord as a result of such late payments, plus (b) an interest charge
calculated at the rate of eighteen percent (18%) per annum on the delinquent
payment from the date due until paid.
2.10 OTHER TENANT COSTS AND EXPENSES. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease, including
without limitation costs of construction and alterations, shall be deemed
Additional Rent, whether or not the same is specifically designated herein as
Additional Rent, and, in the event of nonpayment thereof, Landlord shall have
all the rights and remedies herein provided for the nonpayment of Base Annual
Rent and Additional Rent payable pursuant to Sections 2.1 and 2.2, including
assessment of late payment fees and interest charges.
3. CONSTRUCTION OF PREMISES AND OCCUPANCY
3.1 TENANT PLANS, CONSTRUCTION AND RENT LIABILITY. Exhibit F attached
to this Lease, describes the obligations of Landlord and Tenant, and the
respective time periods for performance thereof, for the preparation and
approval of construction plans, cost estimates, working drawings and completion
of improvements and fixturing for occupancy. The improvements to be constructed
by Landlord in the Demised Premises are hereinafter referred to as the
"Construction Improvements". Said time periods shall apply irrespective of
whether Tenant uses the architect, engineer and/or general contractor selected
by Landlord, or firms of Tenant's own selection. The Tenant shall deliver to
Landlord, by the date specified on Exhibit F, a preliminary plan approved in
writing by the Tenant showing Tenant's partition, electrical and telephone
requirements, planned occupancy numbers and distribution within the Demised
Premises, and all other requirements set forth in the Tenant Plans Guidelines,
attached hereto and made a part hereof as Exhibit E, or otherwise deemed
necessary by the Landlord for the preparation of the working drawings and cost
estimate.
(a) Preparation of Tenant Plans.
(i) If Tenant uses architects and engineers selected by
Landlord, Landlord shall pay for preparation of the first preliminary plan (and
one revision) specified on Exhibit F, and the first set of working drawings (and
one set of revisions) for building standard design features (as defined in the
Outline Specifications, if any, attached hereto and made a part hereof as
Exhibit B, and applicable to first generation space only) or for design features
to be built at Landlord's expense (applicable to space other than first
generation space); all subsequent revisions of preliminary plans and working
drawings, plus the cost of all design work related to above building standard
design features and for design features not to be built at Landlord's expense,
as applicable, shall be at Tenant's expense.
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(ii) If Tenant's architect or engineer prepares the
preliminary plan, the preliminary plan and all revisions thereto shall be at
Tenant's expense. Landlord shall pay for one set of working drawings for
building standard design features (applicable to first-generation space) or for
design features to be built at Landlord's expense (applicable to space other
than first-generation space) and one cost estimate. All design work related to
above building standard design features and to design features not to be built
at Landlord's expense and all subsequent revisions to drawings and estimates
shall be at Tenant's expense. Landlord shall have the right to approve any
architect and/or engineer selected by Tenant, which approval shall not be
unreasonably withheld, and each of Tenant's architects and engineers shall be
licensed in the jurisdiction in which the Demised Premises are located and shall
maintain (and provide Landlord with evidence of the existence of) professional
liability insurance adequate in Landlord's reasonable judgment.
(iii) Tenant's preliminary plan, whether prepared by an
architect or engineer selected by Landlord or by Tenant's architect or engineer,
shall provide sufficient information to permit Landlord to have working drawings
and cost estimate prepared. Tenant's preliminary plan shall be certified by the
architect or engineer preparing same to be in compliance with applicable
building and fire codes, and with The Americans with Disabilities Act and all
amendments, modifications, extensions, replacements, regulations, orders and
directives in connection therewith (the "ADA"). If the Demised Premises as
reflected on Tenant's plans are not in compliance with applicable building and
fire codes, or do not comply with all requirements of the ADA, then Tenant's
plans shall not be, nor shall they be deemed to be, acceptable to Landlord.
Landlord's approval of Tenant's plans or work does not constitute certification
by Landlord that said plans or work meet the applicable requirements of any
building or fire codes, laws or regulations, or the ADA, nor shall it impose any
liability whatsoever upon Landlord. If Tenant's preliminary plans are acceptable
to Landlord, Landlord shall have working drawings prepared within the time
period set forth on Exhibit F, and when the working drawings are completed by
the architect and engineer, the Tenant shall approve in writing both the working
drawings and Landlord's final cost estimate within the number of working days
stipulated on Exhibit F. Tenant's failure to approve or disapprove any estimates
or plans within the time periods set forth on Exhibit F shall be deemed to
constitute approval for purposes of this Section.
(b) Extension of Construction Timetable. Nothing contained in this
Section 3.1, nor any delay in completing the Demised Premises, shall in any
manner affect the Commencement Date set forth in Section 1.2 or Tenant's
liability for payment of Base Annual Rent and Additional Rent from such
Commencement Date, except as follows. If Landlord requires longer than the
number of working days stipulated on Exhibit F to prepare working drawings and
prepare the cost estimate following receipt of Tenant's approved preliminary
plan, or if Landlord requires longer than the number of working days stipulated
on Exhibit F to substantially complete Construction Improvements in the Demised
Premises after the final working drawings and cost estimate have been approved
by the Tenant in writing, then the Commencement Date shall be postponed by one
day for each extra day Landlord requires for the foregoing preparation of
working drawings and cost estimate and/or substantial completion of Construction
Improvements, as the case may be, which postponement shall be Tenant's sole and
exclusive remedy. In the event Tenant delays approval of either the preliminary
plan, the working drawings and/or the final cost estimate or makes changes in
the work after approval of working drawings and the final cost estimate, or
Tenant's contractors interfere with Landlord's work, thereby delaying
substantial completion and Landlord's tender of possession of the Demised
Premises to Tenant, Tenant shall nevertheless remain liable for the payment of
Base Annual Rent and Additional Rent from the Commencement Date specified in
Section 1.2. Time is of the essence as to the Tenant's performance within the
time periods specified for approval of plans and cost estimates set forth on
Exhibit F pursuant to this Section 3.1.
(c) Substantial Completion. For the purposes of this Section 3.1,
"substantial completion" of the Construction Improvements shall mean when all
work to be performed by Landlord pursuant to the approved working drawings and
final cost estimate has been completed, except for minor items of work and minor
adjustments of equipment and fixtures that can be completed after occupancy of
the Demised Premises without causing material interference with Tenant's
reasonable use of the Demised Premises (i.e., "punch-list" items) in accordance
with the "use of the premises" as defined in Section 1.8. In the event Tenant's
plans specify any Construction Improvements that are not building standard, or
are not immediately available in the metropolitan Washington, D.C., area within
the time period for construction set forth on Exhibit F, the delivery and
installation of which precludes Landlord from substantially completing the
Construction Improvements in the Demised Premises by the Commencement Date
specified in Section 1.2, Tenant shall nevertheless remain liable for the
payment of Base Annual Rent and Additional Rent from such Commencement Date.
3.2 POSSESSION. If Landlord shall be unable to tender possession of
the Demised Premises on the Commencement Date set forth in Section 1.2 by reason
of: (a) the fact that the Demised Premises are located in a building being
constructed and which has not been sufficiently completed to make the Demised
Premises ready for occupancy; (b) the holding over or retention of possession of
any tenant or occupant; (c) the Construction Improvements have not been
substantially completed due to delays by Landlord; or (d) for any other reason
beyond the control of Landlord, Landlord shall not be subject to any liability
for the failure to tender possession on said date. Under such circumstances the
Base Annual Rent and Additional Rent reserved and covenanted to be paid herein
shall not commence until possession of the Demised Premises is tendered to
Tenant. No such failure to tender possession on the Commencement Date set forth
in Section 1.2 shall in any other respect affect the validity of this Lease or
the obligations of Tenant hereunder, nor shall same be construed to extend the
termination date of this Lease set forth in Section 1.2. In the event the actual
Commencement Date does not occur within one (1) year of the date this Lease is
fully executed and delivered by Landlord and Tenant, then Landlord, without
further liability to Tenant, shall have the right to terminate this Lease upon
thirty (30) days prior written notice to Tenant. If permission is given to
Tenant to enter into possession of the Demised Premises prior to the date
specified as the Commencement Date, Tenant covenants and agrees that such
occupancy shall be deemed to be subject to all of the terms, covenants,
conditions and provisions of this Lease, and that Tenant shall be responsible
for payment of Base Annual Rent, in advance, at the rate of 1/30th of the base
monthly rent set forth in Section 1.3 for each day of such occupancy prior to
the Commencement Date, and Additional Rent set forth in Section 1.5 shall begin
to accrue on such date of possession.
3.3 PERMITS. Tenant shall be responsible for obtaining at its sole
cost and expense the construction and occupancy permits for the Demised
Premises. Tenant shall be responsible for obtaining any other permits or
licenses necessary for its lawful occupancy of the Demised Premises. Tenant
shall provide Landlord with a copy of all such permits and licenses.
3.4 DEMISED PREMISES. Landlord shall have the right to change the
location and configuration of the Demised Premises at any time, subject to the
following terms and conditions: (a) subsequent to the Commencement Date,
Landlord shall provide Tenant not less than thirty (30) days advance written
notice of the date Tenant must vacate the Demised Premises; (b) Landlord shall
provide Tenant with substitute space of similar nature and size elsewhere in the
Building or in the Complex (the "Substitute Premises"); and (c) Landlord shall
at Landlord's expense remove Tenant's Property from the Demised Premises and
reinstall them in the Substitute Premises, and redecorate the Substitute
Premises in a manner substantially similar to the manner in which the Demised
Premises were decorated. Landlord shall use reasonable efforts to minimize the
disruption to Tenant's business, but in no event shall Landlord be
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liable for any loss of business or other damages to or expenses of Tenant,
except for any physical damage to Tenant's Property incurred during the move.
Within ten (10) days after Landlord submits an amendment of this Lease or a
replacement lease indicating the location and configuration of the Substitute
Premises, Tenant shall execute such amendment or lease, as applicable, and
deliver it to Landlord, failing which Tenant hereby irrevocably appoints
Landlord as its special attorney-in-fact to execute such amendment or lease, as
applicable, the foregoing power of attorney being deemed to be coupled with an
interest.
4. SUBLETTING AND ASSIGNMENT
4.1 CONSENT. Without the prior written consent of Landlord, not to be
unreasonably withheld or delayed in accordance with Section 4.5, Tenant will not
sublet the Demised Premises or any part thereof or transfer possession or
occupancy thereof to any person, firm or entity, or transfer or assign this
Lease, and no subletting or assignment hereof shall be effected by operation of
law or in any other manner, such as the transfer of all or substantially all of
Tenant's assets or voting control of Tenant's stock, partnership interest or
other equity, without such prior written consent of Landlord. If Tenant is a
partnership, then any sale, conveyance, or other transfer of, or the grant of a
security interest in, any partnership interest, or any dissolution of Tenant, or
any act which will result in a potential future change in control, or a
withdrawal or change, whether voluntary, involuntary or by operation of law, of
a partner or partners owning a controlling interest in Tenant, shall be deemed a
voluntary assignment of this Lease. If Tenant is a corporation, then any sale,
conveyance, or other transfer of, or grant of a security interest in any
controlling shares of stock, dissolution, merger, consolidation or other
reorganization of Tenant, or any sale or transfer of a controlling interest of
its capital stock, or any act which will result in a potential future change in
control, or a withdrawal or change, whether voluntary, involuntary or by
operation of law, of a shareholder or shareholders owning a controlling interest
in Tenant, shall be deemed a voluntary assignment of this Lease. All permitted
sublettings and assignments of the Demised Premises and this Lease shall be
subject to the provisions of this Lease, including but not limited to Section
4.3. No assignment shall be made except for the entire Demised Premises and
Tenant further agrees that any permitted assignment of this Lease or subletting
of the Demised Premises may be conditioned upon payment by Tenant of
consideration and the delivery of such additional guarantees, collateral and/or
other security as determined by Landlord. Any subletting or assignment consented
to by Landlord, to be effective, shall be evidenced in writing in a form
acceptable to Landlord. Consent by Landlord to any assignment or subletting by
Tenant shall not operate as a waiver of the necessity for obtaining Landlord's
consent in writing to any subsequent assignment or subletting. The collection or
acceptance of rent from any such assignee, subtenant or other occupant shall not
constitute a waiver of or release of Tenant from any covenant or obligation
contained in this Lease, nor shall such acceptance of rent be deemed to create
any right to the Demised Premises in such assignee, subtenant or other occupant,
nor any legal or other relationship between the Landlord and any such assignee,
subtenant or other occupant. Landlord's acceptance of any name for listing on
the Building directory shall not be deemed, nor will it substitute for,
Landlord's consent as required by this Lease, to each sublease, assignment and
any other occupancy of the Demised Premises. In the event that Tenant defaults
under this Lease in the payment of Base Annual Rent or Additional Rent, Tenant
hereby assigns to Landlord the rent and other sums due from any subtenant,
assignee or other occupant and hereby authorizes each such subtenant, assignee
and other occupant to pay said rent and other sums directly to Landlord upon
demand. Any transfer of this Lease or the Demised Premises, or any transfer of
any interest in Tenant restricted pursuant to this Section 4.1, without the
prior written consent of Landlord pursuant to this Section 4.1 shall be void. By
taking a transfer of this Lease by assignment, transfer of interest in Tenant,
or by any other manner described in this Section 4.1, or otherwise with
Landlord's consent to the transfer, the transferee shall be bound by all
provisions of this Lease, which shall be binding upon the transferee as if the
transferee had signed this Lease in lieu of the original Tenant named herein.
4.2 RECAPTURE OF PREMISES. In the event Tenant desires to sublet the
Demised Premises or assign this Lease or effect the transfer of any interest in
this Lease or in Tenant restricted pursuant to Section 4.1, Tenant shall give to
Landlord written notice of Tenant's intended subtenant, assignee or transferee
in order to secure Landlord's written consent in accordance with Section 4.1.
Within ninety (90) days of receipt of said notice, Landlord shall have the
right, at its option: (i) to terminate this Lease by giving Tenant not less than
thirty (30) days notice if Tenant's notice states the Tenant's desire to assign
this Lease or sublet more than fifty percent (50%) of the Demised Premises or
effect a restricted transfer of an interest in this Lease or in Tenant; or (ii)
if Tenant's notice states the Tenant's desire to sublet a portion of the Demised
Premises, to terminate this Lease and simultaneously to enter into a new lease
with Tenant for that portion of the Demised Premises Tenant may desire to retain
upon the same terms, covenants and conditions as then set forth in this Lease,
prorated based upon the space retained by Tenant. If Landlord exercises its
right to terminate this Lease pursuant to clauses (i) or (ii) above, Tenant
agrees that Landlord shall have access to all or any portion of the Demised
Premises sixty (60) days prior to the effective termination date for remodeling
or redecorating purposes. Tenant shall promptly execute such lease amendments
and other documents as Landlord may require to effectuate the terms and intent
of this Section 4.2.
4.3 EXCESS RENT AND OTHER CONSIDERATION. Any rent and other consideration
accruing to Tenant as the result of any sublease or any assignment of this
Lease, which is in excess of the pro rata share of Base Annual Rent and
Additional Rent then being paid by Tenant for all or a portion of the Demised
Premises being sublet or assigned, shall be paid by Tenant to Landlord monthly
as Additional Rent. Any consideration accruing to Tenant as the result of any
transfer of interest in Tenant restricted pursuant to Section 4.1, which is paid
or deemed paid in regard to the value of this Lease and which is in excess of
the pro rata share of the Base Annual Rent and Additional Rent which would have
been paid by Tenant during the Lease Term for such space, shall be paid by
Tenant to Landlord promptly as Additional Rent.
4.4 TENANT LIABILITY. In the event of any subletting of the Demised
Premises or assignment of this Lease by Tenant or transfer of an interest in
this Lease or in Tenant, Tenant shall remain liable to Landlord for payment of
the Base Annual Rent and Additional Rent stipulated herein and all other
covenants and conditions contained herein. No subletting of the Demised Premises
or assignment of this Lease or transfer of an interest in this Lease or in
Tenant shall operate to release, discharge or otherwise affect the liability of
any guarantors, co-signers or other parties liable to Landlord pursuant to the
terms of any guaranty or otherwise for the obligations of Tenant under this
Lease.
4.5 REASONABLE STANDARDS OF CONSENT. Tenant acknowledges that Landlord,
in considering whether to grant or withhold consent required of Landlord
pursuant to this Section 4, shall be entitled to apply any or all of the
following criteria:
(a) The financial strength of proposed
subtenant/assignee/transferee must be acceptable to Landlord in Landlord's
reasonable discretion based on adequate current and historical financial
information given by Tenant. Landlord shall be entitled to receive, and Tenant
shall deliver or cause others to deliver, such guarantees, collateral and other
security as Landlord shall request in conjunction with any prospective sublease,
assignment or other transfer. Failure to provide such financial information,
guarantees, collateral and other security shall be grounds for Landlord to
withhold or deny consent;
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(b) The proposed subtenant/assignee/transferee must have a good
reputation in the business community and must be credit-worthy;
(c) Use of the Demised Premises by the proposed
subtenant/assignee/transferee must be identical to the use permitted by this
Lease;
(d) Use of the Demised Premises by the proposed
subtenant/assignee/transferee shall not violate or create any potential
violation of any laws and must be in keeping with the character of the Building
and the Complex;
(e) Use of the Demised Premises by the proposed
subtenant/assignee/transferee shall not violate, or cause Landlord to violate,
any other leases, agreements or mortgages affecting (i) the Demised Premises,
the Building, the Complex or the land related to such improvements, or (ii) the
Landlord, Landlord's Agent or other tenants, whether such leases, agreements or
mortgages were entered into prior or subsequent to this Lease;
(f) The proposed use shall be compatible with all other uses
within the Building or Complex and the proposed use or user shall not cause a
diminution in the reputation of the Building, the Complex, Landlord, Landlord's
Agent or other tenants;
(g) The proposed subtenant/assignee/transferee shall have no right
to further sublet the subleased premises, nor to further assign this Lease, nor
to further transfer any interest in such proposed subtenant/assignee/transferee;
(h) In the event Tenant is in default, consent may be withheld
irrespective of whether these other criteria are met by the proposed
subtenant/assignee/transferee.
4.6 OTHER TRANSFERS. Notwithstanding anything herein to the contrary,
Tenant shall not pledge, assign, transfer, encumber or otherwise convey its
interest in the Demised Premises conditionally or as security for any
obligations of Tenant to any third party, or otherwise. Any such transfer in
violation of this provision shall be void.
4.7 RIGHTS ON DEFAULT. In the event Tenant defaults under this Lease, in
addition to the rights and remedies of Landlord outlined in Section 12,
Landlord, at its option, may elect to recognize any sublease between Tenant and
any subtenant, or any agreement by which Tenant has granted any leasehold estate
or interest in the Demised Premises, as a direct lease or agreement between
Landlord and such subtenant or other grantee, upon written notice to Tenant and
such subtenant or other grantee, without releasing or affecting the liability of
Tenant to Landlord under this Lease, and Tenant shall be deemed to have assigned
its interest in such sublease or other agreement to Landlord (without the need
for executing any further documentation evidencing same) and such subtenant or
other grantee shall attorn to and recognize the rights of Landlord under such
sublease or other agreement, as the case may be. Notwithstanding Tenant's
consent or acquiescence in the termination of this Lease and/or Tenant's
voluntary surrender of the Demised Premises (or any portion thereof), Landlord
may consider any sublease or other agreement transferring a leasehold estate or
interest in the Demised Premises, and/or any right to use or possess the Demised
Premises (or any portion thereof) by any subtenant or other grantee, terminated
as of the date Landlord terminates this Lease and/or Tenant's right to
possession of the Demised Premises, it being the intention of the parties that
any leasehold estate or other interest in the Demised Premises shall be subject
to the terms and conditions of this Lease, including all rights and remedies of
Landlord outlined herein, notwithstanding anything to the contrary contained in
such sublease or other agreement.
5. SERVICES AND UTILITIES
5.1 BUILDING STANDARD SERVICES AND UTILITIES. Subject to the limitations
set forth in Section 5.3 below, Landlord shall furnish sufficient electric
current for lighting and office equipment such as typewriters, calculators,
small copiers, desktop personal computers and word processors and similar items.
Landlord shall also furnish water for lavatory and drinking purposes, lavatory
supplies, fluorescent tube replacements, automatically operated elevator service
and nightly cleaning service in accordance with Landlord's prevailing practices
(as set forth in Exhibit D attached hereto), as they may be modified from time
to time, except that Landlord shall not be responsible for cleaning Tenant's
kitchens, private bathrooms, rugs, carpeting (except vacuuming) and drapes.
Landlord shall have no liability for and expressly disclaims any responsibility
for the engineering, design, installation, provision of or maintenance of
Tenant's telecommunications and data transmission systems and the inside wire
associated therewith. Landlord further agrees to furnish heating and cooling
during the appropriate seasons of the year, between the hours and on the days
set forth in Section 1.7 (exclusive of legal public holidays as defined in
section 6103(a) and (c) of Title 5 of the United States Code, as it may
hereafter be amended, with holidays falling on Saturday observed on the
preceding Friday and holidays falling on Sunday observed on the following
Monday). All of the aforesaid services shall be provided without cost to Tenant
except as such expenses may be included in calculating Additional Rent pursuant
to the provisions of Sections 2.2 and 2.3. Landlord shall not be liable for
failure to furnish, or for suspension or delay in furnishing, any of such
services if such failure, suspension or delay is caused by breakdown,
maintenance or repair work, strike, riot, civil commotion, governmental
regulations, emergency periods due to weather or any other cause or reason
whatever beyond the reasonable control of Landlord. Failure, suspension, delay
or interruption of services shall not result in any abatement of Base Annual
Rent or Additional Rent, be deemed an eviction or breach of this Lease
(including any express or implied covenant of quiet enjoyment), or relieve
Tenant of performance of Tenant's obligations under this Lease.
5.2 OVERTIME SERVICES. Should Tenant require heating and cooling services
beyond the hours and/or days stipulated in Section 1.7, upon receipt of at least
48 hours prior written notice from Tenant, Landlord will furnish such additional
service at the then-prevailing hourly rates for both utility services and
personnel as established by Landlord from time to time; provided, further, that
there will be a minimum charge of four (4) hours each time overtime services are
required.
5.3 EXCESSIVE USAGE.
(a) Equipment Restrictions. Tenant will not install or operate in
the Demised Premises any heavy duty electrical equipment or machinery or any
other equipment which consumes excess gas (where applicable), excess water,
excess sewer services or excess electricity as defined in Section 5.3(b) below,
without first obtaining prior written consent of Landlord. Landlord may, among
other things, require as a condition to its consent for the installation of such
equipment or machinery that Tenant pay as Additional Rent the costs for excess
consumption of such utilities that may be occasioned by the operation of said
equipment or machinery. Landlord may make periodic inspections of the Demised
Premises at reasonable times to determine that Tenant's equipment and machinery
comply with the provisions of this Section and Section 5.4.
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(b) Excess Electrical Usage. The consumption of electricity,
including lighting, in excess of five (5) watts per square foot for any portion
of the Demised Premises shall be deemed excessive. Additionally, any individual
piece of electrically operated machinery or equipment having a name plate rating
in excess of two (2) kilowatts shall also be deemed as requiring excess electric
current.
(c) Additional Utility Costs. Landlord shall have the right to
either require that one or more separate meters be installed to record the
consumption or use of electricity or other utilities, or cause a reputable
independent engineer to survey and determine the quantity of such utilities
consumed by such excessive use. The cost of any such survey and meters and of
installation, maintenance and repair thereof shall be paid for by Tenant.
Tenant agrees to pay Landlord (or the utility company, if direct service is
provided by the utility company), promptly upon demand therefor, for all such
consumption and demand as shown by said meters, or a flat monthly charge
determined by the survey, as applicable, at the rates charged for such service
by the local public utility company. If Tenant's cost of such utilities based
on meter readings is to be paid to Landlord, Tenant shall pay a service charge
related thereto in an amount Landlord shall reasonably determine.
5.4 EXCESSIVE HEAT GENERATION. Landlord shall not be liable for its
failure to maintain comfortable atmospheric conditions in all or any portion of
the Demised Premises due to heat generated by over-occupancy of the Demised
Premises or by any equipment, machinery or additional lighting installed by
Tenant (with or without Landlord's consent) that exceeds design capabilities for
the Building. Over-occupancy shall mean any occupancy of the Demised Premises in
excess of the planned occupancy disclosed by Tenant to Landlord pursuant to
Section 3.1. If Tenant desires additional cooling to offset excessive heat
generated by such over-occupancy, equipment, machinery or additional lighting,
Tenant shall pay for auxiliary cooling equipment and the operating, maintenance,
repair and replacement costs of such equipment, including without limitation
electricity, gas, oil and water. If Tenant does not desire such auxiliary
cooling equipment, Tenant shall pay for excess electrical consumption by the
existing cooling system.
5.5 BUILDING SECURITY. Any security system or other security measures
(collectively, the "Security System") that Landlord may undertake for protection
of the Demised Premises, the Building and/or Complex (including any parking
garages or areas) are for the protection of the physical structures only and
shall not be relied upon by Tenant, its agents, employees or invitees to protect
Tenant, Tenant's Property and Leasehold Improvements or Tenant's employees,
invitees or their property. Tenant shall not do anything to circumvent or allow
others to circumvent any Security System. Landlord shall not be liable for any
failure of any Security System to operate or for any breach or circumvention of
the Security System by others, and Landlord makes no representations or
warranties concerning the installation, performance and monitoring of any
Security System, or that it will detect or avert the occurrences which any such
Security System is intended or expected to detect or avert.
5.6 ROOF AND AUXILIARY SPACES. Tenant shall not use the roof, roof
utility closets or other auxiliary spaces in the Building for antennas,
condenser coolers, telecommunications and/or data transmission equipment or any
other type of equipment or for any other purpose without the prior written
consent of Landlord, which consent may be conditioned upon the terms of a
separate written agreement and the payment by Tenant of separate consideration
for the use of such space.
5.7 TRASH REMOVAL. Tenant covenants and agrees, at its sole cost and
expense, to comply with all present and future laws, orders and regulations of
the federal, state, county, municipal and local governments, departments,
commissions, agencies and boards regarding the collection, sorting, separation
and recycling of trash. Upon request by Landlord, Tenant shall sort and separate
its trash into such categories as are provided by law. Each separately sorted
category of trash shall be placed in separate receptacles as directed by
Landlord. Landlord reserves the right to refuse to collect or accept from Tenant
any trash that is not separated and sorted as required by law and directed by
Landlord, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Landlord. Tenant shall
pay all costs, expenses, fines, penalties and damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with the provisions
of this Section, and Tenant, at Tenant's sole cost and expense, shall indemnify,
defend and hold Landlord harmless from and against any actions, claims and suits
(including legal fees and expenses) arising from such noncompliance, utilizing
counsel reasonably satisfactory to Landlord.
6. USE AND UPKEEP OF PREMISES
6.1 USE. Tenant shall use and occupy the Demised Premises only for the
purposes specified in Section 1.8 and for no other purpose whatsoever, and shall
comply, and cause its employees, agents, contractors, invitees and other users
of the Demised Premises to comply, with all applicable federal, state and local
laws, statutes, ordinances and regulations, including, but not limited to, the
ADA, zoning regulations, and smoking regulations. Any variation or deviation
from the specific use expressly set forth in Section 1.8 shall be deemed a
default of this Lease. Tenant shall pay before delinquency any business, rent
and other tax and fee that is now or hereafter assessed or imposed upon Tenant's
use or occupancy of the Demised Premises, the conduct of Tenant's business in
the Demised Premises or Tenant's Property. If any such tax or fee is enacted or
altered so that such tax or fee is imposed upon Landlord so that Landlord is
responsible for collection or payment thereof, then Tenant shall promptly pay
the amount of such tax or fee directly to the taxing authority, or if previously
paid by Landlord, to Landlord upon demand.
6.2 ILLEGAL AND PROHIBITED USES. Tenant will not use or permit the Demised
Premises or any part thereof to be used for any disorderly, unlawful or extra
hazardous purpose and will not manufacture anything therein. Tenant will not use
or permit the Demised Premises to be used for any purposes that interfere with
the use and enjoyment by other tenants of the Building or Complex or, in
Landlord's opinion, impair the reputation or character of the Building, Complex,
Landlord or Landlord's Agent. Tenant shall immediately refrain from and
discontinue such use after receipt of written notice from Landlord.
6.3 INSURANCE RATING. Tenant will not do or permit anything to be done in
the Demised Premises, the Building or the Complex or bring or keep anything
therein which shall in any way increase the rate of fire or other insurance on
said Building or the Complex, or on the property kept therein, or conflict (or
permit any condition to exist which would conflict) with applicable fire laws or
regulations, or with any insurance policy upon said Building or Complex or any
part thereof, or with any statute, rules or regulations enacted or established
by any appropriate governmental authority. Tenant shall be responsible for any
increase in insurance costs with respect to the Building or Complex if the
increases were caused by its actions or failure to act.
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6.4 Alterations.
(a) Approval Required. Tenant shall not make any alterations,
installations, changes, replacements, repairs, additions or improvements in or
to (or which interfere with) the structural elements of the Building or the
Demised Premises, or the Systems (hereinafter defined), without the prior
written consent of Landlord, which consent may be granted or withheld in
Landlord's sole and absolute discretion. Tenant shall not make any
non-structural, non-System or cosmetic alterations, changes, replacements,
repairs, additions or improvements in or to the Demised Premises or any part
thereof, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. All Tenant plans and specifications shall be submitted
to Landlord for prior approval. All Tenant engineering plans and specifications
shall be prepared at Tenant's expense by Landlord's designated engineer.
Landlord may, among other things, condition its consent upon Tenant's agreement
that any construction up-gradings required by any governmental authority as a
result of Tenant's work, either in the Demised Premises or in any other part of
the Building or Complex, will be paid for by Tenant in advance. Tenant shall not
install any equipment of any kind or nature whatsoever which will or may
necessitate any changes, replacements or additions to the water system, plumbing
system, heating system, ventilating system, air-conditioning system, supply,
return or control systems, Landlord's data system(s), or the electrical system
of the Demised Premises or the Building (collectively, the "Systems"), nor
install or use any air-conditioning unit, engine, boiler, generator, machinery,
heating unit, stove, water cooler, ventilator, radiator or any other similar
apparatus, nor modify or interfere with any of the Systems, without the prior
written consent of the Landlord, which consent may be granted or withheld in the
Landlord's sole and absolute discretion. Any auxiliary air-conditioning
equipment which Tenant may desire to install in the Demised Premises shall be
connected to the Building's commercial condenser water system, if available, and
Tenant shall pay to Landlord such reasonable charges as established by Landlord
from time to time for the use of the Building's commercial condenser water
system. Tenant shall not modify or interfere with the Systems without the prior
written consent of Landlord, and then only as Landlord may direct. Landlord may
condition its consent upon Tenant's payment of all costs to make such changes,
replacements or modifications. Tenant shall not design, configure, install, use
or arrange for the design, configuration, installation or use of its
telecommunications and data transmission systems or inside wire associated
therewith in any manner that interferes with the existing telecommunications
and/or data transmission systems or inside wire associated therewith of Landlord
or other tenants in the Building. Landlord's consent to any work by Tenant or
approval of Tenant's plans or specifications shall not be deemed a certification
that such work complies with applicable building codes, laws or regulations, nor
shall it impose any liability whatsoever upon Landlord.
(b) Alteration Requirements. All of Tenant's approved work shall
be done in accordance with Landlord's Supplemental Rules and Regulations for
Contractors (as promulgated and amended by Landlord from time to time) and shall
be done by duly qualified, licensed and bonded contractors in accordance with
all applicable laws, codes, ordinances, rules and regulations, and Tenant shall
obtain (or give) at its cost any required permits, licenses, registrations,
notices, or inspections for performance of its work. Prior to the commencement
of such work Tenant must either deposit with Landlord evidence of the existence
of a bond deemed sufficient by Landlord against construction liens, or obtain an
executed waiver of lien from each contractor or vendor that will perform or
furnish to Tenant work, labor, services or materials for any alterations,
installations, replacements, additions or improvements in or to the Demised
Premises. Notwithstanding the aforesaid, if any mechanic's or materialman's lien
shall at any time, whether before, during or after the Lease Term, be filed
against any part of the Building or other property of Landlord by reason of
work, labor, services or materials performed for or furnished to or on behalf of
Tenant, Tenant shall forthwith cause the lien to be released of record by being
discharged or bonded off to Landlord's satisfaction within five (5) days after
being notified of the filing thereof. If Tenant shall fail to cause such lien to
be released of record within said five (5) day period, then, in addition to any
other right or remedy of Landlord, Landlord may bond off or discharge the lien
by paying the amount claimed to be due. Any amount paid by Landlord, whether as
bond premium or payment of the lien amount, and all costs and expenses,
including reasonable attorneys' fees incurred by Landlord in procuring the same
and its release from the appropriate land records, shall be due from Tenant to
Landlord as Additional Rent, and shall be payable on the first day of the next
following month, or if the Lease Term has expired, upon demand.
(c) Removal of Leasehold Improvements and Tenant's Property. All
Leasehold Improvements within the Demised Premises shall, subject to Landlord's
right to require Tenant to remove all or any portion of the Leasehold
Improvements and restore the Demised Premises to its condition as of the date
this Lease is fully executed and delivered by Landlord and Tenant, remain at the
expiration or earlier termination of the Lease Term without disturbance,
molestation or injury. Should Landlord elect that Leasehold Improvements be
removed upon the expiration or earlier termination of the Lease Term, and/or
should Tenant fail to remove all or any portion of Tenant's Property in
accordance with the provisions of this Lease, Tenant hereby agrees that Landlord
shall have the right to cause all or any portion of the Leasehold Improvements
and/or Tenant's Property to be removed at Tenant's sole cost and expense. Tenant
hereby agrees to reimburse Landlord for the cost of such removal together with
the cost of repairing any damage resulting therefrom, and the cost of restoring
the Demised Premises to its condition as of the date this Lease is fully
executed and delivered by Landlord and Tenant. Approximately sixty (60) days
prior to Tenant's scheduled vacation of the Demised Premises, Landlord and
Tenant shall meet to review what items shall be removed and what items shall
remain as Landlord may determine. Landlord shall provide its estimate to Tenant
of the costs of such removal and the costs of any repairs to or restoration of
the Demised Premises as herein provided, and Tenant shall promptly deposit with
Landlord a sum equal to such estimated costs. In the event Tenant fails to
remove the Leasehold Improvements designated by Landlord for removal prior to
the expiration of the Lease Term and/or fails to remove Tenant's Property as
aforesaid and/or fails to make such repairs and/or restoration as aforesaid,
Landlord shall cause the removal, repair and/or restoration to be performed at
Tenant's sole expense, which expense shall not be limited by the amount of the
deposit referred to herein. Tenant shall provide for the transfer or disposal of
all items removed, failing which Landlord is hereby authorized to dispose of
same in any manner deemed appropriate, including, but not limited to, disposal
into the trash, without liability to Tenant, and at Tenant's sole cost and
expense, and Tenant shall indemnify, defend and hold harmless Landlord,
Landlord's Agent and their respective employees and agents from and against all
claims, damages, costs and expenses, including reasonable attorneys' fees,
arising from or in connection with the disposal of all or any items removed by
Landlord hereunder. In the event, for whatever reason, the parties do not meet
to review which items shall be removed and which items shall remain, and/or the
Tenant, for whatever reason, fails to deposit with the Landlord the deposit
hereinabove stated, then the Landlord is hereby authorized to proceed, as it
deems appropriate, with such removal and disposition of property, and repair
and/or restoration, without liability to Tenant, and at Tenant's sole cost and
expense.
(d) Compliance with Laws. In the event that during the Lease Term
either Landlord or Tenant shall be required by the order or decree of any court,
or any other governmental authority, or by law, code or ordinance (including but
not limited to the ADA), to repair, alter, remove, reconstruct, or improve any
part of the Demised Premises or of the Building, then Tenant agrees, at its sole
cost and expense, to comply with such requirements imposed on Demised Premises
or Tenant and shall perform, at its expense, or Tenant shall permit Landlord to
perform, at Tenant's expense, such repairs, alterations, removals,
reconstructions, or improvements. Within
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ten (10) days after receipt, Tenant shall advise Landlord in writing, and
provide the Landlord with copies of (as applicable), (i) any notices alleging
violation of any law, code, or ordinance (including the ADA) relating to any
portion of the Demised Premises or the Building, (ii) any claims made or
threatened in writing regarding noncompliance with any law, code or ordinance
and relating to any portion of the Building or of the Demised Premises, or (iii)
any governmental or regulatory actions or investigations instituted or
threatened regarding noncompliance with any law, code or ordinance and relating
to any portion of the Building or the Demised Premises. No such order or decree
or the compliance required therewith shall have any effect whatsoever on the
obligations or covenants of Tenant herein contained. Tenant hereby waives all
claims for damages or abatement of Base Annual Rent and Additional Rent because
of such repairing, alteration, removal, reconstruction, or improvement.
6.5 MAINTENANCE BY LANDLORD.
(a) Landlord Repairs and Maintenance. Except to the extent that
Tenant is required to maintain and repair pursuant to Sections 5.4, 6.4, 6.7,
6.8, 6.10, 6.11, 9 and 21, Landlord shall maintain and repair all public or
common areas located within the Building, including external landscaping,
walkways and parking areas, and, except to the above extent, Landlord shall make
repairs to structural roofs, walls, standard heating, air conditioning, plumbing
and electrical systems and equipment. Except as otherwise expressly provided in
this Lease, such maintenance shall be provided without cost to Tenant, except
that (i) such expenses may be included in calculating the Additional Rent
pursuant to the provisions of Sections 2.2 and 2.3; and (ii) if such expenses
are incurred by Landlord in making repairs attributable to acts or omissions of
Tenant or Tenant's employees, agents, contractors or invitees, then Tenant shall
reimburse Landlord for all such expenses within ten (10) days after Landlord
submits a bill for such costs to Tenant. Tenant hereby waives all claims for
damages or abatement of Base Annual Rent and Additional Rent because of such
repairing, alteration, removal, reconstruction, or improvement.
(b) Use of Demised Premises by Landlord. Landlord reserves the
right to erect, use, maintain, repair and replace all pipes, ducts, conduits,
wiring, fluids, gases, components, and similar materials and structures in and
through the Demised Premises, including any changes, additions or replacements
as Landlord may from time to time make thereto. Landlord may install any and all
materials, equipment, pipes, ducts, conduits, wires, and related fluids, gases,
components and mechanical equipment serving other portions, tenants and
occupants of the Building, in, through, under or above the Demised Premises that
Landlord deems desirable and shall have the right to locate, both vertically and
horizontally, utility lines, wiring, air ducts, flues, duct shafts, drains,
sprinkler mains and valves, and such other facilities within the Demised
Premises as may be deemed necessary by engineering design and/or code and/or
other legal requirements and to repair, alter, replace or remove these items.
These shall be located so as to cause minimum interference with Tenant's use of
the Demised Premises and shall, if possible, be located above Tenant's suspended
ceiling, if any, or as close to the concrete slab as possible, below the floor,
along column lines or in storage areas. Landlord shall have the right to remove
or abate any hazardous materials located in the Demised Premises and Tenant
shall fully cooperate with Landlord in this regard. Landlord's right to locate
facilities within the Demised Premises shall include facilities required by
tenants or occupants in levels above or below the Demised Premises as well as on
the same level as the Demised Premises. None of the above conduct by Landlord
shall be deemed to constitute an interference with Tenant's quiet enjoyment or
an actual or constructive eviction of Tenant. Tenant shall be entitled to no
abatement of Base Annual Rent or Additional Rent whatsoever on account of such
installation, location, construction, use, entry, removal, repair, maintenance
or other conduct as aforesaid.
6.6 SIGNS AND PUBLICATIONS. No sign, advertisement or notice shall be
inscribed, painted or affixed on any part of the outside of the Building, or in
the common areas of the Building, or inside the Demised Premises where it may be
visible from the public areas of the Building, except on the directories and
doors of offices, and then only in such size, color, method of attachment and
style as Landlord shall approve. Landlord shall have the right to prohibit any
signage or publication of Tenant on the Demised Premises which in Landlord's
opinion tends to impair the reputation or character of the Building, Complex,
Landlord or Landlord's Agent. Tenant shall refrain from and discontinue such
signage or publication upon receipt of written notice from Landlord, but in no
event later than one (1) day after receipt of such notice.
6.7 EXCESSIVE FLOOR LOAD. Landlord shall have the right to prescribe
the weight and method of installation of safes, computer equipment, and other
heavy fixtures or equipment. Tenant will not install in the Demised Premises any
item of Tenant's Property or fixtures that will place a load upon the floor
exceeding the designed floor load capacity of the floor and the Building.
Landlord may prescribe the placement and positioning of all such objects within
the Demised Premises and/or Building, and, if necessary, such objects shall be
placed upon platforms, plates or footings of such size as Landlord shall
prescribe. All damage done to the Building or the Demised Premises by installing
or removing a safe or any other article of Tenant's Property or fixtures, or due
to its being in the Demised Premises, shall be repaired at the expense of
Tenant.
6.8 MOVING AND DELIVERIES.
(a) Prohibitions/Notices. Moving in or out of the Building is
prohibited on days and hours specified in Section 1.7. Tenant shall only use
freight elevators and loading areas, if provided in the Building, for all moving
and deliveries. Tenant shall provide Landlord with forty-eight (48) hours
advance written notice of any move and obtain Landlord's approval therefor in
order to facilitate scheduling use of freight elevators and loading areas.
(b) Coordination with Landlord. No freight, furniture or other
bulky matter of any description shall be received into the Building or carried
in the elevators, except as authorized by Landlord. All moving of furniture,
material and equipment shall be under the direct control and supervision of
Landlord, who shall, however, not be responsible for any damage to or charges
for moving same. Deliveries from lobby and freight areas requiring use of hand
carts shall be restricted to freight elevators. All hand carts shall be equipped
with rubber tires and side guards. Any control exercised by Landlord hereunder
shall be deemed solely for the benefit of Landlord and the Building, and shall
not be deemed to make any of Tenant's employees, agents or contractors the agent
or servant of Landlord. Tenant shall promptly remove from the public areas in or
adjacent to said Building any of Tenant's property delivered or deposited there.
(c) Moving Damages. Any and all damage or injury to the Demised
Premises or the Building caused by moving the property of Tenant into or out of
the Demised Premises shall be repaired at the sole cost of Tenant. In
conjunction with the foregoing, Tenant shall indemnify, defend and hold Landlord
harmless with respect to any and all damages and injuries to the Demised
Premises or the Building, and with respect to any property damage and injury to
others. Without releasing Tenant from any liability hereunder, Tenant shall
cooperate with Landlord to identify delivery contractors and movers causing
damage to the Building or Demised Premises or causing property damage or injury
to others.
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6.9 RULES AND REGULATIONS. Tenant shall, and shall ensure that Tenant's
agents, employees, invitees and guests, faithfully keep, observe and perform the
Building Rules and Regulations set forth in Exhibit C, attached hereto and made
a part hereof, and such amendments, modifications and additions thereto as
Landlord may promulgate from time to time, unless waived in writing by Landlord.
Any other such rules and regulations shall not substantially interfere with the
intended use of the Demised Premises, but Tenant acknowledges that the Building
Rules and Regulations, which, in Landlord's judgment, are needed for the general
well-being, operation and maintenance of the Demised Premises, the Building and
the Complex, together with their appurtenances, are reasonable. Landlord shall
have the right to specifically enforce all Building Rules and Regulations. In
addition to any other remedy provided for herein, Landlord shall have the right
to collect from Tenant a fine of $200 per incident for each violation of said
Building Rules and Regulations which is not cured within three (3) days after
written notice to Tenant. Nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce such Building Rules and
Regulations, or the terms, conditions or covenants contained in any other lease,
as against any other tenant, and Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its employees, agents, invitees,
licensees, customers, clients, family members or guests. Further, it shall be in
Landlord's reasonable judgment as to whether Tenant is in compliance with the
Building Rules and Regulations.
6.10 TENANT MAINTENANCE AND CONDITION OF DEMISED PREMISES UPON SURRENDER.
At all times during the Lease Term, Tenant will keep the Demised Premises and
the Leasehold Improvements and Tenant's Property therein in good order and
condition, will suffer no waste or injury to the Demised Premises and Leasehold
Improvements, and will, subject to the provisions of Section 6.4(c), at the
expiration or other termination of the Lease Term, surrender and deliver up the
Demised Premises and Leasehold Improvements in like good order and condition as
they shall be at the Commencement Date, ordinary wear and tear and, subject to
the provisions of Section 9, damage by casualty excepted.
6.11 TENANT PROPERTY AND LEASEHOLD IMPROVEMENTS. Maintenance and repair of
Tenant's Property and any Leasehold Improvements within or related to the
Demised Premises shall be the sole responsibility of Tenant, and Landlord shall
have no obligation in connection therewith. Notwithstanding anything herein to
the contrary, and subject to the provisions of Sections 6.4 and 12.8 pertaining
to removal from the Demised Premises, Tenant shall have no right to remove from
the Demised Premises any of Tenant's Property and/or Leasehold Improvements upon
and during the continuation of any default by Tenant under this Lease.
6.12 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES. in the event that
repairs required to be made by tenant pursuant to this lease become necessary
by reason of tenant's failure to maintain the demised premises, tenant's
property and leasehold improvements in good order and condition and in
compliance with all applicable laws, orders and regulations, landlord may, but
shall not be obligated to, make repairs at tenant's expense. within ten (10)
days after landlord renders a bill for the cost of said repairs, tenant shall
reimburse landlord.
6.13 MEDICAL WASTE. In addition to Tenant's obligations with respect to
Hazardous Substances set forth in Section 21, Tenant shall be solely responsible
for and shall solely provide, at Tenant's sole cost and expense, for the proper
treatment, handling, removal and disposal from the Demised Premises, the
Building, the property of Landlord and the Complex, of all infectious and/or
hazardous medical waste as the same may be determined from time to time by
applicable federal, state or local laws or regulations. Landlord and Landlord's
Agent shall not be responsible for the treatment, handling, removal or disposal
of same, nor shall Landlord incur any liability to Tenant or any other parties,
or any governmental agency or division thereof, relating to same. Tenant hereby
agrees to indemnify, defend and hold Landlord and Landlord's Agent harmless
with respect to any suits, debts, expenses, liabilities, alleged violations or
non-compliance with any federal, state or local law or regulation, and any other
demands of any nature whatsoever, for any violation by Tenant of the provisions
of this Section 6.13 and for any harm to others caused or alleged to have been
caused by Tenant's medical waste.
7. ACCESS
7.1 LANDLORD'S ACCESS. Landlord, Landlord's Agent, and their agents and
employees, shall have the right to enter the Demised Premises at all reasonable
times (a) to make inspections or to make such repairs and maintenance to the
Demised Premises or repairs and maintenance to other premises as Landlord may
deem necessary; (b) to exhibit the Demised Premises to prospective tenants
during the last six (6) months of the Lease Term; and (c) for any purpose
whatsoever relating to the safety, protection or preservation of the persons or
property of the other tenants, the public, the Demised Premises, the Building,
the Complex or other surrounding properties.
7.2 RESTRICTED ACCESS. No additional locks, other devices or systems which
would restrict access to the Demised Premises shall be placed upon any doors
without the prior consent of Landlord. Landlord's consent to installation of
anti-crime warning devices or security systems shall not be unreasonably
withheld; provided Landlord shall not be required to give such consent unless
Tenant provides Landlord with a means of access to the Demised Premises for the
purposes outlined in Section 7.1 above. Unless access to the Demised Premises is
provided during the hours when cleaning service is normally rendered, Landlord
shall not be responsible for providing such service to the Demised Premises or
to those portions thereof which are inaccessible during said hours. Such
inability by Landlord to provide cleaning services to inaccessible areas shall
not entitle Tenant to any adjustment in Base Annual Rent, Additional Rent or
other sums due hereunder.
7.3 TENANT'S ACCESS. Subject to the provisions of Sections 5.2 and 5.5,
Tenant, its employees and agents shall have access to the Demised Premises
twenty-four (24) hours per day, 365 days per year, and, for the purpose of
access to the Demised Premises only, shall have the right in common with all
other tenants, Landlord and Landlord's agents and employees to use public
corridors, elevators and lobbies. Landlord may at any time and from time to time
during the Lease Term exclude and restrain any person from access, use or
occupancy of any or all mechanical and auxiliary spaces, roofs, public
corridors, elevators and lobbies, excepting, however, Tenant and other tenants
of Landlord and bona fide invitees of either who make use of said public
facilities in accordance with the rules and regulations established by Landlord
from time to time with respect thereto. Landlord may at any time and from time
to time close all or any portion of said public facilities to make repairs or
changes, to prevent a dedication to any person or the public, and to do and
perform such other acts in and to said public facilities as in the exercise of
good business judgment Landlord shall determine to be advisable. It shall be the
duty of Tenant to keep all of said public facilities free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operation. In order to protect the integrity of telephone service in the
Building, Landlord may, at its option, supervise or restrict Tenant's access to
any or all equipment rooms, inside wire space and/or conduits or the
demarcation point.
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8. LIABILITY
8.1 TENANT'S PROPERTY. All of Tenant's Property, the Leasehold Improvements
and the personal property of Tenant's employees, agents, contractors, visitors
and invitees in the Demised Premises or in the Building shall be at their sole
risk. Landlord, Landlord's Agent, and their respective agents and employees
shall not be liable for any damage to Tenant's Property, the Leasehold
Improvements or the property of Tenant's employees, agents, contractors,
visitors and invitees resulting from acts or omissions of any third party,
including, but not limited to, cleaning, maintenance, repair and other
contractors who do work in the Building or the Demised Premises or render
services to Landlord, Landlord's Agent, and their respective agents and
employees or other tenants. Tenant hereby expressly releases Landlord,
Landlord's Agent and their respective agents and employees from any liability
incurred or claimed by reason of damage to Tenant's Property and the Leasehold
Improvements and hereby indemnifies and holds Landlord, Landlord's Agent and
their respective agents and employees from any liability or claims by reason of
damage to the property of Tenant's employees, agents, contractors, visitors and
invitees.
8.2 CRIMINAL ACTS OF THIRD PARTIES. Landlord, Landlord's Agent and their
respective agents and employees shall not be liable in any manner to Tenant, its
agents, employees, invitees or visitors for any injury or damage to Tenant,
Tenant's agents, employees, invitees or visitors, or their property, caused by
the criminal or intentional misconduct of third parties or of Tenant, Tenant's
employees, agents, invitees or visitors on or about the Demised Premises,
Building and/or Complex (including any parking garages and parking areas). All
claims against Landlord, Landlord's Agent and their respective agents and
employees for any such damage or injury are hereby expressly waived by Tenant,
and Tenant hereby agrees to hold harmless, defend and indemnify Landlord,
Landlord's Agent and their respective agents and employees from all such claims
and/or damages and the expenses of defending all claims made by Tenant's
employees, agents, invitees, or visitors arising out of such acts.
8.3 PUBLIC LIABILITY. Landlord, Landlord's Agent and their respective
agents and employees assume no liability or responsibility whatsoever with
respect to the conduct and operation of the business to be conducted upon the
Demised Premises. Landlord, Landlord's Agent and their respective agents and
employees shall not be liable for any accident or injury to any person or
persons or property in or about the Demised Premises which are caused by the
conduct and operation of said business or by virtue of equipment or property of
Tenant in said Demised Premises. Tenant agrees to hold Landlord, Landlord's
Agent and their respective agents and employees harmless against all such
claims, and indemnify and defend Landlord, Landlord's Agent and their respective
agents and employees from all injuries and damages and the expenses of defending
such claims.
8.4 CONSTRUCTION ON CONTIGUOUS PROPERTY. Landlord, Landlord's Agent and
their respective agents and employees shall not be liable for damages, nor shall
this Lease or any Base Annual Rent, Additional Rent or other sums due hereunder
be affected, for conditions arising or resulting from construction within or
around the Demised Premises or Building or Complex or on contiguous or
neighboring properties and which affect the Complex, the Building and/or the
Demised Premises.
8.5 TENANT INSURANCE.
(a) Liability Insurance. During the Lease Term, Tenant at its sole
cost shall maintain public liability and property damage insurance which
includes coverage for personal injury and death, property damage, advertising
injury, completed operations and products coverage, and shall further maintain
comprehensive automobile liability insurance covering automobiles owned by
Tenant, with at least a single combined liability and property damage limit of
$1,000,000.00 insuring against all liability of Tenant and its authorized
representatives arising out of or in connection with Tenant's use or occupancy
of the Demised Premises and the business conducted therein. Landlord and
Landlord's Agent shall be named as additional insureds. All public liability
insurance and property damage insurance shall insure Landlord and Landlord's
Agent with coverage no less in scope than that necessary to meet Tenant's
obligations outlined in the indemnity provisions set forth in Sections 8.1, 8.2
and 8.3 and elsewhere in this Lease. The policy shall contain an assumed
contractual liability endorsement that refers expressly to this Lease.
(b) Fire and Casualty Insurance. During the Lease Term, Tenant at its
cost shall maintain fire and extended coverage insurance on all special or above
building standard work (as defined in Exhibit B, if applicable), all alterations
and all other contents of the Demised Premises, including any Leasehold
Improvements and Tenant's Property, in an amount sufficient so that no
coinsurance penalty will be applied in case of loss.
(c) Increases in Coverage. Tenant shall increase its insurance
coverage as required if in the reasonable opinion of the mortgagee on the
Building, Landlord or Landlord's insurance agent such insurance coverage at that
time is not adequate.
(d) Policy Requirements. All insurance required under this Lease shall
be issued by insurance companies authorized to do business in the jurisdiction
where the Building is located. Such companies shall have a policyholder rating
of at least "A" and be assigned a financial size category of at least "Class X"
as rated in the most recent edition of "Best's Key Rating Guide" for insurance
companies. If at any time during the Lease Term the rating of any of Tenant's
insurance carriers is reduced below the rating required pursuant to the terms
hereof, Tenant shall promptly replace the insurance coverage(s) maintained with
such carrier with coverage(s) from a carrier whose rating complies with the
foregoing requirements. If the Best's Key Rating Guide is discontinued or
revised without substitution of a comparable rating system, Landlord shall
reasonably determine its satisfaction with the insurance company issuing
Tenant's policies. Each policy shall contain an endorsement requiring thirty
(30) days written notice from the insurance company to Landlord before
cancellation or any change decreasing coverage, scope or amount of such policy
and an endorsement naming Landlord and Landlord's Agent as additional insureds.
Each policy, or a certified copy of the policy, and a certificate showing it is
in effect, together with evidence of payment of premiums, shall be deposited
with Landlord at the commencement of the Lease Term and thereafter upon any
policy changes or substitutions, and renewal certificates and copies of renewal
policies shall be delivered to Landlord at least thirty (30) days prior to the
expiration date of any policy.
(e) No Limitation of Liability. Notwithstanding the fact that any
liability of Tenant to Landlord may be covered by Tenant's insurance, Tenant's
liability shall in no way be limited by the amount of its insurance recovery or
the amount of insurance in force or required by any provisions of this Lease.
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(f) Waiver of Subrogation. Notwithstanding anything to the
contrary contained herein, Landlord and Tenant hereby mutually waive and release
their respective rights of recovery against each other for any loss of its
property (in excess of a reasonable deductible amount) capable of being insured
against by fire and extended coverage insurance or any insurance policy
providing property damage coverage, whether carried or not. Each party shall
apply to its insurer to obtain said waiver and obtain any special endorsement,
if required by its insurer to evidence compliance with the aforementioned
waiver, and shall bear the cost therefor.
(g) Business Interruption. Landlord, Landlord's Agent and their
respective agents and employees shall have no liability or responsibility for
any loss, cost, damage or expense arising out of or due to any interruption of
business (regardless of the cause therefor), increased or additional cost of
operation of business or other costs or expenses, whether similar or dissimilar,
which are capable of being insured against under business interruption
insurance, whether or not carried by Tenant.
8.6 INCIDENT REPORTS. Tenant shall promptly report to Landlord's Agent
all accidents and incidents occurring on or about the Demised Premises, the
Building and/or the Complex which involve or relate to the security and safety
of persons and/or property.
9. DAMAGE
9.1 DAMAGES CAUSED BY TENANT. Subject to the provisions of Sections
8.5(f) and 9.2, in the event of damage to the Demised Premises or other portions
of the Building caused by the acts or omissions of Tenant, its agents,
employees, invitees or visitors, the Landlord may, but shall not be obligated
to, repair such damage at the expense of Tenant, or, at Landlord's option, such
damages shall be repaired by Tenant, at Tenant's expense, with Landlord's
approval in accordance with Section 6.4. At Landlord's option, Tenant shall
either (a) pay to Landlord the estimated cost of such repairs and/or maintenance
within ten (10) days of Tenant's receipt of Landlord's estimate, or (b) upon
completion of such repairs and/or maintenance by Landlord, pay to Landlord the
actual cost of such repairs and/or maintenance (or the difference between the
actual cost and the estimated costs previously paid by Tenant) within ten (10)
days of receipt of invoice from Landlord. Landlord's recovery shall not be
limited to the diminution in the value of the Demised Premises or leasehold
notwithstanding that such repairs and maintenance may occur prior to the
expiration of the Lease Term. All such costs shall be deemed Additional Rent.
This provision shall be construed as an additional remedy granted to Landlord
and not in limitation of any other rights and remedies which Landlord has or may
have in said circumstances.
9.2 FIRE OR CASUALTY DAMAGE. In the event of damage or destruction of
the Demised Premises or a portion thereof by fire or any other casualty not due
to the acts or omissions of Tenant, its agents, employees, invitees or visitors,
then, except as otherwise provided in Section 9.3, this Lease shall not be
terminated, but structural damage to the Demised Premises, including demising
partitions and doors, shall be promptly and fully repaired and restored as the
case may be by Landlord at its own cost and expense. Due allowance, however,
shall be given for reasonable time required for adjustment and settlement of
insurance claims, and for such other delays as may result from government
restrictions, and controls on construction, if any, and for strikes, national
emergencies and other conditions beyond the control of Landlord. Restoration by
Landlord shall not include replacement of Tenant's Property or that portion of
the Leasehold Improvements provided by Landlord as of the Commencement Date
above the building standard items as of the Commencement Date. If the items
which Landlord provides as building standard items have changed since the
Commencement Date, then, at Landlord's election, such restoration shall not
include restoration of Leasehold Improvements in excess of those provided by
Landlord as building standard as of the date of such restoration. Tenant shall,
at its expense, repair, restore and replace Tenant's Property and all elements
of the Demised Premises excluded from the scope of Landlord's duty to restore
pursuant to this Section 9.2. Tenant's restoration, replacement and repair work
shall comply with Section 6 hereof and Tenant shall maintain adequate insurance
on all such replacements, restoration and property pursuant to Section 8.5. In
the event of fire or casualty damage to the Demised Premises caused by the
fault, act or omission or neglect of Tenant, its agents, employees, invitees or
visitors, Landlord may, but shall not be obligated to, restore all or any
portion of the damage described herein (which may or may not include the Demised
Premises). It is agreed that in any of the aforesaid events, this Lease shall
continue in full force and effect.
9.3 UNTENANTABILITY.
(a) Restoration Requirements.
(i) If the condition referred to in Section 9.2 is such that
the Demised Premises are partially damaged or destroyed and provided that the
condition was not due to the acts or omissions of Tenant, its agents, employees,
invitees or visitors, then during the period that Tenant is deprived of the use
of the damaged portion of the Demised Premises, Tenant shall be required to pay
Base Annual Rent and Additional Rent covering only that part of the Demised
Premises that Tenant is able to occupy, based on the ratio between the square
foot area remaining that can be occupied and the total square foot area of the
entire Demised Premises covered by this Lease. Any unpaid or prepaid installment
of Base Annual Rent and Additional Rent for the month in which the condition
referred to in Section 9.2 occurs shall be prorated.
(ii) (1) If the condition referred to in Section 9.2 is such
so as to make the entire Demised Premises untenantable and provided that the
condition was not due to the acts or omissions of Tenant, its agents, employees,
invitees or visitors, then, subject to the rights set forth in Section
9.3(a)(ii)(2) below, the installment(s) of Base Annual Rent and Additional Rent
which Tenant is obligated to pay hereunder shall abate as of the date of the
occurrence until the restoration of the Demised Premises has been substantially
completed by Landlord to the extent of Landlord's obligations as described in
Section 9.2. Any unpaid or prepaid installment of Base Annual Rent and
Additional Rent for the month in which the condition referred to in Section 9.2
occurs shall be prorated.
(2) In the event (x) the Demised Premises are
substantially or totally destroyed by fire or other casualty so as to be
entirely untenantable, (y) a substantial portion of the Building is destroyed or
damaged to such an extent that, in the sole judgment of Landlord, the Building
cannot be operated as a functional unit or an economically viable unit, or (z)
the damage to the Demised Premises and/or the Building is due to an uninsured
risk or insurance proceeds are otherwise unavailable to cover the expenses of
restoration or repair of the damage (less any applicable deductible), then
Landlord shall have the unconditional right to cancel this Lease in its sole
discretion, in which case Base Annual Rent and Additional Rent shall be
apportioned and paid to the date of said fire or other casualty. If Landlord
elects not to cancel this Lease, then Landlord shall determine and notify Tenant
in writing, within sixty (60) days following the fire or other casualty, of the
date by which the Demised Premises can be restored by Landlord in accordance
with the provisions of Section 9.2. If the date determined by Landlord as
aforesaid for completion of restoration of the Demised Premises is more than one
hundred twenty (120) days after such fire or other casualty, then Tenant shall
have the right, to be exercised by giving written notice to Landlord within ten
(10) days following receipt of such notice from Landlord, to cancel and
terminate this Lease.
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In the event the date by which Landlord determines it can complete restoration
of the Demised Premises as herein provided is less than 120 days following such
fire or other casualty, or Tenant fails to terminate this Lease as herein
provided following notification from Landlord that completion of restoration
will require more than 120 days, then this Lease shall remain in full force and
effect and Landlord shall commence restoration of the Demised Premises to the
extent of Landlord's obligations as described in Section 9.2. Due allowance,
however, shall be given for reasonable time required for adjustment and
settlement of insurance claims, for Landlord to reasonably be able to determine
the time necessary for completion of the restoration and for other such delays
as may result from government restrictions, and controls on construction, if
any, and for strikes, national emergencies and other conditions beyond the
control of Landlord. Any delays as a result of the foregoing shall operate to
postpone Landlord's obligation to complete restoration of the Demised Premises
by one day for each day of any such delay. Tenant shall commence any restoration
to be performed by Tenant as required in Section 9.2 and Tenant shall reoccupy
the Demised Premises when restored.
(iii) Except as expressly provided in this Section 9.3, no
compensation, or claim, or diminution of Base Annual Rent or Additional Rent
will be allowed or paid by Landlord, by reason of inconvenience, annoyance, or
injury to business, arising from any fire or other casualty suffered by Tenant
or the necessity of repairing or restoring the Demised Premises or any portion
of the Building.
(b) Casualty Near Expiration of Lease Term. In addition to any other
right of Landlord or Tenant to terminate this Lease pursuant to the provisions
of this Section 9, in the event the Demised Premises are damaged in whole or in
part by fire or other casualty during the last twelve (12) months of the Lease
Term, then Landlord or Tenant, upon ten (10) days prior written notice to the
other given within sixty (60) days of the date of the fire or casualty, may
terminate this Lease, in which case the Base Annual Rent and Additional Rent
shall be apportioned and paid to the date of said fire or other casualty;
provided, however, Tenant shall have no right to terminate this Lease hereunder
if prior to receipt of Tenant's notice Landlord has commenced to repair or
restore the Demised Premises.
10. CONDEMNATION
10.1 LANDLORD'S RIGHT TO AWARD. Tenant agrees that if any of the
Demised Premises or the Building shall be taken or condemned for public or
quasi-public use or purpose by any competent authority, Tenant shall have no
claim against Landlord and shall not have any claim or right to any portion of
the amount that may be awarded as damages or paid as a result of any such
condemnation. All rights of Tenant to damages therefor, if any, are hereby
assigned by Tenant to Landlord. Upon such condemnation or taking, the Lease Term
shall cease and terminate from the date of such governmental taking or
condemnation. If (a) the whole or a substantial part of the Demised Premises or
the Building is taken or condemned or if (b) less than a substantial portion of
the Building or the Demised Premises is taken or condemned and the remainder of
either in Landlord's opinion can not be operated as a functional unit or as an
economically viable unit, Landlord shall notify Tenant of the termination of
this Lease effective as of the date of such governmental taking or condemnation.
In the event of any termination of this Lease by reason of any taking or
condemnation, Tenant shall have no claim against Landlord or Landlord's Agent
for the value of any unexpired portion of the Lease Term. If less than a
substantial part of the Demised Premises or of the Building is taken or
condemned by any governmental authority for public or quasi-public use or
purpose and the remainder of both in Landlord's opinion can be operated as a
functional unit or as an economically viable unit, the rent shall be equitably
adjusted on the date when title vests in such governmental authority and the
Lease shall otherwise continue in full force and effect. For the purposes of
this Section 10, a substantial part of the Demised Premises shall be considered
to have been taken if more than fifty percent (50%) of the Demised Premises are
unusable by Tenant.
10.2 TENANT'S RIGHT TO FILE CLAIM. Nothing in Section 10.1 shall
preclude Tenant from filing a separate claim against the condemning authority
for the value of its Leasehold Improvements not then depreciated (excluding
those Leasehold Improvements paid for by Landlord) and relocation expenses,
provided that any award to Tenant will not result in a diminution of any award
to Landlord.
11. BANKRUPTCY
11.1 EVENTS OF BANKRUPTCY The following shall be Events of Bankruptcy
under this Lease:
(a) Tenant's becoming insolvent, as that term is defined in Title
11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all of
Tenant's Property or assets, or the institution of a foreclosure action upon any
of Tenant's real or personal property;
(c) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within sixty (60) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is earlier; or
(e) Tenant's making or consenting to an assignment for the benefit
of creditors or a common law composition of creditors.
11.2 LANDLORD'S REMEDIES.
(a) Termination of Lease. Upon occurrence of an Event of
Bankruptcy, Landlord shall have the right to terminate this Lease by giving
written notice to Tenant; provided, however, that this right to terminate shall
have no effect while a case in which Tenant is the subject debtor under the
Bankruptcy Code is pending, unless Tenant or its Trustee is unable to comply
with the provisions of Sections 11.2(d) and (e) below. At all other times this
Lease shall automatically cease and terminate, and Tenant shall be immediately
obligated to quit the Demised Premises upon the giving of notice pursuant to
this Section 11.2(a). Any other notice to quit, or notice of Landlord's
intention to re-enter is hereby expressly waived. If Landlord elects to
terminate this Lease, everything contained in this Lease on the part of Landlord
to be done and performed shall cease without prejudice, subject, however, to the
rights of Landlord to recover from Tenant all Base Annual Rent and Additional
Rent and any other sums accrued up to the time of termination or recovery of
possession by Landlord, whichever is later, and any other monetary damages
sustained by Landlord.
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(b) Suit for Possession. Upon termination of this Lease pursuant to
Section 11.2(a), Landlord may proceed to recover possession of the Demised
Premises under and by virtue of the provisions of the laws of any applicable
jurisdiction, or by such other proceedings, including reentry and possession, as
may be applicable, or by direct order from any Court having jurisdiction over
Tenant/Debtor, including any Bankruptcy Court.
(c) Non-Exclusive Remedies. Without regard to any action by Landlord
as authorized by Sections 11.2(a) and (b) above, Landlord may at its discretion
exercise all the additional provisions set forth below in Section 12.
(d) Assumption or Assignment by Trustee. In the event Tenant becomes
the subject debtor in a case pending under the Bankruptcy Code, Landlord's right
to terminate this Lease pursuant to Section 11.2(a) shall be subject to the
rights of the Trustee in Bankruptcy to assume or assign this Lease. In addition
to all other objections Landlord may raise to assumption and/or assignment, and
in addition to all other requirements of any Bankruptcy Court and the Bankruptcy
Code, the Trustee shall not have the right to assume or assign this Lease unless
the Trustee (i) has timely performed all Lease obligations of the Tenant/Debtor
arising from and after the filing of any voluntary bankruptcy petition by Tenant
or, in the case of an involuntary petition, the date of entry of the Order for
Relief, (ii) promptly cures all defaults under this Lease, (iii) promptly
compensates Landlord for monetary damages incurred as a result of such default,
and (iv) provides adequate assurance of future performance on the part of Tenant
or on the part of the assignee of Tenant or the Trustee.
(e) Adequate Assurance of Future Performance. Landlord and Tenant
hereby agree in advance that adequate assurance of future performance, as that
term is used in Section 11.2(d) above, shall mean that all of the following
minimum criteria must be met: (i) Tenant's gross revenues in the ordinary course
of business during the thirty (30) day period immediately preceding the
initiation of the case under the Bankruptcy Code must be at least two (2) times
greater than the next installment of Base Annual Rent and Additional Rent due
under this Lease; (ii) both the average and median of Tenant's gross revenues in
the ordinary course of business during the six (6) month period immediately
preceding the initiation of the case under the Bankruptcy Code must be at least
two (2) times greater than the next six (6) installments of Base Annual Rent and
Additional Rent due under this Lease; (iii) Tenant must pay (and continue to pay
on a timely basis throughout the Lease Term) Base Annual Rent, Additional Rent
and all other sums payable by Tenant hereunder in advance and as a condition
precedent to the performance of Landlord's obligations hereunder; (iv) the
Trustee must agree that Tenant's business shall be conducted in a first class
manner, and that no liquidating sales, auctions, or other non-first class
business operations shall be conducted on or about the Demised Premises,
Building and/or Complex; (v) the Trustee must agree that the use of the Demised
Premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; and (vi) the Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the Building and/or Complex.
(f) Failure to Provide Adequate Assurance. In the event the Trustee or
Tenant is unable to (i) comply with the requirements of Section 11.2(d) above,
or (ii) meet the criteria and obligations imposed by Section 11.2(e) above,
Tenant agrees in advance that it has not met its burden to provide adequate
assurance of future performance, and this Lease may be terminated by Landlord in
accordance with Section 11.2(a) above.
11.3 GUARANTORS. For purposes of this Section 11, any action or
adjudication by or on behalf of, or against, or with respect to the property or
affairs of, any guarantor or guarantors (if any) of this Lease, or any of them,
which, if taken by, against or with respect to Tenant, Tenant's Property or
affairs, would entitle Landlord to exercise any remedy specified herein, may be
treated, at Landlord's sole option and discretion, as though it were taken by,
against or with respect to the Tenant.
11.4 DAMAGES. In the event of cancellation and termination of this Lease
pursuant to Section 11.2 above, Landlord shall, notwithstanding any other
provisions of this Lease to the contrary, be entitled to promptly recover
damages from Tenant determined in accordance with the provisions set forth in
Section 12.2 of this Lease as provided for in the case of default by Tenant.
12. DEFAULTS AND REMEDIES
12.1 DEFAULT. If any one or more of the following events occur, said event
shall be deemed a material default of this Lease:
(a) Tenant's failure to complete, within the time periods required by
this Lease, any tasks required for the preparation or approval of plans for the
construction and/or completion of the Demised Premises prior to the Commencement
Date;
(b) Tenant's failure to accept possession of the Demised Premises when
tendered by Landlord;
(c) Tenant's failure to pay any installment of Base Annual Rent,
Additional Rent or other sum required to be paid by Tenant when the same shall
be due and payable, all without demand unless demand is necessary under the
express terms of this Lease (in which case a material default shall be deemed to
occur if such payment is not made strictly within the time period provided for
such payment following the demand);
(d) Tenant's failure to perform or observe any other term, covenant or
condition of this Lease;
(e) Any event expressly designated or deemed a default elsewhere in
this Lease;
(f) Any execution, levy, attachment or other legal process of law
shall occur upon Tenant's Property, Tenant's interest in this Lease or the
Demised Premises;
(g) Tenant's abandonment or surrender of the Demised Premises prior to
the expiration of the Lease Term and the suspension of rent payments as the same
may become due and payable; and/or
(h) Tenant's committing or permitting waste to occur to the Demised
Premises.
12.2 REMEDIES. In each and every such event set forth in Section 12.1
above, from the date of such default and at all times thereafter, at the option
of Landlord, Tenant's right of possession shall thereupon cease and terminate.
Landlord shall be entitled to all rights and remedies now or later allowed at
law or in equity, all of which shall be cumulative to the extent that the
exercise of any one or more rights or remedies shall not be deemed to constitute
a waiver of the Landlord's right to exercise any one or more other
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rights and remedies herein provided or provided at law or in equity. Landlord
shall be entitled to obtain possession of the Demised Premises whether or not
Landlord elects to terminate this Lease, and to re-enter the same without
demand of rent or demand of possession of the Demised Premises and may forthwith
proceed to recover possession of the Demised Premises by any lawful means or
process of law whether or not Landlord elects to terminate this Lease, any
notice to quit being hereby expressly waived by Tenant. In the event of such
re-entry by process of law or otherwise, Tenant nevertheless agrees to remain
liable for all Base Annual Rent, Additional Rent and other sums due under this
Lease, and shall pay the same as and when it accrues and is payable hereunder.
Landlord may (but shall not be obligated to) declare the entire balance (or any
portion thereof) of Base Annual Rent, Additional Rent and all other sums payable
by Tenant hereunder for the remainder of the Lease Term to be immediately due
and payable in full, which shall be recoverable pursuant to Section 12.4 below.
Tenant further agrees to remain liable for any and all damage, deficiency, and
loss of Base Annual Rent, Additional Rent and other sums herein specified, and
all other damages which Landlord may sustain by such re-entry, including
reasonable attorneys' fees and costs. If under the provisions hereof, a seven
(7) days summons or other applicable summary process shall be served, and a
compromise or settlement thereof shall be made, such action shall not constitute
a waiver of any breach of any covenant, term, condition or agreement herein
contained.
12.3 LANDLORD'S RIGHT TO RELET. Should this Lease be terminated before the
expiration of the Lease Term, by reason of Tenant's default as provided in
Sections 11 or 12, or if Tenant shall abandon the Demised Premises before the
expiration or termination of the Lease Term and without paying the rent due as
the same may become due and payable (whether or not Landlord elects to terminate
this Lease), the Demised Premises may be relet by Landlord, on Tenant's behalf
or for the account of Landlord, as Landlord so chooses, for such rent and upon
such terms as are reasonable under the circumstances. If the full rent reserved
under this Lease (and any of the costs, expenses or damages indicated below)
shall not be realized by Landlord, Tenant shall be liable for all damages
sustained by Landlord, including, without limitation, deficiency in Base Annual
Rent, Additional Rent, unamortized Landlord Concessions (hereinafter defined),
reasonable attorneys' fees, other collection costs, brokerage fees, expenses
incurred by Landlord to remove Tenant's Property and (at Landlord's option)
Leasehold Improvements, and expenses of placing the Demised Premises in
first-class rentable condition. Landlord, in putting the Demised Premises in
good order or preparing the same for reletting may, at Landlord's option, make
such alterations, repairs or replacements in or relating to the Demised Premises
as Landlord, in Landlord's sole judgment, considers advisable and necessary for
the purpose of reletting the Demised Premises, and the making of such
alterations, repairs or replacements shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no event
be charged with any obligation to mitigate its damages nor shall Landlord be
liable in any way whatsoever for failure to relet the Demised Premises, or in
the event that the Demised Premises are relet, for failure to collect the rent
thereof under such reletting. For the purpose of calculating Landlord's damages
as set forth in Section 12.4 below, if the Building has other available space at
the time of such Lease termination or Tenant's abandonment or vacating of the
Demised Premises, or anytime thereafter, the Demised Premises shall be deemed
the last space rented in the Building even though the Demised Premises may be
re-rented by Landlord prior to such other vacant space. In no event shall Tenant
be entitled to receive any excess, if any, of rent (if any) collected over the
sums payable by Tenant to Landlord hereunder.
12.4 RECOVERY OF DAMAGES.
(a) Quantification of Damages. Any damage, deficiency, loss of Base
Annual Rent, Additional Rent or other sums payable by Tenant hereunder,
unamortized Landlord Concessions as described hereinafter, and all other damages
may be recovered by Landlord, at Landlord's option, upon default by Tenant, in
separate actions, from time to time, as said damage shall have periodically
accrued, or, at Landlord's option, may be deferred until the expiration of the
Lease Term (in which event Tenant hereby agrees that the cause of action shall
not be deemed to have accrued until the date of expiration of said Lease Term),
or, at Landlord's option, in a single action in the event Landlord shall have
declared the entire balance of Base Annual Rent, Additional Rent and other sums
due under this Lease immediately due and payable pursuant to Section 12.2. In
the event Landlord shall have declared the entire balance of Base Annual Rent,
Additional Rent and other sums due under this Lease immediately due and payable,
then in lieu of the Base Annual Rent and Additional Rent which would have been
payable for the period after the date of any judgment obtained in any action by
Landlord against Tenant to recover damages, Tenant shall pay a sum representing
liquidated damages, and not penalty, in an amount equal to the excess of (i) the
sum of the Base Annual Rent and Additional Rent provided for in this Lease for
the unexpired portion of the Lease Term after the date of judgment discounted at
a rate of three percent (3%) per annum to present value, over (ii) the rental
value of the Leased Premises, at the time of termination of this Lease, for the
unexpired portion of the Lease Term, discounted at a rate of three percent (3%)
per annum to present value. In determining the rental value of the Leased
Premises, the rent realized by any reletting accomplished or accepted by
Landlord within a reasonable time after termination of this Lease, shall be
deemed, prima facie, to be the rental value. In addition to all of the rights of
the Landlord to recover damages herein provided, Tenant shall immediately
reimburse Landlord for, and Landlord may recover, the unamortized portion of all
contributions and other concessions (hereinafter "Landlord Concessions"), if
any, provided by Landlord to Tenant as an inducement to enter into this Lease
and any amendment, modification or extension hereof and/or pursuant to the terms
of this Lease or any amendment, modification or extension hereof, including, but
not limited to, (i) any abatements or waivers of Base Annual Rent, Additional
Rent or other sums due under this Lease, (ii) costs incurred by Landlord in
making the Demised Premises ready for Tenant's occupancy, including the cost of
the Construction Improvements, any monetary contribution by Landlord for any
Leasehold Improvements and any other contributions by Landlord with respect to
any construction within or relating to the Demised Premises, (iii) moving
expenses, (iv) brokerage fees, (v) allowances for telephone and computer systems
and other office equipment and supplies, (vi) design, architectural and
engineering fees and expenses, and (vii) any other direct or indirect expenses
incurred by Landlord in conjunction with obtaining and/or entering into this
Lease and any amendment, modification and extension hereof, and placing and/or
retaining Tenant in possession of the Demised Premises. For purposes hereof, the
amount of any Landlord Concessions provided in connection with the initial Lease
Term shall be deemed to be amortized (using a straight-line method) on a monthly
basis over the initial Lease Term (excluding any extension or renewal terms) in
which Tenant is required to pay all or any portion of any installment of Base
Annual Rent under the terms of this Lease. The amount of any Landlord
Concessions provided in connection with any amendment or modification of this
Lease during the initial Lease Term shall be deemed to be amortized (using a
straight-line method) on a monthly basis over the remaining months in the
initial Lease Term (excluding any extension or renewal terms) in which Tenant is
required to pay all or any portion of any installment of Base Annual Rent under
the terms of this Lease. The amount of any Landlord Concessions provided in
connection with any renewal or extension of the Lease Term shall be deemed to be
amortized (using a straight-line method) on a monthly basis over the months in
the extension period (excluding any subsequent extension or renewal terms) in
which Tenant is required to pay all or any portion of any installment of Base
Annual Rent under the terms of said extension or renewal of the Lease Term.
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(b) Non-Exclusive Rights. The provisions contained in this Section
12.4 shall be in addition to and shall not prevent the enforcement of any claim
Landlord may have against Tenant for anticipatory breach of the unexpired Lease
Term. All rights and remedies of Landlord under this Lease shall be cumulative
and shall not be exclusive of any other rights and remedies provided to Landlord
under applicable law. In the event Tenant becomes the subject debtor in a case
under the Bankruptcy Code, the provisions of this Section 12.4 may be limited by
the limitations of damage provisions of the Bankruptcy Code.
12.5 WAIVER. If under the provisions hereof Landlord shall institute
proceedings and a compromise or settlement thereof shall be made, the same shall
not constitute a waiver of any agreement, covenant, condition, rule or
regulation herein contained nor of any of Landlord's rights hereunder. No waiver
by Landlord of any breach of any agreement, covenant, condition, rule or
regulation herein contained, on one or more occasions, shall operate as a waiver
of such agreement, covenant, condition, rule or regulation itself, or of any
subsequent breach thereof. No provision of this Lease shall be deemed to have
been waived by Landlord unless such waiver shall be in writing signed by
Landlord. Receipt and acceptance by Landlord of any Base Annual Rent, Additional
Rent or other charges, or the performance of any obligation by Tenant hereunder,
with knowledge of the breach of any agreement, covenant, condition, rule or
regulation of this Lease by Tenant shall not be deemed a waiver of such breach.
Failure of Landlord to enforce any of the rules and regulations against Tenant
or any other tenant in the Building or Complex shall not be deemed a waiver of
any such rule or regulation. No payment by Tenant or receipt by Landlord of a
lesser amount than the Base Annual Rent and Additional Rent herein stipulated
shall be binding upon Landlord, nor shall the same be deemed to be other than on
account of the stipulated Base Annual Rent and Additional Rent. No endorsement
or statement on any check, letter or other transmittal accompanying any check or
payment of Base Annual Rent, Additional Rent or other sum due from Tenant shall
be deemed a settlement of a legal dispute or an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Base Annual Rent, Additional Rent and other sums
or to pursue any other remedy provided in this Lease. Landlord's consent to, or
approval of, any act by Tenant requiring Landlord's consent or approval shall
not be deemed to waive or render unnecessary Landlord's consent to or approval
of any subsequent act by Tenant.
12.6 ANTICIPATORY REPUDIATION.
(a) Repudiation Prior to Commencement Date. If, prior to the
Commencement Date or the first day of any extension or renewal period set forth
in an extension or renewal option validly exercised by Tenant hereunder, Tenant
notifies Landlord of or otherwise unequivocally demonstrates an intention to
repudiate this Lease or breach any obligation of Tenant hereunder, Landlord may,
at its option, consider such anticipatory repudiation a breach and material
default of this Lease. In addition to any other remedies available to it
hereunder or at law or in equity, Landlord may retain all Base Annual Rent,
Additional Rent and other sums paid by Tenant hereunder, including any security
deposit, if any, to be applied to damages of Landlord incurred as a result of
such repudiation, including, without limitation, all damages and remedies
reserved to Landlord in this Section 12 or elsewhere in this Lease, as
applicable. It is agreed between the parties that for the purpose of calculating
Landlord's damages, if the Building has other available space at the time of or
subsequent to Tenant's breach, the Demised Premises covered by this Lease shall
be deemed the last space rented in the Building even though the Demised Premises
may be re-rented prior to such other vacant space. In the event a default occurs
prior to the Commencement Date, Tenant shall, in addition to all other damages
to which Landlord is entitled under this Lease, pay in full for all Leasehold
Improvements constructed or installed within the Demised Premises through the
date of the default, and for material ordered at Tenant's request for the
Demised Premises (whether at Tenant's request or upon Landlord's anticipation of
Tenant's needs hereunder) or for such material restocking charges.
(b) Repudiation of Any Obligation of Tenant During Lease Term. If
during the Lease Term Tenant notifies Landlord of or otherwise unequivocally
demonstrates an intention to repudiate this Lease or breach any obligation of
Tenant hereunder, Landlord may, at its option, consider such anticipatory
repudiation a breach and material default of this Lease. In addition to any
other remedies available to it hereunder or at law or in equity, Landlord may
retain all Base Annual Rent, Additional Rent and other sums paid by Tenant
hereunder, including any security deposit, if any, to be applied to damages of
Landlord incurred as a result of such repudiation, including, without
limitation, all damages and remedies reserved to Landlord in this Section 12 or
elsewhere in this Lease, as applicable.
12.7 TENANT ABANDONMENT OF DEMISED PREMISES.
(a) Abandonment. If the Demised Premises or a substantial portion
thereof shall be deserted or vacated by Tenant for thirty (30) consecutive days
or more and Tenant shall be delinquent in the payment of any Base Annual Rent,
Additional Rent or other sums due under this Lease, or in the performance of any
of Tenant's other obligations hereunder, Landlord may deem the Tenant to have
abandoned the Demised Premises, notwithstanding the fact that Tenant may have
left all or some part of Tenant's Property thereon. Landlord may consider Tenant
in default under this Lease and may pursue all remedies available to it under
this Lease or otherwise as may be available in equity or at law.
(b) Landlord Right to Enter and to Relet. If Tenant abandons the
Demised Premises as set forth in subsection (a) above, Landlord may, at its
option, enter into the Demised Premises without being liable for any prosecution
therefor or for damages by reason thereof. In addition to any other remedy
elsewhere provided in this Section 12 or at law or in equity, Landlord, as agent
of Tenant, may relet the whole or any part of the Demised Premises for the whole
or any part of the then unexpired Lease Term. For the purposes of such
reletting, Landlord may make any alterations or modifications of the Demised
Premises considered desirable in its sole judgment.
12.8 TENANT'S PROPERTY. Tenant shall not remove any of Tenant's Property
from the Demised Premises without the prior written consent of Landlord, other
than in the ordinary course of Tenant's business. In the event of a default
under this Lease, Tenant shall not, under any circumstances, remove Tenant's
Property from the Demised Premises and Landlord may (but shall not be obligated
to) keep Tenant's Property in place (and require Tenant to return or replace
Tenant's Property to the extent Tenant removes same in violation of the terms of
this Lease) and use, or permit another occupant of the Demised Premises,
Building and/or Complex to use, Tenant's Property during the remainder of the
Lease Term (whether or not Landlord elects to terminate this Lease for such
default) at no cost, expense or liability to Landlord or such occupant. If
Tenant abandons the Demised Premises as defined in Section 12.7(a) above or
otherwise vacates the Demised Premises or otherwise defaults under this Lease,
any property that Tenant leaves within or related to the Demised Premises shall
be deemed to have been abandoned and, without liability to Tenant, may be
disposed of in the trash or retained by Landlord as the property of Landlord or
disposed of at public or private sale, or placed at the use of another occupant
in the Building or the Complex or any subsequent occupant in the Demised
Premises, as Landlord sees fit in its sole
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discretion, all at no cost or expense to Landlord or such other person permitted
to use all or a portion of Tenant's Property hereunder, or Landlord may store
Tenant's Property at a location selected by Landlord in its sole discretion at
Tenant's sole cost and expense. The proceeds of any public or private sale of
Tenant's Property shall be applied by Landlord against (i) the expenses of
Landlord for removal, storage or sale of the property; (ii) the arrears of Base
Annual Rent, Additional Rent or other sums then or thereafter payable under this
Lease; and (iii) any other damages to which Landlord may be entitled hereunder.
At Landlord's option, at any time during the Lease Term after default by Tenant,
Landlord may require Tenant to forthwith remove Tenant's Property from the
Demised Premises. If Tenant vacates or abandons the Demised Premises, as defined
above, Landlord may transfer any of Tenant's Property to creditors of Tenant, on
presentation of evidence of a claim valid on its face of ownership or of a
security interest in any of Tenant's Property abandoned in the Demised Premises
or the Building, and Landlord may recover any costs incurred by Landlord in
doing so, all without incurring any liability to Tenant.
12.9 LANDLORD'S LIEN.
(a) Right of Distress/Landlord's Lien. To secure the payment of all
Base Annual Rent, Additional Rent and all other charges and sums that may become
due to Landlord under the terms of this Lease, Landlord shall have and is hereby
granted by Tenant a right of distress for rent, and a contractual first lien and
security interest upon all of Tenant's Property and all Leasehold Improvements,
and also upon all proceeds from the sale, transfer or other disposition of any
such property, and any replacements and substitutions thereof, and proceeds
thereof, and all proceeds of any insurance which may accrue to Tenant by reason
of damage to or destruction of any such property. All exemption laws are hereby
waived by Tenant. This lien is given in addition to Landlord's statutory and
common law liens and shall be cumulative thereto. "Leasehold Improvements" shall
be defined to mean all improvements installed or constructed within the Demised
Premises whether by or on behalf of either Landlord or Tenant (exclusive of
Tenant's trade fixtures), and as repaired, replaced, altered or improved from
time to time during the Lease Term, including without limitation, any
partitions, wall coverings, floors, floor coverings, ceilings, lighting
fixtures, and telephone, computer and/or data system wiring or other
improvements. "Tenant's Property" shall be defined to mean all of Tenant's trade
fixtures and all of Tenant's personal property, including, but not limited to,
all goods, wares, merchandise, inventory, furniture, machinery, equipment,
telecommunications and data transmission systems (and all their components
exclusive of wiring), business records, accounts receivables and other personal
property of Tenant in or about the Demised Premises or that may be placed or
kept therein during the Lease Term.
(b) UCC Security Interest. This Lease shall also constitute a
security agreement under the Uniform Commercial Code of the District, State or
Commonwealth in which the Demised Premises are located. Upon the occurrence of
an event of default by Tenant under this Lease, Landlord shall have the option,
in addition to any other remedies provided herein or by law or at equity, to
enter the Demised Premises with or without the permission of Tenant and take
possession of any and all of Tenant's Property situated in or related to the
Demised Premises, without liability for trespass or conversion, and to enforce
the lien and security interest hereby granted in any manner provided by law.
Upon Landlord's request, Tenant will execute and deliver to Landlord UCC
Financing Statements to evidence the above-described lien in favor of Landlord.
Landlord shall be permitted from time to time to file such statements in the
appropriate City, County, District, State and/or Commonwealth offices to perfect
such lien. All expenses incurred by Landlord, including attorneys' fees, to
prepare and file such statements (and any extensions, renewals, assignments,
transfers, releases and terminations relating thereto) shall be immediately
reimbursed by Tenant upon demand. If Tenant fails to deliver such UCC Financing
Statements within ten (10) working days after Landlord's request, Tenant by such
failure irrevocably constitutes and appoints Landlord as its special
attorney-in-fact to execute and record the statements (and any extensions,
renewals, assignments, transfers, releases and terminations relating thereto),
the foregoing power of attorney being coupled with an interest.
(c) UCC Remedies Not Mandatory. Notwithstanding anything herein to
the contrary, Landlord shall not be required to exercise any of its remedies
under the Uniform Commercial Code as a result of the security interest granted
to Landlord herein in lieu of any other right or remedy Landlord may have under
this Lease, at law or in equity, including without limitation the right to deem
any or all of Tenant's Property abandoned and/or dispose of it pursuant to the
provisions of Section 12.8.
12.10 INJUNCTIVE RELIEF. In the event of a breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided; and in such
event Landlord shall be entitled to recover from Tenant, payable as Additional
Rent hereunder, any and all reasonable expenses as Landlord may incur in
connection with its efforts to secure such injunctive relief or other remedy at
law or in equity, including all costs and reasonable attorneys' fees.
12.11 INDEPENDENT COVENANTS. If Landlord shall commence any proceeding
based upon non-payment of Base Annual Rent, Additional Rent or any other sums of
any kind to which Landlord may be entitled or which it may claim hereunder,
Tenant will not interpose any counterclaim, set-off, recoupment or other defense
of any nature or description in any such proceeding. The parties hereto
specifically agree that Tenant's covenants to pay Base Annual Rent, Additional
Rent and any other sums required hereunder are independent of all other
covenants and agreements of Landlord herein contained; provided, however, that
this shall not be construed as a waiver of Tenant's right to assert such a claim
in any separate action brought by Tenant. Tenant further waives any right or
defense which it may have to claim a merger.
12.12 WAIVER OF REDEMPTION. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in the
event of Tenant being evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession or a judgment for or other right to possession of
the Demised Premises and/or Tenant's Property by reason of the violation by
Tenant of any of the covenants and conditions of this Lease, or otherwise.
12.13 ATTORNEYS' FEES. The parties hereto agree that wherever in this
Lease the Landlord is entitled to collect its "attorney's fees", Landlord shall
be entitled to collect the entire amount of attorneys' fees actually incurred by
Landlord in enforcing its rights hereunder, and, wherever in this Lease the
Landlord is entitled to collect its "reasonable attorneys' fees", Landlord shall
be entitled to not less than twenty-five percent (25%) of any Base Annual Rent,
Additional Rent and/or other sums due Landlord in connection with the collection
thereof, as reasonable attorneys' fees and, in addition, with respect to actions
or claims pertaining to non-rent issues, Landlord shall be entitled to
reimbursement of the customary hourly billing rate of each attorney (and
non-attorney personnel working under such attorney's supervision) for the
reasonable time spent in enforcing (or attempting to enforce) any non-rent
obligation of Tenant hereunder, as reasonable attorneys' fees; provided,
however, the amount to be reimbursed by Tenant as attorneys' fees (reasonable or
otherwise) in any one matter shall never be less than One Thousand Dollars
($1,000).
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13. SUBORDINATION
13.1 SUBORDINATION. This Lease is subject and subordinate to all ground
or underlying leases and to all mortgages and/or deeds of trust and/or other
security interests (individually and collectively "mortgage") which may now or
hereafter affect the real property of which the Demised Premises form a part,
including all renewals, modifications, consolidations, replacements and
extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required to effect this subordination.
Notwithstanding the foregoing, in confirmation of such subordination, Tenant
shall at Landlord's request execute and deliver to Landlord within ten (10)
business days after Landlord's request, any requisite or appropriate
certificate, subordination agreement or other document that may be reasonably
requested by Landlord or any other party requiring such certificate,
subordination agreement or document. If Tenant fails to execute such
certificate, subordination agreement or other document requested by Landlord or
other party within said ten (10) day period, Tenant by such failure irrevocably
constitutes and appoints Landlord as its special attorney-in-fact to execute
such certificate, subordination agreement or other document on Tenant's behalf,
the foregoing power-of-attorney being deemed to be coupled with an interest.
Notwithstanding the foregoing, any lessor under any ground or underlying lease
and the party secured by any mortgage affecting the real property of which the
Demised Premises are a part, or any renewal, modification, consolidation,
replacement or extension thereof, shall have the right to recognize this Lease
and, in the event of any cancellation or termination of such ground or
underlying lease, or any foreclosure under any mortgage, or any sale of the real
property at foreclosure sale, or any transfer of the real property by a deed in
lieu of foreclosure, this Lease shall continue in full force and effect at the
option of the lessor under such ground or underlying lease or, as applicable,
the party secured by such mortgage, or the purchaser at any foreclosure sale, or
the party taking the real property under a deed in lieu of foreclosure, such
party being hereby authorized by Tenant to exercise such option to cancel or
continue this Lease in such party's reasonable or unreasonable discretion.
Tenant hereby consents to the right of such party to effect the survival of this
Lease. Tenant agrees that neither the cancellation nor termination of any ground
or underlying lease, nor the foreclosure under any mortgage, nor the sale at
foreclosure, nor the transfer by a deed in lieu of foreclosure, shall, by
operation of law or otherwise, result in cancellation or termination of this
Lease or the obligations of Tenant hereunder, except in the sole option of the
party herein granted such option, which option may be exercised in said party's
reasonable or unreasonable discretion.
13.2 ESTOPPEL CERTIFICATES. Tenant shall execute and return within ten
(10) business days any certificate that Landlord may request from time to time,
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modification. The certificate also
shall state (a) the amount of the monthly installment of Base Annual Rent and
Additional Rent and the dates to which such rent has been paid in advance; (b)
the amount of any security deposit or prepaid rent; (c) that there is no present
default on the part of Landlord nor is there in existence any condition, event,
act or omission which with the giving of notice and/or the passage of time will
constitute a default on the part of Landlord, or attach a memorandum stating in
detail the factual circumstances of such default and/or the basis under the
Lease for such default; (d) that Tenant has no right to set-off or recoupment
and no defense or counterclaim against enforcement of its obligations under this
Lease; (e) that Tenant has no other notice of any sale, transfer or assignment
of this Lease or of the rentals; (f) that all Construction Improvements and
other work and improvements required of Landlord has been completed and that the
Construction Improvements and other work and improvements are complete and
satisfactory; (g) that Tenant is in full and complete possession of the Demised
Premises; (h) the date on which Tenant's rental obligations commenced (excluding
any periods of abatement) and the date to which such rent has been paid; (i)
that Tenant has not advanced any amounts to or on behalf of Landlord which have
not been reimbursed; (j) that Tenant understands that this Lease has been
collaterally assigned to Landlord's mortgagee as security for a loan to
Landlord; (k) that Base Annual Rent and Additional Rent may not be prepaid more
than one (1) month in advance without the prior written approval of Landlord's
mortgagee; and (l) such other items as Landlord may reasonably request. Failure
to deliver the certificate within the aforesaid ten (10) business day period
shall be conclusive upon Tenant for the benefit of Landlord and any successor to
or mortgagee or assignee of Landlord that this Lease is in full force and effect
and has not been modified except as may be represented by the party requesting
the certificate. If Tenant fails to deliver the certificate within the aforesaid
ten (10) business day period, Tenant by such failure irrevocably constitutes and
appoints Landlord as its special attorney-in-fact to execute and deliver the
certificate to any third party, the foregoing power of attorney being deemed to
be coupled with an interest.
13.3 ATTORNMENT. Tenant covenants and agrees that, in the event any
ground lessor, lessor of any underlying lease or subsequent purchaser of the
Building so requests or in the event of any foreclosure under any mortgage, or
any renewal, modification, consolidation, replacement or extension thereof, or
in the event of a sale at foreclosure, or in the event of any acceptance of any
deed in lieu of foreclosure, which may now or hereafter affect the real property
of which the Demised Premises are a part, Tenant shall attorn to any ground
lessor, lessor of any underlying lease or subsequent purchaser of the Building
or to the party secured by such mortgage, or any renewal, modification,
consolidation, replacement or extension thereof, and to any purchaser at any
foreclosure sale or party taking a deed in lieu of foreclosure, and at the sole
option of such party, which option may be exercised in said party's reasonable
or unreasonable discretion, this Lease shall continue as a direct lease between
Tenant herein and such landlord or its successor. In any case, such landlord or
successor under such ground or underlying lease or such secured party or
purchaser at foreclosure sale or party taking a deed in lieu of foreclosure
shall not be bound by any prepayment on the part of Tenant of the Base Annual
Rent or Additional Rent for more than one month in advance, so that Base Annual
Rent and Additional Rent shall be payable under this Lease in accordance with
its terms, from the date of the termination or transfer of the ground or
underlying lease or the foreclosure under such mortgage, or the date of
foreclosure sale or transfer by deed in lieu of foreclosure, as if such
prepayment had not been made. Further, such landlord or successor in interest
shall not be liable for damages for any act or omission of Landlord or any prior
landlord or be subject to any recoupments, offsets, counterclaims or defenses
which Tenant may have against Landlord or any prior landlord. Tenant shall, upon
request of such landlord or successor landlord, execute and deliver an
instrument or instruments confirming Tenant's attornment.
13.4 MORTGAGEE RIGHTS.
(a) Mortgagee Requirements. Tenant shall, at its own expense,
comply with all reasonable notices of Landlord's mortgagee or other financial
institution providing funds which are secured by a mortgage placed on the whole
or any part of the real property of which the Demised Premises are a part,
respecting all matters of occupancy, use, condition or maintenance of the
Demised Premises, provided the same shall not unreasonably interfere with the
conduct of Tenant's business nor materially limit or affect the rights of the
parties under this Lease. Tenant shall, if so directed by Landlord's mortgagee
or such other financial institution in writing, pay all Base Annual Rent,
Additional Rent and other sums owed to Landlord directly to such mortgagee or
other financial institution. Notwithstanding acceptance and execution of this
Lease by the parties hereto, the terms hereof shall be automatically deemed
modified, if so required, for the purpose of complying with or fulfilling the
reasonable requirements of any mortgagee or trustee named or
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secured by a mortgage that may now or hereafter be placed upon or secured by the
real property of which the Demised Premises are a part or any part thereof, or
any other financial institution providing funds to finance or refinance the real
property of which the Demised Premises are a part; provided, however, that such
modification(s) shall not be in material derogation or diminution of any of the
rights of the parties hereunder, nor materially increase any of the obligations
or liabilities of the parties hereunder.
(b) Notices to Mortgagee. Tenant agrees to give Landlord's
mortgagee and any trustee named or secured by a mortgage a copy of any notice of
default served upon Landlord by Tenant, provided that prior to such notice
Tenant has been notified in writing (by way of Notice of Assignment of Rents and
Leases, or otherwise) of the names and addresses of such mortgagees and
trustees. Notice shall be provided to the mortgagees and trustees in the manner
prescribed in Section 24. Tenant further agrees that if Landlord shall have
failed to cure such default within the cure period provided in this Lease, if
any, then the mortgagees and trustees shall have an additional thirty (30) days
within which to cure such default, or if such default cannot be cured within
that time, then such additional time as may be necessary if within such thirty
(30) days such mortgagee or trustee has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings if necessary to effect such cure), in
which event Tenant shall not pursue its remedies while such cure is being
diligently pursued.
14. TENANT'S HOLDOVER
14.1 WITH LANDLORD CONSENT. If Tenant continues, with the knowledge and
written consent of Landlord obtained at least thirty (30) days prior to the
expiration of the Lease Term, to remain in the Demised Premises after the
expiration of the Lease Term, then Tenant shall, by virtue of said holdover
agreement, become a tenant from month-to-month at the rent stipulated by
Landlord in said consent, or if none is stipulated, at the monthly rate of Base
Annual Rent and Additional Rent last payable under this Lease (adjusted in
accordance with the provisions of this Lease as if the holdover period were
originally included herein), commencing said monthly tenancy with the first day
next following the end of the Lease Term. All other terms and conditions of this
Lease shall apply to any holdover period(s). Tenant shall give to Landlord at
least thirty (30) days written notice of any intention to quit the Demised
Premises. Tenant shall be entitled to thirty (30) days written notice from
Landlord to quit the Demised Premises, except in the event of nonpayment of the
monthly installment of Base Annual Rent and/or Additional Rent in advance or of
the breach of any other covenant, term or condition of this Lease by Tenant, in
which event Tenant shall not be entitled to any notice to quit, the usual thirty
(30) days notice to quit being hereby expressly waived by Tenant.
14.2 WITHOUT LANDLORD CONSENT. In the event that Tenant, without the
written consent of Landlord, shall hold over beyond the expiration of the Lease
Term, then Tenant hereby waives all notice to quit and agrees to pay to Landlord
for the period that Tenant is in possession after the expiration of this Lease,
a monthly charge which is three times the total monthly installment of Base
Annual Rent and Additional Rent in effect during the last month of the Lease
Term. Tenant expressly agrees to reimburse, defend, indemnify and hold Landlord
and Landlord's Agent harmless from all loss and damages, direct and
consequential, which Landlord or Landlord's Agent may incur in connection with
or in defense of claims by other persons or entities against Landlord,
Landlord's Agent or otherwise arising out of the holding over by Tenant,
including without limitation reasonable attorneys' fees which may be incurred by
Landlord or Landlord's Agent in defense of such claims. Acceptance of Base
Annual Rent, Additional Rent or any other sums due from Tenant hereunder or the
performance by Tenant of its obligations hereunder subsequent to the expiration
of the Lease Term, shall not constitute consent to any holding over. Landlord
shall have the right to apply all payments received after the expiration date of
the Lease Term toward payment for use and occupancy of the Demised Premises
subsequent to the expiration of the Lease Term and toward any other sums owed by
Tenant to Landlord, regardless of how such payment(s) may be designated by
Tenant. Landlord, at its option, may forthwith re-enter and take possession of
the Demised Premises without process, or by any legal process in force.
Notwithstanding the foregoing, if Tenant holds over, without Landlord's written
consent, due to acts of God, riot, or war, then such holdover shall be at the
total monthly installment of Base Annual Rent and Additional Rent applicable to
the last month of the Lease Term (adjusted in accordance with the provisions of
this Lease as if the holdover period were originally included herein), for the
duration of the condition (but not to exceed ten (10) days), but such continued
occupancy shall not create any renewal of the term of this Lease nor shall it
create a tenancy from year-to-year, month-to-month, or otherwise, and Tenant
shall be liable for and shall indemnify, defend and hold harmless Landlord and
Landlord's Agent against any loss and damages suffered by Landlord or Landlord's
Agent as described above. Any holdover period during which the Landlord and
Tenant are negotiating the terms and conditions of any holdover tenancy, new
lease or other matter, and/or for which Landlord and Tenant have failed to reach
an agreement as to the rent to be paid during such holdover period, shall
conclusively be deemed to be a holdover without the consent of Landlord for the
purpose of determining the rental to be paid and the obligations to be performed
by Tenant during such period.
15. SECURITY DEPOSIT
Tenant shall deposit with Landlord or Landlord's Agent simultaneously with
the execution of this Lease, the amount stipulated in Section 1.6 as a security
deposit. Provided Tenant is not in default in the payment of Base Annual Rent,
Additional Rent or any other charges due Landlord, and further provided the
Demised Premises are left in good condition, reasonable wear and tear excepted,
as described in Section 6.10, said deposit (which shall not bear interest to
Tenant) shall be returned to Tenant within sixty (60) days after the termination
of this Lease. Notwithstanding the foregoing, the full or partial return by
Landlord to Tenant of the security deposit shall at no time be deemed to
constitute a waiver by Landlord of any of Tenant's obligations under this Lease,
nor an acknowledgment by Landlord that any such obligations are limited to the
amount, if any, of the security deposit retained by Landlord. If Tenant is in
default or is otherwise indebted to Landlord hereunder or if the Demised
Premises are not left in good condition, or if Tenant has failed or refused to
remove Tenant's Property after Landlord's request to do so, then the security
deposit shall be applied to the extent available on account of sums due Landlord
or the cost of repairing damages to the Demised Premises or to remove Tenant's
Property. In the event the funds deposited with Landlord as security are applied
during the Lease Term on account of sums due Landlord or to the cost of
repairing damages or removing Tenant's Property, then Tenant shall, within
fifteen (15) days after demand by Landlord, deposit with the Landlord additional
funds to restore the security deposit to its original amount. In the event of
the sale or transfer of Landlord's interest in the Building, Landlord shall have
the right to transfer the security deposit to such purchaser or transferee, in
which event Tenant shall look only to the new landlord for the return of the
security deposit and Landlord shall thereupon be released from all liability to
Tenant for the return of such security deposit.
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16. QUIET ENJOYMENT
So long as Tenant shall observe and perform the covenants and agreements
binding on Tenant hereunder, Tenant shall at all times during the term herein
granted, peacefully and quietly have and enjoy possession of the Demised
Premises without any encumbrance or hindrance by, from or through Landlord,
except as provided for elsewhere under this Lease. Nothing in this Section shall
prevent Landlord from performing alterations, improvements or repairs on other
portions of the Building not leased to Tenant or from performing alterations,
improvements or repairs within the Demised Premises in accordance with the
provisions of this Lease, nor shall performance of alterations, improvements or
repairs by Landlord, Landlord's Agent or any other tenant of the Building be
construed as a breach of this covenant by Landlord.
17. SUCCESSORS
All rights, remedies and liabilities herein given to or imposed upon
either of the parties hereto, shall extend to their respective heirs, executors,
administrators, personal representatives, successors and assigns. This provision
shall not be deemed to grant Tenant any right to assign this Lease or to sublet
the Demised Premises.
18. WAIVER OF JURY TRIAL AND STATUTE OF LIMITATIONS
Landlord and Tenant (and any guarantors and other parties with liability
for the performance of any or all of Tenant's obligations hereunder, as well as
any subtenants, assignees and licensees of Tenant) hereby waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other or in respect of any matter whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant
hereunder, Tenant's use or occupancy of the Demised Premises, and/or any claim
of injury or damage. Tenant (and any guarantors and other parties with liability
for the performance of any or all of Tenant's obligations hereunder, as well as
any subtenants, assignees and licensees of Tenant) hereby waives the benefit of
any statute of limitation or other law limiting or prohibiting Landlord from
bringing any claim against Tenant (and/or any guarantors and/or other parties
with liability for the performance of any or all of Tenant's obligations
hereunder, as well as any subtenants, assignees and licensees of Tenant) arising
from or related to this Lease, the relationship of Landlord and Tenant and/or
the performance of Tenant's obligations hereunder at any time. Tenant (and any
guarantors and other parties with liability for the performance of any or all of
Tenant's obligations hereunder, as well as any subtenants, assignees and
licensees of Tenant) hereby agrees to submit to the personal jurisdiction of any
court of competent jurisdiction within the state, or the District of Columbia if
applicable, in which the Demised Premises and/or Landlord's principal place of
business is located.
19. LIMITATION OF LANDLORD'S LIABILITY; NOTICE
19.1 LANDLORD'S CONSENT. Notwithstanding anything to the contrary
contained in this Lease, if any provision of this Lease expressly or impliedly
obligates Landlord not to unreasonably withhold its consent or approval, an
action for declaratory judgment or specific performance will be Tenant's sole
right and remedy in any dispute as to whether Landlord has breached such
obligation or is required to give consent or approval. In no event shall
Landlord be liable for damages for any withholding of, any delay in providing,
or the conditioning of, any consent or approval.
19.2 INDIVIDUAL LIABILITY. Tenant acknowledges and agrees that the
liability of Landlord with respect to any claim arising out of, related to, or
under this Lease shall be limited solely to its interest in the Building. No
personal judgment shall lie against the Landlord nor any partner of a
partnership constituting Landlord (if Landlord is a partnership) nor any
shareholder of Landlord (if Landlord is a corporation), and none of the same
will be personally liable with respect to any claim arising out of or related to
this Lease. If the Landlord is a partnership, any deficit capital account of any
partner and any partner's obligation to contribute capital shall not be deemed
an asset of the partnership. In the event of sale or other transfer of the
Landlord's interest in the Demised Premises and/or Building, Landlord shall
thereupon and without further act by either party be deemed released from all
liability and obligations hereunder arising out of any act or omission relating
to the Demised Premises, the Building or this Lease, occurring subsequent to the
sale or other transfer. The provisions hereof shall inure to the benefit of
Landlord's successors and assigns, including any mortgagee or trustee under a
deed of trust. The foregoing provisions are not intended to relieve Landlord
from the performance of any of Landlord's obligations under this Lease, but only
to limit the personal liability of Landlord, and its partners or shareholders,
as the case may be; nor shall the foregoing be deemed to limit Tenant's rights
pursuant to this Lease to obtain injunctive relief or specific performance with
respect to any obligations of Landlord hereunder.
19.3 NOTICE IN EVENT OF LANDLORD'S DEFAULT. Notwithstanding anything to
the contrary in this Lease, in no event shall Landlord be deemed to be in
default in the performance of any covenant, condition or agreement herein
contained unless Tenant shall have given Landlord written notice of such
default, and Landlord shall have failed to cure such default within thirty (30)
days after such notice (or if such default is of such nature that it cannot be
completely cured within said thirty (30) days, if Landlord fails to commence to
cure within said thirty (30) days and thereafter proceed with reasonable
diligence and in good faith to effect such cure).
20. AUTHORITY
Landlord and Tenant hereby covenant each for itself, that each has the
full right, power and authority to enter into this Lease upon the terms and
conditions herein set forth. If Tenant signs as a corporation, each of the
persons executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is and shall be throughout the Lease Term, a duly authorized
and existing corporation, qualified to do business in the jurisdiction in which
the Demised Premises are located and is in good standing, that the corporation
has full right and authority to enter into this Lease, and that each of the
persons signing on behalf of the corporation were authorized to do so. If Tenant
signs as a partnership, each of the persons executing this Lease on behalf of
Tenant does hereby covenant and warrant that Tenant is a duly formed and validly
existing partnership, qualified to do business in the jurisdiction in which the
Demised Premises are located, and is in good standing, that the partnership has
full right and authority to enter into this Lease, and that each of the persons
signing on behalf of the partnership were authorized to do so.
21. TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES
21.1 HAZARDOUS SUBSTANCES. The term "Hazardous Substances", as used in
this Lease, shall include, without limitation, (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) oil
or other petroleum
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products, (f) any substance whose presence could be detrimental to the Building,
its occupants or visitors, or the environment, (g) substances requiring special
handling, (h) flammables, explosives, radioactive materials, asbestos,
polychlorinated biphenlys (PCBs), chlorofluorocarbons, chemicals known to cause
cancer or reproductive toxicity, pollutants and contaminants, (i) any infectious
and/or hazardous medical waste as the same may be determined from time to time,
and (j) any other substances declared to be hazardous or toxic under Laws
(hereinafter defined) now or hereafter enacted or promulgated by any Authorities
(hereinafter defined).
21.2 TENANT'S RESTRICTIONS. Tenant shall not cause or permit to occur:
(a) Violations. Any violation of any federal, state and local laws,
ordinances, regulations, directives, orders, notices and requirements now or
hereafter enacted or promulgated regulating the use, generation, storage,
handling, transportation, or disposal of Hazardous Substances ("Laws"), now or
hereafter enacted, related to environmental conditions on, under, or about the
Demised Premises, the Building and/or the Complex, or arising from Tenant's use
or occupancy of the Demised Premises, Tenant's Property, or Leasehold
Improvements, including, but not limited to, soil and ground water conditions;
and/or
(b) Use. The use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous Substances on,
under, or about the Demised Premises, the Building and/or the Complex, or the
transportation to or from the Demised Premises of any Hazardous Substances,
without the prior written consent of Landlord, such consent to be granted or
withheld in Landlord's sole and absolute discretion, and, if granted, Tenant's
activities shall be in strict compliance with all Laws.
21.3 AFFIRMATIVE OBLIGATIONS.
(a) Compliance with Laws. Tenant shall, at Tenant's own expense,
comply with all Laws. Tenant shall, at Tenant's own expense, make all
submissions to, provide all information required by, and comply with all
requirements of all federal, state and local governmental and regulatory
authorities (the "Authorities") under the Laws. Tenant shall promptly provide
Landlord with a copy of all such submissions and information requests.
(b) Clean-Up Plans. Should any Authority or any third party demand
that a removal or clean-up plan be prepared and that a removal or clean-up be
undertaken because of any deposit, spill, discharge, release, misuse,
prohibition on continued use, act or failure to act with respect to any
Hazardous Substances relating to, occurring on or arising out of Tenant's use or
occupancy of the Demised Premises, Tenant's Property or Leasehold Improvements,
then Tenant shall, at Tenant's own expense, prepare and submit the required
plans and all related bonds and other financial assurances, and Tenant shall
carry out all such removal and clean-up plans within the time limits set by any
Authority or other party. Tenant shall promptly provide Landlord with copies of
notices received from any Authority or third party, and of all removal and
clean-up plans, bonds, and related matters.
(c) Information Requests. Tenant shall promptly provide all
information regarding the use, generation, storage, transportation or disposal
of Hazardous Substances that is required hereunder or is requested by Landlord.
If Tenant fails to fulfill any duty imposed under this Section 21 within a
reasonable time (or any shorter period of time if so required by any Authority),
Landlord may (but shall not be obligated to) do so and all costs associated
therewith shall constitute Additional Rent hereunder and shall be immediately
due and payable to Landlord, together with interest thereon calculated at the
rate of twenty-four percent (24%) per annum. In such case, Tenant shall
cooperate with Landlord in order to prepare all documents Landlord deems
necessary or appropriate to determine the applicability of the Laws to the
Demised Premises, Tenant's use thereof and Tenant's Property and Leasehold
Improvements, and for compliance therewith, and Tenant shall execute all
documents promptly upon Landlord's request. No such action by Landlord and no
attempt made by Landlord to mitigate damages under any Laws shall constitute a
waiver of any of Tenant's obligations under this Section 21.
21.4 TENANT'S INDEMNITY. Tenant shall indemnify, defend, and hold
harmless Landlord, Landlord's Agent, and their respective officers, directors,
beneficiaries, shareholders, partners, agents and employees from all fines,
suits, procedures, claims and actions of every kind, and all costs associated
therewith (including attorneys' and consultants' fees) arising out of or in any
way connected with any deposit, spill, discharge, release, misuse, prohibition
or continued use, act or failure to act, with respect to any Hazardous
Substances or other failure to comply with the Laws which arise at any time from
Tenant's use or occupancy of the Demised Premises or Tenant's Property or the
Leasehold Improvements, or from Tenant's failure to provide all information,
make all submissions, and take all steps required by all Authorities under the
Laws and all other related laws.
21.5 SURVIVAL OF OBLIGATIONS. Tenant's obligations and liabilities under
this Section 21, and the obligations of all guarantors and other parties with
liability for the performance of any or all of Tenant's obligations hereunder,
shall survive the expiration or earlier termination of this Lease.
22. JOINT AND SEVERAL LIABILITY
In the event that two or more individuals, corporations, partnerships or
other business associations (or any combination of two or more thereof) shall
sign this Lease as Tenant or guarantee this Lease as guarantors or are otherwise
liable for the performance of any or all of Tenant's or any guarantor's
obligations, the liability of each such individual, corporation, partnership or
other business association to pay Base Annual Rent, Additional Rent and any
other sums due hereunder and to perform all or any other obligations hereunder
shall be deemed to be joint and several. In like manner, in the event that the
Tenant named in this Lease shall be a partnership or other business association,
the members of which are by virtue of statute or general law subject to personal
liability, then, and in that event, the liability of each such member shall be
deemed to be joint and several. Notwithstanding any other provisions hereof, or
of any rule or provisions of law, the failure or refusal by Landlord to proceed,
in the event of a breach or default by Tenant, against all the individuals,
corporations, partnerships or other business associations comprising the Tenant
(or any combination of two or more thereof) or against Tenant or against one or
more of the guarantors or other parties with liability for the performance of
any or all of Tenant's or any guarantor's obligations, shall not be deemed to be
a release or waiver of any rights which Landlord may possess against such other
individuals, corporations, partnerships or other business associations not so
proceeded against, nor shall the granting by Landlord of a release of, or
execution of a covenant not to sue, any one or more of the individuals,
corporations, partnerships, or other business associations comprising the Tenant
(or any combination of two or more thereof) or the guarantors or other parties
with liability for the performance of any or all of Tenant's or any guarantor's
obligations, constitute a release or waiver, in whole or in part, of any rights
which Landlord may possess against such other individuals, corporations,
partnerships, or associations not so released or granted a covenant not to sue.
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23. DEFINITIONS
23.1 PRONOUNS. Feminine or neuter pronouns shall be substituted for
those of the masculine form, and the plural shall be substituted for the
singular number, in any place or places herein in which the context may require
such substitution or substitutions. Landlord and Tenant herein for convenience
have been referred to in the neuter form.
23.2 DEMISED PREMISES. Wherever the word "premises" or the phrase
"demised premises" is used in this Lease, it shall refer to the Demised Premises
described in Section 1.1, unless the context clearly requires otherwise.
23.3 LEASE TERM. Wherever the phrase "Lease Term" or the phrase "term of
this Lease" is used in this Lease, it shall refer to the Lease Term described in
Section 1.2(a) and any extensions and renewals thereof validly and timely
exercised by Tenant, unless the context clearly requires otherwise.
23.4 TENANT'S PROPERTY. Wherever the phrase "Tenant's Property" is used
in this Lease, it shall refer to the Tenant's Property described in Section
12.9(a), unless the context clearly requires otherwise.
23.5 LEASEHOLD IMPROVEMENTS. Wherever the phrase "Leasehold
Improvements" is used in this Lease, it shall refer to the Leasehold
Improvements described in Section 12.9(a), unless the context clearly requires
otherwise.
24. NOTICE TO PARTIES
24.1 ADDRESSES FOR NOTICES. All notices required or desired to be given
hereunder by either party to the other shall be in writing and personally
delivered or given by overnight express delivery service or by certified or
registered mail (delivery and/or postage charges prepaid) and addressed as
specified in Section 1.9. Either party may, by like written notice, designate a
new address to which such notices shall be directed.
24.2 EFFECTIVE DATE OF NOTICE. Notices personally delivered shall be
deemed effective upon delivery; notices sent by certified or registered mail
shall be deemed effective upon the earlier of (i) the date of receipt or
rejection by the addressee, or (ii) three (3) days following the date of mailing
(excluding Sundays and holidays on which mail is not delivered by the United
States Postal Service). Notwithstanding the foregoing, any notice pertaining to
a change of address of a party shall be deemed effective only upon receipt or
rejection by the party to whom such notice is sent.
25. NOTICE TO MORTGAGEES
In addition to any notices required by Section 13.4, if any mortgagee
shall notify Tenant that it is the holder of a mortgage affecting the Demised
Premises and that it is requesting Tenant to provide the mortgagee with copies
of notices sent by Tenant to Landlord, no notice, request or demand thereafter
sent by Tenant to Landlord shall be effective unless and until a copy of the
same shall also be sent to such mortgagee in the manner prescribed in Section 24
and to such address as such mortgagee or trustee shall designate.
26. SPECIAL PROVISIONS; EXHIBITS
26.1 INCORPORATION IN LEASE. It is agreed and understood that any
Special Provisions and Exhibits referred to in Sections 1.10 and 1.11,
respectively, and attached hereto, form an integral part of this Lease and are
hereby incorporated by reference.
26.2 CONFLICTS. If there is a conflict between a Special Provision
hereto and the Exhibits, Specific Provisions or General Provisions of this
Lease, the Special Provision shall govern. If there is a conflict between a
Specific Provision and the Exhibits or General Provisions of this Lease, the
Specific Provision shall govern. If there is a conflict between the Exhibits and
the General Provisions, the Exhibits shall govern.
27. CAPTIONS
All section and paragraph captions herein are for the convenience of the
parties only, and neither limit nor amplify the provisions of this Lease.
28. ENTIRE AGREEMENT; MODIFICATION
This Lease, all Exhibits, and the Specific and Special Provisions
incorporated herein by reference are intended by the parties as a final
expression of their agreement and a complete and exclusive statement of the
terms thereof, all negotiations, considerations and representations between the
parties having been incorporated herein. No course of prior dealings between the
parties or their officers, partners, employees, agents or affiliates shall be
relevant or admissible to supplement, explain or vary any of the terms of this
Lease, the Exhibits and the Specific and Special Provisions. Acceptance of, or
acquiescence in, a course of performance rendered under this or any prior
agreement between the parties, their agents or their affiliates shall not be
relevant or admissible to determine the meaning of any of the terms of this
Lease, the Exhibits and the Specific and Special Provisions. Tenant hereby
acknowledges that Landlord, Landlord's Agent and their respective agents and
employees made no representations, warranties, understandings or agreements
pertaining to the condition of the Building or the Demised Premises, or
otherwise, which have induced Tenant to execute, or have been relied upon by
Tenant in the execution of this Lease, other than those specifically set forth
herein. This Lease can be modified only by a writing signed by both parties
hereto. The language of this Lease shall in all cases be construed as a whole
and according to its fair meaning, and not strictly for or against either
Landlord or Tenant. The interpretation or construction of this Lease shall be
unaffected by any argument or claim, whether or not justified, that this Lease
has been prepared, wholly or in substantial part, by or on behalf of Landlord or
Tenant. Tenant acknowledges that it has had, or has had the opportunity to have,
legal counsel of Tenant's choice to negotiate on behalf of (and/or explain to)
Tenant the provisions of this Lease. Any consent or approval required or desired
of Landlord, or any decision under this Lease committed to the discretion of
Landlord hereunder, may be withheld, delayed, conditioned or exercised by
Landlord in its sole, absolute and arbitrary discretion unless the provision of
this Lease requiring such consent or approval, or decision under this Lease
committed to the discretion of Landlord, expressly states that Landlord shall
not withhold, delay, condition or exercise such consent, approval or discretion
unreasonably.
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29. GOVERNING LAW; SEVERABILITY
This Lease shall be governed by and construed in accordance with the laws
of the State or District in which the Building is located. The unenforceability,
invalidity, or illegality of any provision herein shall not render any other
provision herein unenforceable, invalid, or illegal.
30. BINDING EFFECT OF LEASE
The submission of an unsigned copy of this document to Tenant for
examination or signature shall not constitute an option, reservation or offer to
lease space in the Building. This Lease shall become effective and binding only
upon execution and delivery by both Landlord and Tenant, and shall be
enforceable in accordance with its terms from and after the date this Lease is
fully executed and delivered by Landlord and Tenant.
31. FORCE MAJEURE
If Landlord is in any way delayed or prevented from performing any
obligation due to fire, act of God, governmental act or failure to act, labor
dispute, inability to procure materials or any cause beyond Landlord's
reasonable control (whether similar or dissimilar to the foregoing named
events), then the time for performance of such obligation shall be excused for
the period of such delay or prevention and extended for a period equal to the
period of such delay or prevention.
32. RECORDATION
Neither this Lease nor a memorandum hereof shall be recorded by Tenant.
Any violation of this Section shall be a default hereunder and Tenant agrees to
pay all costs and expenses, including attorneys' fees, necessary to remove this
Lease or any memorandum hereof from record. Tenant irrevocably constitutes and
appoints Landlord as its special attorney-in-fact to prepare, execute and record
such instrument(s), the foregoing power of attorney being deemed to be coupled
with an interest.
33. TIME OF ESSENCE
Tenant acknowledges that time is of the essence in its performance of any
and all obligations, terms and provisions of this Lease.
34. BROKERS
Tenant represents and warrants that it did not retain, nor consult with,
any broker or real estate salesperson (other than Landlord's Agent) with respect
to this Lease. Tenant agrees to indemnify and hold Landlord and Landlord's Agent
harmless from and against any claims for brokerage or other commissions and any
claim of, or right to, a lien under applicable law relating to real estate
broker liens, arising by reason of a breach by Tenant of the foregoing
representation and warranty. Tenant agrees to pay, or upon demand reimburse
Landlord and Landlord's Agent for, all costs and expenses, including attorneys'
fees, necessary to remove from record any lien filed against the rents payable
pursuant to this Lease and/or against the Demised Premises and/or the Building,
by reason of a breach by Tenant of the foregoing representation and warranty.
35. RELATIONSHIP OF LANDLORD AND TENANT
Nothing in this Lease shall be interpreted or construed as creating any
partnership, joint venture, agency or any other relationship between the
parties, other than that of landlord and tenant.
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36. RENT
36.1 In Section 2.1(a), in the fifth line, delete 'by electronic
... otherwise'.
36.2 Section 2.2(a)(ii) is deleted entirely.
36.3 In Section 2.2(a)(iv), in the fourth line, after the first
'Improvements' insert "(but not leasehold improvements for other tenants)".
36.4 In Section 2.2(b)(ii), in the last line, after 'commissions;'
insert "costs of repairs, restoration, replacements or other work occasioned by
fire, windstorm or other insured casualty (whether such destruction be total or
partial) to the extent of insurance proceeds therefor; the cost of repairs,
etc., occasioned by the exercise by governmental authorities of the right of
eminent domain, whether such taking be total or partial, to the extent of any
condemnation awards; costs occasioned by intentional tort of Landlord, or any
subsidiary or affiliate of Landlord, or any employee or agent of same or the act
of any other tenant in the Building, or any other tenant's agents, employees,
licensees or invitees, to the extent Landlord recovers the applicable cost from
such person; leasing commissions, attorneys' fees (except for those reasonable
attorneys' fees directly related to Operating Expenses or Real Estate Taxes);
expenses incurred in connection with negotiations for leases with tenants, other
occupants, or prospective tenants or other occupants of the Building, or similar
costs incurred in connection with disputes with tenants, other occupants, or
prospective tenants, or similar costs and expenses incurred in connection with
negotiations or disputes with management agents, purchasers or mortgagees of the
Building; allowances, concessions and other costs and expenses incurred in
completing, fixturing, furnishing, renovating or otherwise improving, decorating
or redecorating space for tenants (including Tenant), prospective tenants or
other occupants and prospective occupants of the Building, or vacant, leasable
space in the Building; costs or expenses relating to another tenant's or
occupant's space which were incurred in rendering any service or benefit to such
tenant that was not available to Tenant; payments of principal and interest or
other finance charges made on any debt and rental payments made under any ground
or underlying lease or leases; costs incurred in connection with the sale,
financing, refinancing, mortgaging, selling or change of ownership of the
Building, including attorneys' and accountants' fees, closing costs, title
insurance premiums, transfer taxes and interest charges; costs, fines, interest,
penalties, legal fees or costs of litigation incurred due to the late payments
of taxes, utility bills and other costs incurred by Landlord's failure to make
such payments when due; costs incurred by Landlord for trustees fees,
partnership organizational expenses and accounting fees (except accounting fees
relating solely to the ownership and operation of the Building); Landlord's
general corporate overhead and general and administrative expenses; any
compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord or in the parking garage of the Building;
rentals and other related expenses incurred in leasing air conditioning systems,
elevators or other equipment ordinarily considered to be of a capital nature
(except for equipment not affixed to the Building which is used in providing
janitorial or similar services); the rent for Landlord's on-site management or
leasing office, or any other offices or spaces of Landlord or any related
entity; Landlord's income and franchise taxes; special assessments and other
business taxes except those business taxes which relate solely to the operation
of the Building; all amounts which would otherwise be included in Operating
Expenses which are paid to any affiliate or subsidiaries of Landlord, or any
representative, employee or agent of same, to the extent the costs of such
services exceed fair market value; except the management fee paid to Landlord's
Agent, all other fees for management of the Building; costs or expenses of
utilities directly metered to tenants of the Building and payable separately by
such tenants; costs incurred (less costs of recovery) for any items to the
extent covered by a manufacturer's materialman's, vendor's or contractor's
warranty (a "Warranty") which are paid by such manufacturer, materialman, vendor
or contractor; electric power costs for which any tenant directly contracts with
the local public service company; services provided and costs incurred in
connection with the operation of the parking garage or retail or the ancillary
operations owned, operated or subsidized by Landlord; rental for any space in
the Building set aside for conference facilities, storage facilities or exercise
facilities; wages and salaries for off-site employees and employees at the
Building above the level of building manager;".
36.5 In Section 2.2(b)(iii), in each of the second and fifth
lines, delete 'other than' and substitute "including"; and in the sixth line,
before 'estimated' insert "reasonably".
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36.6 In Section 2.3(d), in the first line, delete 'thirty (30)'
and substitute "sixty (60)".
36.7 In Section 2.9, in the second line, after 'after' insert
"written notice from Landlord"; and in the penultimate line, delete 'eighteen
percent (18%)' and substitute "twelve percent (12%)".
37. LANDLORD'S CONTRIBUTION
37.1 Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Landlord agrees to contribute the sum of up to Five
Thousand Four Hundred Twenty and 00/100 Dollars ($5,420.00) toward the cost of
Tenant's remodeling, which amount Tenant shall receive in the form of a credit
toward remodeling expenses owed by Tenant to Landlord's contractors.
38. ACCRUAL OF RENT OBLIGATION
38.1 Tenant shall be obligated for the payment of Base Annual Rent
and Additional Rent pursuant to Sections 1.3 and 1.5 on the Commencement Date,
regardless of any time required to construct, alter or redecorate the Demised
Premises to Tenant's requirements.
39. PARKING
39.1 Landlord agrees to arrange for parking in the garage of the
Building for up to fifteen (15) automobiles of Tenant or Tenant's employees,
which parking shall be made available upon Tenant's or its employees' payment of
the prevailing monthly rate for such service.
40. CONSTRUCTION OF PREMISES AND OCCUPANCY
40.1 Sections 3.1 and 3.4 are deleted entirely.
41. SUBLETTING AND ASSIGNMENT
41.1 In Section 4.1, in the first line, after 'withheld' insert ",
conditioned".
41.2 In Section 4.2, in the third and fourth lines, delete 'ninety
(90)' and substitute "thirty (30)".
41.3 Provided Tenant first obtains the written consent of the
Landlord to such sublease or assignment as required by Section 4 and further
provided that Tenant is not in default of any of the terms or conditions of this
Lease on the date each rent payment is due pursuant to such sublease or
assignment, then notwithstanding Section 4.3, only Fifty Percent (50%) of any
rent and other consideration accruing to Tenant as a result of each such
sublease or assignment which is in excess of the pro rated portion of Base
Annual Rent and Additional Rent then being paid by Tenant for the Demised
Premises or portion thereof being sublet pursuant to said sublease or assignment
shall be paid by Tenant to Landlord monthly as Additional Rent. Tenant shall be
permitted to deduct the reasonable advertising costs, reasonable brokerage
commissions and reasonable remodeling costs, in calculating Landlord's share of
the net excess rent and other consideration to be paid to Landlord pursuant to
this Section. Tenant shall provide documentation of such expenses to Landlord at
the time Tenant requests Landlord's giving consent to the subletting or
assignment.
41.4 In Section 4.4, in the last line, after 'Lease' insert ",
unless otherwise agreed in writing by Landlord".
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42. SERVICES AND UTILITIES
42.1 In Section 5.1, in the last line, after `Lease' insert ";
provided, however, if the Demised Premises are rendered untenantable by such
failure, suspension, delay or interruption of services for five (5) consecutive
business days due to Landlord's negligence or willful misconduct, then Tenant
may abate paying Base Annual Rent from said fifth (5th) day until such service
is restored".
42.2 In Section 5.3(c), in the third line, delete `The' and insert "If
excess electric consumption is established by such meters or survey, then the";
and in the fourth line, after the first `Tenant' insert "only if excess
consumption is established".
42.3 In Section 5.6, in the penultimate line, after the second
`consent' insert "shall not be unreasonably withheld, conditioned or delayed."
and delete the remainder of the paragraph.
43. USE AND UPKEEP OF PREMISES
43.1 In Section 6.3, in the last line, after `act' insert "; provided,
however, that Tenant shall be given written notice and reasonable opportunity to
cure such actions or failures before any liability for such costs accrues".
43.2 In Section 6.4(a), in the first line, before `Tenant' insert
"Except for cosmetic changes and decorations,"; and in the fourth line, delete
`or cosmetic'.
43.3 In Section 6.4(b), in both the eleventh and twelfth lines, delete
`five (5)' and substitute "ten (10)".
43.4 In Section 6.4(c), in the third line, delete `this Lease...and
Tenant' and substitute "the Demised Premises are delivered to Tenant, normal
wear and tear excepted"; in the eighth line, after `expense' insert "provided
Landlord so advised Tenant when Tenant requested Landlord's consent thereto";
and in the ninth line, after `date' insert "the Demised Premises are delivered
to Tenant, normal wear and tear excepted." and delete the rest of the sentence.
43.5 In Section 6.5(a), in the eighth line, delete `ten (10)' and
substitute "thirty (30)".
43.6 In Section 6.5(b), in the last line, after `aforesaid' insert
";provided, however, if the Demised Premises are rendered untenantable thereby
for five (5) consecutive business days, then Tenant may abate paying Base Annual
Rent from said fifth (5th) day until the Demised Premises are again tenantable".
43.7 In Section 6.8(b), at the end of the paragraph, change the period
to a comma and insert "unless solely arising from or caused by the fault or
negligence of Landlord, or of any of Landlord's principals, employees or agents
acting on behalf of Landlord.".
43.8 In Section 6.9, in the third line, after the second `time' insert
"(provided such changes do not materially interfere with Tenant's rights under
this Lease)"; in the ninth line, after `(3)' insert "business"; and at the end
of the Section insert "Landlord shall use reasonable efforts to enforce the
Rules and Regulations equitably.".
43.9 In Section 6.11, in the second line, after `Improvements' insert
"(except structural elements)".
43.10 In Section 6.12, in the penultimate line, delete `ten (10)' and
substitute "thirty (30)".
43.11 Section 6.13 is deleted entirely.
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44. ACCESS
44.1 In Section 7.1, in the second line, after `times' insert "after
reasonable notice (except in emergencies)".
44.2 In Section 7.3, in the fourth line, after `lobbies.' insert "At
least one elevator shall be operable at all times.".
45. LIABILITY
45.1 In Section 8.1, in the third line, after `Property' insert ";
provided, however, the foregoing provision shall not apply (a) if the loss was
caused by the negligence of Landlord, Landlord's Agent or their agents or
employees, and (b) the Tenant has not otherwise waived and released its claims
pursuant to Section 8.5(f)." and delete the remainder of the paragraph.
45.2 In Section 8.2, in the sixth line, after the first `Tenant'
insert a period and delete the remainder of the paragraph.
45.3 In Section 8.4, in the last line, after `Demised Premises' insert
"unless the Demised Premises are rendered untenantable thereby for five (5)
consecutive business days in which event Tenant may abate paying Base Annual
Rent from said fifth (5th) day until the Demised Premises are again tenantable".
46. DAMAGE
46.1 In Section 9.1, in the fifth line, delete `ten (10)' and
substitute "thirty (30)".
46.2 In Section 9.3(a)(i), in the first line, after `partially' insert
"[more than Thirty Percent (30%)]".
46.3 In Section 9.3(a)(ii)(2), in the seventh line, change `sixty
(60)' to "thirty (30)"; in the tenth line, delete `one hundred twenty (120)' and
substitute "ninety (90)"; and in each of the thirteenth and fourteenth lines,
delete `120' and substitute "90".
46.4 In Section 9.3(a)(iii), in the first line, delete `Section 9.3'
and substitute "Lease".
47. DEFAULTS AND REMEDIES
47.1 In Section 12.3, in the twelfth line, after `sole' insert ",but
reasonable,".
47.2 Section 12.6 is deleted entirely.
47.3 In Section 12.9(a), delete the first three (3) sentences
entirely.
47.4 Sections 12.9(b) and (c) are deleted entirely.
47.5 In Section 12.11, in the first line, after `any' insert
"eviction"; and in the third line, after `proceeding' insert ", unless
required to do so under the court rules".
47.6 In Section 12.13, in the second line, after `entire' insert
"reasonable" and after `hereunder' insert a period and delete the remainder of
the paragraph.
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48. SUBORDINATION
48.1 In Section 13.1, in each of the six and ninth lines, delete `ten
(10)' and substitute "fifteen (15)".
48.2 In Section 13.2, in each of the first, sixteenth and nineteenth
lines, delete `ten (10)' and substitute "fifteen (15)".
49. TENANT'S HOLDOVER
49.1 In Section 14.2, in the third line, delete `three' and
substitute "one and one-half".
50. TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES
50.1 Section 21.4 is deleted entirely.
50.2 At the end of Section 21, add the following:
LANDLORD'S REPRESENTATION. Landlord represents that, as of the date hereof,
Landlord is not in receipt of any violation notice regarding Hazardous
Substances that affects the Demised Premises or the Building.
51. BROKERS AND COMMISSIONS
51.1 Section 34 is hereby deleted in its entirety and the following is
substituted therefor:
"Landlord and Tenant each hereby represents and warrants that, in
connection with this Lease, each did not retain, consult or deal with any broker
or real estate agent, salesperson or finder (other than Landlord's Agent), and
there is no commission, charge, or other compensation due on account thereof in
regard thereto, excepting only The Bank Companies, and Charles E. Smith Real
Estate Services L.P., both of whose commissions are the responsibility of
Landlord. Each party hereto shall indemnify and hold harmless the other (and
Tenant shall also indemnify and hold harmless Landlord's Agent) against and from
any claims for brokerage or other commissions by reason of a breach of the
indemnifying party's foregoing representation and warranty. Tenant shall pay, or
upon demand reimburse Landlord and Landlord's Agent for, all costs and expenses,
including attorneys' fees, necessary to remove from record any lien filed
against the rents payable pursuant to this Lease and/or against the Demised
Premises and/or the Building, by reason of a breach by Tenant of the foregoing
representation and warranty. The rights, obligations, warranties and
representations in this Section shall survive the expiration or sooner
termination of the Lease Term.".
52. LEGAL COMPLIANCE
52.1 Landlord shall abide by all laws and regulations applicable to
the Building.
53. EXECUTION OF DOCUMENT
53.1 In the event Tenant does not execute and return this document by
the close of business on May 29, 1998, then Landlord may market the subject
space to others without further notice to Tenant.
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EXHIBIT C
BUILDING RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other tenants
of the Building or the Complex, or of persons having business in the
Building or the Complex, or in any way injure or annoy such tenants or
persons. Tenant will not conduct any activity within the Demised Premises
which will create excessive traffic or noise anywhere in the Building or
the Complex. Tenant shall not bring or keep within the Building any
animal, bicycle, motorcycle, or type of vehicle except as required by
law.
2. Tenant shall promptly report to Landlord's Agent all accidents and
incidents occurring on or about the Demised Premises, the Building and/or
the Complex which involve or relate to the security and safety of persons
and/or property.
3. Tenant shall use and occupy the Demised Premises only for the purposes
specified in Section 1.8 of the Lease and for no other purpose
whatsoever, and shall comply, and cause its employees, agents,
contractors, invitees and other users of the Demised Premises to comply,
with applicable zoning and other municipal regulations, including but not
limited to smoking regulations. Canvassing, soliciting and peddling in
the Building or anywhere in the Complex are prohibited, and Tenant shall
cooperate to prevent such activities.
4. All office equipment and any other device of any electrical or
mechanical nature shall be placed by Tenant in the Demised Premises in
settings approved by Landlord, so as to absorb or prevent any vibration,
noise, or annoyance. Tenant shall not construct, maintain, use or operate
within the Demised Premises or elsewhere in the Building or outside of
the Building any equipment or machinery which produces music, sound or
noise, which is audible beyond the Demised Premises. Tenant shall not
cause objectionable noises, vibrations or odors within the Building.
5. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building, except in the
refuse containers provided therefor. No material shall be placed in the
trash boxes or receptacles if such material is of such nature that it may
not be disposed of in the ordinary and customary manner of removing and
disposing of office building trash and garbage without being in violation
of the Lease or any law or ordinance governing such disposal. Tenant
shall be charged the cost of removal for any items left by Tenant that
cannot be so removed. All garbage and refuse disposal shall be made only
through entry ways and elevators provided for such purposes and at such
times as Landlord shall designate. Tenant shall not introduce into the
Building any substance which might add an undue burden to the cleaning or
maintenance of the Demised Premises or the Building. Tenant shall
exercise its best efforts to keep the sidewalks, entrances, passages,
courts, lobby areas, garages or parking areas, elevators, escalators,
stairways, vestibules, public corridors and halls in and about the
Building (hereinafter "Common Areas") clean and free from rubbish. Tenant
shall not cause any unnecessary labor by reason of Tenant's carelessness
or indifference in the preservation of good order and cleanliness.
6. Tenant shall use the Common Areas only as a means of ingress and egress,
and Tenant shall permit no loitering by Tenant's agents, employees,
visitors or invitees upon Common Areas or elsewhere within the Building.
Tenant shall comply, and cause its employees, agents, contractors,
invitees and other users of the Demised Premises to comply, with all
rules and regulations adopted by Landlord governing the use of the Common
Areas. The Common Areas and roof of the Building are not for the use of
the general public, and Landlord shall in all cases retain the right to
control or prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character,
reputation or interests of the Building and its tenants. Tenant shall not
enter or install equipment in the mechanical rooms, air conditioning
rooms, electrical closets, janitorial closets, or similar areas or go
upon the roof of the Building without the prior written consent of
Landlord. Tenant shall not install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls of the
Building. Tenant shall not, nor shall Tenant's agents, employees or
contractors, enter or install equipment in or at the equipment room(s) or
closet(s), inside telecommunications and/or data transmission wire space
and/or conduits or the telephone wire demarcation point in the Building
without Landlord's prior consent.
7. Without limitation upon any of the provisions of the Lease, Tenant shall
not mark, paint, drill into, cut, string wires within, or in any way
deface any part of the Building, without the prior written consent of
Landlord, and as Landlord may direct. Upon removal of any wall
decorations or installations or floor coverings by Tenant, any damage to
the walls or floors shall be repaired by Tenant at Tenant's sole cost and
expense. Tenant shall not lay linoleum or similar floor coverings so that
the same shall come into direct contact with the floor of the Demised
Premises and, if linoleum or other similar floor covering is to be used,
an interlining of builder's deadening felt shall be first affixed to the
floor, by a paste or other materials soluble in water. The use of cement
or other similar adhesive material is expressly prohibited. Floor
distribution boxes for electric and telephone wires must remain
accessible at all times.
8. Tenant shall not install or permit the installation of any awnings,
shades, mylar films or sunfilters on windows. Tenant shall cooperate with
Landlord in obtaining maximum effectiveness of the cooling system of the
Building by closing drapes and other window coverings when the sun's rays
fall upon windows of the Demised Premises. Tenant shall not obstruct,
alter or in any way impair the efficient operation of the Systems, nor
shall Tenant tamper with or change the setting of any thermostat or
temperature control valves in the Building (this is not applicable in VAV
buildings). Tenant shall not cover induction units.
Exh. C-1
<PAGE> 83
9. Tenant shall not use the washrooms, restrooms and plumbing fixtures of
the Building, and appurtenances thereto, for any purpose other than the
purpose for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags, or toxic or flammable products, or other
improper substances, therein. Tenant shall not waste water by interfering
or tampering with the faucets or otherwise. If Tenant or Tenant's
employees, agents, contractors, jobbers, licensees, invitees, guests or
visitors cause any damage to such washrooms, restrooms, plumbing fixtures
or appurtenances, such damage shall be repaired at Tenant's expense, and
Landlord shall not be responsible therefor.
10. Subject to applicable fire or other safety regulations, all doors
opening onto Common Areas and all doors upon the perimeter of the Demised
Premises shall be kept closed and, during non-business hours, locked,
except when in use for ingress or egress. If Tenant uses the Demised
Premises after regular business hours or on non-business days, Tenant
shall lock any entrance doors to the Building or to the Demised Premises
used by Tenant immediately after using such doors. Tenant shall cooperate
with energy conservation by limiting use of lights to areas occupied
during non-business hours.
11. Employees of Landlord shall not receive or carry messages for or to
Tenant or any other person, nor contract with nor render free or paid
services to Tenant or Tenant's employees, contractors, jobbers, agents,
invitees, licensees, guests or visitors. In the event that any of
Landlord's employees perform any such services, such employees shall be
deemed to be the agents of Tenant regardless of whether or how payment is
arranged for such services, and Tenant hereby indemnifies and holds
Landlord harmless from any and all liability in connection with any such
services and any associated injury or damage to property or injury or
death to persons resulting therefrom.
12. All keys to the exterior doors of the Demised Premises shall be obtained
by Tenant from Landlord, and Tenant shall pay to Landlord a reasonable
deposit determined by Landlord from time to time for such keys. Tenant
shall not make duplicate copies of such keys. Tenant shall, upon the
termination of its tenancy, provide Landlord with the combinations to all
combination locks on safes, safe cabinets, and other key-controlled
mechanisms therein, whether or not such keys were furnished to Tenant by
Landlord. In the event of the loss of any key furnished to Tenant by
Landlord, Tenant shall pay to Landlord the cost of replacing the same or
of changing the lock or locks opened by such lost key if Landlord shall
deem it necessary to make such a change. The word "key" as used herein
shall refer to keys, keycards, and all such means of obtaining access
through restricted access systems.
13. No signs, advertisements or notes shall be painted or affixed on or to
any windows, doors or other parts of the Building visible from the
exterior (other than as expressly permitted by the terms of the Lease),
or to any Common Area or public area of the Building.
14. Landlord will provide and maintain a directory board for the Building,
in the main lobby of the Building, and no other directories shall be
allowed.
15. All contractors, contractors' representatives and installation
technicians tendering any service to Tenant shall be referred by Tenant
to Landlord for Landlord's supervision, approval and control before the
performance of any contractual service. This provision shall apply to all
work performed in the Building.
16. After initial occupancy, movement in or out of the Building of furniture
or office equipment, or dispatch or receipt by Tenant of any bulky
material, merchandise or material which requires use of elevators shall
be restricted to the use of freight elevators only. Absolutely no carts
or dollies are allowed through the main entrances or on passenger
elevators. All items not hand carried must be delivered via the
appropriate loading dock and freight elevator, if any.
17. No portion of the Demised Premises shall at any time be used or occupied
as sleeping or lodging quarters.
18. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment, which shall in all cases, to distribute
weight, stand on supporting devices approved by Landlord. All damages
done to the Building by taking in or putting out any property of Tenant,
or done by Tenant's Property while in the Building, shall be repaired at
the expense of Tenant.
19. For purposes hereof, the terms "Landlord", "Landlord's Agent", "Tenant",
"Complex", "Building", "Demised Premises", "Tenant's Property" and
"Systems" are defined in the Lease to which these rules and regulations
are attached. Wherever these terms appear in the rules and regulations
they shall have the same meaning as defined in the Lease.
20. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the
agreements, covenants, conditions and provisions of any lease of any
premises in the Building.
Exh. C-2
<PAGE> 84
EXHIBIT "D"
MINIMUM CLEANING SERVICES BY LANDLORD
A. DAILY - Monday through Friday, except legal holidays.
1. Empty waste baskets, clean ashtrays.
2. Dust accessible areas of desk tops.
3. Vacuum carpet in all areas of the Demised Premises.
4. Mop spillages on tile floors.
5. Clean lavatories and replace supplies.
6. Dust and mop kitchens within the Demised Premises, provided that
Tenant shall be responsible for the cleaning of any dishes,
glasses or utensils in the kitchen areas. Tenant shall maintain
any coffee pots and utensils located in the Demised Premises.
B. WEEKLY
1. Dust accessible areas of furniture, convectors and other
furnishings.
2. Clean glass in doors and partitions.
C. MONTHLY
1. Mop and buff tile floors.
2. Dust venetian blinds, window frames and exterior of lighting
fixtures.
3. Spot clean walls.
4. Clean telephones.
D. QUARTERLY
1. Clean and refinish tile floors where necessary.
2. Clean baseboards.
E. SEMI-ANNUALLY
1. Wash windows.
F. ANNUALLY
1. Wash light fixtures and lenses.
2. Clean venetian blinds.
NOTE: Cleaners will not move papers or other materials from surfaces to
be cleaned, dusted or vacuumed. Trash not in wastebaskets should
be clearly marked "TRASH". Cleaning of private kitchens and baths
is the responsibility of the Tenant.
<PAGE> 85
EXHIBIT "G"
The "Rentable Area" of the Building and the Demised Premises shall be
determined by Landlord's architect and as used herein shall refer to
(a) in the case of a single tenancy floor, all floor area measured
from the inside dominant surface of the opposite outer wall excluding outer
glass or finished column wall of the Building to the inside dominant surface of
the opposite outer wall excluding only the areas ("service areas") within the
outside walls which are major vertical penetrations used for building stairs,
fire towers, elevator shafts, flues, vents, stacks, pipe shafts and vertical
ducts but including columns or projections necessary to the Building and any
such service area penetrations under 64 square inches and any such service areas
which are for the specific use of the particular tenant such as special stairs,
dumbwaiters, lifts, or elevators plus any areas exclusively serving only that
floor or tenant, such as elevator lobbies, public corridors, toilets, janitors'
closets, electrical closets, mechanical spaces, telephone closets, etc., plus an
allocation of the square footage of the Building's elevator rooms and main
mechanical and electrical rooms, management office, atriums, the main floor
lobby areas, and other areas necessary to provide customary services to the
Building. And
(b) in the case of a floor to be occupied by more than one (1) tenant,
all floor areas within the inside dominant surface of the outer glass or
finished column walls enclosing the Demised Premises and measured to the
mid-point of the wall separating areas leased by or held for lease to other
tenants or from areas devoted to corridors, elevator lobbies, rest rooms,
mechanical rooms, janitors' closets, and other similar facilities for the use of
all tenants on the particular floor (hereinafter called "common areas"), but
including a proportionate part of the common areas located on such floor based
upon the ratio which the tenant's Rentable Area (excluding common areas) on such
floor bears to the aggregate Rentable Area (excluding common areas) on such
floor plus an allocation of the square footage of the Building's elevator rooms
and main mechanical and electrical rooms, management office, atriums, the main
floor lobby areas, and other areas necessary to provide customary services to
the Building. No deductions from Rentable Area shall be made for columns or
projections necessary to the Building or for service area penetrations under 64
square inches within the Demised Premises, or for any such service areas which
are for the specific use of the particular tenant such as special stairs,
dumbwaiters, lifts or elevators, or for any areas serving exclusively that
tenant, such as toilets, janitors' closets, electrical closets, mechanical
spaces, telephone closets, etc.
<PAGE> 86
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT made as of this 30th day of November, 1998, is
entered into by and between ISG Solutions (hereinafter referred to as
Sublessor), and OTG Software (hereinafter referred to as Sublessee).
WITNESSETH:
WHEREAS, Sublessor has leased approximately 2,710 rentable square feet on
the seventh (7th) floor of the office building located at 6701 Democracy
Boulevard pursuant to the lease dated June 23rd, 1998 between Sublessor as
Lessee and First Rock Spring Park Limited Partnership as Lessor (the "Lease"), a
copy of which is attached hereto and made a part thereof; and
WHEREAS, Sublessee desires to sublease from Sublessor approximately 2,710
rentable square feet of the above space set forth in Exhibit A hereof
(hereinafter referred to as "Subleased Premises") measured in accordance with
the Modified Washington D.C. Association of Realtors Method of Measurement; and
WHEREAS, Sublessor desires to sublease said space to Sublessee.
NOW, THEREFORE, Sublessor and Sublessee hereby agree, on behalf of
themselves, their successors and assigns, as follows:
1. SUBLEASE PREMISES
Sublessor, subject to written consent of Lessor, hereby leases (the "Sublease")
to Sublessee and Sublessee hereby leases from Sublessor subject to the terms,
provisions, and conditions contained in both this Sublease Agreement and the
Lease, the Subleased Premises.
2. SUBLEASE TERM
The Sublease term ("Sublease Term") begins as of January 1, 1999 and ends on May
31, 2003.
3. BASE RENT
Sublessee agrees to pay Sublessor as rent hereunder, the sum of seventy three
thousand one hundred and seventy Dollars ($73,170) annually, payable in equal
monthly installments of six thousand ninety seven dollars and fifty cents
Dollars ($6,097.50) in advance on the first day of each calendar month during
the Sublease Term. All payments shall be due without billing or demand and
without deduction, set-off or counter claim. If the date of the commencement of
the Sublease Term is other than the first day of the month, rent shall be paid
for the first month on a pro rata basis. All payments shall be made at
Sublessor's office at 2400 Research Boulevard, Rockville, MD 20850, to the
attention of Mr. Charles Oakley.
4. BASE RENT ADJUSTMENT
The Base Rent shall be increased commencing on June 1, 1999 and each year
thereafter in an amount equal to three (3%) percent of the annual rent.
5. OPERATING EXPENSES AND REAL ESTATE TAXES
Sublesee agrees to pay Sublessors pro rata share of operating expenses and real
estate taxes as passed through by Lessor to Sublessor in accordance with
provisions of the prime lease. Sublesee's operating expense and real estate tax
pro rata share is one and twenty-one hundredths percent (1.21%).
6. DELIVERY OF THE SUBLEASED PREMISES
The Subleased Premises shall be delivered by Sublessor to Sublessee in "as-is"
condition. Sublessee has inspected the Subleased Premises and found them
acceptable for their intended use. Notwithstanding the afformentioned,
Sublessor agrees to contribute five thousand four hundred and twenty dollars
($5,420.00) per rentable square foot toward tenant improvements to the Premises.
7. CONDITION OF THE SUBLEASED PREMISES
Upon the expiration or termination of the term of this Sublease Agreement,
Sublessee shall deliver the possession of the Subleased Premises to Sublessor in
the same general condition as at the commencement of the Sublease, subject to
ordinary wear and tear.
<PAGE> 87
8. QUIET ENJOYMENT
Sublessor covenants that so long as Sublessee not be in default of the Sublease,
Sublessee may freely, peaceably and quietly occupy and enjoy full possession of
the Subleased Premises without molestation or hindrance by Sublessor or any
party claiming through or under Sublessor.
9. COVENANTS OF SUBLESSOR AND SUBLESSEE
The parties hereto agree that the Lease is incorporated herein by reference
dated June 23rd 1998. Sublessee agrees that it shall, at all times, keep,
observe, and perform the obligations to be performed by Sublessor as Lessee
under the said provisions of the Lease with respect to the Subleased Premises.
Sublessor shall have no obligation to perform the obligations of Lessor under
the Lease.
In cases where Sublessee must obtain consent from Sublessor, Sublessor will not
unreasonably condition, withhold, or delay such consent provided the consent of
Lessor is not required under the Lease; in no case must Sublessor give its
consent if Lessor has not given its consent. In cases where Sublessor must
request consent from Lessor, Sublessor will not unreasonably delay requesting
such consent.
10. DEFAULT OF SUBLESSEE
If Sublessee shall fail to pay any installment of rent when due hereunder or
shall default in the observance or performance of any conditions or covenants to
be kept, observed or performed by Sublessee hereunder, or shall Default under
any of the terms of the Lease incorporated herein, then Sublessor shall have and
may exercise all rights and remedies against Sublessee as provided to Lessor in
the event of default by Sublessor as set forth in the Lease. Any overdue payment
shall bear interest at five (5) percentage points above the then prime rate of
interest (or comparable rate of interest) per annum as published in the money
market section of The Wall Street Journal or in another material financial
publication reasonably selected by Sublessor or Lessor accruing from the date
such installment or payment becomes due to the date payment is made by
Sublessee.
11. ASSIGNMENT AND SUBLETTING
Sublessee will not assign this Sublease Agreement nor sublet the Subleased
Premises or any portion thereof without prior written consent of Sublessor and
Lessor. Should Sublessee wish to sublease, Sublessor shall use reasonable
efforts to obtain Lessor's approval to sublease and Sublessor shall not
unreasonably withhold or delay its consent thereof. No assignment or Sublease
shall release Sublessee from liability hereunder.
12. BROKERS
Sublessor and Sublessee both represent and warrant that they have not employed
any brokers other than The Bank Companies in carrying on the negotiations of
this Sublease Agreement.
13. PAYMENT OF ATTORNEY'S FEES
In the event of the employment of an attorney by Sublessor because of the
violation by Sublessee of any term or provisions of this Sublease Agreement,
including non-payment of rent as due, Sublessee shall pay, and agrees to pay,
reasonable attorney's fees, and all other reasonable costs incurred by Sublessor
as a result of the violation by Sublessee.
14. INDEMNIFICATION AND LIABILITY
Sublessee shall defend, indemnify and hold Sublessor harmless from any and all
damages, losses, claims and costs (including attorneys fees) arising out of or
relating to Sublessee's use or occupancy of the Subleased Premises. Sublessor
shall not be liable to Sublessee for any loss of property relating to
Sublessee's use or occupancy of the Subleased Premises.
15. USE OF DEMISED PREMISES
Sublessee shall use and occupy the Subleased Premises solely for general office
purposes.
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<PAGE> 88
16. SUBLEASE SUBORDINATE TO LEASE
This Sublease shall be subject to and subordinate to the provisions of the
Lease. In the event any act or omission by Sublessee pursuant to the terms of
this Sublease would constitute an event of default under the Lease if committed
by Sublessor, such act or omission shall be deemed to be a default by Sublessee
hereunder.
17. SUBLESSOR NOT LIABLE FOR LESSOR'S OBLIGATIONS OR DEFAULTS
(a) Notwithstanding anything to the contrary contained in this
Sublease or in the Lease, Sublessor shall not be required to (i) provide any of
the services or construction that Lessor has agreed to provide pursuant to the
Lease (or as are required by law), (ii) provide any utilities (including
electricity) to the Subleased Premises that Lessor has agreed to furnish
pursuant to the Lease (or as are required by law), (iii) make any of the
repairs that Lessor has agreed to make pursuant to the Lease (or as are
required by law), (iv) comply with any laws or requirements of any governmental
authorities regarding the maintenance or operation of the Subleased Premises,
(v) take any other action that Lessor has agreed to provide, furnish, make,
comply with, or take, or cause to be provided, furnished, made, complied with
or taken under the Lease, or (vi) provide Sublessee with any rebate, credit,
allowance or other concession required of Lessor pursuant to the Lease.
Further, Sublessor makes no covenant or representation made by Lessor under the
Lease.
(b) Sublessor agrees to use reasonable efforts, at Sublessee's sole
cost and expense, to cause Lessor to provide, furnish, or comply with the
foregoing provisions pursuant to the Lease (provided, however, that Sublessor
shall not be obligated to use such efforts or take any action which might give
rise to a default under the Lease). If Lessor shall default in the performance
of any of its obligations under the Lease, Sublessor shall, upon request and at
the expense of Sublessee, cooperate with the Sublessee in the prosecution of
any action or proceeding which Sublessee, in its reasonable judgement, deems
meritorious, in order to have Lessor make such repairs, furnish such
electricity, provide such services or comply with any other obligation of
Lessor under the lease or as required by law.
(c) Sublessee shall defend, indemnify and hold harmless Sublessor from
and against (i) any and all of the aforementioned claims arising from or in
connection with such request, action or proceeding, and (ii) any dispute, claim,
or cost (including attorney's fees) arising from any conflict whatsoever
concerning the Lease regarding actions or omissions of Sublessee (other than
Sublessee's execution of this Sublease). This indemnity and hold harmless
agreement shall include indemnity from and against any and all liability, fines,
suits, demands, costs and expenses of any kind or nature, including, without
limitation, reasonable attorney's fees and disbursements, incurred in connection
with any such claim, action or proceeding brought thereon.
(d) Sublessee shall not make any claim against Sublessor for any
damage which may arise by reason of (i) the failure of Lessor to keep, observe
or perform any of its obligations pursuant to the Lease, unless such failure is
due to Sublessor's negligence, misconduct, or failure to comply with the
provisions of this Sublease; or (ii) the acts or omissions of Lessor or
Sublessee or their respective agents, contractors, servants, employees, invitees
or licensees.
18. ALTERATIONS
Sublessee shall not make any alteration, improvement, decoration, or
installation (hereinafter called "Alterations") in or to the Subleased Premises,
without in each instance obtaining the prior written consent of Lessor and
Sublessor.
Sublessee may have any Alterations performed by contractors of its own choice,
at its expense, provided that Sublessee has obtained written approval of the
contractor by Lessor and Sublessor, which approval of Sublessor will be based
upon the contractor's being properly licensed and his financial posture,
experience and past job performance. The design of all Alterations undertaken by
Sublessee shall be subject to prior written approval of Lessor and Sublessor and
shall not be commenced until such approval is obtained. With reasonable notice
to Sublessee, Lessor and Sublessor shall at all times have the right to inspect
the work performed by any contractor selected by Sublessee during normal
business hours.
Sublessee shall, upon request of Lessor or Sublessor, remove said Alterations,
repair all damage resulting from such removal and restore the Subleased Premises
to the condition as of the date possession was delivered to Sublessee, however,
Lessor or Sublessor shall notify Sublessee of such requirement at the time
Sublessee requests approval of any Alteration. If Sublessee fails or refuses to
remove such Alterations, or fails to correct, repair and restore the Subleased
Premises, Lessor or Sublessor may cause the same to be removed, and repairs and
restoration to be made, in which event Sublessee shall reimburse to the party
who caused said Alterations to be removed and repairs made, the cost of such
removal, repairs and restoration, together with any and all damages which Lessor
or Sublessor may suffer and sustain by reason of Sublessee's failure or refusal
to remove said Alterations.
19. LESSOR'S CONSENT
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<PAGE> 89
(a) This Sublease shall be effective upon obtaining the written
consent of Lessor (Lessor's consent to sublease form, Exhibit B) and it is
hereby acknowledged by Sublessor and Sublessee that Lessor's consent to this
Sublease shall not create any contractual liability or duty on the part of
Lessor or its agent to the Sublessee, and shall not in any manner increase,
decrease or otherwise affect the rights and obligations of Lessor and Sublessor,
as the Lessee under the Lease, with respect to the Subleased Premises.
(b) Sublessor and Sublessee shall not amend this Sublease without
Lessor's prior written consent, and any such amendment made or entered into
without Lessor's consent shall be null and void.
20. GENERAL PROVISIONS
(a) During the term of this Sublease Agreement, Sublessee shall
maintain liability and personal property insurance covering the Subleased
Premises and Sublessee's property therein in such amounts no less than required
under the Lease.
(b) The waiver by Sublessor of a breach of covenant, obligation, or
condition set forth herein shall not be deemed to be a waiver of any subsequent
breach of the same or of any other covenant, obligation, or condition of this
Sublease Agreement.
(c) This Sublease Agreement shall be governed by and construed in
accordance with the Laws of the State of Maryland.
(d) Sublessor shall have the right to inspect the Sublease Premises
during business hours upon reasonable notice.
(e) This Sublease Agreement constitutes the entire agreement between
the parties hereto and may not be modified except by a written instrument
executed by both parties hereto.
(f) If any provision of this Sublease is declared invalid or
unenforceable, the remainder of this Sublease Agreement shall continue in full
force and effect.
(g) Paragraph headings are used herein solely for convenience of
reference and are not to be construed as part of this Sublease Agreement.
21. LEASE CONTINGENCY
This Sublease shall be contingent on Sublessor receiving a fully executed Lease
from 2400 Research Boulevard.
22. NOTICES
All notices, demands, or requests between Sublessor and Sublessee shall be
delivered in person, by certified mail, return receipt requested, or by
registered mail:
If to Sublessor: If to Sublessee:
Mr. Charles Oakley Mr. F. William Caple
ISG Solutions OTG Software
2400 Research Boulevard 6701 Democracy Boulevard
3rd Floor - 350 8th Floor
Rockville, MD 20850 Bethesda, MD 20817
WITNESS: OTG Software
/s/ Patricie M. Alsten By: /s/ F. William Caple
- ------------------------------- ------------------------------
WITNESS: ISG Solutions
[SIG] By: /s/ Charles Oakley
- ------------------------------- ------------------------------
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<PAGE> 90
SUBLEASE AGREEMENT
This Lease Agreement is made on this 22nd day of January, 1999, at
Newport Beach, California between DIVERSIFIED BUSINESS SERVICES, INC.
(hereinafter "Lessor" or "DBS") and, OTG SOFTWARE, INC. (hereinafter "Lessee" or
"Tenant").
I. PREMISES
DBS hereby leases to Lessee and Lessee hereby hires from DBS, the property
hereinafter referred to as the "subject premises" located in the City of Irvine,
County of Orange, State of California, and more particularly described as 19200
Von Karman Avenue, Suite 600, Office No. 17 (Exhibit "A").
II. TERM
The term of this Lease shall be for 6 months, commencing on the 1st day of
February, 1999, and ending on the 3lst day of July, 1999. Said rental term shall
be automatically extended for the same period and all provisions applicable to
the initial lease term shall apply to the extended lease term(s) with the
exception of renewal rate, unless Lessee gives Lessor or Lessor gives Lessee
written notice of cancellation of this renewal provision at least thirty (30)
days prior to the expiration of any lease term. For the purpose of
interpretation, a thirty day notice specifically means on or before the first
day of the last month of occupancy.
III. RENT & RENT DEPOSIT
Tenant shall pay as rent to DBS the sum of Eight Hundred Seventy-Five &
00/100 Dollars ($ 875.00 ) as the first month's rent and the sum of Eight
Hundred Seventy-Five & 00/100 Dollars ($ 875.00 ) as a deposit against payment
of rent for the last month of occupancy under this Sublease Agreement;
thereafter, on or before the first day of each succeeding month, Lessee shall
pay the sum of Eight Hundred Seventy-Five & 00/100 Dollars ($ 875.00).
In the event payment of rent is made after the fifth (5) day of the month,
an automatic late charge of 10% ($ 87.50 ) will be charged and must be included
with rental payment. A $25 charge will be paid by the Lessee to the Lessor for
each returned check.
The deposit for payment of the final month's rent provided for hereunder
may be used by Lessor for any purpose, free of trust, and no interest shall be
paid to Lessee thereon.
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<PAGE> 91
IV. SET-UP FEE
Lessee acknowledges that Lessee has inspected the subject premises prior to
taking occupancy and that the subject premises are clean and in good repair. On
or before occupancy, Lessee shall pay Lessor the sum of Two Hundred & 00/100
Dollars ($ 200.00 ) for payment of expenses incurred by Lessor for door sign(s),
directory signs, keys, and general administrative set-up of account.
V. USE OF PREMISES
The subject premises shall be used by Lessee as a business office and for
uses normally incident thereto and for no other purpose. Lessee shall allow no
hazardous or noxious materials to be stored at the subject premises and Lessee
shall allow no activities on the subject premises which are illegal or otherwise
constitute a nuisance or disturbance to other tenants of the building.
VI. COVENANTS OF TENANT/LESSEE
Tenant covenants and agrees to pay each monthly installment of rent
provided for herein on or before the due date, to use the subject premises for
the purpose hereinabove stated, and to surrender the subject premises, together
with appropriate office and building keys, upon the termination of tenancy in as
good condition as existed at the date of initial occupancy, reasonable wear and
tear excepted.
(a) Default: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Lessee: 1) Any failure by Lessee to
pay rent or to make any other payments required to be made by Lessee hereunder,
after written notice; 2) The abandonment or vacation of the Premises by Lessee,
bankruptcy of Lessee or assignment for benefit of creditors; 3) A failure by
Lessee to observe and perform any other provision of this Lease to be observed
or performed by Lessee, where such failure continues for thirty (30) days after
written notice thereof by Lessor to Lessee.
In the event of any such default by Lessee, then in addition to any
other remedies available to Lessor at law or in equity, Lessor shall have the
immediate option to terminate this Lease and all rights of Lessee hereunder by
giving written notice of such intention to terminate. In the event that Lessor
shall elect to so terminate this Lease then Lessor may recover from Lessee any
unpaid rent plus interest on said unpaid rental at the rate of ten percent (10%)
per annum.
In the event of any such default by Lessee, Lessor shall also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises; such property may be removed
and stored in a public warehouse or elsewhere at the cost of and for the account
of Lessee.
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<PAGE> 92
(b) Abandonment: Lessee shall not vacate or abandon the premises at any
time during the term and if Lessee shall abandon, vacate or surrender said
premises for a period of thirty (30) days or be dispossessed by process of law,
or otherwise, any personal property belonging to Lessee and left on the premises
shall be deemed to be abandoned.
(c) Keys: Lessee shall receive one key for each office leased and one key
for entry into main office. Lessee shall pay to Lessor the sum of $5.00 for each
key not returned at the expiration of this Lease, or for any additional
duplicate keys provided to Lessee. Tenant shall not alter any lock or install
additional locks or bolts on any door.
(d) Rules & Regulations: Lessee agrees to observe and comply with the
Building Rules and Regulations as specified on Exhibit "D-l" and the Parking
Rules and Regulations as specified on Exhibit "D-2" attached hereto.
(e) Lessor's Employees: Should Lessee elect to hire any of Lessor's
employees, during tenancy and/or for a one (1) year period following vacancy of
premises, a fee shall be paid to Lessor in the amount of $10,000.00 per employee
as compensation for Lessor's loss thereof, unless Lessor does not intend to
retain said employee(s).
(f) Copy Equipment: Lessee may maintain their own "desktop" copy equipment
inside the leased office. Free-standing machines and/or machines that require
additional electricity or dedicated circuitry are not permitted. Lessee also
agrees not to allow or solicit other clients on the premises to use Lessee's
copy equipment.
VII. COVENANTS OF DBS/LESSOR
Lessor agrees to pay for all utilities (excepting local and long distance
telephone service, which shall be billed separately as specified under Article
VIII) and janitorial service.
Rental payment includes telephone answering and reception services during
business hours (8 a.m. to 5 p.m.) Monday through Friday, use of the conference
room(s) by Tenant as reserved on an as-needed basis, and coffee service.
DBS shall provide office support services Monday through Friday during
business hours; a separate statement for those services based on the then
current rate sheet (Exhibit "B") shall be rendered at the end of each month and
is due and payable upon presentation. As charges represent costs for labor and
materials (such as postage, shipping charges, stationery supplies, local and
long distance telephone service, parking validations, etc.) that have been
incurred by DBS on behalf of the Lessee/Tenant during the previous monthly
accounting period; payment is due no later than the 10th day of each month
following presentation of this statement.
3 of 5
<PAGE> 93
VIII. TELEPHONE EQUIPMENT/SERVICE
Lessee shall pay for the installation and all charges pertaining to
Lessee's telephone service. Lessee shall pay directly to Lessor the cost of
connecting Lessee's telephone equipment and service (Exhibit "C") and the
monthly charges for telephone equipment, and all associated local and long
distance charges (a copy of these charges will be provided with the monthly
office services invoice).
IX. INSURANCE & PERSONAL PROPERTY TAXES
Tenant shall be responsible to provide insurance protection of personal
property and liability within the subject premises and shall hold DBS harmless
from any claim arising out of events occurring within the confines of the
subject premises. DBS shall provide liability insurance for the common areas
providing access to the subject premises for Tenant and Tenant's business
invitees. Lessee is responsible for payment of all taxes levied or assessed on
Lessee's personal property.
X. SUPERIOR LEASE
The parties hereby acknowledge that this Sublease Agreement is subordinate
to a Superior Lease. The building in which the subject premises is located is
owned by Atrium Irvine Limited Partnership. DBS has entered into a written lease
with Atrium Irvine Limited Partnership and Diversified Business Services, Inc.
dated February 2, 1995. The parties mutually acknowledge that this Sublease
Agreement is entered into with the knowledge of aforesaid Superior Lease. The
parties, and each of them, represent that they will do no act with respect to
the subject premises which would violate the terms of the Superior Lease as
defined in Exhibits D-l and D-2.
XI. SUCCESSORS AND ASSIGNS
The covenants and conditions herein contained shall be subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators and assigns of the parties hereto.
XII. MISCELLANEOUS
1. This Lease Agreement is entered into in the State of California and
shall be interpreted in accordance with the laws of the State of California.
2. This Lease Agreement constitutes the entire Agreement of the parties
with respect to the subject matter hereof.
4 of 5
<PAGE> 94
3. This Lease Agreement MAY NOT BE MODIFIED except in writing signed by
both parties.
4. In the event of any litigation between the parties arising out of this
Lease Agreement or the subject matter hereof, the prevailing party shall be
entitled to recover, in addition to costs, reasonable attorney's fees.
LESSOR: TENANT/LESSEE:
DIVERSIFIED BUSINESS SERVICES, INC. OTG SOFTWARE, INC.
By: /s/ CARLA MORELAND By: /s/ F. WILLIAM CAPLE
------------------------------- -------------------------------
Carla Moreland F. William Caple
Title: President Title: Exec. V.P.
---------------------------- ----------------------------
Date: 2/24/99 Date: 2/9/99
---------------------------- -----------------------------
5 of 5
<PAGE> 95
EXHIBIT "A"
[OFFICE DIMENSIONS DIAGRAM]
[DBS INC. LOGO]
THE ATRIUM
19200 Von Karman Avenue
Suite 600
Irvine, California 92612
(714) 622-5400
Corporate Office (714) 752-2272
Office Dimensions Are Approximate
<PAGE> 96
EXHIBIT "B"
ATRIUM
OFFICE SERVICES [DBS INC. LOGO]
PRICE LIST
================================================================================
<TABLE>
<S> <C>
WORD PROCESSING* ...................................................$24/hour
Letters, Reports, Proposals
POWERPOINT & EXCEL* ................................................$40/hour
Newsletters, Organization Charts,
Pie/Bar Charts, Tables, Presentations, etc.
SECRETARIAL* .......................................................$24/hour
Xeroxing, filing, telephone calls, typing, etc.
COMPUTER TRAINING ..................................................$50/hour
Software; Win95, Word, Excel, Powerpoint
RESUMES ............................................................$30 -- first page
$15 -- each addt'l page
RUSH/DIFFICULT SOURCE MATERIAL .....................................50% of total project
AFTER-HOURS CHARGE .................................................100% of total project
SPIRAL BINDING (Including covers) ..................................$4 -- $5/book
XEROX COPIES (any size + reduction/enlargement) ....................10 cents each
POSTAGE ............................................................Cost + 20%
UPS/FEDEX ..........................................................Cost + 30%
STATIONERY/SUPPLIES ................................................Cost + 30%
FACSIMILE ..........................................................$1/page + LD charges
ADDITIONAL VOICE MAIL BOXES ........................................$25 each per month
AUTO-PAGING ........................................................$30 Set-up fee; $20/month
CALL-PATCHING ......................................................45 cents per patched call
TELEPHONE ANSWERING ACCOUNT (CSA Agreement) ........................$120/month incl. line
BUSINESS ADDRESS & MAIL ACCOUNT (CSA Agreement) ....................$50/month
CONFERENCE ROOM RENTAL** (Outside clients) .........................$20/hour
ATRIUM BOARD ROOM** (Outside clients) ..............................$50/hour
</TABLE>
* Billed in 15 minute increments; Non-Tenants pay $l2 minimum fee; Walk-in
customers may be required to pay a 50% deposit of estimated project. **ALL
CLIENTS will be charged $25 for the Conference Rooms, and $50 for the Board Room
for failure to cancel reservations without 24 hours notice. Effective 7/1/98.
Rates and services are subject to change.
<PAGE> 97
EXHIBIT "C"
DIVERSIFIED BUSINESS SERVICES, INC.
TELEPHONE EQUIPMENT RENTAL & SERVICE AGREEMENT
Client Name: OTG SOFTWARE, INC.
-------------------------------------------------------------------
Principal: Todd While (local)
---------------------------------------------------------------------
Telephone No(s) to be installed: Voice- (949) 622-5434
----------------------------
Dedicated- Modem: 477-8039
----------------------------
Due Date: 2/23/99
-------------------------
<TABLE>
<CAPTION>
===========================================================================================================================
EQUIPMENT LOCATION COM LINE NO. NO. OF SETS NO. OF LINES NO. OF FAX/MODEM LINES
===========================================================================================================================
<S> <C> <C> <C> <C>
Office No. 17 3254 1 1 / 1
- ------------------- ----------- --------- ----------- ----------------
Office No.
- ------------------- ----------- --------- ----------- ----------------
Office No.
- ------------------- ----------- --------- ----------- ----------------
Office No.
- ------------------- ----------- --------- ----------- ----------------
- ---------------------------------------------------------------------------------------------------------------------------
INSTALLATION CHARGE: 1 Voice Lines-$50.00 each = $ 50.00
----------- ----------------
1 Instruments-$50.00 each = $ 50.00
----------- ----------------
1 Dedicated Lines-$50.00 each = $ 50.00
----------- ----------------
Additional Equipment and/or Wiring -
---------------- $ ----------------
-----------------------------------------------------
-----------------------------------------------------
$ 150.00
TOTAL INSTALLATION: ================
- ---------------------------------------------------------------------------------------------------------------------------
MONTHLY SERVICE 1 Voice Lines - $20.00 each = $ 20.00
CHARGE: ----------- ----------------
1 Instruments - $50.00 each = $ 50.00
----------- ----------------
1 Dedicated Lines- $20.00 each = $ 20.00
----------- ----------------
Additional Voice Mail Boxes-
-----------
$25.00 each = $
----------------
TOTAL MONTHLY
EQUIPMENT/SERVICE: $ 90.00
================
===========================================================================================================================
</TABLE>
This agreement provides for equipment rental and service only; it is not a
purchase contract, and all equipment remains the property of Diversified
Business Services, Inc.
By: /s/ F. William Caple Date: 2/10/99
------------------------- ----------------------------------------
Initials:
Lessee [SIG]
--------
Lessor [SIG]
--------
<PAGE> 98
EXHIBIT "C"
DIVERSIFIED BUSINESS SERVICES, INC.
TELEPHONE EQUIPMENT RENTAL & SERVICE AGREEMENT
Client Name: OTG SOFTWARE, INC.
-------------------------------------------------------------------
Principal: Todd While (local)
---------------------------------------------------------------------
Telephone No(s) to be installed: Voice:
----------------------------
Dedicated:
----------------------------
Due Date:
-------------------------
<TABLE>
<CAPTION>
===========================================================================================================================
EQUIPMENT LOCATION COM LINE NO. NO. OF SETS NO. OF LINES NO. OF FAX/MODEM LINES
===========================================================================================================================
<S> <C> <C> <C> <C>
Office No.
- ------------------- ----------- --------- ----------- ----------------
Office No.
- ------------------- ----------- --------- ----------- ----------------
Office No.
- ------------------- ----------- --------- ----------- ----------------
Office No.
- ------------------- ----------- --------- ----------- ----------------
- ---------------------------------------------------------------------------------------------------------------------------
INSTALLATION CHARGE: Voice Lines-$50.00 each = $
----------- ----------------
Instruments-$50.00 each = $
----------- ----------------
Dedicated Lines-$50.00 each = $
----------- ----------------
Additional Equipment and/or Wiring -
---------------- $ ----------------
-----------------------------------------------------
-----------------------------------------------------
$
TOTAL INSTALLATION: ================
- ---------------------------------------------------------------------------------------------------------------------------
MONTHLY SERVICE Voice Lines - $20.00 each = $
CHARGE: ----------- ----------------
Instruments - $50.00 each = $
----------- ----------------
Dedicated Lines- $20.00 each = $
----------- ----------------
Additional Voice Mail Boxes-
-----------
$25.00 each = $
----------------
TOTAL MONTHLY
EQUIPMENT/SERVICE: $
================
===========================================================================================================================
</TABLE>
This agreement provides for equipment rental and service only; it is not a
purchase contract, and all equipment remains the property of Diversified
Business Services, Inc.
By: /s/ F. William Caple Date: 2/10/99
----------------------- -----------------------------------
Initials:
Lessee FWC
--------
Lessor [SIG]
--------
<PAGE> 99
EXHIBIT "D-1"
BUILDING RULES & REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, bridges or halls shall not be obstructed or used for
any purpose other than ingress and egress. The bridges, halls, passages,
entrances, elevators, stairways, atrium and roof are not for the use of the
general public, and Landlord shall in all cases retain the right to control
and prevent access thereto of all persons whose presence, in the judgment
of Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom
Tenant normally deals only for the purpose of conducting its business on
the Premises (such as clients, customers, office suppliers and equipment
vendors, and the like) unless such persons are engaged in illegal
activities. No tenant and no employees of any Tenant shall go upon the roof
of the Building without the written consent of Landlord. No space facing
the interior of the atrium or any exterior terrace shall be used for the
storage of materials or in any other manner which would detract from the
appearance of the interior of the atrium or the exterior of the Building,
as determined by Landlord in its sole discretion.
2. No awnings or other projections shall be attached to the outside walls of
the building. No curtains, blinds, shades or screens shall be attached to
or hung in, or used in connection with, any window or door of the Premises
other than Landlord standard drapes. All electric ceiling fixtures hung in
offices or spaces along the perimeter of the Building must be fluorescent,
of a quality, type, design and bulb color approved by Landlord. neither the
interior nor the exterior of any windows shall be coated or otherwise
sunscreened without written consent of Landlord.
3. No sign, advertisement, notice or handbill shall be exhibited, distributed,
painted or affixed by any Tenant on, about or from any part of the Premises
or the Building or the Project without the prior written consent of
Landlord. If Landlord shall have given such consent at the time, whether
before or after the execution of this Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of this
Lease, and shall be deemed to relate only to the particular sign,
advertisement or notice so consented to by Landlord and shall not be
construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to each and every such sign,
advertisement or notice other than the particular sign, advertisement or
notice, as the case may be, so consented to by Landlord. In the event of
the violation of the foregoing by any Tenant, Landlord may remove or stop
same without any liability, and may charge the expense incurred in such
removal or stopping to Tenant. Interior signs on doors and directory tablet
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. The directory tablet will be provided exclusively for the
display of the name and location of Tenants only and Landlord reserves the
right to exclude any other names therefrom. Nothing may be placed on the
exterior of corridor walls or corridor doors other than Landlord's standard
lettering.
4. The sashes, sash doors, skylights, windows, and doors that reflect or admit
light and air into halls, passageways or other public places in the
Building shall not be covered or obstructed by any Tenant, nor shall any
bottles, parcels or other articles be placed on the window sills. Tenant
shall see that the doors of the Premises are closed and securely locked
before leaving the building. Tenant shall exercise extraordinary care and
caution that all water faucets or water apparatus are entirely shut off
before Tenant or Tenant's employees leave the Building, and that all
electricity, gas or air shall likewise be carefully shut off, so as to
prevent waste or damage. Tenant shall cooperate with Landlord in obtaining
maximum effectiveness of the cooling system by closing drapes when the
sun's rays fail directly on the windows of the Premises. Tenant shall not
tamper with or change the setting of any thermostats or temperature control
valves.
5. The toilet rooms, water and wash closets and other plumbing fixtures shall
not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances shall be
thrown therein. All damages resulting from any misuse of the fixtures shall
be borne by Tenant who, or whose subtenants, assignees or any of their
servants, employees, agents, visitors or licensees shall have caused the
same.
6. Tenant shall not mark, paint, drill into, or in any way deface any part of
the Premises, the Building or the Project. No boring, cutting or stringing
of wires or laying of linoleum or other similar floor coverings shall be
permitted, except with the prior written consent of Landlord and as
Landlord may direct.
7. No bicycles, vehicles, birds or animals of any kind shall be brought into
or kept in or about the Premises, and no cooking shall be done or permitted
by any Tenant on the Premises, except that the preparation of coffee, tea,
hot chocolate and similar items for Tenants and their employees and the use
of a microwave oven shall be permitted provided power shall not exceed that
amount which can be provided by a 30 amp circuit. No Tenant shall cause or
permit any unusual or objectionable odors carrying lighted cigars,
cigarettes or pipes in the elevators of the Building is prohibited.
8. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use
of the Premises or the Storage Area. No Tenant shall occupy or permit any
portion of the Premises to be occupied as an office for a public
stenographer or typist, or for the manufacture or sale of liquor, narcotics
or tobacco (except by a cigarette vending machine for use by Tenant's
employees) in any form, or as a medical office, or as a barber of manicure
shop, or as an employment bureau without the express written consent of
Landlord, No Tenant shall engage or pay any employees on the Premises
except those actually working for such Tenant on the Premises, nor
advertise for laborers giving an address at the Premises. The Premises
shall not be used for lodging or sleeping or for any immoral or illegal
purposes. Tenant shall comply with any govemmental regulations or
ordinances which limit the smoking of tobacco within the Premises.
9. No Tenant shall make, or permit to be made any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the
use of any musical instrument, radio, phonograph, unusual noise, or in any
other way, No Tenant shall throw anything from the terraces out of doors,
windows or skylight or down the passageways.
10. No Tenant, subtenant or assignee nor any of their servants, employees,
agents, visitors or licensees, shall at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, chemical or
substance.
11. No additional locks (except to the extent Tenant provides to Landlord a
master key thereto) or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing
locks or the mechanisms thereof. Each Tenant must upon the termination of
his tenancy, restore to Landlord all keys of stores, offices, and toilet
rooms, either furnished to, or otherwise procured by, such Tenant and in
the event of the loss of keys so furnished, such Tenant shall pay to
Landlord the cost of replacing the same or of changing the lock or locks
opened by such lost key if Landlord shall deem it necessary to make such
changes.
12. All removals, or the carrying in or out of any safes, freight, furniture,
or bulky matter of any description must take place during the hours which
Landlord shall determine from time to time. The moving of safes or other
fixtures of bulky matter of any kind must be done upon previous notice to
the superintendent of the Building and under his supervision, and the
persons employed by any Tenant for such work must be acceptable to
Landlord. Landlord reserves the right to inspect all safes, freight or
other bulky articles to be brought into the Building and to exclude from
the Building all safes, freight or other bulky articles which violate any
of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part. Landlord reserves the right to prescribe the weight
and position of all safes, which must be placed upon supports approved by
Landlord to distribute the weight.
13. No Tenant shall purchase bottled water, ice, towel, plant care, janitorial
or maintenance or other like services, from any person or persons not
approved by Landlord.
14. 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 the Project or its desirability as an office location and upon written
notice from Landlord any Tenant shall refrain from or discontinue such
advertising.
Page l of 2
<PAGE> 100
15. Landlord reserves the right to exclude from the Building between the hours
of 6 p.m. and 8 a.m. and at all hours on Saturday, Sunday and legal
holidays ("Non Building Hours") all persons who are not known to the
building watchman and who do not present a pass to the Building approved
by Landlord. Landlord will furnish passes to persons for whom any Tenant
requests the same in writing. Tenant may have visitors to the Premises
during Non-Building Hours provided that Tenant: (1) informs the Building
watchman, in advance, of the arrival of such visitors, and (2) escorts
such visitors from the Building entrance or security office directly to
the Premises. Each Tenant shall be responsible for all visitors and
persons for whom he requests passes and shall be liable to Landlord for
all acts of such visitors and persons. Landlord shall in no case be liable
for damages for any error with regard to the admission to or exclusion
from the Building of any person. In case of an invasion, mob riot, public
excitement or other circumstances rendering such action advisable in
Landlord's opinion, Landlord reserves the right without any abatement of
rent to require all persons to vacate the Building and to prevent access
to the Building during the continuance of the same for the safety of the
tenants and in the protection of the Building and the property in the
Building. All use of the Building during Non-Building Hours shall be
subject to reasonable rules of decorum as determined by Landlord in its
sole discretion.
16. Any persons employed by any Tenant to do janitor work shall, while in the
Building and outside of the Premises, be subject to and under the control
and direction of the superintendent of the Building (but not as an agent or
servant of said superintendent or of Landlord), and Tenant shall be
responsible for all acts of such persons.
17. All doors opening onto public corridors shall be kept close, except during
customary business hours.
18. The requirements of Tenant will be attended to only upon application to the
Office of the Building.
19. Canvassing, soliciting and peddling in the Building are prohibited and each
Tenant shall report and otherwise cooperate to prevent the same.
20. All equipment of any electrical or mechanical nature shall be placed by
Tenant in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise and annoyance. Any such equipment in the
Premises shall be F.C.C. approved and shall not interfere in any way with
the equipment of any other Tenant or of the Building, or with the use of
the Building by other Tenants.
21. No air conditioning unit or other similar apparatus shall be installed or
used by any Tenant without the written consent of Landlord.
22. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any handtrucks except those
equipped with rubber tires and rubber sideguards.
23. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
Landlord.
24. The scheduling of Tenant move-ins shall be subject to the reasonable
discretion of Landlord.
25. If Tenant desires telephone or telegraph connections, Landlord will direct
electricians as to where and how the wires are to be introduced. No boring
or cutting for wires or otherwise shall be made without directions from
Landlord.
26. The term "personal goods or services vendors" as used herein means persons
who periodically enter the Building of which the Premises are a part for
the purpose of selling goods or services to a Tenant, other than goods or
services which are used by Tenant only for the purpose of conducting its
business on the Premises. "Personal goods or services" include, but are not
limited to, drinking water and other beverages, food, barbering services,
and shoeshining services. Landlord reserves the right to prohibit personal
goods and services vendors from access to the Building except upon such
reasonable terms and conditions, including but not limited to the payment
of a reasonable fee and provision for insurance coverage, as are related to
the safety, care and cleanliness of the Building, the preservation of good
order thereon, and the relief of any financial or other burden on Landlord
occasioned by the presence of such vendors or the sale by them of personal
goods or services to Tenant or its employees. If necessary for the
accomplishment of these purposes, Landlord may exclude a particular vendor
entirely or limit the number of vendors who may be present at any one
time in the Building.
27. It shall be the responsibility of each tenant to provide its employees with
keys to its premises. Landlord will under no circumstances open any
premises for any tenant or its employees.
28. Nothing contained in these rules and regulations nor in the Lease shall
prohibit Landlord from conducting within or permitting the use of the
atrium at any time for exhibits, displays, concerts, lectures or other
events. Tenant shall not conduct within nor permit the use of the atrium
for any such event absent the prior written consent of Landlord, which
consent may be withheld at Landlord's sole discretion.
29. No waiver of any rule or regulation by Landlord shall be effective unless
expressed in writing and signed by Landlord.
Page 2 of 2 LESSEE FWC
-------
LESSOR [sig]
-------
<PAGE> 101
EXHIBIT "D-2"
PARKING AGREEMENT/RULES & REGULATIONS
PARKING AGREEMENT
So long as the Lease to which this Parking Agreement is attached remains in
effect, and so long as the rules and regulations adopted by Landlord are not
violated, Tenant or persons designated by Tenant shall be entitled on a
nonexclusive basis to rent parking spaces in the Project and a license to enter
the free standing parking structure (the "Parking Structure") which Parking
Structure constitutes a portion of the Project, at a monthly rental rate
determined by Landlord. Each person who rents a parking space on a monthly basis
at the Project, at a monthly rental rate determined by Landlord. Each person who
rents a parking space on a monthly basis at the Project shall park only in the
Parking Structure and not at any other location in the Project. The initial
monthly rental rate set forth in Item 10 of the Basic Lease Provisions is
subject to adjustment by Landlord. Except as otherwise provided in the Basic
Lease Provisions, the initial monthly rental rate shall remain in effect until
it is adjusted by Landlord. Tenant may validate visitor parking by such method
or methods as Landlord or the garage operator may approve, at the validation
rate from time to time generally applicable to visitor parking. Notwithstanding
the foregoing, Landlord expressly reserves the right to redesignate parking
areas and to modify the Parking Structure for other uses or to any extent. A
condition of any parking shall be compliance by the parker with garage rules and
regulations, including any sticker or other identification system established by
Landlord's Parking Operator. The following rules and regulations are in effect
until notice is given to Tenant of any change. Landlord reserves the right to
modify and/or adopt such other reasonable and nondiscriminatory rules and
regulations for the garage as it deems necessary for the operation of the
garage. Landlord may refuse to permit any person who violates the within rules
to park in the garages, and any violation of the rules shall subject the car to
removal. In either of said events the sticker or any other form of
identification supplied by Landlord will be returned to Landlord.
RULES AND REGULATIONS
1. Cars must be parked entirely within the stall lines painted on the floor.
2. All directional signs and arrows must be observed.
3. The speed limit shall be 5 miles per hour.
4. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles;
(c) where "no parking" signs are posted; (d) on ramps; (e) in cross hatched
areas; (f) in such other areas as may be designated by Landlord or
Landlord's Parking Operator. Any vehicle which is parked in a prohibited
area may be towed by landlord at the vehicle owner's expense.
5. Parking stickers or any other device or form of identification supplied by
Landlord shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any
manner. The serial number of the parking identification device may not be
obliterated. Devices are not transferable and any device in the possession
of an unauthorized holder will be voided and confiscated. There will be a
replacement charge payable by Tenant or person designated by Tenant equal
to the amount posted from time to time by Landlord for loss of any magnetic
parking card or parking sticker. A security deposit may be required for
each card and/or identification device and Landlord may provide that the
security deposit will be forfeited if the item it represents is lost,
stolen or destroyed.
6. Monthly rates for rental of parking space is payable one (1) month in
advance and must be paid prior to the first day of each month. Failure to
do so will automatically cancel parking privileges and a charge at the
prevailing daily rate will be due. No deductions or allowances from the
monthly rate will be made for days customer does not use the parking
facility.
7. Garage managers or attendants are not authorized to make or allow any
exceptions to these Rules and Regulations.
8. Every parker is required to park and lock his own car. All responsibility
for damage to cars or persons is assumed by the parker.
9. Loss or theft of parking identification devices from automobiles must be
reported to the garage manager immediately and a lost or stolen report must
be filed by the customer at that time.
(a) Any parking identification device reported lost or stolen found on any
unauthorized car will be confiscated and the illegal holder will be
subject to prosecution.
(b) Lost or stolen devices found by the purchaser must be reported to the
office of the garage immediately to avoid confusion.
10. Spaces rented to persons are for the express purpose of parking one
automobile per space. Washing, waxing, cleaning or servicing of any vehicle
by the customer and/or his agents is prohibited.
11. Landlord and the garage management reserves the right to refuse the sale of
the monthly stickers or other parking identification devices to any tenant
or person and/or his agents or representatives who willfully refuse to
comply with the above Rules and Regulations and all unposted City, State or
Federal ordinances, laws or agreements.
12. Tenant shall acquaint all persons to whom Tenant assigns parking spaces of
these Rules and Regulations.
LESSEE FWC
-------
LESSOR [sig]
-------
<PAGE> 102
EXHIBIT "D-1"
BUILDING RULES & REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, bridges or halls shall not be obstructed or used for
any purpose other than ingress and egress. The bridges, halls, passages,
entrances, elevators, stairways, atrium and roof are not for the use of the
general public, and Landlord shall in all cases retain the tight to control
and prevent access thereto of all persons whose presence, in the judgment
of Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom
Tenant normally deals only for the purpose of conducting its business on
the Premises (such as dients, customers, office suppliers and equipment
vendors, and the like) unless such persons are engaged in illegal
activities. No tenant and no employees of any Tenant shall go upon the roof
of the Building without the written consent of Landlord. No space facing
the interior of the atrium or any exterior terrace shall be used for the
storage of materials or in any other manner which would detract from the
appearance of the interior of the atrium or the exterior of the Building,
as determined by Landlord in its sole discretion.
2. No awnings or other projections shall be attached to the outside walls of
the building. No curtains, blinds, shades or screens shall be attached to
or hung in, or used in connection with, any window or door of the Premises
other than Landlord standard drapes. All electric ceiling fixtures hung in
offices or spaces along the perimeter of the Building must be fluorescent,
of a quality, type, design and bulb color approved by Landlord, neither the
interior nor the exterior of any windows shall be coated or otherwise
sunscreened without written consent of Landlord.
3. No sign, advertisement, notice or handbill shall be exhibited, distributed,
painted or affixed by any Tenant on, about or from any part of the Premises
or the Building or the Project without the prior written consent of
Landlord. If Landlord shall have given such consent at the time, whether
before or after the execution of this Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of this
Lease, and shall be deemed to relate only to the particular sign,
advertisement or notice so consented to by Landlord and shall not be
construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to each and every such sign,
advertisement or notice other than the particular sign, advertisement or
notice, as the case may be, so consented to by Landlord. In the event of
the violation of the foregoing by any Tenant, Landlord may remove or stop
same without any liability, and may charge the expense incurred in such
removal or stopping to Tenant. Interior signs on doors and directory tablet
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. The directory tablet will be provided exciusively for the
display of the name and location of Tenants only and Landlord reserves the
right to exdude any other names therefrom. Nothing may be placed on the
exterior of corridor walls or corridor doors other than Landlord's standard
lettering.
4. The sashes, sash doors, skylights, windows, and doors that reflect or admit
light and air into halls, passageways or other public places in the
Building shall not be covered or obstructed by any Tenant, nor shall any
botties, parcels or other artides be placed on the window sills. Tenant
shall see that the doors of the Premises are dosed and securely locked
before leaving the building. Tenant shall exercise extraordinary care and
caution that all water faucets or water apparatus are entirely shut off
before Tenant or TenanVs employees leave the Building, and that all
electricity, gas or air shall likewise be carefully shut off, so as to
prevent waste or damage. Tenant shall cooperate with Landlord in obtaining
maximum effectiveness of the cooling system by dosing drapes when the sun's
rays fail directly on the windows of the Premises. Tenant shall not tamper
with or change the setting of any thermostats or temperature control
valves.
5. The toilet rooms, water and wash dosets and other plumbing fixtures shall
not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances shall be
thrown therein. All damages resulting from any misuse of the fixtures shall
be bome by Tenant who, or whose subtenants, assignees or any of their
servants, employees, agents, visitors or licensees shall have caused the
same.
6. Tenant shall not mark, paint, drill into, or in any way deface any part of
the Premises, the Building or the Project. No boring, cutting or stringing
of wires or laying of linoleum or other similar floor coverings shall be
permitted, except with the prior written consent of Landlord and as
Landlord may direct.
7. No bicydes, vehides, birds or animals of any kind shall be brought into or
kept in or about the Premises, and no cooking shall be done or permitted by
any Tenant on the Premises, except that the preparation of coffee, tea, hot
chocolate and similar items for Tenants and their employees and the use of
a microwave oven shall be permitted provided power shall not exceed that
amount which can be provided by a 30 amp circuit. No Tenant shall cause or
permit any unusual or objectionable odors carrying lighted cigars,
cigarettes or pipes in the elevators of the Building is prohibited.
8. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use
of the Premises or the Storage Area. No Tenant shall occupy or permit any
portion of the Premises to be occupied as an office for a public
stenographer or typist, or for the manufacture or sale of liquor, narcotics
or tobacco (except by a cigarette vending machine for use by Tenant's
employees) in any form, or as a medical office, or as a barber of manicure
shop, or as an employment bureau without the express written consent of
Landlord, No Tenant shall engage or pay any employees on the Premises
except those actually working for such Tenant on the Premises, nor
advertise for laborers giving an address at the Premises. The Premises
shall not be used for lodging or sleeping or for any immoral or illegal
purposes. Tenant shall comply with any govemmental regulations or
ordinances which limit the smoking of tobacco within the Premises.
9. No Tenant shall make, or permit to be made any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the
use of any musical instrument, radio, phonograph, unusual noise, or in any
other way, No Tenant shall throw anything from the terraces out of doors,
windows or skylight or down the passageways.
10. No Tenant, subtenant or assignee nor any of their servants, employees,
agents, visitors or licensees, shall at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, chemical or
substance.
11. No additional locks (except to the extent Tenant provides to Landlord a
master key thereto) or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing
locks or the mechanisms thereof Each Tenant must upon the terminabon of his
tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either fumished to, or otherwise procured by, such Tenant and in the event
of the loss of keys so fumished, such Tenant shall pay to Landlord the cost
of replacing the same or of changing the lock or locks opened by such lost
key if Landlord shall deem it necessary to make such changes.
12. All removals, or the carrying in or out of any safes, freight, fumiture, or
bulky matter of any description must take place during the hours which
Landlord shall determine from time to time. The moving of safes or other
fixtures of bulky matter of any kind must be done upon previous notice to
the superintendent of the Building and under his supervision, and the
persons employed by any Tenant for such work must be acceptable to
Landlord. Landlord reserves the right to inspect all safes, freight or
other bulky artides to be brought into the Building and to exciude from the
Building all safes. freight or other bulky artides which violate any of
these Rules and Regulations or the Lease of which these Rules and
Regulations are a part Landlord reserves the right to prescribe the weight
and position of all safes, which must be placed upon supports approved by
Landlord to distribute the weight.
13. No Tenant shall purchase bottied water, ice, towel, plant care, janitorial
or maintenance or other like services, from any person or persons not
approved by Landlord.
14. 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 the Project or its desirability as an office location and upon written
notice from Landlordany Tenant shall refrain from or discontinue such
advertising.
Page l of 2
<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of the _____
day of January, 2000, by and between OTG Software, Inc., a Delaware corporation
(the "Corporation), and _______________ ("Indemnitee"), a director or officer of
the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
directors and officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its directors and officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, Indemnitee does not regard the protection available under the
Corporation's Certificate of Incorporation and insurance as adequate in the
present circumstances, and may not be willing to serve as a director or officer
without adequate protection, and
WHEREAS, the Corporation desires Indemnitee to serve as a director or
officer of the Corporation.
NOW THEREFORE, the Corporation and Indemnitee do hereby agree as
follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve
as a director or officer of the Corporation for so long as he is duly elected or
appointed or until such time as he tenders his resignation in writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending
or completed action, suit, or proceeding, whether brought by or in the right of
the Corporation or otherwise and whether of a civil, criminal, administrative or
investigative nature, and any appeal therefrom.
(b) The term "Corporate Status" shall mean the status of a person
who is or was a director or officer of the Corporation, or is or was serving, or
has agreed to serve, at the request of the Corporation, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(c) The term "Expenses" shall include, without limitation,
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and other disbursements or
<PAGE> 2
expenses of the types customarily incurred in connection with investigations,
judicial or administrative proceedings or appeals, but shall not include the
amount of judgments, fines or penalties against Indemnitee or amounts paid in
settlement in connection with such matters.
(d) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; references to "serving at the request of
the Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Agreement.
3. Indemnification in Third-Party Proceedings. The Corporation shall
indemnify Indemnitee in accordance with the provisions of this Paragraph 3 if
Indemnitee was or is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the right of the
Corporation to procure a judgment in its favor) by reason of his Corporate
Status or by reason of any action alleged to have been taken or omitted in
connection therewith, against all Expenses, judgments, fines, penalties and
amounts paid in settlement actually and reasonably incurred by Indemnitee or on
his behalf in connection with such Proceeding, if Indemnitee acted in good faith
and in a manner which he reasonably believed to be in, or not opposed to, the
best interests of the Corporation and, with respect to of any criminal
Proceeding, had no reasonable cause to believe that his conduct was unlawful.
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 Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal Proceeding, had reasonable cause
to believe that his conduct was unlawful.
4. Indemnification in Proceedings by or in the Right of the
Corporation. The Corporation shall indemnify Indemnitee in accordance with the
provisions of this Paragraph 4 if Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any Proceeding by or in the right of
the Corporation to procure a judgment in its favor by reason of his Corporate
Status or by reason of any action alleged to have been taken or omitted in
connection therewith, against all Expenses and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by Indemnitee or on
his behalf in connection with such Proceeding, if he acted in good faith and in
a manner which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made under
this Paragraph 4 in respect of any claim, issue, or matter as to which
Indemnitee shall have been adjudged to be liable to the Corporation, unless and
only to the extent that the Court of Chancery of Delaware shall determine upon
application that, despite the adjudication of such liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Expenses as the Court of Chancery shall deem proper.
5. Exceptions to Right of Indemnification. Notwithstanding anything to
the contrary in this Agreement, except as set forth in Paragraph 10, the
Corporation shall not indemnify the
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<PAGE> 3
Indemnitee in connection with a Proceeding (or part thereof) initiated by the
Indemnitee unless the initiation thereof was approved by the Board of Directors
of the Corporation. Notwithstanding anything to the contrary in this Agreement,
the Corporation shall not indemnify the Indemnitee to the extent the Indemnitee
is reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to the Indemnitee and the Indemnitee is
subsequently reimbursed from the proceeds of insurance, the Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
6. Indemnification of Expenses of Successful Party. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee has been
successful, on the merits or otherwise, in defense of any Proceeding or in
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against all Expenses incurred by him or on his behalf in connection therewith.
Without limiting the foregoing, if any Proceeding or any claim, issue or matter
therein is disposed of, on the merits or otherwise (including a disposition
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that
the Indemnitee did not act in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
7. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any Proceeding for which indemnity will or could be
sought by him and provide the Corporation with a copy of any summons, citation,
subpoena, complaint, indictment, information or other document relating to such
Proceeding with which he is served. With respect to any Proceeding of which the
Corporation is so notified, the Corporation will be entitled to participate
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the Corporation to the Indemnitee of its election so to assume such
defense, the Corporation shall not be liable to the Indemnitee for any legal or
other expenses subsequently incurred by the Indemnitee in connection with such
claim, other than as provided below in this Paragraph 7. The Indemnitee shall
have the right to employ his own counsel in connection with such claim, but the
fees and expenses of such counsel incurred after notice from the Corporation of
its assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Agreement. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
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<PAGE> 4
8. Advancement of Expenses. Subject to the provisions of Paragraph 9
below, in the event that the Corporation does not assume the defense pursuant to
Paragraph 7 of this Agreement of any Proceeding to which Indemnitee was or is a
party or is threatened to be made a party by reason of his Corporate Status or
by reason of any action alleged to have been taken or omitted in connection
therewith and of which the Corporation receives notice under this Agreement, any
Expenses incurred by the Indemnitee in defending such Proceeding shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such Expenses incurred by the Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Agreement.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make repayment.
9. Procedure for Indemnification. In order to obtain indemnification
or advancement of Expenses pursuant to Paragraphs 3, 4, 6 or 8 of this
Agreement, Indemnitee shall submit to the Corporation a written request,
including in such request such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification or advancement of
Expenses. Any such indemnification or advancement of Expenses shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless with respect to requests under
Paragraphs 3, 4 or 8 the Corporation determines within such 60-day period that
such Indemnitee did not meet the applicable standard of conduct set forth in
Paragraph 3 or 4, as the case may be. Such determination shall be made in each
instance by (a) a majority vote of the directors of the Corporation consisting
of persons who are not at that time parties to the Proceeding ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a quorum of the
outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the Proceeding, (c) independent legal counsel (who may,
to the extent permitted by applicable law, be regular legal counsel to the
Corporation), or (d) a court of competent jurisdiction.
10. Remedies. The right to indemnification or advancement of Expenses
as provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction if the Corporation denies such request, in whole
or in part, or if no disposition thereof is made within the 60-day period
referred to above in Paragraph 9. Unless otherwise required by law, the burden
of proving that indemnification is not appropriate shall be on the Corporation.
Neither the failure of the Corporation to have made a determination prior to the
commencement of such action that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Paragraph 9 that Indemnitee has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that Indemnitee has not met the applicable standard of
conduct. Indemnitee's expenses (of the type described in the definition of
"Expenses" in Paragraph 2(c)) reasonably incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such Proceeding shall also be indemnified by the Corporation.
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<PAGE> 5
11. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines, penalties or amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with any Proceeding but not, however, for the total amount thereof,
the Corporation shall nevertheless indemnify Indemnitee for the portion of such
Expenses, judgments, fines, penalties or amounts paid in settlement to which
Indemnitee is entitled.
12. Subrogation. In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
13. Term of Agreement. This Agreement shall continue until and
terminate upon the later of (a) six years after the date that Indemnitee shall
have ceased to serve as a director or officer of the Corporation or, at the
request of the Corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise or (b) the
final termination of all Proceedings pending on the date set forth in clause (a)
in respect of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Paragraph 10 of this Agreement relating thereto.
14. Indemnification Hereunder Not Exclusive. The indemnification and
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under the Certification
of Incorporation, the By-Laws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of Delaware, any other law
(common or statutory), or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office for the Corporation.
Nothing contained in this Agreement shall be deemed to prohibit the Corporation
from purchasing and maintaining insurance, at its expense, to protect itself or
the Indemnitee against any expense, liability or loss incurred by it or him in
any such capacity, or arising out of his status as such, whether or not the
Indemnitee would be indemnified against such expense, liability or loss under
this Agreement; provided that the Corporation shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
15. No Special Rights. Nothing herein shall confer upon Indemnitee any
right to continue to serve as an officer or director of the Corporation for any
period of time or at any particular rate of compensation.
16. Savings Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, penalties and amounts paid in settlement with respect to any Proceeding
to the full extent permitted by any applicable portion of this
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<PAGE> 6
Agreement that shall not have been invalidated and to the fullest extent
permitted by applicable law.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
18. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of the
estate, heirs, executors, administrators and personal representatives of
Indemnitee.
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof nor shall any such waiver constitute a continuing waiver.
21. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given (i) when
delivered by hand or (ii) if mailed by certified or registered mail with postage
prepaid, on the third day after the date on which it is so mailed:
(a) if to the Indemnitee, to:
(b) if to the Corporation, to:
OTG Software, Inc.
6701 Democracy Blvd., 8th Floor
Bethesda, MD 20817
Attn: Richard A. Kay
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
22. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
COMPANY:
OTG SOFTWARE, INC.
By:
----------------------------
Richard A. Kay
President
INDEMNITEE:
------------------------------
[Name]
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 9th day of June,
1999, is entered into by Optical Technology Group, Inc., a Maryland corporation
with its principal place of business at One Democracy Plaza, 6701 Democracy
Boulevard, Bethesda, Maryland 20817 (the "Company"), and Richard A. Kay,
residing at 13618 Cherrydale Drive, Rockville, Maryland (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. 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 June 9, 1999
(the "Commencement Date") and ending on December 31, 2003 (such period, as it
may be extended, the "Employment Period"), unless sooner terminated in
accordance with the provisions of Section 4. For purposes of this Agreement, the
employment of the Employee by Optical Technology Group, Inc. (the "Parent") or
an affiliate of the Parent shall be deemed to constitute employment by the
Company, and the period of such employment with the Parent or an affiliate shall
be deemed to be part of the Employment Period.
2. Title; Capacity. The Employee shall serve as President, Chief
Executive Officer and Chairman of the Board of the Company. The Employee shall
be subject to the supervision of, and, subject to the first sentence of this
Section 2, shall have such authority as is delegated to him by, the Board of
Directors of the Company (the "Board").
<PAGE> 2
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board shall from time to time reasonably assign to him
consistent with his positions as President and Chief Executive Officer. During
the Employment Period, the Employee agrees to devote such business time,
attention and energies to the business and interests of the Company as is
necessary for him to carry out his responsibilities under this Agreement and the
discharge of his duties and responsibilities hereunder. The Employee agrees to
abide by the rules, regulations, instructions, personnel practices and policies
of the Company and any changes therein which may be adopted from time to time by
the Company, as such rules, regulations, instructions, personnel practices and
policies may reasonably be applied to the Employee as President and Chief
Executive Officer of the Company. The Employee acknowledges receipt of copies of
all such rules and policies committed to writing as of the date of this
Agreement.
3. Compensation and Benefits.
3.1 Salary. The Company shall pay the Employee, in semi-monthly
installments, an annual base salary of Four Hundred Eighty Five Thousand Dollars
($485,000) with a bonus in the amount of One Hundred Fifteen Thousand Dollars
($115,000) for the one-year period commencing on the Commencement Date, which
amount shall be subject to increase but not decrease during that period. After
June 9, 2000, the Board of Directors of the Company shall set the compensation
and bonus of the Employee. The Company agrees to review the Employee's annual
base salary on an annual basis no later than July 1 of each calendar year
commencing in 2000 to consider a merit increase in such annual base salary for
such calendar year based upon the performance of the Employee during the prior
calendar year. Any such merit increase shall be effective as of the first day of
such calendar year. In the event that the
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<PAGE> 3
Employee is, or is to be, employed for less than a full calendar month, the
semi-monthly installments of the annual base salary shall be appropriately
adjusted.
3.2 Fringe Benefits. The Employee shall be entitled to participate
in all bonus, benefit and fringe benefit programs that the Company or the Parent
establishes and makes available to employees or executives of the Company, to
the extent that Employee's position, tenure, salary, age, health and other
qualifications make him eligible to participate, which programs shall be as
favorable as those made available to employees of the Parent in comparable
positions. The Employee shall be entitled to four (4) weeks paid vacation per
year, to be taken at such times as may be approved by the Company or its
designee.
3.3 Reimbursement of Expenses. The Company shall reimburse the
Employee for reasonable travel, entertainment and 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, in accordance with
and subject to the terms of the policies of the Company.
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 solely upon the occurrence
of an event set forth in "Exhibit A to Executive Employment Agreement," which
has been attached hereto as Exhibit A; or
4.3 Thirty (30) 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
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<PAGE> 4
or mental disability, for a period of ninety (90) consecutive days 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.
4.4 At the election of the Employee, upon not less than sixty (60)
days' prior written notice to the Company given promptly after the occurrence of
the event giving rise to such termination, in the event of the Company's taking
any of the following actions, which actions shall not have been cured within
such sixty (60)-day period: (a) material and adverse diminution, on a cumulative
basis, of the Employee's duties, authority, position, compensation (other than
bonus or other discretionary elements of the Employee's compensation) or
aggregate benefits, including, without limitation, failure to cause the Employee
to retain the positions of President and Chief Executive Officer of the Company;
(b) the failure of the Employee to be elected to and remain Chairman of the
Board throughout the Employment Period (provided the Employee is willing to
serve as such on the same terms and conditions as other employee-directors)
(unless the Employee is removed from the Board of Directors in connection with
the termination of the Employee's employment pursuant to Sections 4.2, 4.3, or
4.4 of this Agreement); or (c) the relocation (other than upon the Employee's
recommendation) of the Company's principal executive offices to a location more
than fifty (50) miles outside the city limits of Bethesda, Maryland.
5. Effect of Termination.
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5.1 Termination by the Company for Cause. In the event the
Employee's employment is terminated by the Company 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.
5.2 Termination by the Company Without Cause; Termination by the
Employee for Cause.
(a) In the event the Employee's employment is terminated by the
Employee pursuant to Section 4.4, or by the Company for any reason other than
Cause as defined in Section 4.2 ("Without Cause") (each, a "Qualifying
Termination"), the Company shall pay or provide to the Employee the compensation
and benefits payable or provided to him under Section 3 through the last day of
his actual employment by the Company. If the Employee's employment is terminated
by the Employee pursuant to Section 4.4 or by the Company Without Cause, the
provisions of Section 6 shall cease to apply to the Employee as of the effective
date of termination.
(b) In the event of a Qualifying Termination, the Company shall
make severance payments to the Employee in an amount equal to (A) the greater of
(1) the entire remaining portion of his compensation for the term of this
Agreement, or (2) the amount of his annual salary at the date of termination,
which amount is to be paid in equal increments over the twelve (12)-month
period commencing on the effective date of such termination, plus (B) in a lump
sum within ninety (90) days after the end of the applicable fiscal year, the
Annual Bonus that would otherwise have been paid to Employee for the fiscal year
in which such termination occurred.
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(c) The severance payment provided for in this Section 5.2 shall
be made in monthly installments on the first day of each calendar month. Such
installments shall be appropriately adjusted in the event a severance payment is
due for any partial calendar month.
(d) Following any Qualifying Termination, the Company shall
continue to pay for or provide to the Employee the fringe benefits other than
health, disability and term life insurance benefits as may have been provided to
the Employee in accordance with Section 3.2 immediately prior to such Qualifying
Termination for a period ending on the earliest of (i) December 31, 2003, (ii)
the date of the Employee's employment by a third party on a substantially
full-time basis, (iii) the date six months after the effective date of such
Qualifying Termination, or (iv) the death of the Employee. Following any
Qualifying Termination, the Company shall continue to pay for or provide to the
Employee such health, disability and term life insurance benefits as may have
been provided to the Employee in accordance with Section 3.2 immediately prior
to such Qualifying Termination (subject to changes in the terms of such coverage
by the provider as may be applicable to the Company as a whole) for a period
ending on the earliest of (A) the date of the Employee's employment by a third
party on a substantially full-time basis, if such third party offers Employee
substantially comparable health, disability and term life insurance benefits on
at least as favorable terms, (B) the death of the Employee, or (C) December 31,
2003.
The Employee shall notify the Company promptly following his acceptance
of any offer of employment by a third party. The Employee shall be under no
obligation to seek other employment following any Qualifying Termination, and
any amounts he earns in any other employment shall not reduce or offset the
severance payments or other amounts due hereunder except as specifically
provided in this Section 5.2(d).
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5.3 Termination for Death or Disability. In the event the
Employee's employment is terminated by death or because of disability pursuant
to Section 4.3 (a "Section 4.3 Termination"), the Company shall pay or provide
to the estate of the Employee or to the Employee, as the case may be, the
compensation and benefits payable or provided to him under Section 3 through the
last day of his employment by the Company as determined in accordance with
Section 4.3.
5.4 Termination Upon Change in Control of the Company.
(a) In the event the Employee's employment is terminated
pursuant to Section 4.4 or by the Company Without Cause within twelve (12)
months following a Change in Control (as defined below) of the Company, the
Company shall make a one-time lump sum severance payment (the "Change in Control
Severance Payment") to the Employee in an amount equal to the amount of
compensation due to the Employee under this Agreement for the remainder of the
term of this Agreement, if such payment would be greater than the amount
otherwise payable to Employee under Section 5.2(b). In such event, the Employee
shall not be entitled to the payments to which he would otherwise be entitled
pursuant to Section 5.2(b), but shall continue to be entitled to benefits
provided by the Company pursuant to and in accordance with Section 5.2(d).
(b) The Change in Control Severance Payment payable under this
Section 5.4 shall be made without regard to whether the deductibility of such
payment (or any other "parachute payments," as that term is defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), to or for
the Employee's benefit) would be limited or precluded by Section 280G and
without regard to whether such payments (or any other
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"parachute payments" as so defined) would subject the Employee to the federal
excise tax levied on certain "excess parachute payments" under Section 4999 of
the Code.
(c) Tax Adjustment Payments. If all or any portion of the amount
payable to Employee under this Agreement (together with all other payments of
cash or property, whether pursuant to this Agreement or otherwise, including,
without limitation, the issuance of options or shares or the granting, exercise
or termination of options therefor), constitutes "excess parachute payments"
within the meaning of Section 280G of the Code that are subject to the excise
tax imposed by Section 4999 of the Code (or any similar tax or assessment), the
amounts payable hereunder shall be increased to the extent necessary to place
Employee in the same after-tax position as he would have been in had no such tax
assessment been imposed on any such payment paid or payable to Employee under
this Agreement or any other payment that Employee may receive in connection
therewith. The determination of the amount of any such tax or assessment and the
incremental payment required hereby in connection therewith shall be made by the
accounting firm employed by the Company with thirty (30) calendar days after
such payment and said incremental payment shall be made within thirty (30)
business days after determination has been made. If, after the date upon which
the payment required by this Section 5.4(c) has been made, it is determined
(pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, Internal Revenue
Service audit assessment, or otherwise) that the amount of excise or other
similar taxes or assessments payable by Employee is greater than the amount
initially so determined, then the Company shall pay Employee an amount equal to
the sum of (i) such additional excise or other taxes, plus (ii) any interest
fines and penalties resulting from such underpayment, plus (iii) an amount
necessary to reimburse Employee for any income, excise or other tax assessment
payable
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by Employee with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii), in the manner described above in
this Section 5.4(c). Payment thereof shall be made within ten (10) business days
after the date upon which such subsequent determination is made.
(d) A "Change of Control" of the Company shall occur or be
deemed to have occurred in the event that:
(i) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company, acquires
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities (other than
through an acquisition of securities directly from the Company);
(ii) individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or
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removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no Person acquires more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
5.5 Registration Rights.
(a) In the event Employee is terminated pursuant to the
provisions of Sections 4.2, 4.4, 5.4(a), or Without Cause, Employee shall have
the right to require the Company to register under the Securities Act of 1933,
as amended ("Securities Act") any shares then held by him, either on a Form S-3
or a Form S-1 (or any successor forms thereto), within thirty (30) days from
the date of such termination. The Company shall pay all expenses in connection
with any such offering, except for underwriting discounts and expenses.
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(b) For the three (3) years following his termination for any
reason, the Employee shall have the right to require the Company, once in each
twelve (12)-month period, to register under the Securities Act any shares then
held by him either on a Form S-3 or a Form S-1 (or any successor forms thereto).
The Company shall pay all expenses in connection with any such offering, except
for underwriting discounts and expenses.
6. Non-Compete.
(a) During the Employment Period and for a period of two (2)
years 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 five percent (5%)
of the total outstanding stock of a publicly held company), engage in the
business (the "Restricted Business") of developing, producing, marketing,
selling or performing products or services of the kind or type developed or
being developed, produced, marketed, sold or performed by the Company while the
Employee was employed by the Company (provided that following the expiration or
termination of the Employment Period, (a) the Employee may act as an employee of
or consultant to a person or entity which engages in the Restricted Business so
long as the Employee does not himself engage in or assist the person or entity
in engaging in the Restricted Business by virtue of such employment or
consulting relationship; (b) the Employee may serve as a senior executive in a
corporation or other entity that has a division or subsidiary that reports to
the Employee and that engages in the Restricted Business if the Employee is no
more than nominally involved in the day-to-day operations or business practices
of such division or subsidiary; and (c) the Employee may provide investment
banking and any advisory services to corporations or other entities
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<PAGE> 12
engaged in the Restricted Business relating to financing, mergers, acquisitions
and dispositions); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) divert or take away, or attempt to divert or to take
away, 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 while employed by the Company.
(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
irreparable 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 right
to seek specific performance and injunctive relief.
7. Inventions and Proprietary Information.
7.1 Inventions.
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(a) All inventions, discoveries, computer programs, data,
technology, designs, innovations and improvements (whether or not patentable and
whether or not copyrightable) related to the business of the Company which are
made, conceived, reduced to practice, created, written, designed or developed by
the Employee, solely or jointly with others and whether during normal business
hours or otherwise, during his employment by the Company pursuant to this
Agreement ("Inventions") shall be the sole property of the Company. The Employee
hereby assigns to the Company all such Inventions and any and all related
patents, copyrights, trademarks, trade names, and other industrial and
intellectual property rights and applications therefor, in the United States and
elsewhere and appoints any officer of the Company as his duly authorized
attorney, but without any out-of-pocket expense to the Employee, to execute,
file, prosecute and protect the same before any government agency, court or
authority. The Employee hereby waives all claims to moral rights in any
Invention. Upon the request of the Company and at the Company's expense, the
Employee shall execute such further assignments, documents and other instruments
as may be necessary or desirable to assign fully and completely all such
Inventions to the Company and to assist the Company in applying for, obtaining
and enforcing patents or copyrights or other rights in the United States and in
any foreign country with respect to any such Invention.
(b) The Employee shall promptly disclose to the Company all such
Inventions and will maintain adequate and current written records (in the form
of notes, sketches, drawings and as may be reasonably specified by the Company)
to document the conception and/or first actual reduction to practice of any such
Invention. Such written records shall be available to and remain the sole
property of the Company at all times.
7.2 Proprietary Information.
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<PAGE> 14
(a) The Employee acknowledges that his relationship with the
Company is one of high trust and confidence and that in the course of his
employment by the Company he will have access to and contact with Proprietary
Information. The Employee agrees that he will not, during the Employment Period
or at any time thereafter, disclose to others, or use for his benefit or the
benefit of others, any Proprietary Information or any Invention.
(b) For purposes of this Agreement, Proprietary Information
shall mean all information (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company, including, without
limitation, any Invention, formula, formation, vendor information, customer
information, apparatus, equipment, trade secret, process, research, report,
technical data, know-how, computer program, software, software documentation,
hardware design, technology, marketing or business plan, forecast, unpublished
financial statement, budget, license, price, cost and employee list that is
communicated to, learned of, developed or otherwise acquired by the Employee in
the course of his employment by the Company.
(c) The Employee's obligations under this Section 7.2 shall not
apply to any information that (i) is or becomes known to the general public
under circumstances involving no breach by the Employee of the terms of this
Section 7.2, (ii) is generally disclosed to third parties by the Company without
restriction on such third parties, (iii) is approved for release by written
authorization of the Board or an authorized employee of the Company, (iv) is
communicated to the Employee by a third party under no duty of confidentiality
with respect to such information to the Company or another party, or (v) is
required to be disclosed by the Employee to comply with applicable laws,
governmental regulations, court order or subpoena, provided that the Employee
provides prior written notice of such disclosure to the Company and
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<PAGE> 15
an opportunity for the Company to object to such disclosure and further
provided that the Employee cooperates with the Company and takes reasonable and
lawful actions requested by the Company (the out-of-pocket costs of which shall
be paid by the Company) to avoid and/or minimize the extent of such disclosure.
(d) Upon termination of this Agreement or at any other time upon
request by the Company, the Employee shall promptly deliver to the Company all
records, files, memoranda, notes, designs, data, reports, price lists, customer
lists, drawings, plans, computer programs, software, software documentation,
sketches, laboratory and research notebooks and other documents (and all copies
or reproductions of such materials in his possession or control) belonging to
the Company.
(e) The Employee represents that the Employee's employment by
the Company and the performance by the Employee of his obligations under this
Agreement do not, and shall not, breach any agreement that obligates him to keep
in confidence any trade secrets or confidential or proprietary information of
his or of any other party or to refrain from competing, directly or indirectly,
with the business of any other party. The Employee shall not disclose to the
Company, and the Company shall not request that the Employee disclose, any trade
secrets or confidential or proprietary information of any other party.
(f) The Employee acknowledges that the Company from time to time
may have agreements with other persons or with the United States Government, or
agencies thereof, that impose obligations or restrictions on the Company
regarding inventions made during the course of work under such agreements or
regarding the confidential nature of such work. If the Employee's duties
hereunder will require disclosures to be made to him subject to
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such obligations and restrictions, the Employee agrees to be bound by them and
to take all action necessary to discharge the obligations of the Company under
such agreements.
7.3 Remedies. The Employee acknowledges that any breach of the
provisions of this Section 7 shall result in serious and irreparable injury to
the Company for which the Company cannot be adequately compensated by monetary
damages alone. The Employee agrees, therefore, that, in addition to any other
remedy it may have, the Company shall be entitled to seek to enforce the
specific performance of this Agreement by the Employee and to seek both
temporary and permanent injunctive relief (to the extent permitted by law)
without the necessity of proving actual damages.
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
such other address or addresses as either party shall designate to the other 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,
including but not limited to that certain Employment Agreement dated June 9,
1998 by and between Employee and Company.
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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12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Maryland.
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. Survival. The provisions of Sections 5, 6 and 7 shall survive the
termination of this Agreement.
15. Miscellaneous.
15.1 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.
15.2 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.
15.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
OPTICAL TECHNOLOGY GROUP, INC.
By: /s/ F. WILLIAM CAPLE
--------------------------
F. William Caple
Title: Exec. V.P.
-----------------------
EMPLOYEE
/s/ RICHARD A. KAY
------------------------------
Richard A. Kay
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EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of January, 1998
between OPTICAL TECHNOLOGY GROUP, INC. D/B/A OTG SOFTWARE (the "Corporation")
and F. WILLIAM CAPLE (the "Executive").
WHEREAS, the Corporation desires to have the full time services of
Executive and Executive is desirous and willing to so serve the Corporation; and
WHEREAS, for the purpose of establishing the terms and conditions of
Executive's service for the Corporation and the respective rights and
obligations of the Executive and the Corporation, the parties wish to amend and
supersede their prior agreement by entering into this Agreement.
NOW THEREFORE, in consideration of the above premises and the mutual
covenants and conditions contained herein, the parties agree as follows:
1. EMPLOYMENT
1.1 Employment and Title. The Corporation agrees to employ Executive as
Executive Vice President, and Executive hereby accepts such employment and
agrees to perform the services specified herein upon the terms and conditions
hereinafter set forth. Employment under the terms hereof shall begin January 1,
1998 (the "Effective Date").
1.2 Duties. Executive shall perform managerial duties and shall
otherwise perform all duties reasonably necessary and commensurate with the
positions of Executive Vice President.
1.3 Extent of Service. Executive shall be a full-time employee, and
shall, during customary reasonable business hours, devote his full time,
attention and energy to the business of the Corporation.
1.4 Term of Employment and Termination
1.4.1 Term. This Agreement shall commence on the Effective
Date, and shall continue for a three year term; and shall automatically renew
for consecutive one-year terms unless terminated by either party pursuant to
written notice provided to the other party not less than 30 days prior to the
expiration of the then-effective term. Notwithstanding the foregoing, Executive
and/or the
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Corporation may terminate Executive's employment with the Corporation, as
otherwise set forth below.
1.4.2 Termination by the Corporation with Cause. The
Corporation may terminate Executive with and for cause should Executive
willfully breach or repeatedly breach the restrictions, obligations or duties
which he is required to satisfy or perform under this Agreement, or engage in
any of the acts specified in Exhibit A hereto. Executive's termination for cause
hereunder shall be effective 5 days following receipt by Executive of written
notice of termination with the reason for termination specified therein.
1.4.3. Termination by the Corporation without Cause. The
Corporation may terminate Executive without cause provided the Corporation
delivers to Executive written notice thereof 90 days prior to the actual date of
termination. In the event Executive is terminated without cause, Executive shall
be paid a severance amount equal to six months of Executive's then current Base
Salary, payable over a six month period commencing on the 91st day following
Executive's receipt of the above written notice of termination without cause.
1.4.4 Termination by Executive. The Executive may terminate
this Agreement upon providing the Corporation with 90 days prior written notice
thereof.
2. COMPENSATION
2.1 Base Salary. As base salary compensation for services rendered
under this Agreement, Executive shall receive through December 31, 1998, a
salary in the amount of $125,000 (the "Base Salary"). The Base Salary shall be
paid to Executive in the ordinary pay period installments currently utilized by
the Corporation. The Base Salary amount shall be reviewed and subject to change
annually at the commencement of each calendar year.
2.2 Bonus Compensation. ln addition to the Base Salary, Executive shall
receive a bonus equal to 33.33% of Base Salary payable in equal monthly amounts.
Executive's bonus compensation shall be reviewed and subject to change annually
at the commencement of each calendar year.
2.3 Initial Public Offering Bonus. In the event that at any time before
May 1, 1999 the Corporation, or any successor or affiliated entity, should
effectively register and file with the Securities & Exchange Commission a
registration statement pursuant to the Securities Act of 1933, as amended,
whereby securities of the Corporation (or a successor entity) are sold to the
public for a minimum of $20,000,000 in aggregate proceeds (the "IPO"), Executive
shall receive an IPO
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bonus in the amount of $100,000. In the event that the Corporation, or any
successor or affiliated entity, does not effect an IPO by May 1, 1999,
Executive's IPO bonus shall be reviewed and subject to change but in no event
shall such bonus be less than the above $100,000. This IPO bonus shall be
payable to Executive as soon as possible following the closing of the IPO
transaction. Executive's IPO bonus shall be payable in one lump cash sum or in
registered, publicly tradeable securities, or any combination of the two, as
desired by Executive.
2.4 Stock Option/Employee Equity Plans. Executive shall participate in
the Corporation's to-be-established Employee Stock Option/Employee Equity Plan
or Plans (the "Plan(s)") as determined by the Corporation's Board of Directors
and/or the appropriate Corporation committee charged with the responsibility of
administering the Plan(s).
2.5 Other Benefits
2.5.1 Paid Vacation. Executive shall be entitled to two weeks
paid vacation per year or such other reasonable vacation time as agreed upon by
Executive and the Corporation, or as otherwise provided pursuant to established
policies of the Corporation.
2.5.2 Health Insurance. During the term of this Agreement, the
Corporation shall pay all premiums for health insurance for Executive and his
family.
2.5.3 Expense Reimbursement. Upon submission of appropriate
written expense reports, receipts or other substantiating evidence, Executive
shall be entitled to reimbursement for all expenses incurred by Executive in the
performance of his duties hereunder and/or the furtherance of the Corporation's
business, including reimbursement for cellular/mobile phone expenses.
2.5.4 Other Benefits. Executive shall be entitled to and
receive all other benefits and privileges offered to other senior executives of
the Corporation.
3. PROTECTION OF CONFIDENTIAL INFORMATION
3.1 Executive recognizes and acknowledges that he will have access to
confidential, proprietary and/or sensitive business information, including but
not limited to actual and potential customer information, marketing information,
financial information, techniques, proprietary data and trade secrets of the
Corporation (hereinafter all forms of information referenced above shall
collectively be referred to as "Protected Information"); and that such Protected
Information constitutes valuable, special, and unique property of the
Corporation.
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3.2 During or after the term of his employment by the Corporation,
Executive will not make any unauthorized use of, will not disclose and will
maintain in secrecy and in confidence, as the secret and sole property of the
Corporation, the Protected Information. Executive will not, in any event,
disclose or use any Protected Information unless Executive receives specific
permission from the CEO of the Corporation to disclose or use such Protected
Information; and Executive will disclose or use such information only as
directed or permitted by the Corporation. Upon termination of his employment for
any reason, Executive shall promptly deliver to the Corporation all documents,
computer software, drawings, manuals, letters, notes, notebooks, reports and all
other material and records of any kind pertaining to Protected Information which
have been acquired by Executive during the term of his employment.
3.3 Executive acknowledges that a breach of the terms of this Section 3
will cause immediate and irreparable harm to the Corporation, and money damages
may not be sufficient to compensate the Corporation for a breach. In the event
of a breach or threatened breach of the provisions of this Section 3, the
Corporation shall be entitled to an injunction restraining Executive from
disclosing and/or using, in whole or in part, such Protected Information.
Nothing contained herein shall be construed as prohibiting the Corporation from
pursuing any other remedy for such breach or threatened breach, including the
recovery of damages from Executive.
3.4 The provisions of this section shall survive any termination of
Executive's employment.
4. NON-COMPETITION
4.1 During the term of his employment with the Corporation, and for a
period of two years immediately following the termination of his employment for
any reason whatsoever, or, if Executive's employment with the Corporation has
been for a shorter period than two years, for a time period equal to Executive's
employment period with the Corporation (such two year or shorter employment
period being hereinafter referred to as the "Restrictive Period"), Executive
will not either directly or indirectly be connected with the management,
operation or control of any Conflicting Organization (as defined in Section
4.1.1) doing business within 500 miles of any of the Corporation's operating
offices.
4.1.1 "Conflicting Organization" means any person or
organization which is engaged in or is about to become engaged in research on or
the development, production, marketing or sale of any Conflicting Product or
Service.
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"Conflicting Product or Service" means any product or service of any person or
organization which is the same as or similar to or improves upon a product or
service of the Corporation about which Executive acquired Protected Information
as a result of employment by the Corporation.
4.2 During the term his employment with the Corporation and during the
Restrictive Period, Executive's obligations under subparagraph 4.1 shall
specifically include but not be limited to the agreement by Executive not,
either directly or indirectly, to call on or solicit, or to attempt to call on
or solicit, in any manner which could have the effect of taking away, or
attempting to take away, any of the customers of the Corporation with whom he
became acquainted during his employment with the Corporation, either for himself
or for any other person, firm, corporation or other entity. The term "customer"
shall include, but not be limited to, both existing and prospective customers
during the term of Executive's employment.
4.3 During the term of his employment with the Corporation and for a
two year period following Executive's termination of his employment with the
Corporation, Executive shall not, either directly or indirectly, enter into an
agreement with, or solicit or offer employment to, employees of the Corporation
for the purpose of causing them to leave the employment of the Corporation.
4.4 The provisions of this Section 4 shall survive any termination of
this Agreement. Executive acknowledges that a breach of the terms of this
Section 4 will cause immediate and irreparable harm to the Corporation, and
money damages may not be sufficient to compensate the Corporation for a breach.
In the event of a breach or threatened breach of the provisions of this Section
4, the Corporation shall be entitled to an injunction restraining or mandating
action by Executive to enforce the terms hereof; and nothing contained herein
shall be construed as prohibiting the Corporation from pursuing any other remedy
for such breach or threatened breach, including the recovery of damages from
Executive.
5. NO ASSIGNMENT
Neither Executive nor the Corporation may assign their rights or
obligations hereunder.
6. INVENTIONS/DESIGNS/IMPROVEMENTS
6.1 Executive recognizes and acknowledges that during the course of his
employment, he may either individually or jointly with others, and either on
behalf
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of the Corporation or on his own, discover, conceive, make, perfect or develop
inventions, improvements, discoveries, patents, patent applications, design
patents, models, prototypes, trade secrets, computer programs, ideas,
techniques, know-how and data, technical or otherwise, that are related to or in
furtherance of the business or activities of the Corporation (hereinafter
collectively referred to as "Inventions"). Inventions which are related to or in
furtherance of the business or activities of the Corporation include any
business or activity in progress at the Corporation at the date of or during
Executive's employment with the Corporation and projects or other operations at
the Corporation planned for the future.
6.2 Executive further recognizes and agrees that any and all
Inventions, including all rights in patents, patent applications, design
patents, models, prototypes, copyrights, registrations, trade secrets and any
and all right, title and interest that he might have therein, are the sole and
exclusive property of the Corporation. Executive agrees that any participation
by Executive in the design, discovery, conception, production, perfection,
development or improvement of an Invention by Executive is work done for hire
for the sole and exclusive benefit of the Corporation; and Executive hereby
assigns to the Corporation all of his rights, title and interest in and to any
and all Inventions. Executive's obligations under this Section 6 apply without
regard to whether the Invention or an idea for an Invention, or the design,
discovery, conception, production, perfection, development or improvement of an
Invention, occurs on the job, at home, or elsewhere.
6.3 Executive also agrees to disclose and does hereby assign to the
Corporation any and all Inventions conceived, made, perfected or developed, and
any and all patent and copyright applications filed, during the six months
immediately subsequent to the termination of his employment, whether such
applications are made individually or jointly with others, so long as those
applications relate to the subject matter of Executive's employment on behalf of
the Corporation during the one-year period immediately preceding termination of
said employment.
6.4 At the Corporation's request, from time to time, Executive shall
promptly sign and deliver all documents necessary to vest in the Corporation all
of his right, title and interest in and to such Inventions and, at the
Corporation's request and expense, shall assist the Corporation in obtaining and
defending any patents, or copyright registrations, or any other form of
protection accorded to such Inventions in the United States or anywhere
throughout the world, and shall assign the same and any patents issued thereon
or copyright or registrations granted thereon, to the Corporation.
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6.5 Executive acknowledges that a breach of the terms of this Section 6
will cause immediate and irreparable harm to the Corporation, and money damages
may not be sufficient to compensate the Corporation for a breach. In the event
of a breach or threatened breach of the provisions of this Section 6, the
Corporation shall be entitled to an injunction restraining or mandating action
by Executive to enforce the terms hereof; and nothing contained herein shall be
construed as prohibiting the Corporation from pursuing any other remedy for such
breach or threatened breach, including the recovery of damages from Executive.
7. MISCELLANEOUS
7.1 Governing Law. This Agreement shall be subject to and governed by
the internal laws of the State of Maryland without regard to its conflict of
laws provisions, and without regard to the place of execution or the place of
performance thereof.
7.2 Waiver. Failure to insist upon strict compliance with any provision
hereof shall not be deemed a waiver of such provision or any other provision
hereof.
7.3 Amendment. This Agreement may not be modified or amended except by
an agreement in writing executed by the parties hereto.
7.4 Severability. If any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be excessively broad as to
time, duration, geographical scope, activity, or subject, it shall be construed
by limiting and reducing it so as to be enforceable to the extent compatible
with the applicable law. If any provision of this Agreement is contrary to any
federal, state, or local statute, ordinance, or regulation, the parties hereby
declare that such provision shall be amended to conform to any such statutory or
regulatory provision; and the invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other provision.
The remaining provisions shall remain in full force and effect as if the
Agreement had been executed with the invalid or unenforceable provisions
eliminated.
7.5 Entire Agreement. This Agreement, together with Exhibit A hereto,
constitutes the entire understanding between the Corporation and Executive with
respect to the subject matter hereof, and supersedes any and all previous
agreements and understandings between Executive and the Corporation concerning
the subject matter hereof.
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7.6 Non-Disclosure. Executive shall not disclose or confirm to any third
party the existence of, or any material term contained in, this Agreement (other
than disclosure and discussion with legal counsel which is permitted); and any
such disclosure, if due to the Executive's willful act or gross negligence,
shall subject the Executive to termination for cause pursuant to Section 1.4.2.
above.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
OPTICAL TECHNOLOGY GROUP, INC.
By: /s/ RICHARD KAY
------------------------------
Richard Kay
President
EXECUTIVE:
/s/ F. WILLIAM CAPLE
----------------------------------
F. William Caple
-8-
<PAGE> 9
EXHIBIT A TO EXECUTIVE EMPLOYMENT AGREEMENT
REASONS FOR TERMINATION WITH CAUSE
1 Misappropriation of Corporation funds.
2. Embezzlement of Corporation funds.
3. Soliciting a customer's business for personal or competitive gain.
4. Use or sale of illegal drugs in the work place.
5. Physical/mental/sexual abuse of any employee of the Corporation.
6. Criminal activity in the work place.
7. Theft or destruction of Corporation property.
8. Flagrant violation of Corporation policy/procedure.
9. Providing professional services to a competitor while in the employ of
the Corporation without the Corporation's knowledge.
10. Use of Corporation information for material personal gain.
11. Breach of any covenant or obligation contained in Section 6 of the
covenant or obligation contained in Section 6 of the Agreement.
<PAGE> 10
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT is entered into as of the 1st day of January, 1999 by and between
Optical Technology Group, Inc. d/b/a OTG Software (the "Corporation") and F.
William Caple (the "Executive").
WHEREAS, the Corporation and Executive have entered into an Executive Employment
Agreement dated January 1, 1998 (the "Agreement"), and desire to amend such
Agreement.
NOW, THEREFORE, in consideration of the above premises and mutual covenants and
conditions contained herein, the parties agree as follows:
1. Section 1.4.1 of the Agreement, entitled Term, is hereby amended
in the first sentence by substituting "five year term" for "three
year term".
2. Section 1.4.3 of the Agreement, entitled Termination by the
Corporation Without Cause, is hereby amended by deleting the second
sentence in its entirety and replacing it with the following: "In
the event Executive is terminated without cause, Executive shall be
paid a severance amount equal to Executive's then current Base
Salary, payable in two installments, the first of which shall be
paid on the date of termination of Executive's employment with the
Corporation and the second of which shall be paid 90 days following
payment of the first installment."
3. Section 2.1 of the Agreement, entitled Base Salary, shall be
amended by deleting the first sentence in its entirety and
replacing it with the following: "As base annual salary
compensation for services rendered under this Agreement, Executive
shall receive through December 31, 1999, an annual salary in the
amount of $150,000 (the "Base Salary")."
4. Section 2.2 of the Agreement, entitled Bonus Compensation, shall be
amended in the first sentence by substituting "33.33%" for "40%".
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
EXECUTIVE: OPTICAL TECHNOLOGY GROUP, INC.
By: /s/ F. WILLIAM CAPLE By: /s/ RICHARD KAY
----------------------------- -----------------------------
F. William Caple Richard Kay
Title: Executive Vice President Title: President
-------------------------- --------------------------
<PAGE> 11
SECOND AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT (the "Amendment") is entered into as of the 15th day of
November, 1999, by and between Online Technologies Group, Inc. (The
"Corporation") and F. William Caple (the "Executive").
WHEREAS the Corporation and the Executive have entered into an
Executive Employment Agreement, dated January 1, 1998, as amended by the first
amendment, dated January 1, 1999 (the "Agreement");
NOW THEREFORE, in consideration of the above premises and mutual
covenants and conditions contained herein, the parties agree as follows:
1. Section 2.1 of the Agreement is hereby amended by deleting the first
sentence in its entirety and substituting the following language in lieu
thereof:
"As base annual salary, for services rendered under this Agreement,
Executive shall receive through December 31, 2000, an annual salary
in the amount of $175,000 (the "Base Salary")."
2. Section 2.1 of the Agreement is hereby amended by deleting the third
sentence in its entirety and substituting the following language in lieu
thereof:
"The Base Salary amount shall automatically increase by 10% on
January 1, 2001 and by 10% on each subsequent January 1 for the
remaining term of the Agreement."
3. Section 2.3 of the Agreement is hereby deleted in its entirety and
shall be of no further force or effect.
4. Except as expressly amended hereby, the Agreement, as previously
amended, remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
ONLINE TECHNOLOGIES GROUP, INC. EXECUTIVE
By: /s/ RICHARD A. KAY /s/ F. WILLIAM CAPLE
------------------------------ --------------------------------
Richard A. Kay F. William Caple
President
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Employment Agreement"), made as of the 28th day
of May, 1998, by and between OPTICAL TECHNOLOGY GROUP, INC. d/b/a OTG SOFTWARE,
having its principal place of business at 6701 Democracy Blvd., #805, Bethesda,
MD 20817 (which, together with any affiliates or subsidiaries are hereinafter
referred collectively to as the "Corporation"), and Ronald W. Kaiser, an
individual residing at 306 Danmark Ct., Millersville, MD 21108-1459 (hereinafter
referred to as "Executive").
WITNESSETH
WHEREAS, the Corporation desires to employ the services of Executive under the
terms and conditions set forth herein; and
WHEREAS, Executive desires to provide services as Chief Financial Officer for
the Corporation under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and of the mutual covenants and
conditions contained herein, and with the intent to be legally bound hereby, the
Corporation and Executive hereby agree as follows:
1 EMPLOYMENT
1.1 EMPLOYMENT. The Corporation hereby agrees to employ Executive, and
Executive hereby agrees to said employment, in accordance with the
terms and conditions hereinafter set forth.
1.2 TERM. Employment hereunder shall commence on June 1, 1998, (the
"Effective Date") and shall continue through May 31, 2001, unless
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otherwise terminated pursuant to the terms of section 3 hereof, or
otherwise extended by written agreement or continuation of this
Employment Agreement upon such terms and conditions as are then
mutually acceptable to the Executive and the Corporation.
1.3 LOCATION. The Corporation shall provide office space for Executive
within its headquarters office area.
1.4 DUTIES. Executive shall begin employment with the title of Chief
Financial Officer and serve as Chief Financial Officer of the
Corporation and each operating affiliate, provided that Executive shall
not be obligated to remain an officer of the Corporation or become or
remain an officer of the Corporation affiliate whose organization
documents do not provide indemnification provisions reasonably
satisfactory to Executive. Executive shall also not be obligated to
remain an officer of the Corporation or become or remain an officer of
the Corporation affiliate which is not covered by the directors and
officers' liability policy for all periods of Executive's employment
beginning with the period immediately preceding a public offering by
the Corporation. Executive shall report to and take direction from the
President and Chief Executive Officer (the "CEO") of the Corporation.
Executive shall perform management duties and shall otherwise perform
all duties reasonably necessary and commensurate with the position of
Chief Financial Officer. Executive shall devote full efforts as are
reasonably required to fulfill his responsibilities, provided however
that Corporation agrees that sufficient time shall be allowed Executive
to fulfill Executive's responsibilities pursuant to the Transition
Agreement dated April 28, 1998 as per section 2.5.
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2 COMPENSATION.
2.1 BASE SALARY. Executive shall be compensated by the payment of $165,000
per annum ("Base Salary") in accordance with the Corporation's standard
payroll practices for Executives at his level. Executive understands
that all compensation paid shall be subject to the usual and customary
federal and state tax withholding and other employment taxes as
required by law. In the event Executive is terminated For Cause as
defined in section 3.2 hereof, all compensation shall be prorated
through the last day of Executive's employment if the "For Cause"
termination is other than at the end of a calendar month.
Executive will receive a salary review on January 1, 1999, and annually
thereafter at the commencement of each calendar year. Any increase in
the Base Salary will be based on the Corporation's performance as well
as his individual contribution to that performance, and shall be
determined at the sole discretion of the Corporation's CEO and Board of
Directors.
2.2 BONUS COMPENSATION. In addition to the Base Salary, Executive shall
receive a bonus equal to 25% of Base Salary ("Executive's Bonus")
payable on a semi annual basis after the Effective Date of this
agreement. Executive will receive a salary review on January 1, 1999,
and annually thereafter at the commencement of each calendar year. Any
increase in Executive's Bonus calculation will be based on the
Executive's performance, and shall be determined at the sole discretion
of the Corporation's Board of Directors.
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2.3 STOCK OPTION/EMPLOYEE EQUITY PLANS. In addition to the foregoing
compensation, and subject to approval of the Corporation's Board of
Directors, and in full compliance with all applicable state and federal
securities laws, Executive shall also be issued options at the
effective date of the adoption of a plan to purchase up to 1.4% of the
sum of i.) shares of the issued and outstanding Common Stock of the
Corporation and ii.) options authorized under any option plans or other
option or warrant provisions of the Corporation (which together are
hereinafter referred collectively to as the "Stock") upon the following
terms and conditions (the "Initial Stock Options"). Such Initial Stock
Options shall not be considered anti dilutive with regards to an
initial public offering which is registered with the SEC pursuant to
the Securities Act of 1933, but shall be considered "anti dilutive" in
relationship only to ABS Capital transactions and to other equity
transactions that result in dilution to shareholders by more than 15%,
such that additional grants of stock options shall be made to Executive
at the then effective fair market values as to cause his percentage
ownership to remain at 1.4% of the combination of the "Stock" plus any
additional stock issued or options or warrants authorized. Subject to
the vesting requirements set forth herein, the Initial Stock Options
shall be exercisable for ten (10) years after the Effective Date
regardless of Executive's employment status with the Corporation.
Executive expressly understands that the Stock will be "restricted
stock," and may not be traded or sold except subject to applicable
state and federal securities laws. Corporation represents and agrees
that it will use best efforts to cause Initial Stock Options to be
registered following an initial public offering by the Corporation.
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The exercise price of the Initial Stock Options will be at the purchase
price equal to that implicit in the Corporation's current financing
transaction with ABS Capital, et al. The Initial Stock Options will
vest 8% on March 1, 1999, 25% on the first anniversary of the Effective
Date of this agreement, and 1.86111% in equal monthly amounts on a
monthly basis over the 36 months following the first anniversary of
this agreement. Notwithstanding the above, 100% of the Executive's
Initial Stock Option shall vest in the event that the Corporation has a
Change of Control. A "Change of Control" for purposes of this agreement
shall be defined as a sale of more than 50% of the Corporation's stock
or of the majority of the Corporation's operating assets to a third
party. Except as otherwise expressly provided herein, the Initial Stock
Options shall not be deemed earned for any vesting period after
Executive voluntarily leaves the Corporation's employ or for any period
after Executive is terminated For Cause as defined in section 3.2
hereof.
The Corporation anticipates that it will formulate and implement other
Stock Option Plans and bonus plans in which Executives of the
Corporation will participate. While not yet formal, if and when such
plans are established by the Corporation, the Executive will be
included along with other key executive members of the Corporation and
its operating affiliates and shall participate as determined by the
Corporation's Board of Directors and/or the appropriate Corporation
committee charged with the responsibility of administering the Plan(s).
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2.4 OTHER BENEFITS
2.4.1 PAID VACATION. Executive shall be entitled to reasonable paid vacation
time as agreed upon by Executive and the Corporation, or as otherwise
provided pursuant to established policies of the Corporation for other
senior executive officers, provided however, that it shall not be less
than three weeks paid vacation per year. Such paid vacation time shall
not be charged for Executive's time spent in satisfaction of continuing
professional education.
2.4.2 HEALTH INSURANCE. During the term of this Agreement, the Corporation
shall pay all premiums for health insurance for Executive and his
family.
2.4.3. EXPENSE REIMBURSEMENT. Upon submission of appropriate written expense
reports, receipts or other substantiating evidence, Executive shall be
entitled to reimbursement for all expenses incurred by Executive in the
performance of his duties hereunder and/or the furtherance of the
Corporation's business, including reimbursement for cellular/mobile
phone expenses and for participation in Executive's professional
associations.
2.4.4 OTHER PAYMENTS AND BENEFITS. In addition to the compensation and other
consideration provided in section 5 above, Executive shall also receive
the following additional benefits:
a. The Corporation will reimburse the Executive for reasonable actual
costs to relocate his personal goods closer to the Corporation's
headquarters area at any time during Executive's employment. In
addition, Corporation
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will reimburse any additional costs associated with relocation as
agreed to by the CEO and Executive at the time of relocation planning.
b. Executive shall be entitled to and receive all other benefits and
privileges offered to other senior executives of the Corporation.
2.5. EXECUTIVE AND CORPORATION REPRESENTATIONS. The Executive hereby
represents and warrants to the Corporation that he is a party to the
Transition Agreement dated April 28, 1998, a copy of which is attached
and that the Executive is not a party to any other written employment
agreement with any other party. Executive and Corporation hereby
represent and warrant that (i) the execution, delivery and performance
of this Agreement by Executive does not and will not be effected such
that it is or will be in conflict with, breach, violate or cause a
default under the Transition Agreement dated April 28, 1998. The
Corporation hereby represents that it will maintain directors' and
officers' liability insurance covering Executive pursuant to section
1.4 of this agreement. The Corporation further represents that its
charter and by-laws have indemnification provisions to the fullest
extent permissible under applicable corporate statutes.
3. TERMINATION
3.1 Notwithstanding the terms of employment as contained in the foregoing
sections, Executive and/or the Corporation may terminate Executive's
employment with the Corporation, as otherwise set forth below:
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3.2 TERMINATION BY THE CORPORATION FOR CAUSE. The Corporation may terminate
Executive with and for cause should Executive willfully breach the
restrictions, obligations or duties which he is required to satisfy or
perform under this Agreement or engage in any of the acts specified in
Exhibit A hereto. Executive's termination for cause hereunder shall be
effective five days following receipt by Executive of written notice of
termination with the reason for termination specified therein. Vesting
of options shall cease as of the effective date of Executive's
termination for cause hereunder.
3.3 TERMINATION BY THE CORPORATION WITHOUT CAUSE. The Corporation may
terminate Executive in connection with a Change of Control or without
cause provided the Corporation delivers to Executive written notice
thereof 60 days prior to the actual date of termination. In the event
Executive is terminated in connection with a Change of Control or
without cause prior to the first annual anniversary date of the
Effective Date, Executive shall be paid a severance amount equal to six
months of Executive's then current Base Salary, payable over a six
month period commencing on the 61st day following Executive's receipt
of the above written notice of termination in connection with a Change
of Control or without cause. In the event Executive is terminated in
connection with a Change of Control or without cause after the first
annual anniversary date of the Effective Date, Executive shall be paid
a severance amount equal to twelve months of Executive's then current
Base Salary, payable over a twelve month period commencing on the 61st
day following Executive's receipt of the above written notice of
termination in connection with a Change of Control or without cause.
Vesting of Executive's Initial Stock Options and the Corporation's
provision for
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Executive's medical benefits shall continue through the period
Executive receives such severance amount following Executive's
receipt of the above notice of termination in connection with
a Change of Control or without cause.
3.4 TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement upon providing the Corporation with 60 days prior
written notice thereof for any reason. Executive may terminate
this Agreement for cause if the Corporation is in material
breach of any of its obligations hereunder and such breach is
not cured, within thirty (30) days' written notice thereof
from Executive, after expiration of such 30 day notice period.
A material change in Executive's responsibilities or
obligations under this Employment Agreement or a material
reduction in Executive's Base Salary without Executive's
consent shall be deemed a material breach of this Employment
Agreement by the Corporation.
4. PROTECTION OF CONFIDENTIAL INFORMATION
4.1 Executive recognizes and acknowledges that he will have access
to confidential, proprietary and/or sensitive business
information, including but not limited to actual and potential
customer information, marketing information, financial
information, techniques, proprietary data and trade secrets of
the Corporation (hereinafter all forms of information
referenced above shall collectively be referred to as
"Protected Information); and that such Protected Information
constitutes valuable, special, and unique property of the
Corporation.
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4.2 During or after the term of his employment by the Corporation,
Executive will not make any unauthorized use of, will not
disclose and will maintain in secrecy and in confidence, as
the secret and sole property of the Corporation, the Protected
Information. Executive will not, in any event, disclose or use
any Protected Information unless Executive receives specific
permission from the CEO of the Corporation to disclose or use
such Protected Information; and Executive will disclose or use
such information only as directed or permitted by the
Corporation. Upon termination of his employment for any
reason, Executive shall promptly deliver to the Corporation
all documents, computer software, drawings, manuals, letters,
notes, notebooks, reports and all other material and records
of any kind pertaining to Protected Information which have
been acquired by Executive during the term of his employment.
4.3 Executive acknowledges that a breach of the terms of this
Section 4 will cause immediate and irreparable harm to the
Corporation, and money damages may not be sufficient to
compensate the Corporation for a breach. In the event of a
breach or threatened breach of the provisions of this Section
4, the Corporation shall be entitled to an injunction
restraining Executive from disclosing and/or using, in while
or in part, such Protected Information. Nothing contained
herein shall be construed as prohibiting the Corporation from
pursuing any other remedy for such breach or threatened
breach, including the recovery of damages from Executive.
4.4 The provisions of this section shall survive any termination
of Executive's employment.
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5. NON-COMPETITION
5.1 During the term of his employment with the Corporation, and
for a period of two years immediately following the
termination of his employment for any reason whatsoever, or,
if Executive's employment with the Corporation has been for a
shorter period than two years, for a time period equal to
Executive's employment period with the Corporation (such two
year or shorter employment period being hereinafter referred
to as the "Restrictive Period"), Executive will not either
directly or indirectly be connected with the management,
operation or control of any Conflicting Organization (as
defined in Section 5.1.1) doing business within the United
States.
5.1.1 "Conflicting Organization" means any person or organization
which is engaged in or is about to become engaged in research
on or the development, production, marketing or sale of any
Conflicting Product or Service. "Conflicting Product or
Service" means any product or service of any person or
organization which is the same as or similar to or improves
upon a product or service of the Corporation about which
Executive acquired Protected Information as a result of
employment by the Corporation.
5.2 During the term of his employment with the Corporation and
during the Restrictive Period, Executive's obligations under
subsection 5.1 shall specifically include but not be limited
to the agreement by Executive not, either directly or
indirectly, to call on or solicit, or to attempt to call on or
solicit, in any manner which could have the effect of taking
away, or attempting to take away, any of the customers of the
Corporation with
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whom he became acquainted during his employment with the Corporation,
either for himself or for any other person, firm, corporation or other
entity. The term "customer" shall include, but not be limited to, both
existing and prospective customer during the term of Executive's
employment.
5.3 During the term of his employment with the Corporation and for a two
year period following Executive's termination of his employment with
the Corporation, Executive shall not, either directly or indirectly,
enter into an agreement with, or solicit or offer employment to,
employees of the Corporation for the purpose of causing them to leave
the employment of the Corporation, provided however that if employees
of the Corporation respond to advertisements placed by Executive
directly or indirectly, Executive shall not be in violation of this
section 5.
5.4 The provisions of this Section 5 shall survive any termination of this
Agreement, Executive acknowledges that a breach of the terms of this
Section 5 will cause immediate and irreparable harm to the Corporation,
and money damages may not be sufficient to compensate the Corporation
for a breach. In the event of a breach or threatened breach of the
provisions of this Section 5, the Corporation shall be entitled to an
injunction restraining or mandating action by Executive to enforce the
terms hereof; and nothing contained herein shall be construed as
prohibiting the Corporation from pursuing any other remedy for such
breach or threatened breach, including the recovery of damages from
Executive.
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6. INVENTIONS/DESIGNS/IMPROVEMENTS
6.1 Executive recognizes and acknowledges that during the course of his
employment, he may either individually or jointly with others, and
either on behalf of the Corporation or on his own, discover, conceive,
make, perfect or develop inventions, improvements, discoveries,
patents, patent applications, design patents, models, prototypes, trade
secrets, computer programs, ideas, techniques, know-how and data,
technical or otherwise, that are related to or in furtherance of the
business or activities of the Corporation (hereinafter collectively
referred to as "Inventions"). Inventions which are related to or in
furtherance of the business or activities of the Corporation include
any business or activity in progress at the Corporation at the date of
or during Executive's employment with the Corporation and projects or
other operations at the Corporation planned for the future.
6.2 Executive further recognizes and agrees that any and all Inventions,
including all Invention related rights in patents, patent applications,
design patents, models, prototypes, copyrights, registrations, trade
secrets and any and all right, title and interest that he might have
therein which are developed during his employment with the Corporation,
are the sole and exclusive property of the Corporation. Executive
agrees that any participation by Executive in the design, discovery,
conception, production, perfection, development or improvement of an
invention by Executive related to or in furtherance of the business or
activities of the Corporation is work done for hire for the sole and
exclusive benefit of the Corporation; and Executive hereby assigns to
the Corporation all of his rights, title and interest in and to any and
all Inventions. Executive's
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obligations under this Section 6 apply without regard to whether the
Invention or an idea of an Invention, or the design, conception,
production, perfection, development or improvement of an Invention,
occurs on the job, at home, or elsewhere.
6.3 Executive also agrees to disclose and does hereby assign to the
Corporation any and all Inventions conceived, made, perfected and
developed, and any and all patent and copyright applications filed,
during the six months immediately subsequent to the termination of his
employment, whether such applications are made individually or jointly
with others, so long as those inventions and applications relate to the
subject matter of Executive's employment on behalf of the Corporation
during the one-year period immediately preceding termination of said
employment.
6.4 At the Corporation's request, from time to time, Executive shall
promptly sign and deliver all documents necessary to vest in the
Corporation all of his right, title and interest in and to such
Inventions and, at the Corporation's request and expense, shall assist
the Corporation in obtaining and defending any patents, or copyright
registrations, or any other form of protection accorded to such
Inventions in the United States or anywhere throughout the world, and
shall assign the same and any patents issued thereon or copyright or
registrations granted thereon, to the corporation.
6.5 Executive acknowledges that a breach of the terms of this Section 6
will cause immediate and irreparable harm to the Corporation, and money
damages may not be sufficient to compensate the Corporation for a
Page 14
<PAGE> 15
breach. In the event of a breach or threatened breach of the provisions
of this Section 6, the Corporation shall be entitled to an injunction
restraining or mandating action by Executive to enforce the terms
hereof; and nothing contained herein shall be construed as prohibiting
the Corporation from pursuing any other remedy for such breach or
threatened breach, including the recovery of damages from Executive.
7. MISCELLANEOUS
7.1 GOVERNING LAW. The Agreement shall be subject to and governed by the
internal laws of the State of Maryland without regard to its conflict
of laws provisions, and without regard to the place of execution or
the place of performance thereof.
7.2 WAIVER. Failure to insist upon strict compliance with any provision
hereof shall not be deemed a waiver of such provision or any other
provision hereof.
7.3 AMENDMENT. This Agreement may not be modified or amended except by an
agreement in writing executed by the parties hereto.
7.4 SEVERABILITY. If any one or more of the provisions contained in this
Agreement shall, for any reason, beheld to be excessively broad as to
time, duration, geographical scope, activity, or subject, it shall be
construed by limiting and reducing it so as to be enforceable to the
extent compatible with the applicable law. If any provision of this
Agreement is contrary to any federal, state, or local statute,
ordinance, or regulation, the parties
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<PAGE> 16
hereby declare that such provision shall be amended to conform to any
such statutory or regulatory provision; and the invalidity or
unenforceability of any provision hereof shall not affect the validity
or enforceability of any other provision. The remaining provisions
shall remain in full force and effect as if the Agreement had been
executed with the invalid or unenforceable provisions eliminated.
7.5 ENTIRE AGREEMENT. This Agreement, together with Exhibit A hereto,
constitutes the entire understanding between the Corporation and
Executive with respect to the subject matter hereof and supersedes any
and all previous agreements and understandings between Executive and
the Corporation concerning the subject matter hereof.
7.6 NON-DISCLOSURE. Executive shall not disclose or confirm to any third
party the existence of, or any material term contained in, this
Agreement (other than disclosure and discussion with legal counsel,
accountants, Executive's immediate family or such other professional,
governmental unit or court as is reasonably deemed necessary by
Executive, which is permitted); and any such non permitted disclosure,
if due to the Executive's actual willful act or gross negligence, shall
subject the Executive to termination for cause pursuant to Section
1.4.2 above.
7.7 COUNTERPARTS. This Employment Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This
Employment Agreement shall become effective upon the execution of
counterpart hereof by each of the parties hereto.
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<PAGE> 17
8. NO ASSIGNMENT
Executive may not assign his rights and/or obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
FOR:
OPTICAL TECHNOLOGY GROUP, INC.
("Corporation"),
by: /s/ RICHARD A. KAY
------------------------------------
Richard A. Kay, President
by: /s/ RONALD W. KAISER
------------------------------------
Ronald W. Kaiser ("Executive")
Page 17
<PAGE> 18
APPENDIX "A" TO EXECUTIVE EMPLOYMENT AGREEMENT
Reasons for Termination with Cause
1. Misappropriation of Corporation funds
2. Embezzlement of Corporation funds
3. Soliciting of a customer's business for personal or personally
competitive gain.
4. Use or sale of illegal drugs in the work place.
5. Physical/mental/sexual abuse of any employee of the Corporation
6. Theft or destruction of Corporation property
7. Conviction of criminal activity in the workplace
8. Flagrant violation of written Corporation procedures/policies.
9. Providing professional services to a competitor while in the employ
of the Corporation without the Corporation's knowledge.
10. Use of Corporation information for material personal gain
11. Breach of any covenant or obligation contained in Section 6 of the
Agreement.
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<PAGE> 19
AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT MADE AS OF
MAY 28,1998, BY AND BETWEEN OPTICAL TECHNOLOGY GROUP,
INC. D/B/A OTG SOFTWARE AND RONALD W. KAISER
(THE "EMPLOYMENT AGREEMENT - AMENDMENT 1").
Whereas, the Corporation and Executive desire to amend the Employment Agreement
pertaining to the employment of the Executive by the Corporation, Corporation
and Executive hereby agree that:
1. Effective January 1, 1999, Section 2.1 of the Employment Agreement shall
be amended such that Executive's Base Salary shall be $187,000 per annum,
instead of $165,000.
2. Effective January 1, 1999, Section 2.2 of the Employment Agreement shall be
amended such that Executive's Bonus shall be 30% of Base Salary, instead of
25% of Base Salary.
3. Corporation and Executive acknowledge that Corporation has charged its name
to "Online Technologies Group, Inc.". All other terms and conditions of the
Employment Agreement shall remain in effect as provided for in the
Employment Agreement.
In Witness whereof, the parties have executed this amendment as of September
15, 1999.
For: Optical Technology Group Inc. ("Corporation") by:
/s/ RICHARD A. KAY
------------------------------------------------
Richard A. Kay, President
Executive, Ronald W. Kaiser, by:
/s/ RONALD W. KAISER
------------------------------------------------
Ronald W. Kaiser
<PAGE> 20
Ronald W. Kaiser
306 Danmark Court
Millersville, Maryland 21108
December 23, 1999
OTG Software, Inc.
6701 Democracy Boulevard
Bethesda, Maryland 20817
Re: Employment Agreement dated May 28, 1998
Gentlemen:
Reference is made hereby to the Employment Agreement dated May 28, 1998
(the "Agreement") between the undersigned Ronald W. Kaiser ("Executive") and
Optical Technology Group, Inc. d/b/a OTG Software, now known as OTG Software,
Inc. (the "Company"). The second sentence of Section 2.3 of the Agreement
provides to the Executive certain rights to be granted additional options to
purchase stock of the Company under circumstances specified therein (the
"Antidilution Rights"). In order to facilitate an initial public offering of
the common stock of the Company, which the executive acknowledges will increase
the value of his existing stock options, and for other good and valuable
consideration, the Executive hereby (a) acknowledges that no events have
occurred as of the date of this letter that have triggered or would trigger his
Antidilution Rights, (b) agrees that the Antidilution Rights do not apply to
and are not triggered by a registered initial public offering of common stock
by the Company (an "IPO") and (c) agrees that the Antidilution Rights will
terminate upon the closing of an IPO.
Except as modified hereby, the Agreement is hereby confirmed to be in full
force and effect. Please indicate your agreement to the modifications of the
Agreement set forth above by signing the enclosed copy of this letter and
returning it to the undersigned.
/s/ Ronald W. Kaiser
----------------------------------
Ronald W. Kaiser
AGREED:
OTG SOFTWARE, INC.
By: /s/ Richard Kay
---------------------------
Name:
Title:
Date: 12/23/93
-------------------------
<PAGE> 1
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of June 9, 1998, is entered into by and among Optical
Technology Group, Inc., a Delaware corporation (the "Company"), Richard A. Kay
("Kay"), F. William Caple ("Caple"), Alexandra Kay ("A. Kay") and ABS Capital
Partners II, L.P., Michael P. Murray and Greylock IX Limited Partnership (the
"Purchasers").
WHEREAS, the Company and the Purchasers have entered into a Note Purchase
Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement, the parties hereto agree as follows:
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, $0.01 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.
"Existing Holders" means Kay, Caple and A. Kay.
"Existing Holders Registrable Shares" means (i) shares of Common Stock
now owned or hereafter acquired by the Existing Stockholders and (ii) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, or similar events); provided,
however, that shares of Common Stock that are Existing Holders Registrable
Shares shall cease to be Existing Holders Registrable Shares (i) upon any sale
pursuant to a Registration Statement or Rule 144 under the Securities Act, (ii)
on the date that is two (2) years from the date when such shares may be sold
under 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 14 of this Agreement, is not
entitled to the rights provided by this Agreement.
"Notes" shall have the meaning specified in Subsection 1.2 of the
Purchase Agreement.
<PAGE> 2
"Purchaser Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon conversion of the Notes and (ii) any other shares of
Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Purchaser Registrable Shares
shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act, (ii) on the date
that is two (2) years from the date when such shares are eligible for sale under
Rule 144(k) under the Securities Act or (iii) upon any sale in any manner to a
person or entity 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 include shares of Common Stock issuable upon conversion of the Notes even
if such conversion has not yet been effected.
"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.
"Registrable Shares" means collectively the Existing Holders
Registrable Shares and the Purchaser Registrable Shares.
"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 collectively the Existing Holders and the
Purchasers.
2. Required Registrations.
(a) At any time after the earlier of June 9, 2000, or the closing of
the Company's first underwritten public offering of shares of Common Stock
pursuant to a Registration Statement, (i) a Stockholder or Stockholders holding
in the aggregate at least 50% of the Existing Holders Registrable Shares may
request, in writing, that the Company effect the registration on Form S-1 or
Form S-2 (or any successor form) of Existing Holders Registrable Shares owned by
such Stockholder or Stockholders that is either at least 25% of the Existing
Holders Registrable Shares or with an aggregate offering price of at least
$10,000,000 (based on the then-current market price or the reasonably
anticipated price to the public) and (ii) a Stockholder or Stockholders holding
in the aggregate at least 50% of the Purchaser Registrable Shares may request,
in writing, that the Company effect the registration on Form S-1 or Form S-2 (or
any successor form) of Purchaser Registrable Shares owned by such Stockholder or
Stockholders that is either at least 25% of the Purchaser Registrable Shares or
with an aggregate
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<PAGE> 3
offering price of at least $10,000,000 (based on the then-current market price
or the reasonably anticipated price to the public). If the holders initiating
the registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request and the Company
shall have the right to approve the underwriter, which approval shall not be
unreasonably withheld. In the event such registration is underwritten, the right
of other Stockholders to participate shall be conditioned on such other
Stockholders' participation in such underwriting. Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of election;
provided that if the underwriter (if any) managing the offering determines that,
because of marketing factors, all of the Registrable Shares requested to be
registered by all Stockholders may not be included in the offering, then all
Stockholders who have requested registration shall participate in the
registration pro rata based upon the number of Registrable Shares which they
have requested to be so registered. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-1 or Form S-2 (or any successor form) of all Registrable Shares which the
Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders may request the Company, in writing,
to effect the registration on Form S-3 (or such successor form), of Registrable
Shares having an aggregate offering price of at least $1,000,000 (based on the
then current public market price). Upon receipt of any such request, the Company
shall promptly give written notice of such proposed registration to all
Stockholders. Such Stockholders shall have the right, by giving written notice
to the Company within 30 days after the Company provides its notice, to elect to
have included in such registration such of their Registrable Shares as such
Stockholders may request in such notice of election; provided that if the
underwriter (if any) managing the offering determines that, because of marketing
factors, all of the Registrable Shares requested to be registered by all
Stockholders may not be included in the offering, then all Stockholders who have
requested registration shall participate in the registration pro rata based upon
the number of Registrable Shares which they have requested to be so registered.
Thereupon, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration on Form S-3 (or such successor form) of all
Registrable Shares which the Company has been requested to so register. The
Company shall have the right to approve any underwriter, which approval shall
not be unreasonably withheld (if any) chosen to underwrite any such registration
on Form S-3 (or any such successor form).
(c) The Company shall not be required to (i) effect at the request of
any holder of Existing Holders Registrable Shares more than three registrations
pursuant to paragraph (a) above or more than three registrations pursuant to
paragraph (b) above or (ii) to effect at the request of any holder of Purchaser
Registrable Shares more than three registrations pursuant to paragraph (a) above
or more than three registrations pursuant to paragraph (b) above. In addition,
the Company shall not be required to effect any registration (other than on Form
S-3 or any successor form relating to secondary offerings) within six months
after the effective date of any other Registration Statement of the Company,
except that such time period will be twelve months in the case of an initial
public offering of shares by the Company.
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<PAGE> 4
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 2, the Company is engaged or has fixed plans to engage
within 30 days of the time of the request in a registered public offering as to
which the Stockholders may include Registrable Shares pursuant to Section 3 or
is engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of 150
days from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any one-year period.
3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 2) 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 its best efforts to cause all Registrable Shares which the Company has
been requested by such Stockholder or Stockholders to prepare and file with the
Commission a Registration Statement with respect to such Registrable Shares to
the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Stockholder or Stockholders and use its best efforts to cause the Registration
Statement to become effective as soon as reasonably practicable thereafter;
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 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 and the Stockholders 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 have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of securities entitled to include them in such registration
shall participate in the registration pro rata based upon the number of
Registrable Shares which they have requested to be so registered. 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.
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<PAGE> 5
4. Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best 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 in the case of a registration statement on Form S-1
and two (2) years in the case of a registration statement on Form S-2 or S-3;
(c) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably 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 best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or 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 or 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; provided, however, that if a
registration under Section 2 is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders elect not to have such registration counted as a
registration requested under Section 2, the requesting Stockholders shall pay
the Registration Expenses of such
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<PAGE> 6
registration pro rata in accordance with the number of their Registrable Shares
included in such registration. 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 up to $20,000 of the fees and expenses 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).
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
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
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 if and
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 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
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<PAGE> 7
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 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 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 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 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 or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 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
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<PAGE> 8
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. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification and contribution by the Company of the underwriters of such
offering.
8. 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.
9. "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 for an initial public offering
and 90 days for any other offering) following the effective date of such
Registration Statement; provided, that all officers and directors of the Company
enter into similar agreements.
10. Rule 144 Requirements. After the earliest of (i) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (ii) the
registration by 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 best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (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.
-8-
<PAGE> 9
11. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Shares" shall be deemed to be references to
the securities which the Stockholders would be entitled to receive in exchange
for Registrable Shares under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 11 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if all Stockholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation which may be immediately sold
to the public without registration under the Securities Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within 90 days of completion of the transaction for resale to the
public pursuant to the Securities Act.
12. Termination. All of the Company's obligations to register Registrable
Shares under this Agreement shall terminate on the tenth anniversary of this
Agreement.
13. Transferability of Rights. This Agreement, and the rights and
obligations of each Stockholder hereunder, may be assigned by such Stockholder
only after the closing of an initial public offering of the Company's Common
Stock.
14. 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 or transmitted by telecopy:
If to the Company, at One Democracy Plaza, 6701 Democracy Boulevard, Suite 805,
Bethesda, Maryland 20817, Attention: President, telecopy: 301-897-4974 or at
such other address or addresses as may have been furnished in writing by the
Company to the Purchasers, with a copy to David Sylvester, Esq., Hale and Dorr
LLP, The Willard Office Building, Suite 1000, 1455 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004, telecopy: 202-942-8484; or
If to a Stockholder, at his or its address set forth on Exhibit A, or at such
other address or addresses as may have been furnished to the Company in writing
by such Purchaser.
Notices provided in accordance with this Section 14(a) shall be deemed delivered
upon personal delivery or two business days after deposit in the mail or, with
respect to a telecopy, at such time as it is delivered to the addressee, with
the answer back being deemed conclusive, but not exclusive, evidence of such
delivery.
(b) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to 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
-9-
<PAGE> 10
particular instance and either retroactively or prospectively), with the written
consent of the Company, Kay and the holders of at least 51% of the Registrable
Shares held by holders other than Kay; provided, that this Agreement may be
amended with the consent of the holders of less than 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 provision of this 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.
(e) 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.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
-10-
<PAGE> 11
Executed as of the date first written above.
THE COMPANY:
OPTICAL TECHNOLOGY GROUP, INC.
By:
--------------------------------
Name:
Title:
KAY:
-------------------------------
Richard A. Kay
CAPLE:
-----------------------------
F. William Caple
A. KAY:
----------------------------
Richard Kay, in his capacity
as custodian for Alexandra
Kay with respect to the
shares of Optical Technology
Group, Inc.
PURCHASERS:
ABS CAPITAL PARTNERS II, L.P.
By: ABS Partners II, L.L.C.
Its General Partner
By:
--------------------------------
Donald B. Hebb, Jr.
Managing Member
--------------------------------
Michael P. Murray
-11-
<PAGE> 12
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership
Its General Partner
By:
------------------------------------
Name:
Title:
EXHIBIT A
ABS Capital Partners II, L.P.
One South Street
Baltimore, MD 21202
Attn: Donald B. Hebb, Jr.
Telecopy: 410-895-4380
Michael P. Murray
BT Alex Brown Incorporated
101 Federal Street
15th Floor
Boston, MA 02110
Telecopy: 617-261-3706
Greylock IX Limited Partnership
One Federal Street
Boston, MA 02110-2065
Attn: Howard Cox
Telecopy: 617-482-0059
-12-
<PAGE> 1
EXHIBIT 16.1
[GRANT THORNTON LETTERHEAD]
February 10, 2000
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
RE: OTG Software, Inc.
Ladies and Gentlemen:
We have read the statements of OTG Software, Inc. (the "Company") included under
the heading, "Change of Auditors" in Amendment Number 2 of the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on February 10, 2000, and we agree with such statements.
Very truly yours,
GRANT THORNTON LLP
/s/ GRANT THORNTON LLP
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. OTG Sales, Inc. (wholly-owned), a Delaware corporation.
<PAGE> 1
CONSENT OF KPMG LLP
EXHIBIT 23.1
ACCOUNTANT'S CONSENT
The Board of Directors
OTG Software, Inc.
We consent to the use of our reports included herein and the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
McLean, Virginia
February 10, 2000
<PAGE> 2
The Board of Directors
OTG Software, Inc.
The audits referred to in our report dated February 4, 2000 included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1999, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
KPMG LLP
McLean, Virginia
February 4, 2000
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