<PAGE>
As filed with the Securities and Exchange Commission on March 15, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
OPNET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
----------------
Delaware 7373 52-1483235
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number)Identification Number)
incorporation or
organization)
3400 International Drive, N.W.
Washington, D. C. 20008
(202) 364-4700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
----------------
Marc A. Cohen
Chairman of the Board and Chief Executive Officer
OPNET TECHNOLOGIES, INC.
3400 International Drive, N.W.
Washington, D.C. 20008
(202) 364-4700
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
Copies to:
Brent B. Siler, Esq. Lorraine Massaro, Esq.
HALE AND DORR LLP MORRISON & FOERSTER LLP
1455 Pennsylvania Avenue, N.W. 1290 Avenue of the Americas
Washington, D.C. 20004 New York, NY 10104
Telephone: (202) 942-8400 Telephone: (212) 468-8000
Telecopy: (202) 942-8484 Telecopy: (212) 468-7900
----------------
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of each class of Aggregate Offering Price Amount of
securities to be registered (1) Registration Fee (2)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per
share $57,500,000.00 $15,180.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed
maximum aggregate offering price.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed without +
+notice. OPNET Technologies, Inc. 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 +
+OPNET Technologies, Inc. is not soliciting offers to buy these securities, in +
+any jurisdiction where the offer or sale of these securities is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus (Not Complete)
Issued March 15, 2000
Shares
[OPNET Logo]
OPNET Technologies, Inc.
Common Stock
-----------
OPNET Technologies, Inc. is offering shares of its common stock. This is
our initial public offering, and no public market currently exists for our
shares. We anticipate that the initial public offering price for our shares
will be between $ and $ per share.
-----------
We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol "OPNT."
Investing in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 7.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Discounts and Commissions to Underwriters................... $ $
Proceeds to OPNET........................................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
OPNET Technologies, Inc. has granted the underwriters the right to purchase
up to an additional shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within thirty days after
the offering. Banc of America Securities LLC expects to deliver the shares of
common stock to investors on , 2000.
Banc of America Securities LLC
Friedman Billings Ramsey
Wit SoundView
-----------
The date of this prospectus is , 2000
<PAGE>
[Gatefold]
OPNET'S VISION: Optimum Network Performance
Predictive network management enables our customers to answer questions and make
decisions relating to future performance of their networks. Traditional network
management systems are reactive and primarily play a reporting role. These
solutions are unable to forecast the impact of important changes that frequently
occur in networks. OPNET's predictive network management products build upon
traditional network and application management solutions to allow our customers
to maintain optimum network performance.
OPNET Logo
A photograph of an individual looking at screen shots from OPNET IT DecisionGuru
and OPNET Modeler appears in the center of the page, surrounded by a circle of
dashes. At the left edge of the circle is the caption "Past and Present
Information." At the right edge of the circle is the caption "Future
Information." At the bottom of the circle is the caption "Software that
Understands Networks."
On the left side of the page, with lines connecting each subject heading to the
circle, is the following text:
Traditional Network Management
Past and Present Information
Service-Level Management
- ----------------------------------------------------------------
.Does performance comply with established service levels?
.Which parts of the business are being affected by network perform-
ance problems?
Performance Management
- ----------------------------------------------------------------
.What is the performance today?
.What are performance trends?
.How is application performance varying over time?
Resource Management
- ----------------------------------------------------------------
.What is the network's infrastructure and how are the network
resources configured?
.Which network resources have failed or are close to failing?
<PAGE>
On the right side of the page, with lines connecting each subject heading to the
circle, is the following text:
Predictive Network Management
Future Information
Predictive Service-Level Management
- ---------------------------------------------------------------
.When will growth trends cause service level agreements to be
violated?
.Which parts of the business will be affected by network
failures?
.How will service levels be affected by network failures?
Predictive Performance Management
- ---------------------------------------------------------------
.How will a new application perform when deployed and how
will it affect the performance of existing applications?
.Why is an application experiencing poor performance within a
network?
.How will network infrastructure changes affect performance?
Predictive Network Traffic Management
- ---------------------------------------------------------------
.How will proposed quality of service policies affect
performance?
.When and where will network bottlenecks develop?
Equipment and Technology Development
- ----------------------------------------------------------------
.How will a new product design perform in a network
environment?
.How will new network technologies, such as digital
subscriber line and wireless, affect the performance of
applications?
Sales Process Acceleration
- ----------------------------------------------------------------
.How can a network be designed to cost-effectively meet
customer requirements?
<PAGE>
[Inside Front cover]
SOFTWARE that Understands Networks
Our OPNET products enable our customers to optimize the performance and maximize
the availability of networks and applications. Our products use predictive
simulation technology to assess future network and application performance under
a wide range of operating conditions.
The below descriptions appear in the left column on this page.
[OPNET IT DecisionGuru Logo]
OPNET IT DecisionGuru
Maximize network availability, optimize network and application performance and
reduce network operating costs.
[OPNET Netbiz Logo]
OPNET Netbiz
Facilitates and accelerates the sales process for network equipment and services
by automating network design and proposal generation.
[OPNET Modeler Logo]
OPNET Modeler
Accelerates development of network equipment and communication protocols by
enabling the testing of product designs in a wide variety of scenarios prior to
manufacturing.
The below photographs and captions appear in the right column on this page.
A photograph of a network control room appears at the top of the column, with
the captions "Service Provider/Carrier" and "Telecommunications carriers, ISPs,
ASPs, Wireless Network Operators, Cable Service Providers." This photograph is
connected by dashed lines to the OPNET IT DecisionGuru and OPNET Netbiz
descriptions in the left column.
A photograph of a group of people sitting around a table appears in the middle,
with the caption "Enterprises." This photograph is connected by a dashed line to
the OPNET IT DecisionGuru description in the left column.
A photograph of a technician working on an item of network equipment appears at
the bottom of the column, with the caption "Network Equipment Manufacturers."
This photograph is linked by dashed lines to the OPNET IT DecisionGuru, OPNET
Netbiz, and OPNET Modeler descriptions in the left column.
<PAGE>
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 only be accurate on the
date of this document.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 30
Management............................................................... 44
Certain Transactions..................................................... 52
Principal Stockholders................................................... 53
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 61
Experts.................................................................. 61
Where You Can Find More Information...................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
IT DecisionGuru(TM), Netbiz(TM), OPNET(R), OPNET Modeler(R), OPNET
Technologies(TM), and OPNETWORK(TM) are trademarks or service marks of OPNET.
Other trademarks or service marks appearing in this prospectus are the property
of their respective holders.
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.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully before making an
investment decision. This prospectus contains forward looking statements, which
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward looking statements as a result of the
factors described under "Risk Factors" and elsewhere in this prospectus.
OPNET Technologies, Inc.
We provide predictive network management software solutions that enable our
customers to optimize the performance and maximize the availability of
communications networks and networked applications. Our suite of products
advances network and application management beyond reactive problem
identification and reporting to proactive problem resolution and avoidance. The
OPNET product suite combines predictive simulation and a comprehensive
understanding of network technologies to enable network professionals to more
effectively design and deploy networks, diagnose network and application
performance problems, and predict the impact of proposed network modifications.
Organizations are becoming increasingly reliant upon their networks and
applications to successfully execute their business strategies. The design,
operation, and management of these networks are becoming more complex, and
service providers and enterprises must now manage the convergence of data,
voice, and video traffic over wireline and wireless architectures, integrating
numerous existing and emerging technologies. As the complexity of networks
continues to increase, so does the need for sophisticated solutions to manage
network resources effectively.
Our OPNET product suite consists of three primary software solutions: OPNET
IT DecisionGuru, OPNET Modeler, and OPNET Netbiz. OPNET IT DecisionGuru enables
service providers and enterprises to more effectively design and deploy
networks and to predict the performance of their networks and applications.
OPNET Modeler enables network equipment manufacturers to accelerate the design
and development of network equipment and communication protocols. OPNET Netbiz
facilitates and accelerates the sales process for service providers and network
equipment manufacturers by automating network design and proposal generation.
In addition, we provide comprehensive libraries of models of a wide range of
network technologies and communication protocols to enable our products to
simulate and analyze networks and applications.
Using our simulation-based products, our customers are more quickly and
cost-effectively able to:
. design, deploy, and operate new networks, network services, and network
equipment;
. adapt their existing network infrastructure and network services to meet
their business-critical performance objectives;
. proactively identify and avoid network and application performance
problems;
. define achievable performance and availability requirements for network
services and applications, commonly known as service level agreements;
and
. streamline the sales process for network services and network equipment.
We sell our products through our direct sales force, our international
distributors, and original equipment manufacturers and resellers. We market our
products to service providers, such as telecommunications carriers, Internet
service providers, or ISPs, and application service providers, or ASPs, large
and medium-sized enterprises, and network equipment manufacturers. Since
inception, we have sold our products to over 500 customers, including service
providers, such as AT&T, British Telecom, MCI WorldCom, SBC Communications,
Sprint, UUNET Technologies, and Vodafone Airtouch; enterprises, such as Boeing,
IBM, National Semiconductor, RR Donnelley, and Texas Utilities; and network
equipment manufacturers, such as 3Com, Cisco Systems, Ericsson, Motorola,
Nokia, and Nortel Networks.
4
<PAGE>
We intend to enhance our leadership position in the expanding market for
predictive network management software solutions by:
. increasing penetration of the service provider market;
. expanding our direct and international sales efforts;
. leveraging our existing customer base;
. introducing new products and enhancing the functionality of existing
products; and
. developing additional strategic relationships.
----------------
Our corporate offices are located at 3400 International Drive, N.W.,
Washington, D.C. 20008 and our telephone number is (202) 364-4700. Our
predecessor was incorporated in Maryland under the name MIL 3, Incorporated on
November 1, 1986, and we incorporated in Delaware on November 23, 1988 under
the same name. We changed our name to OPNET Technologies, Inc. on February 2,
2000. Our Web address is www.opnet-tech.com. We do not intend the information
on our Web site to constitute part of this prospectus.
----------------
Except as otherwise indicated, information in this prospectus:
. reflects a -for- stock split of all outstanding shares of our common
stock to be effected prior to the completion of this offering;
. gives effect to the conversion of all outstanding convertible preferred
stock into an aggregate of shares of our common stock, which will
occur automatically upon the completion of this offering;
. assumes our common stock will be sold at $ per share, which is the
mid-point of the range shown on the cover of this prospectus; and
. assumes the underwriters do not exercise their over-allotment option to
purchase additional shares in this offering.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by OPNET....................... shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... For general corporate
purposes, including
working capital and
capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. OPNT
</TABLE>
The number of shares to be outstanding after this offering excludes:
. shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $ per share;
and
. shares of common stock reserved for future issuance under our stock
plans.
Summary Consolidated Financial Data
The following table is a summary of the financial data for our business. You
should read this information together with our 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 balance sheet data gives
effect to the conversion of all our outstanding convertible preferred stock
into shares of our common stock, which will occur automatically upon the
completion of this offering. 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. See note
1 to our consolidated financial statements for information regarding shares
used in computing basic and diluted net income (loss) applicable per common
share.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
------------------------------------ ---------------
1995 1996 1997 1998 1999 1998 1999
------ ------ ------ ------- ------- ------ -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $4,892 $5,989 $8,615 $11,929 $12,003 $8,348 $13,451
Gross profit............ 4,345 5,331 7,607 10,514 10,621 7,380 10,928
Income (loss) from
operations............. 1,596 1,360 2,505 2,590 (269) (533) 192
Net income (loss)....... 997 872 1,492 1,775 207 (30) 337
Net income (loss)
applicable to common
shares................. 997 872 1,492 1,766 193 (41) 326
Basic net income (loss)
applicable per common
share.................. $ 0.09 $ 0.11 $ 0.19 $ 0.24 $ 0.03 $(0.01) $ 0.05
Diluted net income
(loss) per common
share.................. $ 0.09 $ 0.11 $ 0.19 $ 0.21 $ 0.02 $(0.01) $ 0.04
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 6,414 $ 6,414
Working capital................................... 6,806 6,806
Total assets...................................... 13,205 13,205
Total stockholders' equity........................ 2,737 9,671
</TABLE>
6
<PAGE>
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 future operating results and
could result in a partial or complete loss of your investment.
Risks Related to Our Business and Industry
Our operating results may fluctuate significantly as a result of factors
outside of our control, which could cause the market price of our stock to
decline
Our operating results have fluctuated in the past, and are likely to
fluctuate significantly in the future. Our financial results may as a
consequence fall short of the expectations of public market analysts or
investors. If this occurs, the price of our common stock may decline. Our
revenues and operating results may vary significantly from quarter to quarter
due to a number of factors, many of which are beyond our control. Factors that
could affect our operating results include:
. the timing of large orders;
. changes in the mix of our sales, including the mix between higher margin
software products and somewhat lower margin services and maintenance, and
the proportion of our license sales requiring us to make royalty
payments;
. 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 network technology or in applications, which could require us
to modify our products or develop new products;
. general economic conditions, which can affect our customers' purchasing
decisions and the length of our sales cycle;
. changes in our pricing policies or those of our competitors; and
. the timing and size of potential acquisitions by us.
We expect to make significant expenditures in all areas of our business,
particularly sales and marketing operations, in order to promote future growth.
Because the expenses associated with these activities are relatively fixed in
the short term, we may be unable to adjust spending quickly enough to offset
any unexpected shortfall in revenue growth or any decrease in revenue levels.
In addition, our revenues in any quarter depend substantially on orders we
receive and ship in that quarter. We typically receive a significant portion of
orders in any quarter during the last month of the quarter, and we cannot
predict whether those orders will be placed and shipped in that period. If we
have lower revenues than we expect, we probably will not be able to reduce our
operating expenses quickly in response. Therefore, any significant shortfall in
revenues or delay of customer orders could have an immediate adverse effect on
our operating results in that quarter.
For all of these reasons, quarterly comparisons of our financial results are
not necessarily meaningful and you should not rely on them as an indication of
our future performance.
The market for predictive network management software is new and evolving, and
we are not sure that this market will develop
We derive all of our revenues from the sale of products and services that
are designed to allow our customers to manage the performance of networks and
applications. The market for predictive
7
<PAGE>
network management software solutions is in an early stage of development.
Therefore, we cannot accurately assess the size of the market and may be unable
to identify an effective distribution strategy, the competitive environment
that will develop, and the appropriate features and prices for products to
address the market. If we are to be successful, our current and potential
customers must recognize the value of predictive network management software
solutions, decide to invest in the management of their networks, and, in
particular, adopt and continue to use our software solutions. Any failure of
this market to continue to develop would compromise our ability to grow and
generate revenues and would cause our business and financial results to suffer.
Our business could suffer if service providers do not buy our products
A key element of our strategy is to increase sales to service providers. Our
future performance will be significantly dependent upon increased adoption by
service providers of our software products. The failure of our products to
perform favorably in the service provider environment or to gain wider adoption
by service providers could have a negative effect on our business and future
operating results.
We expect that our newest products, OPNET IT DecisionGuru and OPNET Netbiz,
will generate a substantial portion of our revenues in the future, and our
business will be harmed if these products do not gain widespread market
acceptance
We expect to derive a substantial portion of our revenues in the future from
OPNET IT DecisionGuru and OPNET Netbiz, both of which were released in August
1998. To date, we have not achieved widespread market acceptance of either
product. Our business depends on customer acceptance of these products and
would be harmed if our target customers do not adopt and expand their use of
OPNET IT DecisionGuru and OPNET Netbiz. In addition, if our OPNET Modeler
product, which we have been selling since 1987, encounters declining sales,
which could occur for a variety of reasons, including market saturation, and
sales of our newer products do not grow at a rate sufficient to offset the
shortfall, our business could be harmed.
Our business will suffer if we do not expand our sales force
We sell our products primarily through our direct sales force. We must
expand the size of our sales force to increase revenues. Our sales people
require a long period of time to become productive, typically three to six
months. The time required to reach productivity, as well as the challenge of
attracting, training, and retaining qualified candidates, may make it difficult
to meet our sales force growth targets. Further, we may not generate sufficient
sales to offset the increased expense resulting from growing our sales force or
we may be unable to manage a larger sales force. If we are unable to hire or
retain qualified sales personnel, if newly hired personnel fail to develop the
necessary skills to be productive, or if they reach productivity more slowly
than anticipated, our ability to increase our revenues could be compromised and
our business could be harmed.
Our business will suffer if we do not expand and manage indirect distribution
channels
To increase our sales, we must, among other things, further expand and
manage our indirect distribution channels, which consist primarily of our
international distributors and original equipment manufacturers and resellers.
Sales through our indirect distribution channels accounted for 31.3% of our
total revenues for the fiscal year ended March 31, 1997, 29.8% for the fiscal
year ended March 31, 1998, and 26.9% for the fiscal year ended March 31, 1999.
Our international distributors and original equipment manufacturers and
resellers have no obligation to market or purchase our products. In addition,
they could partner with our competitors, bundle or resell competitors'
products, or internally develop products that compete with our products. Our
inability to expand and manage our relationships with our distributors, the
8
<PAGE>
inability or unwillingness of our distributors to effectively market and sell
our products, or the loss of existing distribution relationships could harm our
business and financial results.
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 expand our operations, and the number of our full-time
employees has grown substantially. We have grown from a total of 89 employees
at March 31, 1999 to a total of 139 employees at February 29, 2000. Our rapid
growth has sometimes strained, and may in the future continue to strain, our
managerial, administrative, operational, and financial resources and controls.
Our ability to manage growth will depend in part on our ability to continue to
enhance our operating, financial, and management information systems. We cannot
assure you that our personnel, systems, and controls will be adequate to
support our growth. We also cannot assure you that our revenues will continue
to grow at a sufficient rate to absorb the costs associated with a larger
overall employee base. If we are unable to manage our growth effectively, our
business and financial results could suffer.
If we are unable to introduce new and enhanced products on a timely basis that
respond effectively to changing technology, our revenues may decline
Our market is characterized by rapid technological change, changes in
customer requirements, frequent new product and service introductions and
enhancements, and evolving industry standards. Advances in network management
technology, software engineering, simulation technology, or the emergence of
new industry standards, could lead to new competitive products that have better
performance, more features, or lower prices than our products and could render
our products obsolete and unmarketable. In addition, the introduction and
adoption of future network technologies or application architectures could
reduce or eliminate the need for predictive network management software. If we
are unable to develop and introduce new and enhanced products on a timely basis
that respond to changing technology and satisfy customer requirements, our
business could be seriously harmed.
We depend on key personnel and must attract and retain additional qualified
personnel to be successful
Our future success and our ability to sustain our revenue growth depend upon
the continued service of our executive officers and other key sales and
research and development personnel. The loss of any of our key employees, in
particular Marc A. Cohen, our chairman of the board and chief executive
officer, and Alain J. Cohen, our president and chief technology officer, could
adversely affect our business. We do not have employment agreements or any
other agreements that obligate any of our officers or key employees to remain
with us. We must also continue to hire large numbers of highly qualified
individuals, particularly software engineers, sales and marketing personnel.
Competition for these individuals is intense, and we may not be able to attract
and retain additional highly qualified personnel in the future. Our failure to
attract and retain technical personnel for our product development, consulting
services, and technical support teams may limit our ability to develop new
products or product enhancements.
To achieve our business objectives, we 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 and retain necessary qualified personnel.
This may have a negative effect on our business and future operating results.
We face risks from the expansion of our international operations
Sales of our products to customers outside North America accounted for 34.0%
of our total revenues in fiscal 1997, 31.8% of our total revenues in fiscal
1998, and 29.3% of our total revenues in the fiscal 1999. We plan to increase
our international sales activities, but these plans are subject to a number of
risks, including:
9
<PAGE>
. greater difficulty in accounts receivable collection and longer
collection periods;
. political and economic instability;
. difficulty in attracting distributors that will market and support our
products effectively;
. the need to comply with varying employment policies and regulations that
could make it more difficult and expensive to manage our employees if we
need to establish direct sales or support staff outside the United
States;
. potentially adverse tax consequences; and
. the effects of currency fluctuations.
Expanding our OPNET Netbiz consulting services business will be costly and may
not result in any benefit to us
We have recently begun to place additional emphasis on consulting services
delivered in conjunction with sales of OPNET Netbiz. We have historically
derived an insignificant amount of revenues from these consulting services. If
OPNET Netbiz does not achieve significant market acceptance, our customers will
not engage our consulting services organization to assist with consulting,
custom development, implementation support, and training for OPNET Netbiz. In
addition, we may be unable to attract or retain a sufficient number of the
highly qualified consulting services personnel that we expect the expansion of
our consulting services business will require. The expansion of our consulting
services business has required, and will continue to require, significant
additional expenditures and operational resources. The need for these
additional resources will place further strain on our management, financial,
and operational resources and may make it more difficult for us to maintain
profitability.
We face intense competition, which could cause us to lose sales
The market for predictive network management software is evolving rapidly
and is highly competitive. We believe that this market is likely to become more
competitive as the demand for predictive network management solutions continues
to increase. Many of our current and potential competitors are larger and have
substantially greater financial and technical resources than we do.
OPNET Modeler and OPNET IT DecisionGuru currently face or potentially will
face competition from several sources, including:
. software vendors with predictive network management offerings, such as
Compuware, and application performance diagnosis solutions, such as
Optimal Networks;
. consultants who offer predictive network management advisory services;
and
. customers who develop their own predictive network management
capabilities, either internally or through outsourcing.
OPNET Netbiz also competes with solutions designed to facilitate and automate
sales processes in general.
In addition, it is possible that other vendors as well as some of our
customers or distributors will develop and market solutions that compete with
our products in the future.
If the infrastructure of the Internet does not grow as currently anticipated,
revenues from sales of our OPNET Netbiz product will be harmed
Our OPNET Netbiz product addresses a new and emerging market for sales
process automation, including over the Internet, by service providers and
network equipment manufacturers. The failure of this market to
10
<PAGE>
develop, or a delay in the development of this market, would seriously harm our
business. The success of OPNET Netbiz depends substantially upon the widespread
adoption of the Internet as a primary medium for commerce and business
applications. Moreover, critical issues concerning the commercial use of the
Internet, such as security, reliability, cost, accessibility, and quality of
service, remain unresolved and may negatively affect the growth of Internet use
or the attractiveness of commerce and business communication over the Internet.
Errors in our products could harm our reputation and could cause our customers
to demand refunds from us or assert claims for damages against us, which could
harm our business and future operating results
Our software products could contain significant errors or bugs. Bugs may be
discovered at any point in a product's life cycle. We expect that errors in our
products will be found in the future, particularly in new product offerings and
new releases of our current products, Although many of these errors may prove
to be immaterial, there may be some errors that are significant and could harm
our business and future operating results. Any significant errors may result
in:
. the loss of or delay in market acceptance and sales of our products;
. the delay in introduction of new products;
. diversion of our resources;
. injury to our reputation; and
. increased support costs.
Because our customers use our products to manage networks that are critical
to their business operations, any failure of our products could expose us to
product liability claims. In addition, errors in our products could cause our
customers' networks and systems to fail or compromise their data, which could
also result in liability to us. Although our license agreements with our
customers typically contain provisions to limit our exposure to potential
product liability claims, not all domestic and international jurisdictions may
enforce these limitations. Product liability claims brought against us could
divert the attention of management and key personnel, could be expensive to
defend, and may result in adverse settlements and judgments.
Our software products rely on our intellectual property, and any failure to
protect our intellectual property could enable our competitors to market
products with similar features that may reduce demand for our products, and
could allow the use of our products by users who have not paid the required
license fee
Our success and ability to compete depend substantially upon the internally
developed technology that is incorporated in 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 the laws may not protect our proprietary rights as fully as
those in the United States. We protect our intellectual property through a
combination of patent, copyright, trade secret, and trademark law, as well as
copy protection mechanisms embedded in our software products. We generally
enter into a combination of confidentiality, non-disclosure, and license
agreements with our customers, consultants, and organizations with which we
have relationships. We also limit access to our source code and other
intellectual property and limit the distribution of our software,
documentation, and other proprietary information. We also enter into a
combination of confidentiality, non-competition, and non-disclosure agreements
with our employees. These measures afford only limited protection and may be
inadequate, especially because our employees are highly sought after and may
leave our employ with significant knowledge of our proprietary information. In
addition, any confidentiality, non-competition, and non-disclosure agreements
we enter into may be found to be unenforceable, or our copy protection
mechanisms could fail or could be circumvented. Others may develop technologies
that are similar or superior to our technology or circumvent the patents,
copyrights, and trade secrets we own.
11
<PAGE>
Our products employ technology that may infringe on the proprietary rights of
others, and, as a result, we could become liable for significant damages
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 functionalities of products in different industry segments
overlap. Third parties may claim that we infringe on 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 us to cease or delay product shipments; or
. require us to enter into royalty or licensing agreements.
These royalty or licensing agreements 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
adversely affect our business because we would not be able to sell the affected
product without redeveloping it or incurring significant additional expense.
If we undertake acquisitions, they may be expensive and disruptive to our
business and could harm our business, future operations, and market price of
our common stock
We may acquire or make investments in companies, products, or technologies
if opportunities arise. We may not be able to identify future suitable
acquisition or investment candidates, and if we do identify suitable
candidates, we may not be able to make these acquisitions or investments on
commercially acceptable terms or at all. If we make an acquisition, we could
have difficulty integrating the acquired technology, employees, or operations.
In addition, the key personnel of the acquired company may decide not to work
for us. These difficulties could disrupt our ongoing business, distract our
management and employees, and increase our expenses. We also expect that we
would incur substantial expenses if we acquired other businesses or
technologies. We might use the net proceeds of this offering, incur debt, or
issue equity securities to pay for any future acquisitions. If we issue
additional equity securities, our stockholders could experience dilution and
the market price of our stock may decline.
Our products are subject to changing computing environments, including
operating system software and hardware platforms, which could render our
products obsolete
Computing environments, including operating system software and hardware
platforms, are complex and change rapidly. Our products are designed to operate
in currently popular computing environments. The evolution of existing
computing environments and the introduction of new popular computing
environments may require us to redesign our products or develop new products.
Due to the long development and testing periods required to adapt our products
to new or modified computing environments, we could experience significant
delays in product releases or shipments, which could result in lost revenues
and significant additional expense.
12
<PAGE>
Risks Related to this Offering
Our stock price may be volatile which could lead to losses by investors and to
securities litigation
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
this offering. The initial public offering price may not be indicative of the
prices that will prevail in the public market after this offering, and the
market price of our common stock could fall below the initial public offering
price.
The value of your investment could decline due to the impact of any of the
following factors upon the market price of our common stock:
. variations in our actual and anticipated operating results;
. changes in estimates of our earnings by market analysts;
. our failure to meet analysts' performance expectations; and
. lack of liquidity.
In addition, stock markets, particularly the Nasdaq National Market, have
experienced extreme price and volume fluctuations, and the market prices of
securities of technology companies, including software companies, have been
highly volatile. These fluctuations have often been unrelated to the operating
performance of these companies. Fluctuations such as these may affect the
market price of our common stock. Substantial sales of our common stock after
this offering could also cause our stock price to decline. As a result,
investors may not be able to resell their shares at or above the initial public
offering price.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in their stock price. This
type of litigation could result in substantial costs and divert our
management's attention and resources.
Our officers, directors, and their affiliates hold a majority of our stock and,
as a result, control us 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
% of our outstanding common stock after the completion of this offering. This
could limit the ability of our other stockholders to influence matters
requiring approval by our stockholders, including the election of directors and
the approval of mergers or similar transactions.
The provisions of our charter documents and Delaware law could delay or prevent
the sale of our company and diminish the voting rights of the holders of our
common stock
There are provisions in our certificate of incorporation and by-laws that
make it more difficult for a third party to acquire, or attempt to acquire,
control of our company, even if a change in control would result in the
purchase of your shares at a premium to the market price. For example, 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, the market price of
our common stock 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.
Our charter documents contain other provisions that could have an anti-
takeover effect, including:
. only one of the three classes of directors is elected each year;
. stockholders have limited ability to remove directors;
. stockholders cannot take actions by written consent;
13
<PAGE>
. 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 General Corporation Law, 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.
These provisions may also prevent changes in our management.
The substantial number of shares that will be eligible for sale in the near
future could cause our common stock price to decline
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of outstanding options. Of
these shares, the shares sold in this offering will be freely tradable,
and additional shares of common stock will be available for sale in the
public market 180 days after the date of this prospectus following the
expiration of lock-up agreements between our stockholders and the underwriters.
These stockholders may be released from their lock-up agreements with the
underwriters at any time and without notice, which would allow for earlier sale
of shares in the public market.
If you invest in this offering, you will experience immediate and substantial
dilution
We expect that the initial public offering price of our common stock will be
substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire our common stock at prices significantly below the initial public
offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering. The
section headed "Dilution" appearing elsewhere in this prospectus contains more
information regarding the dilution you will experience if you invest in this
offering.
14
<PAGE>
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," "plan," "potential," "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 captioned "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>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common
stock we are offering will be approximately $ million, or approximately
$ million if the underwriters exercise their over-allotment option,
assuming an initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us. The primary purposes of this offering are to obtain
additional equity capital, create a public market for our common stock, and
facilitate future access to public markets.
We intend to use the net proceeds of this offering for general corporate
purposes, including working capital and capital expenditures. Although we may
use a portion of the net proceeds to acquire businesses, products, or
technologies that are complementary to our business, we currently have no
specific acquisitions planned.
Pending their use, we plan to invest the net proceeds in investment grade,
interest-bearing securities.
DIVIDEND POLICY
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.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all
outstanding convertible preferred stock into common stock on the
completion of this offering; and
. on a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered by us in this offering and our receipt 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.
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 consolidated 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>
Long-term debt................................. $ -- $ -- $ --
-------- ------- ------
Series A redeemable convertible preferred
stock, $.001 par value;
160,000 shares authorized, 144,640 shares
issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma
and
pro forma as adjusted......................... 6,945 -- --
Stockholders' equity:
Preferred stock, undesignated, $.001 par
value; 5,000,000 shares authorized; no
shares issued and outstanding, actual, pro
forma
and pro forma as adjusted................... -- -- --
Common stock, $.001 par value; 100,000,000
shares authorized; shares issued and
outstanding, actual; shares
issued and outstanding, pro forma;
shares issued and
outstanding, pro forma as adjusted.......... 11 13
Additional paid-in capital................... 296 7,239
Deferred compensation........................ (106) (106)
Retained earnings............................ 6,890 6,890
Treasury stock............................... (4,010) (4,010)
-------- ------- ------
Total stockholders' equity................. 3,081 10,026
-------- ------- ------
Total capitalization..................... $ 10,026 $10,026 $
======== ======= ======
</TABLE>
The outstanding share information excludes:
. shares of common stock issuable upon exercise of outstanding options
as of December 31, 1999, at a weighted average exercise price of $ per
share; and
. shares of common stock reserved at December 31, 1999 for future
issuance under our stock plan.
After December 31, 1999, we issued additional options exercisable to
purchase up to shares of our common stock at a weighted average exercise
price of $ per share, and options to purchase shares of our common
stock were exercised. In addition, after December 31, 1999, we reserved an
additional shares of common stock for issuance under our new stock plans.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $9.4
million, or $ per share of common stock. We have calculated this amount by:
. subtracting our total liabilities from total tangible assets; 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 automatic conversion of all convertible
preferred stock upon the completion of this offering.
If we give effect to our sale of shares of common stock in this offering
at an assumed initial public offering price of $ 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 $ million, or $ per share. This amount
represents an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share before this offering... $
Increase in pro forma net tangible book value per share
attributable to new investors.....................................
----
Pro forma net tangible book value per share after this offering......
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table summarizes, as of December 31, 1999, after giving effect
to the conversion of the convertible preferred stock 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 $ 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........... % $ 3,191,576 % $
New investors................... $
--- ----- ------------ -------
Total......................... 100.0% $ 100.0%
=== ===== ============ =======
</TABLE>
If the underwriters exercise their over-allotment option in full, the number
of shares held by new investors will increase to shares, or % of the
total shares of common stock outstanding after this offering, and the number of
shares held by existing stockholders will be reduced to % of the total shares
of common stock outstanding after this offering.
The table above assumes no exercise of stock options outstanding at December
31, 1999. As of December 31, 1999, there were options outstanding to purchase
shares of common stock at a weighted average exercise price of $ per
share. To the extent any of these options are exercised, there will be further
dilution to new investors. To the extent all of these outstanding options had
been exercised as of December 31, 1999, pro forma net tangible book value per
share after this offering would have been $ and total dilution per share to
new investors would have been $ .
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes
and "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 March 31, 1997, 1998 and 1999, and the balance sheet
data as of March 31, 1998, and 1999, are derived from, and are qualified by
reference to, our audited consolidated financial statements included in this
prospectus. The balance sheet data as of March 31, 1997 is derived from our
audited consolidated financial statements that are not included in this
prospectus. The statement of operations data for the years ended March 31, 1995
and 1996, and the balance sheet data as of March 31, 1995 and 1996, are derived
from our unaudited consolidated financial statements that are not included in
this prospectus. The statement of operations data for the nine months ended
December 31, 1998 and 1999, and the balance sheet data as of December 31, 1999,
are derived from the unaudited consolidated financial statements included in
this prospectus. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
and, in the opinion of our management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. Historical results are not necessarily
indicative of results that may be expected for any future period. See note 1 to
our consolidated financial statements for information regarding shares used in
computing basic and diluted net income (loss) applicable per common share.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
------------------------------------- ---------------
1995 1996 1997 1998 1999 1998 1999
------ ------ ------ ------- ------- ------ -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software licenses..... $3,536 $3,908 $5,596 $ 7,875 $ 6,715 $4,580 $ 7,382
Services.............. 1,356 2,081 3,019 4,054 5,288 3,768 6,069
------ ------ ------ ------- ------- ------ -------
Total revenues...... 4,892 5,989 8,615 11,929 12,003 8,348 13,451
------ ------ ------ ------- ------- ------ -------
Cost of revenues:
Software licenses..... 181 93 310 435 133 114 474
Services.............. 366 565 698 980 1,249 854 2,049
------ ------ ------ ------- ------- ------ -------
Total cost of
revenues........... 547 658 1,008 1,415 1,382 968 2,523
------ ------ ------ ------- ------- ------ -------
Gross profit............ 4,345 5,331 7,607 10,514 10,621 7,380 10,928
Operating expenses:
Research and
development.......... 1,333 1,809 2,055 3,190 4,850 3,694 4,092
Sales and marketing... 1,197 1,788 2,228 3,398 4,056 2,872 5,142
General and
administrative....... 219 374 819 1,336 1,984 1,347 1,502
------ ------ ------ ------- ------- ------ -------
Total operating
expenses........... 2,749 3,971 5,102 7,924 10,890 7,913 10,736
------ ------ ------ ------- ------- ------ -------
Income (loss) from
operations............. 1,596 1,360 2,505 2,590 (269) (533) 192
Interest and other
income................. 65 93 92 319 376 299 273
------ ------ ------ ------- ------- ------ -------
Income (loss) before
provision (benefit) for
income taxes........... 1,661 1,453 2,597 2,909 107 (234) 465
Provision (benefit) for
income taxes........... 664 581 1,105 1,134 (100) (204) 128
------ ------ ------ ------- ------- ------ -------
Net income (loss)....... 997 872 1,492 1,775 207 (30) 337
Accretion of transaction
costs on redeemable
convertible preferred
stock.................. -- -- -- (9) (14) (11) (11)
------ ------ ------ ------- ------- ------ -------
Net income (loss)
applicable to common
shares................. $ 997 $ 872 $1,492 $ 1,766 $ 193 $ (41) $ 326
====== ====== ====== ======= ======= ====== =======
Basic net income (loss)
applicable per common
share.................. $ 0.09 $ 0.11 $ 0.19 $ 0.24 $ 0.03 $(0.01) $ 0.05
====== ====== ====== ======= ======= ====== =======
Diluted net income
(loss) per common
share.................. $ 0.09 $ 0.11 $ 0.19 $ 0.21 $ 0.02 $(0.01) $ 0.04
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
March 31,
------------------------------------ December 31,
1995 1996 1997 1998 1999 1999
------ ------ ------ ------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents... $1,701 $1,358 $2,178 $ 7,227 $ 6,414 $ 4,672
Working capital ............ 1,641 1,682 3,280 8,135 6,806 7,008
Total assets................ 3,268 3,853 5,887 11,833 13,205 16,493
Redeemable convertible
preferred stock............ -- -- -- 6,920 6,934 6,945
Total stockholders' equity.. 2,061 2,584 4,077 2,480 2,737 3,081
</TABLE>
19
<PAGE>
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. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
We provide predictive network management software solutions that enable our
customers to optimize the performance and maximize the availability of networks
and applications. Our product suite consists of three primary software
products: OPNET IT DecisionGuru, OPNET Modeler, and OPNET Netbiz. We sell our
OPNET suite of products to service providers, including telecommunications
carriers, ISPs, and ASPs, large and medium-sized organizations, and network
equipment manufacturers. We market our product suite in North America primarily
through a direct sales force and, to a lesser extent, several resellers and
original equipment manufacturers. Internationally, we market our products
primarily through third-party distributors.
We sold our first products in 1987. Our operations have been financed
principally through cash provided by operations and a venture financing in
October 1997. In August 1998, we introduced our OPNET IT DecisionGuru and OPNET
Netbiz products and began a new marketing and sales strategy to focus on these
new products.
We generate revenues principally from licensing our software products and
providing related services, including maintenance and technical support,
consulting, and training.
Our software license revenues consist of license sales of our software
products and royalty income. Software license revenues are recognized upon
shipment, provided that fees are fixed and determinable, no significant
modifications to the product are required, and collection of the related
receivable is probable. Where significant modifications are required, software
license revenues are recognized along with consulting fees on a percentage-of-
completion basis as the modifications are performed. We generally offer our
customers an opportunity to evaluate our software and we generally do not allow
returns.
Our service revenues consist of fees from maintenance and technical support
agreements, consulting services, and training. The maintenance agreements
covering our products provide for technical support and periodic product
upgrades. Revenues from maintenance and technical support agreements are
deferred and recognized ratably over the support period. We offer consulting
services primarily to provide product customization and enhancements.
Consulting services are generally performed under fixed-price agreements and
recognized as the work is performed on a percentage-of-completion basis. We
provide classroom and on-site training to our customers on a daily fee basis.
Software license revenues and service revenues for which payment has been
received or invoiced, but that do not yet qualify for recognition as revenues,
are reflected as deferred revenues.
Revenues from sales outside of North America represented 34.0%, 31.8%, and
29.3% of our total revenues in the fiscal years ended March 31, 1997, 1998, and
1999, respectively, and 32.3% and 21.5% for the nine months ended December 31,
1998 and 1999, respectively. Sales outside North America are primarily through
our third-party distributors, which are generally responsible for providing
technical support and service to customers within their territory. We expect
revenues from sales outside North America to continue to account for a
significant portion of our total revenues in the future.
20
<PAGE>
After our venture financing in October 1997, we implemented a plan to
diversify our product line and accelerated the development of our OPNET IT
DecisionGuru and OPNET Netbiz products. As a result, research and development
expenses increased significantly from fiscal 1998 to fiscal 1999. Also in the
quarter ended September 30, 1998, we began to increase our sales and marketing
staff to promote and sell our new products. Since that time, we have further
expanded our sales and marketing staff and expect to continue this expansion to
aggresively market our new products.
In March 1999, we entered into a two-year agreement with Cadence Design
Systems that required us to make an aggregate payment of $1.0 million to
Cadence and requires us to pay to Cadence a 50% royalty on specified sales of
OPNET Modeler products sold to the portion of Cadence's customer base that use
an existing Cadence product. In the nine months ended December 31, 1999, we
made aggregate royalty payments to Cadence of $323,000, representing 4.4% of
our software license revenues for that period. We are amortizing the $1.0
million payment over the two-year marketing support period under the agreement
as part of sales and marketing expenses, and we charge the royalty payments to
cost of software license revenues as the related revenue is recognized.
At various dates during the nine months ended December 31, 1999, we granted
a total of options to employees with exercise prices below the estimated
fair market value at the dates of grant. We recorded compensation expense of
$15,000 for the nine months ended December 31, 1999 resulting in a remaining
deferred compensation balance of $106,000 at December 31, 1999. In addition,
during January 2000, we granted an additional options to employees with
exercise prices below the estimated fair market value at the dates of grant.
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>
Nine Months Ended
Year Ended March 31, December 31,
---------------------- -------------------
1997 1998 1999 1998 1999
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.............. 65.0% 66.0% 55.9% 54.9% 54.9%
Services....................... 35.0 34.0 44.1 45.1 45.1
------ ------ ------ -------- --------
Total revenues............... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ -------- --------
Cost of revenues:
Software licenses.............. 3.6 3.6 1.1 1.4 3.5
Services....................... 8.1 8.2 10.4 10.2 15.2
------ ------ ------ -------- --------
Total cost of revenues....... 11.7 11.8 11.5 11.6 18.7
------ ------ ------ -------- --------
Gross profit..................... 88.3 88.2 88.5 88.4 81.3
Operating expenses:
Research and development....... 23.9 26.7 40.4 44.3 30.4
Sales and marketing............ 25.9 28.5 33.8 34.4 38.2
General and administrative..... 9.5 11.2 16.5 16.1 11.2
------ ------ ------ -------- --------
Total operating expenses..... 59.3 66.4 90.7 94.8 79.8
------ ------ ------ -------- --------
Income (loss) from operations.... 29.0 21.8 (2.2) (6.4) 1.5
Interest and other income........ 1.1 2.7 3.1 3.6 2.0
------ ------ ------ -------- --------
Income (loss) before provision
(benefit) for income taxes...... 30.1 24.5 0.9 (2.8) 3.5
Provision (benefit) for income
taxes........................... 12.8 9.5 (0.8) (2.4) 1.0
------ ------ ------ -------- --------
Net income (loss)................ 17.3% 15.0% 1.7% (0.4)% 2.5%
====== ====== ====== ======== ========
</TABLE>
21
<PAGE>
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>
Year Ended Nine Months Ended
March 31, December 31,
------------------- ------------------
1997 1998 1999 1998 1999
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Cost of software license revenues..... 5.5% 5.5% 2.0% 2.5% 6.4%
Cost of service revenues.............. 23.1 24.2 23.6 22.7 33.8
</TABLE>
Comparison of nine months ended December 31, 1998 and 1999
Revenues
Total revenues increased 61.1% from $8.3 million for the nine months ended
December 31, 1998 to $13.5 million for the nine months ended December 31, 1999.
We believe that the percentage increase in our total revenues achieved in this
period is not necessarily indicative of future results. Software license
revenues were 54.9% of total revenues for the nine months ended December 31,
1998 and December 31, 1999.
Software license revenues. Software license revenues increased 61.2% from
$4.6 million for the nine months ended December 31, 1998 to $7.4 million for
the nine months ended December 31, 1999. This increase was primarily due to the
substantial growth in overall demand for our products, increased market
acceptance of our OPNET IT DecisionGuru and OPNET Netbiz products, which were
introduced in August 1998, and increased revenues generated through our
indirect sales channels.
Service revenues. Service revenues increased 61.1% from $3.8 million for the
nine months ended December 31, 1998 to $6.1 million for the nine months ended
December 31, 1999. This increase was primarily due to a substantial increase in
demand for consulting services, primarily for customizing our OPNET Netbiz
product, increased maintenance and technical support contracts related to new
license sales, increased renewals of these contracts by our installed base of
licenses, and increased training services.
Cost of revenues
Cost of software license revenues consists primarily of royalties, media,
manuals, and distribution costs. Cost of service 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 service revenues,
reflecting the low materials, packaging, and other costs of software products
compared with the relatively high personnel costs associated with providing
services. Cost of service revenues varies based upon the relative mix of
maintenance and technical support, consulting, and training services.
Cost of software license revenues. Cost of software license revenues
increased 315.8% from $114,000 for the nine months ended December 31, 1998 to
$474,000 for the nine months ended December 31, 1999. Gross margin on software
license revenues decreased from 97.5% for the nine months ended December 31,
1998 to 93.6% for the nine months ended December 31, 1999. This decrease in
margin was primarily due to our March 1999 agreement with Cadence that requires
us to pay a 50% royalty for specified sales of OPNET Modeler to the portion of
Cadence's customer base that uses an existing Cadence product. This agreement
ends on March 31, 2001 and may continue to depress these margins through that
date.
Cost of service revenues. Cost of service revenues increased 139.9% from
$854,000 for the nine months ended December 31, 1998 to $2.0 million for the
nine months ended December 31, 1999. Gross margin on service revenues decreased
from 77.3% for the nine months ended December 31, 1998 to 66.2% for the nine
months ended December 31, 1999. This decrease in margin was primarily due to an
increase in the proportion of consulting revenues, and to a lesser extent
training revenues, both of which require more personnel costs and provide lower
gross margins than our maintenance services.
22
<PAGE>
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 10.8% from $3.7 million for the
nine months ended December 31, 1998 to $4.1 million for the nine months ended
December 31, 1999. The increase was primarily related to increased research and
development staffing levels for developing new products. As a percentage of
total revenues, research and development expenses decreased from 44.3% for the
nine months ended December 31, 1998 to 30.4% for the nine months ended December
31, 1999. This decrease as a percentage of total revenues resulted from a
proportionally smaller increase in research and development staffing levels
relative to a higher level of revenues in the nine months ended December 31,
1999. The small dollar increase was the result of a leveling of research and
development staff following a year of strong growth in headcount. We believe
that a significant level of research and development investment will be
required to maintain our competitive position, and expect that the dollar
amount of these expenditures will continue to grow in future periods.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related benefits, commissions, user conference costs, tradeshows,
advertising, external consulting fees, and other costs associated with our
sales and marketing efforts. Sales and marketing expenses increased 79.0% from
$2.9 million for the nine months ended December 31, 1998 to $5.1 million for
the nine months ended December 31, 1999. This increase was primarily due to a
substantial increase in the size of our direct sales force, increased
commissions associated with the growth in revenues, the amortization of
payments made in connection with our March 1999 agreement with Cadence and a
significant increase in the level of advertising, tradeshow, and other
marketing activities. As a percentage of total revenues, sales and marketing
expenses increased from 34.4% for the nine months ended December 31, 1998 to
38.2% for the nine months ended December 31, 1999. The increase as a percentage
of total revenues was due to our additional investment of resources associated
with developing a market for our OPNET IT DecisionGuru and OPNET Netbiz
products, which were introduced in August 1998. We intend to continue to expand
our global sales and marketing infrastructure and, accordingly, 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 recruiting, legal,
accounting, and other services. General and administrative expenses increased
11.5% from $1.3 million for the nine months ended December 31, 1998 to $1.5
million for the nine months ended December 31, 1999. The increased level of
spending was primarily due to additional personnel costs and other expenses
associated with our expansion of supporting infrastructure. As a percentage of
total revenues, general and administrative expenses decreased from 16.1% for
the nine months ended December 31, 1998 to 11.2% for the nine months ended
December 31, 1999. We expect that the dollar amount of general and
administrative expenses will increase as we expand our operations.
Interest and other income
Interest and other income decreased 8.7% from $299,000 for the nine months
ended December 31, 1998 to $273,000 for the nine months ended December 31,
1999. Interest income increased 7.6% from $251,000 for the nine months ended
December 31, 1998 to $270,000 for the nine months ended December 31, 1999 as a
result of more cash being available for investment primarily from additional
cash flow from operations in fiscal 1999. However, this increase was more than
offset by a decline in other income from $48,000 in the nine months ended
December 31, 1998 to $3,000 in the nine months ended December 31, 1999. Other
income in the nine months ended December 31, 1998 was primarily related to
proceeds from an insurance settlement. We had no debt outstanding in either
period.
Provision for income taxes
The income tax benefit of $204,000 for the nine months ended December 31,
1998 resulted primarily from research and development tax credits for which we
qualified during the year. Our effective tax rate for the nine months ended
December 31, 1999 was 27.5%. This rate was relatively low due to research and
development tax credits available to us, and is likely to increase as our
earnings grow.
23
<PAGE>
Comparison of years ended March 31, 1998 and 1999
Revenues
Total revenues increased slightly from $11.9 million for fiscal 1998 to
$12.0 million for fiscal 1999. Fiscal 1999 was a transition year for us, with
the major emphasis early in the year placed on developing our OPNET IT
DecisionGuru and OPNET Netbiz products, which we introduced in August 1998. As
a result, software license revenues declined early in fiscal 1999 and grew
throughout the later months of that fiscal year as we introduced the new
products and increased our focus on sales and marketing for these products.
Software license revenues. Software license revenues decreased 14.7% from
$7.9 million for fiscal 1998 to $6.7 million for fiscal 1999. This decrease in
software license revenues was primarily due to our decision to de-emphasize
sales and marketing efforts for OPNET Modeler in order to focus those efforts
on OPNET IT DecisionGuru and OPNET Netbiz.
Service revenues. Service revenues increased 30.4% from $4.1 million for
fiscal 1998 to $5.3 million for fiscal 1999. This increase was primarily due to
substantial growth in consulting services related to the newly introduced OPNET
Netbiz product and, to a lesser extent, continued growth in maintenance and
technical support contracts from new and existing customers.
Cost of revenues
Cost of software license revenues. Cost of software license revenues
decreased 69.4% from $435,000 for fiscal 1998 to $133,000 for fiscal 1999. The
decrease was primarily the result of lower product printing, packaging, and
distribution costs as we transitioned to electronic distribution for product
documentation, and, to a lesser extent, was also due to lower software license
revenues in fiscal 1999. As a result, cost of software license revenues as a
percentage of total license revenues decreased from 5.5% in fiscal 1998 to 2.0%
in fiscal 1999. Gross margin on software license revenues was 94.5% in fiscal
1998 and 98.0% in fiscal 1999.
Cost of service revenues. Cost of service revenues increased 27.4% from
$980,000 for fiscal 1998 to $1.2 million for fiscal 1999. The increase was
primarily due to staffing additions in the consulting, training, and customer
support organizations, as the professional services organization increased
substantially during the course of fiscal 1999. The gross margin on services
was 75.8% for fiscal 1998 and 76.4% for fiscal 1999.
Operating expenses
Research and development. Research and development expenses increased 52.0%
from $3.2 million for fiscal 1998 to $4.9 million for fiscal 1999. This
increase was primarily due to the substantial addition of engineering staff
that was required to develop OPNET IT DecisionGuru and OPNET Netbiz. As result
of the substantial increase in staffing, research and development expenses grew
from 26.7% of total revenues in fiscal 1998 to 40.4% of total revenues in
fiscal 1999.
Sales and marketing. Sales and marketing expenses increased 19.4% from $3.4
million for fiscal 1998 to $4.1 million for fiscal 1999. This increase was
primarily due to an increase in the size of our sales force and an increased
level of marketing and advertising for introducing and selling our new
products, OPNET IT DecisionGuru and OPNET Netbiz. As a result of the increased
spending, sales and marketing expenses increased from 28.5% of total revenues
in fiscal 1998 to 33.8% of total revenues in fiscal 1999.
General and administrative. General and administrative expenses increased
48.5% from $1.3 million for fiscal 1998 to $2.0 million for fiscal 1999. The
increased level of spending was primarily due to additional personnel costs,
particularly in the finance department, recruiting costs for the growth in the
consulting services group, and other expenses associated with our expansion of
supporting infrastructure. As result of these spending increases, general and
administrative expenses increased from 11.2% of total revenues in fiscal 1998
to 16.5% of total revenues in fiscal 1999.
24
<PAGE>
Interest and other income
Interest and other income increased 17.9% from $319,000 for fiscal 1998 to
$376,000 for fiscal 1999. Interest income increased 10.1% from $307,000 for
fiscal 1998 to $338,000 for fiscal 1999 as a result of more cash being
available for investment primarily from our venture financing in fiscal 1998.
Other income in fiscal 1999 was primarily related to proceeds from an insurance
settlement. We had no debt outstanding in either period.
Provision for income taxes
The provision for income taxes of $1.1 million for fiscal 1998 changed to a
benefit of $100,000 for fiscal 1999 and the effective tax rate decreased from
39.0% for fiscal 1998 to a benefit for fiscal 1999. Both of these reductions
were primarily due to lower income in fiscal 1999 and research and development
tax credits for which we qualified in both periods.
Comparison of years ended March 31, 1997 and 1998
Revenues
Total revenues increased 38.5% from $8.6 million for fiscal 1997 to $11.9
million for fiscal 1998.
Software license revenues. Software license revenues increased 40.7% from
$5.6 million for fiscal 1997 to $7.9 million for fiscal 1998. This increase was
primarily due to an increase in license revenues from sales of our OPNET
Modeler product, attributable to increased sales efforts, greater market
acceptance, and increased revenues generated through our indirect sales
channels. All of our software license revenues in fiscal 1997 and 1998 were
from sales of OPNET Modeler.
Service revenues. Service revenues increased 34.3% from $3.0 million for
fiscal 1997 to $4.1 million for fiscal 1998. This increase was primarily due to
the sale of additional maintenance, technical support, and product training to
existing and new customers.
Cost of revenues
Cost of software license revenues. Cost of software license revenues
increased 40.3% from $310,000 in fiscal 1997 to $435,000 in fiscal 1998, due to
the increased volume of software license revenues in the period. Gross margin
on software license revenues was 94.5% for both periods.
Cost of service revenues. Cost of service revenues increased 40.4% from
$698,000 for fiscal 1997 to $980,000 for fiscal 1998. This increase was
primarily due to staffing additions in our consulting, training, and customer
support organizations. The gross margin on cost of service revenues declined
slightly from 76.9% in fiscal 1997 to 75.8% in fiscal 1998.
Operating expenses
Research and development. Research and development expenses increased 55.2%
from $2.1 million for fiscal 1997 to $3.2 million for fiscal 1998. This
increase was primarily due to a substantial growth in the engineering staff
required in connection with the development of the new OPNET IT DecisionGuru
and OPNET Netbiz products. As a result of the substantial increase in staffing,
research and development expenses increased from 23.9% of total revenues in
fiscal 1997 to 26.7% of total revenues in fiscal 1998.
Sales and marketing. Sales and marketing expenses increased 52.5% from $2.2
million for fiscal 1997 to $3.4 million for fiscal 1998. This increase was
primarily due to growth in the size of the sales force, increased commissions,
and a higher level of marketing and advertising. As a result of the increased
level of spending, sales and marketing expenses increased from 25.9% of total
revenues in fiscal 1997 to 28.5% of total revenues in fiscal 1998.
25
<PAGE>
General and administrative. General and administrative expenses increased
63.1% from $819,000 for fiscal 1997 to $1.3 million for fiscal 1998. The
increased level of spending was primarily due to additional personnel costs, an
increased level of professional services, including legal and accounting
services, and other expenses associated with our expansion of supporting
infrastructure. As a result of these spending increases, general and
administrative expenses increased from 9.5% of total revenues in fiscal 1997 to
11.2% of total revenues in fiscal 1998.
Interest and other income
Interest and other income increased 246.7% from $92,000 in fiscal 1997 to
$319,000 in fiscal 1998. Interest income increased 233.7% from $92,000 for
fiscal 1997 to $307,000 for fiscal 1998. This increase was due to the increase
in our cash balances, primarily from our venture financing in fiscal 1998. We
had no debt outstanding in either period.
Provision for income taxes
The provision for income taxes was $1.1 million for both fiscal 1997 and
1998. The effective tax rate decreased from 42.5% for fiscal 1997 to 39.0% for
fiscal 1998 primarily due to an increased level of research and development tax
credits for which we qualified in fiscal 1998.
26
<PAGE>
Quarterly Results of Operations
The following table sets forth a summary of our quarterly operating results
for each of the last eight quarters. This information has been derived from
unaudited interim consolidated financial statements that, in the opinion of our
management, have been prepared on a basis consistent with the audited
consolidated financial statements contained elsewhere in this prospectus and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information when read in conjunction
with our audited consolidated financial statements and the related notes. 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>
Quarter 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...... $1,624 $1,243 $1,621 $1,715 $2,136 $2,138 $2,447 $2,797
Services............... 1,079 1,083 1,279 1,407 1,519 1,792 1,969 2,308
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 2,703 2,326 2,900 3,122 3,655 3,930 4,416 5,105
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Software licenses...... 43 34 44 35 20 69 201 204
Services............... 259 290 281 284 394 545 742 762
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues.............. 302 324 325 319 414 614 943 966
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 2,401 2,002 2,575 2,803 3,241 3,316 3,473 4,139
Operating expenses:
Research and
development........... 1,170 1,202 1,282 1,210 1,156 1,235 1,315 1,542
Sales and marketing.... 870 800 1,079 994 1,183 1,505 1,655 1,982
General and
administrative........ 372 397 446 503 638 467 512 523
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 2,412 2,399 2,807 2,707 2,977 3,207 3,482 4,047
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (11) (397) (232) 96 264 109 (9) 92
Interest and other
income................. 80 136 86 78 76 75 93 105
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision (benefit) for
income taxes........... 69 (261) (146) 174 340 184 84 197
Provision (benefit) for
income taxes........... 27 (142) (97) 35 104 52 23 53
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 42 $ (119) $ (49) $ 139 $ 236 $ 132 $ 61 $ 144
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
(as a percentage of total revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... 60.1% 53.4% 55.9% 54.9% 58.4% 54.4% 55.4% 54.8%
Services............... 39.9 46.6 44.1 45.1 41.6 45.6 44.6 45.2
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Software licenses...... 1.6 1.5 1.5 1.1 0.5 1.8 4.5 4.0
Services............... 9.6 12.4 9.7 9.1 10.8 13.9 16.8 15.0
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues.............. 11.2 13.9 11.2 10.2 11.3 15.7 21.3 19.0
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 88.8 86.1 88.8 89.8 88.7 84.3 78.7 81.0
Operating expenses:
Research and
development........... 43.3 51.7 44.2 38.8 31.6 31.4 29.8 30.2
Sales and marketing.... 32.2 34.4 37.2 31.8 32.4 38.3 37.5 38.8
General and
administrative........ 13.7 17.1 15.4 16.1 17.5 11.9 11.6 10.3
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 89.2 103.2 96.8 86.7 81.5 81.6 78.9 79.3
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (0.4) (17.1) (8.0) 3.1 7.2 2.7 (0.2) 1.7
Interest and other
income................. 3.0 5.9 3.0 2.5 2.1 2.0 2.1 2.1
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision (benefit) for
income taxes........... 2.6 (11.2) (5.0) 5.6 9.3 4.7 1.9 3.8
Provision (benefit) for
income taxes........... 1.0 (6.1) (3.3) 1.1 2.8 1.3 0.5 1.0
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... 1.6% (5.1)% (1.7)% 4.5% 6.5% 3.4% 1.4% 2.8%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The trends discussed in the period comparisons above generally apply to the
results of operations for our eight most recent quarters, except for certain
differences discussed below.
Our total revenues increased sequentially in the last six consecutive
quarters. Software license revenues increased in each consecutive quarter
except for the quarter ended June 30, 1998. The decline in that quarter
27
<PAGE>
was due to a reduction in OPNET Modeler sales due to the change in marketing
emphasis to the OPNET IT DecisionGuru and OPNET Netbiz products. Service
revenues increased in each of the last seven consecutive quarters.
Cost of software license revenues has remained relatively constant from
quarter to quarter as a percentage of software license revenues except for the
quarters ended September 30, 1999 and December 31, 1999. During those two
quarters, we shipped products under our March 1999 agreement with Cadence,
which required a 50% payment for sales to that portion of the customer base of
Cadence that uses an existing Cadence product. Cost of service revenues as a
percentage of service revenues has fluctuated as the mix of services performed
for customers varied between higher margin services, such as maintenance, and
lower margin services, such as consulting and training.
Total operating expenses have fluctuated primarily as a result of variations
in our sales and marketing expenses. In general, sales and marketing expenses
increased as a result of increasing the sales force and the level of marketing
and advertising, as well as the additional commissions associated with revenue
growth. In addition, beginning in the quarter ended June 30, 1999, we began to
amortize over a two-year period marketing support rights we received under our
March 1999 agreement with Cadence. To a lesser extent, our operating expenses
have fluctuated as a result of costs associated with hiring staff and the use
of outside consultants.
We expect to experience significant fluctuations in future quarterly
operating results that may be caused by many factors including, among other
things:
. the timing of large orders;
. changes in the mix of our sales, including product sales requiring us to
make royalty payments;
. the timing and amount of our expenses;
. the cost and time required to develop new software products;
. the acceptance of new products introduced by us or our competitors;
. changes in network technology or in applications;
. general economic conditions; and
. changes in our pricing policies or those of our competitors.
Due to these and other factors, our quarterly revenues and operating expenses
are difficult to forecast accurately.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through cash
provided by operating activities. In October 1997, we raised $7.0 million in
venture financing, of which we used $3.4 million to repurchase stock from our
existing stockholders. As of December 31, 1999, we had cash, cash equivalents,
and short-term marketable securities totaling $8.7 million. We currently have
no debt facilities in place or any debt outstanding.
Cash provided (used) by operating activities was $1.9 million, $2.3 million,
and $312,000 for fiscal 1997, 1998, and 1999, respectively, and ($291,000) and
$3.8 million in the nine months ended December 31, 1998 and 1999, respectively.
Cash provided (used) by operating activities is primarily derived from net
income, as adjusted for depreciation and amortization, and increases in
deferred revenue and accrued liabilities. The cash provided by operations is
generally used to fund the increases in accounts receivable as a result of the
growth in our business.
Cash used in investing activities was $969,000, $793,000, and $1.2 million
for fiscal 1997, 1998, and 1999, respectively, and $666,000 and $5.6 million in
the nine months ended December 31, 1998 and 1999, respectively. The funds were
used primarily to purchase property, equipment, and software. In fiscal 1999
and the nine months ended December 31, 1999, these funds were also used to
purchase marketing support rights from Cadence and short-term marketable
securities.
28
<PAGE>
Cash provided by financing activities was $3.5 million for fiscal 1998. This
reflected the net proceeds from our $7.0 million venture financing, less
expenses and the $3.4 million used to repurchase common stock from our existing
stockholders. The remaining proceeds were from the sale of common stock and
from stock option exercises.
We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital expenditures, will constitute
a material use of our cash resources. We are also currently reviewing our space
requirements and facilities needs and we anticipate leasing additional office
space, which will likely increase our facilities cost. In addition, we may
utilize cash resources to fund acquisitions or investments in complementary
businesses, technologies, or products.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents and cash generated from operations, will be
sufficient to meet our anticipated cash requirements for working capital and
capital expenditures for at least the next 12 months. After that time, we
cannot be certain that additional funding will be available on acceptable
terms, or at all. If we require additional capital resources to grow our
business, execute our operating plan, or acquire complementary technologies or
businesses at any time in the future, we may seek to sell additional equity or
debt securities, which may result in additional dilution to our stockholders.
Impact of the Year 2000
We believe that we have identified and resolved all year 2000 problems that
could significantly harm our business operations. We have not experienced any
difficulties with our information technology systems or our non-information
technology systems resulting from the year 2000 problems. In addition, we are
not aware of any significant disruptions experienced by our vendors, suppliers,
or customers associated with year 2000 problems. We do not presently anticipate
any significant future costs related to the year 2000 problem. However, we
believe that it is not possible to determine with complete certainty that all
year 2000 problems affecting us have been identified or corrected. The number
of devices and systems that could be affected and the interactions among these
devices and systems are numerous, and therefore we will continue to monitor
this issue.
Quantitative and Qualitative Disclosures About Market Risk
We consider all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents, and those with maturities greater than
three months are considered to be marketable securities. Cash equivalents and
marketable securities are stated at amortized cost plus accrued interest, which
approximates fair value. Cash equivalents and marketable securities consist
primarily of money instruments and U.S. Treasury bills. We currently do not
hedge interest rate exposure, but do not believe that an increase in interest
rates would have a material effect on the value of our marketable securities.
Recently Issued 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," which establishes accounting and reporting standards
for derivative instruments and hedging activities. As amended by Statement of
Financial Accounting Standards No. 137, this standard will be effective for us
for the fiscal years and quarters beginning after March 31, 2001, and requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
have not completed the process of evaluating the impact of this statement and
are therefore unable to disclose the potential impact that implementing SFAS
No. 133 will have on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 Revenue Recognition in Financial Statements. This
SAB expresses the Commission's views on applying generally accepted accounting
principles to revenue recognition in financial statements. We do not expect the
application of this SAB to have a material impact on our financial statements.
29
<PAGE>
BUSINESS
Overview
We provide predictive network management software solutions that enable our
customers to optimize the performance and maximize the availability of
communications networks and networked applications. The OPNET product suite
combines predictive simulation and a comprehensive understanding of network
technologies to enable network professionals to more effectively design and
deploy networks, diagnose network and application performance problems, and
predict the impact of proposed network modifications. Our OPNET product suite
consists of three primary software solutions: OPNET IT DecisionGuru for service
providers and enterprises, OPNET Modeler for network equipment manufacturers,
and OPNET Netbiz for service providers and network equipment manufacturers. Our
software solutions allow both users and providers of networks to achieve higher
levels of performance, and enhance the return on investment from their networks
and applications.
We market our products to service providers, such as telecommunications
carriers, ISPs, and ASPs, large and medium-sized enterprises, and network
equipment manufacturers. Since inception, we have sold our products to over 500
customers, including service providers, such as AT&T, British Telecom, MCI
WorldCom, SBC Communications, Sprint, UUNET Technologies, and Vodafone
Airtouch; enterprises, such as Boeing, IBM, National Semiconductor, RR
Donnelley, and Texas Utilities; and network equipment manufacturers, such as
3Com, Cisco Systems, Ericsson, Motorola, Nokia, and Nortel Networks.
Industry Background
Growth and increased complexity of networks
Organizations are becoming increasingly reliant upon their communications
networks and networked applications to successfully execute their business
strategies. The increasing use of business applications, such as enterprise
resource planning, corporate intranets, online transaction processing, e-mail,
and streaming multimedia, has expanded the amount of network traffic within
organizations, and has resulted in significant growth in underlying network
infrastructures. In addition, the proliferation and widespread adoption of the
Internet has expanded the role of networks beyond organizational boundaries,
and these networks now represent the fundamental infrastructure for the
electronic conduct of business, known as e-business or e-commerce.
International Data Corporation, or IDC, estimates the number of Internet e-
commerce users worldwide will grow from 142 million in 1998 to over 502 million
in 2003. In addition, IDC estimates e-commerce will grow from $50 billion in
1998 to more than $1.3 trillion in 2003. As a result, most organizations are
recognizing that managing the growth and operation of their communications
networks is critical to their business operations.
To support the rapidly expanding size and scope of communication
requirements, network infrastructures have been developed based on a wide range
of technologies. As a result, the operation of these networks is becoming
increasingly complex. Service providers and enterprises must now manage the
convergence of voice, data, and video traffic over wireline and wireless
architectures by integrating numerous existing and emerging technologies. These
technologies include Asynchronous Transfer Mode, or ATM, Internet Protocol, or
IP, IP Quality of Service, or IP-QoS, Frame Relay, Synchronous Optical Network,
or SONET, Code Division Multiple Access, or CDMA, Digital Subscriber Line, or
DSL, and data over cable. IDC estimates that the installed base of networked
PCs worldwide will grow from 232 million in 1998 to 577 million in 2003. The
growth of networks and network complexity has forced organizations to confront
significant challenges in the efficient and cost-effective management of
networks and applications.
Today, communications networks are sophisticated, dynamic systems that
evolve on a daily basis. The rate of network and traffic growth is challenging
the ability of organizations to meet required service levels on which critical
business applications and operations rely. Constant evaluation of and
improvements to the network are essential to maintaining business and
application performance. However, since modifications to the network and its
traffic have the potential to result in network failures or service level
degradation, network
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professionals need to plan and implement network changes in a controlled
manner, taking into account the potential consequences of their actions.
Inadequacy of traditional network management solutions
As the complexity of networks continues to increase, so does the need for
sophisticated solutions to manage network resources effectively. GartnerGroup
estimates that the markets for network management software and application
performance and availability management software will grow from $3.6 billion in
1999 to $7.1 billion in 2003. To date, network management systems have
primarily played a reporting role. These systems typically collect, store, and
analyze data about the traffic on the network, the status and performance of
network devices and links, and the availability of network services and
applications. While these traditional network management solutions play an
important role in managing networks, they are limited by their focus on
reporting past and present information. As a result, these solutions are
primarily reactive to events occurring within the network.
Reactive network management solutions do not adequately support key network
management functions, including network design and deployment, deployment of
applications, capacity planning, contingency planning, traffic engineering,
budgeting, and deployment of network policies. This is because traditional
network management products provide limited insight into how network resources
will perform in response to future events. In general, the support for future
planning provided by reactive network management products is limited to trend
analysis and simple projections as to when key network and system resources
will become overloaded. Traditional solutions are not able to forecast the
impact of important changes that frequently occur in networks, such as traffic
growth, failure of network components, adoption of new networking technologies,
and reorganization of network assets. In addition, these solutions do not
generally take into account the network as a whole, the interaction among
network components, and the complex behaviors that are inherent to modern
networks.
Market opportunity
To remain competitive, organizations must deal with increased complexity,
rapid growth, and continuous change in their communications networks. At the
same time, every change to the network environment introduces the potential for
performance degradation or system failures, and therefore, business
interruptions and lost revenue. As a result, organizations need predictive
network management solutions that allow them to evaluate network and
application performance in future scenarios. A predictive capability allows
network professionals not only to test network and application performance
under a wide range of operating conditions, but also to determine which network
technologies are best suited to ultimately solve business problems. Business
executives and network professionals need a comprehensive network management
solution that allows them to design and deploy networks and implement network
changes that:
. optimize overall system performance;
. maximize system availability;
. leverage emerging communications and networking technologies;
. ensure service levels are met for business-critical applications; and
. proactively manage network growth, complexity, and costs.
The OPNET Solution
Our suite of products represents the next generation of software solutions
that advances network and application management beyond reactive problem
identification and reporting to proactive problem resolution and avoidance. The
OPNET product suite combines predictive simulation and a comprehensive
understanding of network technologies to enable network professionals to more
effectively design and deploy networks,
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predict the impact of proposed network modifications, and diagnose network and
application performance problems. The ability of our products to accurately
model and simulate network and application performance is also valuable in the
design and testing of new network equipment and technologies and is an
effective sales tool for professionals who design and deploy networks. We
believe that our software products provide the following benefits to our
customers:
Reduced network operating risks. Our products enable our customers to
more effectively manage the risks associated with the necessary
implementation of network upgrades and new services by helping network
managers evaluate which measures can be taken to minimize potential network
disruptions and maintain required service levels. For example, an
enterprise deploying a new application on its network can use our products
to determine if the performance of the application will meet prescribed
service levels and to what extent the network traffic generated by the new
application will compromise the service levels of existing applications on
the network. Service providers can use our products as part of their
overall planning process to minimize the risk that growth in their
subscriber base or restructuring of their network infrastructure will
jeopardize the availability or performance of their services.
Increased productivity and competitiveness. By using our products,
network managers and application deployment teams can gain greater control
over the performance of business applications that are critical to employee
productivity and the competitiveness of the business. Our products enable
network professionals to diagnose and resolve application performance
problems that can prevent employees from carrying out essential business
tasks. In addition, our products support informed decision-making and
planning for network infrastructures that carry vital business data,
including e-commerce and e-business transactions. Our products also enable
network manufacturers to test their technologies more thoroughly, while
considering a wider range of alternative designs, resulting in more robust
networking products and faster introduction of products to the marketplace.
Reduced network operating costs. Our OPNET suite of products enables our
customers to better determine the appropriate financial commitments that
should be made for network resources, including bandwidth, advanced network
technologies, and network hardware. Using our products, network managers
and planners can compare relative benefits of alternative technologies and
network designs, and weigh these benefits in relation to the corresponding
operational costs. Our products also provide organizations that operate
networks the ability to determine achievable service levels and to
understand whether network changes will render service levels unacceptable.
By proactively managing service levels, these organizations are better able
to reduce service level agreement violations that may require paying costly
penalties to their clients.
New revenue opportunities. The increasing complexity and scale of
networks is creating challenges for organizations that sell network
equipment and network services. Our products help sales organizations
automate the network design and proposal process and create competitive and
consistent proposals, thereby streamlining the sales cycle. This allows
sales representatives to focus on a greater number of sales opportunities.
Additionally, our customers' sales forces can leverage the predictive
capabilities of our products to demonstrate the performance of the proposed
network or network service prior to deployment. We believe that these
features allow our customers to differentiate themselves from their
competitors and enable the purchasers of network equipment and services to
make better informed and quicker buying decisions.
Improved customer satisfaction. Our products improve satisfaction of
network end users by enabling our customers, which are the providers of
network services and technologies, to proactively manage and improve the
quality and performance of their offerings. By using our products'
predictive capabilities, service providers can ensure that adequate
measures are taken to maintain the availability and performance of their
services to their clients over networks experiencing rapid traffic growth
and the introduction of changing technologies. For example, an ASP can use
our software to uncover the primary factors that can contribute to the poor
performance of an application and then determine the preferred approach to
improving the application's performance.
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Strategy
Our objective is to enhance our leadership position in the market for
predictive network management software solutions. To achieve this goal, we are
pursuing the following strategies:
Increase penetration within the service provider market. We believe that
we can achieve significant additional penetration within the service
provider marketplace, which includes telecommunications carriers, ISPs, and
ASPs, by creating extensions to our existing software products to address
their specific network management needs. We also intend to focus additional
sales resources on service provider accounts and adopt service provider-
specific price structures that scale with the size of managed networks. We
expect to increase sales within this market by leveraging relationships
with our network equipment manufacturer customers, including Cisco Systems
and FORE Systems, who sell hardware to service providers, through a
combination of reselling, referrals, and joint marketing arrangements.
Expand direct sales channel. We believe that there is significant
untapped demand for our software products and we plan to meet this demand
by increasing the number of our direct sales representatives. We currently
employ 20 direct sales representatives in the United States and expect to
expand our sales team by aggressively hiring qualified sales
representatives. We intend to continue to invest significant marketing and
sales resources to support our direct sales channel and intend to increase
market awareness by expanding our advertising, trade shows, direct
marketing, customer seminars, and other marketing efforts.
Expand global sales efforts. Our international sales activities are
currently conducted by our distributors that resell only OPNET Modeler in
France, Germany, Scandinavia, the United Kingdom, the Middle East, India,
Pakistan, Australia, China, Japan, Korea, and Singapore. We intend to
accelerate the growth of our international sales both by increasing the
number of international distributors and by enabling and training our
current and new distributors to sell the entire OPNET suite of products. We
also intend to focus technical sales resources on strengthening our
distributors' sales, marketing, and training programs. We intend to
establish technical sales support centers in selected regions.
Leverage our existing customer base. We currently have an installed base
of over 500 customers that we believe provides us with significant
opportunities for additional sales of our current and future products. We
have successfully expanded license revenues within many customer
organizations by selling additional licenses for the same products as well
as complementary products from the OPNET product suite, and we believe
additional opportunities exist for these types of sales. In addition, our
solutions are built on a modular, flexible architecture, which allows us to
deliver new functionality to our customers in the form of product modules
and model libraries designed to work with our existing products. We intend
to develop focused sales programs that will leverage our new offerings, as
well as the goodwill we have established, to increase revenue from our
existing customer base.
Further extend technology and product leadership. We believe that our
OPNET suite of products is the most comprehensive predictive network
management software solution currently available. We intend to maintain our
product and technology leadership by enhancing the functionality of
existing products and introducing new products through internal research
and development and, potentially, through acquisition of technologies or
businesses. We plan to enhance our products with additional capabilities,
including additional interfaces to the operational network environment; an
expanded library of existing and emerging network protocols, applications,
and communications standards; and additional network service and equipment
cost/benefit analysis features.
Develop additional strategic relationships. We have created marketing
programs to sell our software to professional services organizations,
including Andersen Consulting, PricewaterhouseCoopers, Entex, and
Enterprise Networking Systems, and to provide them with the support and
information they need to maximize their success using our products. These
programs facilitate our access to the large
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number of organizations which outsource information technology and
networking services. We expect this strategy to lead to increased sales of
our products, not only among our professional services customers, but also
among their clients. We also have technology relationships with other
network management software vendors, including Hewlett-Packard, Agilent
Technologies, Tivoli Systems, Concord Communications, and Netscout Systems,
and expect to continue to develop other technology relationships, as well
as to pursue joint marketing and selling opportunities of our complementary
solutions.
Products
Our products use predictive simulation technology to support the assessment
of future network and application performance under a wide range of operating
conditions. Our products include model libraries that permit the simulation and
analysis of major network technologies and communication protocols, such as
Transmission Control Protocol/Internet Protocol, or TCP/IP, IP-QoS, voice over
IP, Virtual Private Networks, or VPNs, Virtual Local Area Networks, or VLANs,
Signalling System Seven, or SS7, IP compression, data over cable, and ATM. We
sell both off-the-shelf and customized products that offer interfaces to
traditional network management systems and popular integration platforms, such
as HP OpenView Network Node Manager, Tivoli NetView, Netscout Systems Manager
Plus, and Oracle database products. The following chart summarizes our OPNET
product suite:
<TABLE>
<CAPTION>
Product Description Target Customers
- --------------------------------------------------------------------------------
<C> <S> <C>
OPNET IT DecisionGuru Enables users to predict Service providers and enterprises
the performance of
networks and
applications
- --------------------------------------------------------------------------------
OPNET Modeler Enables users to Network equipment manufacturers
evaluate how networking
technologies and
products they are
developing will perform
under simulated network
conditions
- --------------------------------------------------------------------------------
OPNET Netbiz Facilitates and Service providers and network
accelerates the sales equipment manufacturers
process by automating
network design and
proposal generation
- --------------------------------------------------------------------------------
OPNET Modules Provide enhanced Entire customer base
functionality for our
primary software
products
- --------------------------------------------------------------------------------
OPNET Model Libraries Libraries of models that Entire customer base
simulate the behavior of
networking technologies
and communication
protocols
</TABLE>
OPNET IT DecisionGuru. We began commercial distribution of OPNET IT
DecisionGuru in August 1998. OPNET IT DecisionGuru uses our predictive
simulation and modeling technology, which combines software models of network
components, protocols, and applications into a single overall model, in order
to forecast many aspects of network behavior. This capability enables service
providers and enterprises to predict the performance of their networks and
applications under a wide range of potential scenarios. OPNET IT DecisionGuru
allows users to make comparisons among alternative approaches to managing the
evolution of their networks and managing change within their networks, such as
adopting new technologies, increasing capacity, and reorganizing assets. OPNET
IT DecisionGuru also provides detailed views of an application's performance
within a network. This enables network managers and application deployment
teams to understand the impact on existing applications of implementing a new
application, as well as the ability of a network to support the resulting
traffic. OPNET IT DecisionGuru supports many popular communication protocols
and networking technologies that operate within wireline and wireless networks.
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OPNET Modeler. OPNET Modeler was our first product and was introduced in
1987. OPNET Modeler uses our device and protocol design environment, as well as
our predictive simulation technology, to enable our customers to build software
models of a broad range of network devices, communication protocols, and
applications, and to combine these models to run simulations in order to
predict network behavior and performance. These capabilities support the
design, modeling, and development of network equipment and protocols. OPNET
Modeler enables network equipment manufacturers to test product designs in a
wide variety of scenarios prior to manufacturing. Using OPNET Modeler, network
technology and equipment designers gain a better understanding of design
tradeoffs earlier in the product development process, reducing the need for
time-intensive and expensive hardware prototyping.
OPNET Netbiz. We began commercial distribution of OPNET Netbiz in August
1998. OPNET Netbiz is designed to facilitate and accelerate the sales processes
of service providers and network equipment manufacturers. OPNET Netbiz enables
our customers' sales forces to quickly and automatically generate network
service and equipment proposals based on their clients' requirements by using
advanced network design techniques. OPNET Netbiz can interface with our
customers' applications for order processing, work-order generation, and
provisioning. OPNET Netbiz is Web-enabled to allow our customers' clients to
create network designs over the Internet prior to purchasing services and
products.
OPNET Modules. We develop and sell a variety of software modules that
provide enhanced functionality to OPNET IT DecisionGuru, OPNET Modeler, and
OPNET Netbiz. Currently available OPNET modules include:
. Application Characterization Environment, for analyzing, diagnosing, and
simulating the performance of applications within a network based on
network traffic samples;
. Multi-Vendor Import, for importing network infrastructure and traffic
information from other network management software applications;
. Expert Service Prediction, for the definition and compliance testing of
service level agreements;
. Radio and Terrain Modeling, for modeling wireless networks and the
effects of terrain on those networks; and
. ERP NetworkGuru for SAP/R3, for the planning and analysis of SAP
application deployments, their effect on the network, and their ability
to perform effectively within an existing network environment.
OPNET Model Libraries. The model libraries are used by OPNET IT DecisionGuru
and OPNET Modeler to simulate and analyze major networking technologies and
communication protocols. These libraries provide the building blocks used to
generate models of networks. OPNET IT DecisionGuru and OPNET Modeler include
extensive libraries of popular and emerging networking technologies and
communication protocols, such as TCP/IP, hypertext transfer protocol, or HTTP,
Open Shortest Path First routing, or OSPF, ATM, frame relay, and IP-QoS. Some
of our model libraries are included in our base products and others are
available for an additional fee.
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Technology
Our technologies for modeling, designing, visualizing, and simulating
networks are based on extensive research and development efforts carried out
over the past 13 years. The following diagram summarizes the essential
components of our products:
The center and left side of this space contains a flowchart
captioned OPNET Modeler. This flowchart contains three
columns of large icons, the center and right col umns of
which are contained within a flowchart captioned OPNET IT
DecisionGuru. A large icon captioned Device/Protocol Design
Environment appears in the left column; an arrow leads to a
large icon in the center column captioned Model Libraries
(which has attached to it a small icon captioned ERP
DecisionGuru); an arrow leads to a large icon below captioned
Simulation Engine (which has attached to it small icons
captioned Wireless Modeling and Parallel Simulation); an
arrow leads to a large icon below captioned Performance
Analysis and Reporting Engine (which has attached to it a
small icon captioned Expert Service Prediction). The right
column in this flowchart has a large icon captioned Network
and Traffic Import Engine (which has attached to it small
icons captioned MVI and ACE); an arrow leads to a large icon
below captioned Network Object Store & Visualizer: design and
analysis environment (this icon is also linked by arrows to
the Simulation Engine, Performance Analysis and Reporting
Engine, and OPNET Integration Platform icons).
The right side of this space contains a flowchart depicting
OPNET Netbiz. Icons captioned Product Data and Configuration
and Design Rules are linked to an icon captioned OPNET
Integration Platform (which, in turn, contains icons
captioned Customized Workflow for Network Design (web-
enabled) and Customized Reporting (Proposals, bills of
materials, and work orders)). The margin of this flowchart
extends to the left to enclose the icon noted above captioned
Network Object Store & Visualizer.
Below the above-described graphics is a legend noting the
symbols representing Database and Module, as well as the
acronyms MVI: Multi-Vendor Import and ACE: Application
Characterization Environment.
OPNET Modeler serves as a foundation for our other products, providing the
broadest array of functionality. OPNET IT DecisionGuru and OPNET Netbiz
represent progressively easier to use products, with functionality designed to
address specific business needs. All of the primary products within the OPNET
product suite use a significant amount of shared core software, allowing us to
create new products more efficiently and fostering the interoperability of our
products.
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Simulation engine. A key capability of OPNET IT DecisionGuru and OPNET
Modeler is the ability to perform detailed simulations of networks in order
to understand how they will perform in a wide range of scenarios. The core
support for this capability is provided by the simulation engine, which
sequences a network model through a series of events, representing activity
within the network. The simulation engine has been designed to be highly
efficient and scalable, in order to support simulations of large networks
that transport substantial volumes of network traffic. We have developed
and are testing a parallel simulation module that will augment the
simulation engine to provide support for running simulations on computers
with multiple processors in order to enhance simulation speed. Currently,
this module is designed only for simulation of wireless networks but we
plan to extend this capability to other types of networks in the future.
Model libraries. A network model consists of software objects that
correspond to the devices, computers, and links that constitute the actual
network of interest. The behavior of these objects is controlled by models
of devices, computers, applications, communication protocols, and links.
Many network devices are highly complex, incorporating the functionality of
several dozen communication protocol models and application models. These
communication protocol models and application models are provided in
OPNET's model libraries, which consist of a broad range of models that
represent the behavior of standard and popular communication protocols,
applications, and networking technologies. The models within the OPNET
model libraries are based on a variety of information sources, including
standards documents, industry literature, publicly available source code,
input from our network equipment manufacturer customers, and tests
performed in a laboratory environment. These models simulate many essential
characteristics of the actual network components and interact with each
other within the context of a discrete-event simulation, in order to
predict the behavior and performance of an overall network. Many of our
models are also enabled to perform hybrid simulation, a novel technique
that we developed, which combines discrete-event simulation with sequences
of fast computations and mathematical calculations to accelerate simulation
run times.
Our model libraries are developed and maintained using OPNET Modeler.
Customers who use OPNET Modeler frequently create extensions to the models
that we provide, as well as develop entirely new models to represent
emerging protocol standards, unique applications and protocols, or legacy
systems that are not yet included in our libraries. Users may share their
models with each other, either directly or through an on-line database that
is accessible over the Internet.
Network object store and visualizer. The network object store contains
the essential network information which is used by each of our products.
OPNET software represents networks as a collection of data objects, each of
which corresponds to a network component, such as a network device, a
communications link, or a computer. OPNET software organizes these data
objects into the network object store for each network of interest. The
network visualizer provides a graphical user interface for viewing,
modifying, or configuring the network represented in the network object
store.
Network and traffic import engine. Our product suite provides interfaces
to other network management software so that our customers can leverage
information collected by those applications. Network and traffic import is
currently based on the Application Characterization Environment and the
Multi-Vendor Import Module. These modules allow our customers to import
information about how a network is constructed and the patterns of the
traffic that flows through the network. This information forms a model of a
network as it is currently built and operating. Modifications and
extensions to the network and traffic model can then be performed within
the OPNET software to study the impact of proposed or anticipated changes.
Our OPNET software currently provides the ability to import information
from HP OpenView Network Node Manager, Tivoli NetView, Netscout Systems
Manager Plus, Agilent NetMetrix, and Network Associates Sniffer Network
Analyzer and other network analyzer products. We intend to develop
additional interfaces to other popular network management software products
to broaden our customers' ability to generate models of their networks
automatically.
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<PAGE>
Device and protocol design environment. OPNET Modeler provides a design
environment to define models of network devices, protocols, and
applications. These models can then be used as building blocks for modeling
entire networks, or portions of networks, in order to proactively manage
performance. The device and protocol design editors are used primarily by
network equipment manufacturers, network industry researchers, and our own
staff to develop libraries containing models of major network technologies.
Performance analysis and reporting engine. As a network simulation runs,
the elements of the network model record information about their
performance and behavior, in the same way probes or traditional management
systems record and report vital performance statistics of actual networks.
Performance statistics of interest to network managers include the response
times experienced by users of applications, the utilization of
communication links, and the number of connections that failed to be
established over the network. Our software selects, aggregates, processes,
and presents statistics in the form of graphs, charts, service level
agreement exception reports, and animations. Graphs, charts, and service
level agreement exceptions can be viewed within the OPNET software products
or through a standard Web browser.
Wireless modeling infrastructure. Our software provides wireless network
modeling and simulation capabilities based on the Radio Module and the
Terrain Modeling Module. Using these modules, our users are able to predict
and analyze the performance of applications and communication protocols
running over wireless and combined wireline/wireless infrastructures,
taking into account complex factors that are inherent to wireless
environments, including intermittent availability of links, radio
interference, terrain effects, and time-varying signal strength for mobile
devices.
OPNET integration platform. The OPNET integration platform allows our
customers to develop tailored applications. The OPNET integration platform
is a collection of software modules that provides developers the capability
to rapidly create user interfaces, workflows, visualizations, and reports,
to form a comprehensive network design and analysis solution that meets
unique customer requirements. The OPNET integration platform is
specifically designed to incorporate knowledge of networking concepts,
which allows developers to focus on the aspects of the application that
reflect their proprietary product lines, business practices, and design
configuration rules.
Customers
We have licensed our software to over 500 organizations worldwide. Our
customers include:
. service providers, including telecommunications carriers and ISPs;
. large and medium-sized enterprises that rely on networks to conduct
business, including organizations that provide consulting for the
planning, design, and troubleshooting of networks; and
. network equipment manufacturers.
In the nine months ended December 31, 1999, we generated 21.5% of our total
revenues from customers located outside North America. No single customer
accounted for more than 10% of our total revenues in any of the last three
fiscal years.
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The following is a representative list of organizations that have licensed
at least $40,000 of our software:
<TABLE>
<S> <C>
Service Providers
AT&T France Telecom Sprint
AT&T Wireless Inmarsat Swiss Telecom
Belgacom INTELSAT Teledesic
Bell Atlantic Korea Telecom Telia
Bell Canada MCI WorldCom Telstra
British Telecom Orbital Sciences US West
Comsat SBC Communications UUNET Technologies
Deutsche Telekom Vodafone Airtouch
Enterprises
Abbott Laboratories DIRECTV NetEffect
Aerospatiale Matra Entergy Oracle
Andersen Consulting IBM RR Donnelley
Baker Hughes Internal Revenue SAP
Boeing Service Spiegel
DaimlerChrysler NASA Texas Utilities
Daimler-Benz National Semiconductor
Network Equipment Manufacturers
3Com GTE Newbridge Networks
Advanced Micro Devices Hewlett-Packard Nokia
Alcatel Hughes Electronics Nortel Networks
Ascom Intel Philips Electronics
CableLabs ITT Industries QUALCOMM
Cisco Systems Lockheed Martin Raytheon
E-Systems LSI Logic Rockwell
Ericsson Lucent Technologies Scientific Atlanta
FORE Systems Matsushita Electric Siemens
Fujitsu Industrial ST Microelectronics
GEC Marconi Avionics Motorola Toshiba
General Instruments NEC TRW
Network Equipment
Technologies
</TABLE>
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<PAGE>
The following examples show how some customers use our products:
Cisco Systems
The challenge. Cisco Systems is a leading provider of networking equipment
and solutions. Because of the rapid pace at which new technology is emerging,
Cisco Systems desired software solutions to quickly demonstrate and quantify
the impact and value of new technologies for service providers.
The solution. OPNET Modeler and OPNET IT DecisionGuru are being used by
Cisco Systems to shorten development cycles and deliver its New World hardware
to ISPs faster and more cost-effectively. OPNET Modeler accelerates the
development process by providing a simulated environment for testing protocols
and hardware designs, allowing Cisco Systems to test protocol behavior and
simulate traffic flow in a wide range of scenarios that closely mirror real-
world ISP infrastructures. In addition, OPNET IT DecisionGuru's virtual proving
ground quickly and efficiently demonstrates the value of Cisco Systems-based
networks to ISPs.
Idea Integration
The challenge. Idea Integration specializes in e-commerce and network
infrastructure development as a division of Modis Professional Services, a
large North American IT consulting firm. An international petro-chemical
company engaged Idea Integration for assistance in evaluating the impact of SAP
R/3 implementation of the existing U.S. and European Local Area Network/Wide
Area Network, or LAN/WAN, infrastructure and to recommend needed changes. A key
success metric for Idea Integration was to ensure that R/3 transaction response
times between the client's European R/3 data center and their 23 U.S.
facilities complied with stringent service-level agreements.
The solution. Using OPNET IT DecisionGuru, Idea Integration modeled the
client's entire distributed infrastructure in a virtual software environment.
Simulations were then run to determine the sources of poor performance and
enable Idea Integration to experiment with possible solutions. By running
typical and worst-case scenarios, Idea Integration delivered precise
recommendations on router and application configurations as well as WAN
capacity requirements. Idea Integration's recommendation provided significant
reductions in company-wide average SAP response times. This increased overall
company productivity and generated a recurring WAN cost savings.
Sales and Marketing
We sell our software through our direct sales force, our international
distributors, and a number of original equipment manufacturers and resellers.
We have marketing relationships with original equipment manufacturers Hewlett-
Packard and Agilent Technologies. In North America, the majority of our sales
are made by our direct sales force. As of February 29, 2000, our sales and
marketing organization consisted of 44 employees located in our headquarters in
Washington, D.C., and our offices in Boston, Dallas, and Santa Clara. We intend
to expand our sales and marketing organization through aggressive recruiting of
qualified individuals.
Our direct sales force is organized into two primary groups; one group
focuses on selling OPNET IT DecisionGuru and OPNET Netbiz to our service
provider and enterprise customers as well as OPNET Netbiz to our network
equipment manufacturer customers, and the other group focuses on selling OPNET
Modeler to our network equipment manufacturer customers. Our international
sales activities are primarily conducted by our 10 distributors that resell
OPNET Modeler in France, Germany, Scandinavia, the United Kingdom, the Middle
East, India, Pakistan, Australia, China, Japan, Korea, and Singapore.
International sales activities are managed by our vice president of marketing
and international business development. In addition, we intend to establish
technical sales support centers in some of our markets in order to better
support our distributors.
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We engage in marketing activities to increase awareness of our products
among our potential customer base and to create sources of leads for our sales
organization. Our marketing activities include:
. participation in networking industry tradeshows;
. seminars that introduce the capabilities of our software to potential
customers;
. seminars designed specifically for organizations that are already our
customers, but present significant potential for additional license
sales;
. advertisement in trade journals and networking-oriented Web sites;
. direct mailings to potential customers;
. product briefings with industry analysts; and
. a variety of public relations activities, including our annual
international user conference.
For each of the last three years, we have sponsored OPNETWORK, an annual
international user conference convened in Washington, D.C. that focuses on
predictive network management for professionals in all areas of networking and
information technology. OPNETWORK '99, held in August 1999, included more than
290 hours of presentations and more than 60 guest speakers. Over 500 people
attended OPNETWORK '99, representing a 65% increase from the previous year.
Service and Support
Our service and support offerings include:
. consulting and customization services;
. software maintenance, which includes providing software updates for major
and minor revisions;
. technical support by telephone, e-mail, or fax; and
. training, which includes courses that enable our customers to more
effectively use our products.
We offer consulting services to assist our clients in customizing their
OPNET products. In particular, our customers typically buy customization
services with their purchase of OPNET Netbiz. Customization services are
performed by our consulting staff, which consists of software development
engineers, quality assurance engineers, technical documentation specialists,
and product managers. Some customers also choose to engage our consulting
services in proactive network management projects, including network planning,
network design, diagnosis of network performance problems, and communication
protocol design.
Software maintenance and technical support are purchased by our customers as
a single package. The fee for this service is generally determined as a
percentage of the current price of product licenses.
We provide customer support from our support center at our headquarters in
Washington, D.C. Our technical support services are supported by a
comprehensive information system that ensures that customer inquiries are
addressed promptly, tracked until fully resolved, and recorded for future
reference. Reports on the overall responsiveness of the technical support
infrastructure, and the status of pending customer inquiries, are provided
regularly to our technical support staff, technical support management, and
executive management.
We have a core team of technical support staff supplemented by a number of
product developers and consultants who perform technical support on a
rotational basis. This staffing approach ensures that customers have access to
the best available product expertise, while simultaneously providing product
developers with direct customer feedback, which in turn helps us improve our
products.
We regularly offer training courses to our customers to assist them in
maximizing the benefit they receive from using our products. Our training
classes cover a broad range of topics. Training classes are offered at our
41
<PAGE>
headquarters in Washington, D.C., our facilities in Santa Clara, California,
and at our customers' locations. As of February 29, 2000, our training staff
consisted of four employees.
Research and Development
We believe that our ability to enhance our current products, and create new
products in response to the needs of our customer base will be an important
factor for our future success. Accordingly, we intend to continue to commit
significant resources to product research and development. We expect to
accomplish a large part of our product improvements and new product development
through internal development efforts. New capabilities may also be integrated
into our product lines through the acquisition of technologies or businesses,
or the licensing of externally developed technologies.
Our total expenses for research and development for fiscal 1997, 1998, and
1999 were $2.1 million, $3.2 million, and $4.9 million, respectively. Our
research and development efforts to date have been conducted in their entirety
at our headquarters in Washington D.C., and all related costs have been
expensed as incurred. As of February 29, 2000, our research and development
staff consisted of 44 engineers and technical professionals.
Our research and development efforts are directed at increasing our revenues
by expanding the scope of our solutions to address additional customer
requirements. Our existing customers provide a meaningful source of information
which we use, and expect to continue to use, in order to guide our future
product development. In addition, we invest, and intend to continue to invest,
in research and analysis of trends in our industry and our product markets, and
we expect that our future products will reflect the results of these analyses.
Our current research and development efforts are focused on the following:
. expansion of our model libraries to provide comprehensive coverage of
additional major networking standards and technologies;
. design and packaging of vertical solutions optimized to meet the specific
needs of service providers, based on our existing technologies;
. additional interfaces to other network management products in order to
maximize leverage of information about the existing network environment;
. new technologies to automate analysis of simulation results and diagnosis
of performance problems;
. new technologies that use information collected from the current
environment and results predicted by simulations to make recommendations
to our customers;
. advanced techniques for reducing simulation run times, including hybrid
simulation, which combines traditional simulation with sequences of fast
computations and mathematical calculations, and parallel simulation,
which allows simulations to take advantage of computers with multiple
processors; and
. flexible network design and optimization techniques to generate network
designs based on customer requirements.
Competition
The market for our products is evolving rapidly and is highly competitive.
We believe that this market is likely to become more competitive as the demand
for predictive network management solutions continues to increase. Although
none of our competitors offers a solution that is identical to ours, we are
subject to current and potential competition from:
. software vendors with predictive network management offerings, such as
Compuware, and application performance diagnosis solutions, such as
Optimal Networks;
. consultants who offer predictive network management advisory services;
and
42
<PAGE>
. customers who develop their own predictive network management
capabilities, either internally or through outsourcing.
OPNET Netbiz also competes with solutions designed to facilitate and automate
sales processes in general.
In addition, it is possible that other vendors as well as some of our
customers or distributors will develop and market competitive solutions in the
future. Many of our current and potential competitors are larger and have
substantially greater financial and technical resources than we do.
We believe the principal competitive factors affecting the market for our
software products are the following:
. scope, quality, and cost-effectiveness of network management solutions;
. industry knowledge and expertise;
. the interoperability of solutions with existing network management
solutions;
. product performance, accuracy, technical features, ease of use, and
price; and
. customer service and support.
Although we believe we compete favorably in the industry, the market for
network management solutions is intensely competitive and characterized by
rapid technological change and a number of factors could affect our ability to
compete in the future.
Intellectual Property
We rely on a combination of copyright, trademark, patent, 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.
We currently hold registered trademarks in the United States for OPNET and
OPNET Modeler, and have pending applications in the United States for the
trademark registrations of IT DecisionGuru and Netbiz. We also hold additional
registered trademarks in the United States and have additional pending
applications. We have applied for trademark protection in a number of
international jurisdictions. In addition, we have two pending patent
applications for technologies related to the OPNET product suite.
Employees
As of February 29, 2000, we had 139 full-time employees, all of whom were
located in the United States. These included 44 in sales and marketing, 30 in
professional services, 44 in engineering, research, and development, and 21 in
finance and administration. Our employees are not represented by a collective
bargaining agreement and we consider our relations with our employees to be
good.
Facilities
Our corporate office and principal facility is located in Washington, D.C.
and consists of approximately 21,000 square feet of office space held under a
lease that expires on December 31, 2000. We also occupy an additional 7,100
square feet of space in the same building under a sublease that expires on
October 31, 2002. We also lease office space in Boston, Dallas, and Santa
Clara. We believe that our facilities will meet our needs through the next six
months, and we may relocate our headquarters to a larger facility in the
Washington, D.C. metropolitan area.
Legal Proceedings
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
Executive Officers, Directors, and Key Employees
Our executive officers, directors, and some other key employees, and their
ages as of February 29, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Executive Officers and Directors:
Chairman of the Board and Chief
Marc A. Cohen.................... 36 Executive Officer
President, Chief Technology Officer and
Alain J. Cohen................... 32 Director
George M. Cathey................. 34 Senior Vice President of Engineering
Senior Vice President of Finance and
Joseph F. Greeves................ 42 Chief Financial Officer
Pradeep K. Singh................. 31 Senior Vice President of Engineering,
Model Research and Development
Bruce R. Evans (1)(2) ........... 40 Director
Steven G. Finn, PhD (1) ......... 53 Director
William F. Stasior (1)(2)........ 59 Director
Key Employees:
Erika J. Bohrer.................. 31 Vice President of Human Resources
Vice President of Strategic Business
Melanie A. Houghton.............. 36 Development
Steven R. Johnson................ 38 Vice President of Partner Programs
Randolph W. Jones................ 30 Vice President of IT Sales
Vice President of Marketing and
Todd J. Kaloudis................. 25 International Business Development
Eric R. Martin................... 28 Vice President of OPNET Modeler Sales
Vice President of Information Systems
Alberto Morales.................. 34 and Chief Information Officer
Vice President of Engineering,
Eric S. Nudelman................. 31 Applications and Training
Annukka Piironen................. 29 Vice President of Consulting Services
Michael D. Powers................ 30 Vice President, Solutions Group
</TABLE>
- --------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Marc A. Cohen, one of our founders, has served as our chairman of the board
since our inception in 1986 and as our chief executive officer since 1994. From
1986 to 1992, Mr. Cohen was also a consultant with Booz.Allen & Hamilton, an
international management and consulting company. Mr. Cohen received a
bachelor's degree in engineering science from Harvard and a master's degree in
electrical engineering from Stanford.
Alain J. Cohen, one of our founders, has served as our president and chief
technology officer and as a member of our board of directors since our
inception. Mr. Cohen received a bachelor's degree in electrical engineering
from M.I.T.
George M. Cathey has served as our senior vice president of engineering
since March 1999. From March 1991 to March 1999, Mr. Cathey served as our
director of core technologies. Mr. Cathey received bachelor's and master's
degrees in electrical engineering and computer science from M.I.T.
Joseph F. Greeves has served as our chief financial officer since November
1998 and as our senior vice president of finance since December 1999. Mr.
Greeves also served as our vice president of finance from November 1998 through
December 1999. From November 1997 to August 1998, Mr. Greeves served as vice
president and chief financial officer of ACE*COMM, a telecommunications
software company. From January 1995 to July 1997, Mr. Greeves served as vice
president and chief financial officer of Fusion Systems, a semiconductor
technology company. Mr. Greeves is a certified public accountant and received a
bachelor's degree in accounting from the University of Maryland.
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Pradeep K. Singh was appointed as our senior vice president of engineering,
model research and development in March 2000. From January 1998 to March 2000,
Mr. Singh served as our vice president of engineering, model research and
development. From September 1995 to January 1998, he served as our director of
model research and development. From October 1994 to August 1995, he was one of
our software engineers. Mr. Singh received a bachelor's degree in engineering
from Delhi College of Engineering (India) and a master's degree in electrical
engineering from Clemson.
Bruce R. Evans has served as a member of our board of directors since
September 1997. Mr. Evans has been with Summit Partners, a venture capital
firm, since 1986, serving as a general partner since 1991. Mr. Evans currently
serves on the boards of directors of DSET, Omtool, and Private Business.
Steven G. Finn has served as a member of our board of directors since March
1998. Dr. Finn has been a principal research scientist and lecturer at M.I.T.
since 1991. Dr. Finn has also served as a consultant with Matrix Partners, a
venture capital firm, since 1991.
William F. Stasior has served as a member of our board of directors since
March 1998. Since October 1999, Mr. Stasior has served as senior chairman of
Booz.Allen & Hamilton. From 1991 to October 1999, Mr. Stasior served as
chairman of Booz.Allen & Hamilton. Mr. Stasior also served as chief executive
officer of Booz.Allen & Hamilton from 1991 to April 1999.
Erika J. Bohrer has served as our vice president of human resources since
March 1999. From May 1997 to March 1999, she served as our director of human
resources. From May 1989 to May 1997, Ms. Bohrer held various recruiting
positions with Booz.Allen & Hamilton.
Melanie A. Houghton has served as our vice president of strategic business
development since September 1999. From June 1998 to August 1999, Ms. Houghton
served as our director of strategic sales, and from June 1996 to May 1998, she
served as one of our sales associates. From February 1995 to May 1996, Ms.
Houghton served as one of our human resources administrators.
Steven R. Johnson has served as our vice president of partner programs since
March 1999. From October 1998 to March 1999, he served as our director of
marketing. From 1988 to September 1998, he held various marketing positions
with Hewlett-Packard.
Randolph W. Jones has served as our vice president of IT sales since June
1999. From October 1998 to May 1999, Mr. Jones served as senior vice president
of a division of Parametric Technology Corporation, a software company. From
May 1994 to October 1998, Mr. Jones served as a divisional vice president of
Computer Associates International, a business software company.
Todd J. Kaloudis was appointed as our vice president of marketing and
international business development in March 2000. Mr. Kaloudis also served as
our vice president of international business development from November 1999 to
March 2000. From July 1999 to November 1999, Mr. Kaloudis served as a program
leader of Teledesic, a software development company. From May 1998 to July
1999, he served as manager, technology strategy of Teledesic, and from
September 1996 to April 1998 he served as one of Teledesic's design engineers.
Prior to September 1996, Mr. Kaloudis was a student at M.I.T.
Eric R. Martin was appointed as our vice president of OPNET Modeler sales in
March 2000. From April 1999 to March 2000, Mr. Martin served as our vice
president of R & D sales. From January 1998 to March 1999, Mr. Martin served as
one of our sales engineers. From September 1995 to September 1997, Mr. Martin
was a student and research assistant at M.I.T. From March 1995 to August 1995,
Mr. Martin worked as an architectural designer for Liu and Associates (Taiwan),
an urban design firm.
Alberto Morales has served as our chief information officer since February
1997 and our vice president of information systems since March 1999. Mr.
Morales also served as our director of information systems from February 1997
to March 1999. From September 1995 to February 1997, Mr. Morales served as a
software engineer at FGM, a software engineering consulting company.
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<PAGE>
Eric S. Nudelman has served as our vice president of engineering
applications and training since March 1999. From March 1996 to March 1999, Mr.
Nudelman served as our director of training and technical marketing services.
From September 1995 to March 1996, Mr. Nudelman served as our assistant
director of strategic technical programs.
Annukka Piironen has served as our vice president of consulting services
since March 1999. From August 1996 to March 1999, Ms. Piironen served as our
director of consulting services and director of modeling services. From
September 1995 to July 1996, she served as our director of modeling research
and development.
Michael D. Powers has served as our vice president, solutions group since
March 1999. From April 1998 to March 1999, Mr. Powers served as our director of
solutions group. From September 1995 to April 1998, Mr. Powers served as our
director of maintenance and technical support operations. From June 1992 to
September 1995, Mr. Powers was one of our applications engineers.
Each executive officer serves at the discretion of the board of directors
and holds office until his successor is elected and qualified or until his
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers, except that Marc Cohen and Alain Cohen are
brothers.
Pursuant to a shareholders agreement, dated as of September 30, 1997, by and
among Summit Ventures IV, L.P., Summit Investors III, L.P., Marc Cohen, Alain
Cohen, and us, Summit Ventures IV, L.P. and Summit Investors III, L.P. were
given the right to elect one representative to the board of directors. Mr.
Evans was elected as the representative of Summit Ventures IV, L.P. and Summit
Investors III, L.P. In addition, Marc Cohen, Alain Cohen, Summit Ventures IV,
L.P., and Summit Investors III, L.P. were given the right to jointly elect one
director who was not one of our employees and also not affiliated with
Marc Cohen, Alain Cohen, Summit Ventures IV, L.P., and Summit Investors III,
L.P. Dr. Finn was jointly elected by Marc Cohen, Alain Cohen, Summit Ventures
IV, L.P., and Summit Investors III, L.P. These rights terminate upon the
completion of this offering.
Compensation of Directors
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors. Following this offering, our non-
employee directors will receive automatic annual grants of stock options
pursuant to our 2000 director stock option plan. In November 1998, we issued
shares of common stock to each of Dr. Finn and Mr. Stasior at a purchase
price of $ per share, and granted to each of Dr. Finn and Mr. Stasior an
option to purchase shares of common stock at an exercise price of $ per
share.
Board Committees
The board of directors has established a compensation committee and an audit
committee. The compensation committee, which consists of Mr. Evans and Mr.
Stasior, 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. Evans, Dr. Finn, and Mr. Stasior,
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.
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Election of Directors
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. Mr.
Evans will serve in the class whose term expires in 2001; Alain Cohen and Dr.
Finn will serve in the class of directors whose term expires in 2002; and Marc
Cohen and Mr. Stasior will serve in the class of directors whose term expires
in 2003. Upon the expiration of the term of a class of directors, directors in
that class will be eligible to be elected for a new three-year term at the
annual meeting of stockholders in the year in which that term expires.
Compensation Committee Interlocks and Insider Participation
We did not have a compensation committee until March 2000. 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 any member of 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.
Agreements with Executives
Marc Cohen and Alain Cohen each entered into a non-competition agreement
with us on September 30, 1997. Under the agreements, Marc Cohen and Alain Cohen
each agreed not to compete with us during the term of his employment and, in
the event that his employment with us is terminated either at his voluntary
election or by us for good cause, for a period of twelve months thereafter. In
addition, Marc Cohen and Alain Cohen agreed not to solicit our employees or
customers on behalf of any competitor during the same period. Also, Marc Cohen
and Alain Cohen each agreed to protect our confidential information during his
employment, except as appropriate in the performance of his duties, and after
the termination of his employment.
Mr. Cathey serves as our senior vice president of engineering pursuant to
the terms of an employment agreement dated December 4, 1995. The agreement
expires on December 4, 2001. Pursuant to the terms of the agreement, Mr. Cathey
initially received an annual salary of $100,000, subject to periodic increases
at our discretion. Mr. Cathey's salary for fiscal 1999 was $142,155. Under the
agreement, Mr. Cathey agreed not to compete with us during the term of his
employment and for eighteen months after termination of his employment. Mr.
Cathey also agreed not to solicit our employees or customers during the same
period.
We intend to enter into an employment agreement with Mr. Greeves, our senior
vice president of finance and chief financial officer. Pursuant to the terms of
the agreement, Mr. Greeves will receive an annual salary of $ , subject to
periodic increases at our discretion. We also intend to enter into a
nondisclosure, non-compete, nonsolicitation and ownership of inventions
agreement with Mr. Greeves, under which Mr. Greeves will agree to protect our
confidential information during and after the termination of his employment,
and not to compete with us during the term of his employment and for 12 months
after termination of his employment.
We intend to enter into an employment agreement with Mr. Singh, our senior
vice president of engineering, model research and development. Pursuant to the
terms of the agreement, Mr. Singh will receive an annual salary of $ ,
subject to periodic increases at our discretion. We also intend to enter into a
nondisclosure, non-compete, nonsolicitation and ownership of inventions
agreement with Mr. Singh, under which Mr. Singh will agree to protect our
confidential information during and after the termination of his employment,
and not to compete with us during the term of his employment and for 12 months
after termination of his employment.
Executive Compensation
The table below sets forth, for the year ended March 31, 1999, the cash
compensation earned and shares underlying options granted to our chairman of
the board and chief executive officer and each of the other three executive
officers who received annual compensation in excess of $100,000 for the fiscal
year ended March 31, 1999, collectively referred to as the named executive
officers.
47
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Compensation
Annual Awards Long-
Compensation term
---------------- ------------
Shares
Name and Underlying All Other
Principal Position Salary Bonus Options Compensation(1)
------------------ -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
Marc A. Cohen.................... $156,000 -- -- $3,000
Chairman of the board and chief
executive officer
Alain J. Cohen................... 156,000 -- -- 3,000
President and chief technology
officer
George M. Cathey................. 142,155 $27,296 3,000
Senior vice president of
engineering
Pradeep K. Singh................. 95,000 39,521 -- 3,000
Senior vice president of
engineering, model research and
development
</TABLE>
- --------
(1) Represents amounts contributed by us under our 401(k) plan.
In March 2000, the board of directors increased the annual salary of each of
Marc Cohen and Alain Cohen to $200,000.
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 March 31, 1999. The percentage of total options granted
to employees set forth below is based on an aggregate of shares subject to
options granted to our employees in fiscal 1999. All options were granted at or
above fair market value as determined by the board of directors on the date of
grant.
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term (1)
----------------------------------------------- ---------------------
Number of Percent of
Securities Total
Underlying Options Granted Exercise
Options To Employees in Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
---- ---------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Marc A. Cohen........... -- -- -- -- -- --
Alain J. Cohen.......... -- -- -- -- -- --
George M. Cathey........ 2.4% $ 3/31/06 $ $
Pradeep K. Singh........ -- -- -- -- -- --
</TABLE>
Option Grants in Last Fiscal Year
- --------
(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 Securities and Exchange
Commission 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 at the indicated rate for the entire term of the option and
that the option is exercised at the exercise price and sold on the last day
of its term at the appreciated price.
The table below sets forth information for each of the named executive
officers with respect to the value of options outstanding as of March 31, 1999.
The named executive officers did not exercise any options to purchase shares of
common stock during the year ended March 31, 1999.
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<PAGE>
Fiscal Year-End Option Holdings and Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year- The-Money Options at
End Fiscal Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marc A. Cohen.............. -- -- -- --
Alain J. Cohen............. -- -- -- --
George M. Cathey........... -- -- $317,790
Pradeep K. Singh........... -- -- 249,640
</TABLE>
There was no public trading market for our common stock as of March 31,
1999. Accordingly, as permitted by the rules of the Securities and Exchange
Commission, 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
March 31, 1999 of $ per share, as determined by the board of directors, less
the aggregate exercise price.
Stock and Benefit Plans
Amended and Restated 1993 Incentive Stock Option Plan
Our original stock option plan provided for the grant of incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code. As
of December 31, 1999, options to purchase shares of common stock were
outstanding under the 1993 plan. The 1993 plan provides that, 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 1993
plan be assumed or substituted for by the acquiror. If any of these events
constitutes a change in control, and if within one year of the change of
control, the optionee's employment is terminated without cause or the optionee
leaves for good reason, then the assumed or substituted options will be
immediately exercisable in full. Following this offering, our board of
directors has provided that no additional grants will be made under the 1993
plan.
2000 Stock Incentive Plan
Our 2000 stock incentive plan was adopted by our board of directors in March
2000 and will be submitted to our stockholders for approval in April 2000. Up
to shares of our common stock, subject to adjustment in the event of stock
splits and other similar events, were reserved for issuance under the 2000
plan.
The 2000 plan provides 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 2000 plan. Under
present law, however, incentive stock options may only be granted to employees.
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 2000 plan permits our board of
directors to determine 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 of shares of common stock to us, or by any
combination of the permitted forms of payment.
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<PAGE>
Our board of directors administers the 2000 plan. Our board of directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the 2000 plan and to interpret its provisions. It may
delegate authority under the 2000 plan 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 2000 plan, including the granting of options to our executive
officers. Subject to any applicable limitations contained in the 2000 plan, 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;
. the exercise price of options;
. the duration of options; and
. the 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 2000 plan be assumed or substituted for by the acquiror. If
any of these events constitutes a change in control, and if within one year of
the change of control, the optionee's employment is terminated without cause or
the optionee leaves for good reason, then the assumed or substituted options
will be immediately exercisable in full.
No award may be granted under the 2000 plan after March 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 2000 plan.
2000 Director Stock Option Plan
Our 2000 director stock option plan was adopted by our board of directors in
March 2000 and will be submitted to our stockholders for approval in April
2000. Under the director stock option plan, directors who are not our employees
will be eligible to receive non-statutory options to purchase shares of our
common stock. A total of shares of our common stock may be issued upon the
exercise of options granted under the director stock option plan.
Under the terms of the director stock option plan:
. each person serving as a non-employee director upon completion of this
offering will be granted an option to purchase shares of our common
stock;
. each person who first becomes a non-employee director after the
completion of this offering will be granted an option on the date of his
or her election to purchase a number of shares of common stock
calculated by multiplying by the number of full calendar months
remaining from the date of his election until the first anniversary of
the last annual stockholders meeting; and
. each non-employee director will receive an option to purchase
shares of our common stock following each annual meeting of our
stockholders commencing with the 2001 annual meeting of stockholders.
These options vest immediately in full upon the option grant date. The
exercise price per share of all options will equal the fair market value per
share of our common stock on the option grant date, which in the case of the
options to be granted upon completion of this offering will be deemed to be the
initial public offering price per share in this offering. Each grant under the
director stock option plan will have a maximum term of ten years, subject to
earlier termination following the optionee's cessation of service.
50
<PAGE>
2000 Employee Stock Purchase Plan
Our 2000 employee stock purchase plan was adopted by our board of directors
in March 2000 and will be submitted to our stockholders for approval in April
2000. The purchase plan authorizes the issuance of up to a total of 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 six months in any calendar year, are
eligible to participate in the purchase plan once they have been employed by us
or any subsidiary for a six month period. 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 a maximum of 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 the extent of
accumulated payroll deductions. Under the terms of the purchase plan, the
option price is an amount equal to 85% of the closing 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 first day of the fiscal quarter
beginning after the completion of this offering. In no event may an employee
purchase in any one offering 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. Marc Cohen and Alain Cohen
are not eligible to participate in the purchase plan.
401(k) Plan
In August 1993, 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 make matching
contributions to the 401(k) plan, and may make discretionary and extra
contributions in amounts determined annually by our board of directors. We
contributed amounts to our 401(k) plan totaling approximately $77,000 in fiscal
1997, $92,000 in fiscal 1998, and $140,000 in fiscal 1999.
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<PAGE>
CERTAIN TRANSACTIONS
Stock Purchases by Affiliates and Related Matters
In September 1997, we issued and sold shares of series A convertible
preferred stock as set forth below at a purchase price of $48.40 per share.
Upon completion of this offering, each share of series A convertible preferred
stock will automatically convert into shares of common stock.
<TABLE>
<CAPTION>
Number of Shares of Series A
Name of Investor Convertible Preferred Stock
---------------- ----------------------------
<S> <C>
Summit Ventures IV, L.P......................... 138,422
Summit Investors III, L.P....................... 6,218
</TABLE>
Mr. Evans, one of our directors, is a partner of Summit Partners. Summit
Partners is the general partner of the general partner of each of Summit
Ventures IV, L.P. and Summit Investors III, L.P.
In October 1997, we repurchased shares of common stock from Marc Cohen,
Alain Cohen, and Mr. Cathey as set forth below at a purchase price of $ per
share. Marc Cohen is our chairman of the board and chief executive officer,
Alain Cohen is our president and chief technology officer and a director, and
Mr. Cathey is our senior vice president of engineering.
<TABLE>
<CAPTION>
Name of Stockholder Number of Shares of Common Stock
------------------- --------------------------------
<S> <C>
Marc A. Cohen...............................
Alain J. Cohen..............................
George M. Cathey............................
</TABLE>
In November 1998, we issued and sold shares of common stock to each of
Dr. Finn and Mr. Stasior at a purchase price of $ per share, and granted to
each of Dr. Finn and Mr. Stasior an option to purchase shares of common
stock at an exercise price of $ per share. Dr. Finn and Mr. Stasior are
members of our board of directors.
Option Amendment and Loan to Executive Officer
On January 20, 2000, we amended Mr. Cathey's option agreement to purchase
shares of common stock at $ per share, which was not then exercisable,
in order to make it immediately exercisable. Mr. Cathey then exercised the
option in full on that date and borrowed $231,024 from us to pay income taxes
incurred by him upon purchasing the shares under the option, as evidenced by a
promissory note. The note bears interest at an annual rate of 6.0%, and all
principal and accrued interest payable under the note is due on the first
anniversary of this offering. We have agreed to make additional loans to Mr.
Cathey, which will also be evidenced by promissory notes, if it is subsequently
determined that he owes additional taxes in connection with the purchase of the
shares. Any subsequent notes will also bear interest at an annual rate of 6.0%,
and all principal and accrued interest payable under the notes will be due on
the earlier of the second anniversary of the date of issuance of the note or
the first anniversary of this offering. The loan, and any subsequent loans, are
recourse to Mr. Cathey and are secured by the shares of common stock that he
purchased upon the exercise of the option. The balance of principal and
interest outstanding under these loans was $231,024 and $1,557, as of February
29, 2000.
Policy on Future Transactions
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>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of February 29, 2000, assuming the conversion of all our
outstanding convertible preferred stock, by:
. each person who beneficially owns more than 5% of the outstanding shares
of our common stock;
. each of our directors;
. each of the named executive officers; and
. all of our directors and executive officers as a group.
The percentages shown are based on shares of common stock outstanding
as of February 29, 2000 and shares of common stock outstanding after this
offering, including the shares that are being offered for sale by us in
this offering. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, 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 February 29,
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 OPNET Technologies, Inc., 3400
International Drive, N.W., Washington, D.C. 20008.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially
Owned
-----------------
Shares Beneficially Prior to After
Beneficial Owner Owned Offering Offering
- ---------------- ------------------- -------- --------
<S> <C> <C> <C>
Summit Partners (1)..................... % %
600 Atlantic Avenue
Boston, MA 02210
Marc A. Cohen...........................
Alain J. Cohen..........................
George M. Cathey (2)....................
Pradeep K. Singh (3)....................
Bruce R. Evans (4)......................
Steven G. Finn (5)......................
William F. Stasior (6)..................
All executive officers and directors as
a group (7 persons)(7).................
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Consists of shares of common stock held by Summit Ventures IV, L.P.
and shares of common stock held by Summit Investors III, L.P.
(2) Includes shares of common stock issuable upon exercise of outstanding
options.
(3) Includes shares of common stock issuable upon exercise of outstanding
options.
(4) Consists of shares of common stock held by Summit Ventures IV, L.P.
and shares of common stock held by Summit Investors III, L.P. Mr.
Evans is the general partner of Summit Partners, which is the general
partner of the general partner of both of Summit Ventures IV, L.P. and
Summit Investors III, L.P. Mr. Evans disclaims beneficial ownership of the
shares held by Summit Ventures IV, L.P. and Summit Investors III, L.P.
(5) Includes shares of common stock issuable upon exercise of outstanding
options.
(6) Includes shares of common stock issuable upon exercise of outstanding
options.
(7) Includes shares of common stock issuable upon exercise of outstanding
options.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.001 par value per share, and 5,000,000
shares of preferred stock, $.001 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 amended and
restated by-laws to be effective after the completion of this offering, filed
as exhibits to the registration statement of which this prospectus is a part.
Common Stock
As of February 29, 2000, there were shares of common stock outstanding
held by 18 stockholders of record. Based upon the number of shares outstanding
as of that date, and giving effect to the automatic conversion of our
outstanding convertible preferred stock and the issuance of the shares of
common stock offered by us in this offering, there will be shares of
common stock outstanding upon the completion 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.
At present, there is no established trading market for the common stock. We
have applied to list our common stock on The Nasdaq Stock Market's National
Market under the symbol "OPNT."
Preferred Stock
Upon the completion of this offering, the board of directors will be
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 will have the 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.
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. Upon completion of this offering there will be no
shares of preferred stock outstanding, and we do not have any current plans to
issue preferred stock after this offering.
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
54
<PAGE>
combination includes mergers, consolidations, asset sales, and other
transactions involving OPNET 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 upon the completion 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;
. that 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; and
. that 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 will also provide that:
. 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; and
. 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 provisions of our amended
and restated certificate of incorporation described above. Generally, 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 amendments are
submitted to stockholders.
Limitation of Liability and Indemnification
Our amended and restated certificate of incorporation provides that our
directors and officers will be indemnified by us to the fullest extent
authorized by the General Corporation Law of Delaware. This
55
<PAGE>
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 our common stock is .
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding assuming no exercise of outstanding options. Of these shares, the
shares to be sold in this offering will be freely tradable 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. All shares of our
common stock outstanding prior to this offering are subject to 180-day lock-up
agreements described below and may not be sold in the public market prior to
the expiration of the lock-up agreements. Banc of America Securities LLC may
release the shares subject to the lock-up agreements in whole or in part at any
time without prior public notice. However, Banc of America Securities LLC has
no current plans to effect such a release. Upon the expiration of the lock-up
agreements, approximately additional shares will be available for sale in
the public market, subject in some cases to compliance with the volume and
other limitations of Rule 144.
Sales of Restricted Shares
<TABLE>
<CAPTION>
Days After Date
of Approximate Shares
This Prospectus Eligible for Future Sale Comment
--------------- ------------------------ -------
<S> <C> <C>
Upon
effectiveness.. Freely tradeable sold in this offering
180 days........ Lock-up expires; shares salable
under Rule 144, 144(k) or 701
Various dates Restricted securities held for one
thereafter..... year or less as of 180 days following effectiveness
</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 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.
Lock-up Agreements
Subject to limited exceptions, our executive officers, directors, and
stockholders, and most of our optionholders have agreed that, without the prior
written consent of Banc of America Securities LLC, they will not, during the
period ending 180 days after the date of this prospectus, directly or
indirectly, sell, offer, contract or grant any option to sell, pledge,
transfer, establish an open put equivalent position, or otherwise
57
<PAGE>
dispose of any shares of common stock, options or warrants to acquire shares of
common stock, or securities exchangeable or exerciseable for or convertible
into shares of common stock currently or hereafter owned either of record or
beneficially, or publicly announce their intention to do any of the foregoing.
For more information on these restrictions, see "Underwriting."
Stock Options
As of February 29, 2000, approximately shares of common stock were
issuable pursuant to vested options or pursuant to other rights granted under
our 1993 incentive stock option plan. All of such shares issuable upon the
exercise of options that are exercisable within 180 days following this
offering are 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 shares of
common stock issuable under our stock plans, including the shares of common
stock subject to outstanding options as of February 29, 2000. This registration
statement is expected to become effective upon filing.
Registration Rights
After this offering, the holders of approximately shares of common
stock and rights to acquire common stock will be entitled to rights with
respect to the registration of their shares under the Securities Act. Under the
terms of the agreement between us and the holders of these 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, these holders are entitled to notice of
the registration and are entitled to include shares of their common stock in
the registration. Additionally, these holders are entitled to 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 their shares of common stock, and we are required to
use our commercially reasonable best efforts to effect the registration. All of
these registration rights are subject to typical conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in the registration and our right not to effect a requested
registration within six months following this offering or within three months
following any subsequent offering of our securities pursuant to a registration
statement filed with the Securities and Exchange Commission.
58
<PAGE>
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, Friedman,
Billings, Ramsey & Co., Inc., and SoundView Technology Group, Inc. are the
representatives of the underwriters. We have entered into an underwriting
agreement with the representatives. Subject to the terms and conditions of the
underwriting agreement, we have agreed to sell to the underwriters, and each of
the underwriters has agreed to purchase, the number of shares of common stock
listed next to its name in the following table.
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
- ----------- ------
<S> <C>
Banc of America Securities LLC...........................................
Friedman, Billings, Ramsey & Co., Inc....................................
SoundView Technology Group, Inc. ........................................
----
Total .................................................................
====
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more
than $ per share to some other dealers. If all the shares are not sold at
the initial public offering price, the underwriters may change the offering
price and the other selling terms. The common stock is offered subject to a
number of conditions, including:
.receipt and acceptance of our common stock by the underwriters; and
.the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters which exceed the number of shares specified in the table
above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
Paid by us
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
We, all of our stockholders, and all of our officers and directors have
entered into lock-up agreements with the underwriters. Under those agreements,
we and those holders of stock may not dispose of or hedge any common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 180 days after the date of this
prospectus. At any time and without notice, Banc of America Securities LLC may,
in its sole discretion, release all or some of the securities from these lock-
up agreements.
fbr.com, a division of FBR Investment Services, Inc., is an affiliate of
Friedman, Billings, Ramsey & Co., Inc., a representative. Friedman, Billings,
Ramsey & Co., Inc. has agreed to allocate a certain number of shares to fbr.com
for sale to its online brokerage account holders. An electronic prospectus is
available on the Web site maintained by fbr.com. Other than the prospectus in
electronic format, the information on the fbr.com Web site relating to this
offering is not a part of the prospectus and should not be relied upon by
prospective investors.
59
<PAGE>
A prospectus in electronic format is also being made available on an
Internet Web site maintained by Wit SoundView's affiliate, Wit Capital
Corporation. In addition, other dealers purchasing shares from Wit SoundView in
this offering have agreed to make a prospectus in electronic format available
on Web sites maintained by each of these dealers. Other than the prospectus in
electronic format, the information on Wit Capital Corporation's Web site and
any information contained on any other Web site maintained by Wit Capital is
not part of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed by us or any
underwriter in its capacity as underwriter and should not be relied upon by
investors.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect of those liabilities.
We have applied to have shares of common stock approved for listing on the
Nasdaq National Market under the symbol "OPNT."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
.short sales;
.stabilizing transactions; and
.purchases to cover positions created by short sales.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters also may engage in activities that stabilize, maintain, or
otherwise affect the price of the common stock, including:
.over-allotment;
.syndicate covering transactions; and
.imposition of penalty bids.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market, or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between us and the
underwriters. Among the factors that will be considered in the negotiations
are:
.our history and prospects, and the history and prospects of the industry
in which we compete;
.our past and present financial performance;
.an assessment of our management;
.the present state of our development;
. the prevailing market conditions of the applicable United States
securities market at the time of this offering; and
. market valuations of publicly traded companies that we and the
underwriters believe to be comparable to us.
60
<PAGE>
The underwriters have reserved up to shares of the common stock to be
sold in this offering for sale to some of our employees, directors, and their
associates, and to other individuals or companies who have commercial
arrangements or personal relationships with us at the initial public offering
price set forth on the cover page of this prospectus. These persons must commit
to purchase no later than the close of business on the day following the date
of this prospectus. The number of shares available for sale to the general
public will be reduced by the number of shares sold through the directed share
program.
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
Morrison & Foerster LLP, New York, New York.
EXPERTS
The financial statements as of March 31, 1998 and 1999 and for each of the
three years in the period ended March 31, 1999 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 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 Commission 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 Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the
Commission'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
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission's
toll-free number is 800-SEC-0330. In addition, the Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999 and as of
December 31, 1999 (unaudited)........................................... F-3
Consolidated Statements of Operations for the years ended March 31, 1997,
1998, 1999 and for the nine months ended December 31, 1998 and 1999
(unaudited)............................................................. F-4
Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1998, 1999 and for the nine months ended December 31, 1998 and 1999
(unaudited)............................................................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended March 31, 1997, 1998, 1999 and for the nine months ended December
31, 1999 (unaudited).................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
OPNET Technologies, Inc.
Washington, D.C.
We have audited the accompanying consolidated balance sheets of OPNET
Technologies, Inc., as of March 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
McLean, Virginia
July 2, 1999, except for note 14 paragraphs 1 and 2 as to which the dates
are January 20, 2000 and March 13, 2000, respectively.
F-2
<PAGE>
OPNET TECHNOLOGIES, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31, 1999
---------------- -----------------------
Pro Forma
1998 1999 Actual (Note 1)
------- ------- ----------- -----------
(unaudited) (unaudited)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 7,227 $ 6,414 $ 4,672 $ 4,672
Marketable securities............... 206 -- 4,013 4,013
Accounts receivable, net of $0,
$185, and $71 in allowance for
doubtful accounts at March 31, 1998
and 1999 and December 31, 1999
(unaudited), respectively.......... 2,141 3,080 3,411 3,411
Refundable income taxes............. 379 417 509 509
Deferred income taxes............... -- 105 305 305
Prepaid expenses and other current
assets............................. 211 167 418 418
------- ------- ------- -------
Total current assets................ 10,164 10,183 13,328 13,328
------- ------- ------- -------
Deferred income taxes................ -- 31 13 13
Property and equipment, net.......... 1,477 1,734 2,083 2,083
Intangible assets, net of $0, $42, $0
and $417 in accumulated amortization
at March 31, 1998 and 1999 and
December 31, 1999 (unaudited),
respectively........................ -- 958 583 583
Other assets:
Deposits............................ 42 42 56 56
Purchased software, net of
accumulated amortization of $108,
$184, and $130 at March 31, 1998
and 1999 and December 31, 1999
(unaudited), respectively.......... 150 257 430 430
------- ------- ------- -------
Total assets....................... $11,833 $13,205 $16,493 $16,493
======= ======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable.................... $ 109 $ 163 $ 128 $ 128
Accrued liabilities................. 195 1,129 2,145 2,145
Deferred income taxes............... 6 -- -- --
Deferred revenue.................... 1,719 2,085 4,047 4,047
------- ------- ------- -------
Total current liabilities........... 2,029 3,377 6,320 6,320
Non-current liabilities:
Deferred rent....................... 48 40 28 28
Deferred revenue.................... 84 117 119 119
Deferred income taxes............... 272 -- -- --
------- ------- ------- -------
Total non-current liabilities....... 404 157 147 147
Commitments and contingencies (note
8)
Series A redeemable convertible
preferred stock, par value $0.001--
160 shares authorized, 145 issued
and outstanding at March 31, 1998
and 1999 and December 31, 1998 and
1999 (unaudited) and no shares
issued and outstanding at
December 31, 1999 pro forma
(unaudited), liquidation preference
- $48.40 per share.................. 6,920 6,934 6,945 --
Stockholders' equity:
Preferred Stock--par value $0.001;
400 shares authorized; 160 shares
designated as Series A (above), 145
issued and outstanding............. -- -- -- --
Common stock--$0.001 par value;
20,000 shares authorized; 11,173,
11,206, 11,223 and 12,671 shares
issued at March 31, 1998 and 1999,
December 31, 1999 (unaudited) and
December 31, 1999 pro forma
(unaudited), respectively; 7,088,
7,121, 7,138 and 8,586 shares
outstanding at March 31, 1998 and
1999, December 31, 1999 (unaudited)
and December 31, 1999 pro forma
(unaudited), respectively ......... 11 11 11 13
Additional paid-in capital.......... 108 172 296 7,239
Deferred compensation............... -- -- (106) (106)
Retained earnings................... 6,371 6,564 6,890 6,890
Treasury stock--4,085 shares at
March 31, 1998 and 1999 and
December 31, 1999 (unaudited) ..... (4,010) (4,010) (4,010) (4,010)
------- ------- ------- -------
Total stockholders' equity.......... 2,480 2,737 3,081 10,026
------- ------- ------- -------
Total liabilities and stockholders'
equity............................ $11,833 $13,205 $16,493 $16,493
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
OPNET TECHNOLOGIES, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
------------------------ -----------------------
1997 1998 1999 1998 1999
------- ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses......... $ 5,596 $ 7,875 $ 6,715 $4,580 $ 7,382
Services.................. 3,019 4,054 5,288 3,768 6,069
------- ------- ------- ------ -------
Total revenues.......... 8,615 11,929 12,003 8,348 13,451
------- ------- ------- ------ -------
Cost of revenues:
Software licenses......... 310 435 133 114 474
Services.................. 698 980 1,249 854 2,049
------- ------- ------- ------ -------
Total cost of revenues.. 1,008 1,415 1,382 968 2,523
------- ------- ------- ------ -------
Gross profit................ 7,607 10,514 10,621 7,380 10,928
Operating expenses:
Research and development.. 2,055 3,190 4,850 3,694 4,092
Sales and marketing....... 2,228 3,398 4,056 2,872 5,142
General and
administrative........... 819 1,336 1,984 1,347 1,502
------- ------- ------- ------ -------
Total operating
expenses............... 5,102 7,924 10,890 7,913 10,736
------- ------- ------- ------ -------
Income (loss) from
operations................. 2,505 2,590 (269) (533) 192
Interest and other income... 92 319 376 299 273
------- ------- ------- ------ -------
Income (loss) before
provision (benefit) for
income taxes............... 2,597 2,909 107 (234) 465
Provision (benefit) for
income taxes............... 1,105 1,134 (100) (204) 128
------- ------- ------- ------ -------
Net income (loss)........... 1,492 1,775 207 (30) 337
Accretion of transaction
costs on redeemable
convertible preferred
stock...................... -- (9) (14) (11) (11)
------- ------- ------- ------ -------
Net income (loss) applicable
to common shares........... $ 1,492 $ 1,766 $ 193 $ (41) $ 326
======= ======= ======= ====== =======
Basic net income (loss)
applicable per common
share...................... $ 0.19 $ 0.24 $ 0.03 $(0.01) $ 0.05
======= ======= ======= ====== =======
Diluted net income (loss)
per common share........... $ 0.19 $ 0.21 $ 0.02 $(0.01) $ 0.04
======= ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
OPNET TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
------------------------ -----------------------
1997 1998 1999 1998 1999
------ ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)......... $1,492 $ 1,775 $ 207 $ (30) $ 337
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Accreted income on
investments............ -- (6) -- -- --
Expense related to
employee stock
options................ -- -- -- -- 15
Depreciation and
amortization........... 221 346 568 414 910
Write-off of property
and software........... -- 48 3 -- --
Deferred income taxes... 223 (41) (414) (213) (183)
Changes in assets and
liabilities:
Accounts receivable... (737) (42) (939) (789) (331)
Prepaid expenses and
other current
assets............... 142 (105) 46 67 (251)
Refundable income
taxes................ 298 (330) (38) (340) (92)
Deposits.............. (6) (15) -- (3) (14)
Accounts payable...... 35 (10) 54 (109) (35)
Accrued liabilities... (6) 157 434 498 1,516
Deferred revenue...... 237 522 399 220 1,966
Deferred rent......... (9) (5) (8) (6) (12)
------ ------- ------- ------ -------
Net cash provided by
(used in) operating
activities.......... 1,890 2,294 312 (291) 3,826
------ ------- ------- ------ -------
Cash flows from investing
activities:
Purchase of securities
available for sale....... (293) -- -- -- (4,013)
Maturities of securities
available for sale....... -- 193 206 94 --
Purchase of intangibles... -- -- (500) -- (500)
Purchase of software...... (83) (102) (184) (176) (181)
Proceeds from sale of
property and equipment... -- -- 2 -- --
Purchase of property and
equipment................ (593) (884) (713) (584) (877)
------ ------- ------- ------ -------
Net cash used in
investing
activities.......... (969) (793) (1,189) (666) (5,571)
------ ------- ------- ------ -------
Cash flows from financing
activities:
Net proceeds from sale of
redeemable convertible
preferred stock.......... -- 6,911 -- -- --
Purchase of treasury
stock.................... -- (3,363) -- -- --
Proceeds from sale of
common stock............. -- -- 60 -- --
Proceeds from exercise of
common stock options..... -- -- 4 -- 3
------ ------- ------- ------ -------
Net cash provided by
financing
activities.......... -- 3,548 64 -- 3
------ ------- ------- ------ -------
Net increase (decrease) in
cash and cash
equivalents............... 921 5,049 (813) (957) (1,742)
Cash and cash equivalents,
beginning of year......... 1,257 2,178 7,227 7,227 6,414
------ ------- ------- ------ -------
Cash and cash equivalents,
end of year............... $2,178 $ 7,227 $ 6,414 $6,270 $ 4,672
====== ======= ======= ====== =======
Supplemental disclosure of
cash flow information:
Cash paid during the year
for income taxes......... $ 586 $ 1,502 $ 353 $ 351 $ 561
====== ======= ======= ====== =======
Supplemental disclosure of
non cash activities:
Obligation assumed for
acquired intangibles..... $ -- $ -- $ 500 $ -- $ --
====== ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
OPNET TECHNOLOGIES, INC.
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------------------ --------------
Additional Total
Shares Shares Paid-In Deferred Retained Stockholders'
Issued Outstanding Amount Capital Shares Amount Compensation Earnings Equity
------ ----------- ------ ---------- ------ ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1996................... 11,173 7,783 $ 11 $ 108 3,390 $ (647) $ -- $3,113 $ 2,585
Net income............. 1,492 1,492
------ ----- ---- ------ ----- ------- ----- ------ -------
Balance, March 31,
1997................... 11,173 7,783 11 108 3,390 (647) -- 4,605 4,077
Net income............. 1,775 1,775
Purchase of treasury
stock................. (695) 695 (3,363) (3,363)
Accretion of
transaction costs on
redeemable
convertible preferred
stock ................ (9) (9)
------ ----- ---- ------ ----- ------- ----- ------ -------
Balance, March 31,
1998................... 11,173 7,088 11 108 4,085 (4,010) -- 6,371 2,480
Net income............. 207 207
Share options
exercised............. 13 13 4 4
Common shares issued... 20 20 60 60
Accretion of
transaction costs on
redeemable convertible
preferred stock....... (14) (14)
------ ----- ---- ------ ----- ------- ----- ------ -------
Balance, March 31,
1999................... 11,206 7,121 11 172 4,085 (4,010) -- 6,564 2,737
Net income
(unaudited)........... 337 337
Share options exercised
(unaudited)........... 17 17 3 3
Deferred compensation
on employee stock
options (unaudited)... 121 (121) --
Amortization of
deferred compensation
on employee stock
options (unaudited)... 15 15
Accretion of
transaction costs on
redeemable convertible
preferred stock
(unaudited)........... (11) (11)
------ ----- ---- ------ ----- ------- ----- ------ -------
Balance, December 31,
1999 (unaudited)....... 11,223 7,138 11 296 4,085 (4,010) (106) 6,890 3,081
Pro forma conversion of
redeemable convertible
preferred stock to
common stock
(unaudited)............ 1,448 1,448 2 6,943 6,945
------ ----- ---- ------ ----- ------- ----- ------ -------
Pro forma balance,
December 31, 1999
(unaudited)............ 12,671 8,586 $ 13 $7,239 4,085 $(4,010) $(106) $6,890 $10,026
====== ===== ==== ====== ===== ======= ===== ====== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The predecessor of OPNET Technologies, Inc. ("OPNET" or the "Company") was
incorporated in the State of Maryland in 1986. The Company was incorporated in
the State of Delaware in 1988. The Company's predecessor filed articles of
dissolution with the State of Maryland in 1990. The Company's wholly owned
subsidiary, MIL 3 International Limited, was incorporated in Barbados in June
1998.
The Company provides predictive network management software solutions that
enable its customers to optimize the performance and maximize the availability
of networks and applications. The Company's product suite consists of three
primary software products: OPNET Modeler, OPNET IT DecisionGuru, and OPNET
Netbiz. The Company sells its OPNET suite of products to service providers,
including telecommunications carriers, Internet service providers, and
application service providers, large and medium-sized organizations, and
network equipment manufacturers. The Company markets its product suite in North
America primarily through a direct sales force and, to a lesser extent, several
resellers and original equipment manufacturers. Internationally, the Company
markets its products primarily through third-party distributors.
(a) Principles of Consolidation--The financial statements include the
results of OPNET Technologies, Inc. and its wholly owned subsidiary,
MIL 3 International Limited. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Estimates and Assumptions--The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as well
as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents--The Company considers deposits in banks and
all highly liquid investments with an original maturity of three months
or less to be cash equivalents. At March 31, 1998 and 1999, the
Company's investments consisted of money market accounts with banks and
brokerage firms, and overnight reverse repurchase agreements; their
carrying amounts approximated fair values.
(d) Marketable Securities--The Company has classified its marketable
securities as available-for-sale, as defined in SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." At
March 31, 1998, marketable securities were as follows.
<TABLE>
<CAPTION>
Maturing
Carrying Maturing Within One to Five
Amount One Year Years
-------- --------------- -----------
<S> <C> <C> <C>
U.S. Treasury notes............ $206,000 $ -- $206,000
</TABLE>
The investment carrying amounts are equal to the amortized cost at the
balance sheet date. These amounts approximate market value based upon
quoted market prices, and therefore no unrealized gain or loss has been
recorded.
(e) Accounts Receivable--Accounts receivable includes $219,424 of
unbillable accounts receivable as of March 31, 1999, which have been
recorded as revenue from fixed-price consulting agreements using the
percentage of completion method of accounting. There were no such
unbillable accounts receivable as of March 31, 1998.
(f) Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist
principally of cash and accounts receivable. The Company generally does
not require collateral on accounts receivable as the majority of its
customers are large, well-established companies, or government
entities.
F-7
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
The Company maintains its cash balance at several financial
institutions, including a brokerage firm. The Federal Deposit Insurance
Corporation insures the bank accounts up to $100,000. Although balances
exceed that amount, the Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk
to cash.
(g) Software Development Costs--Development costs incurred in the research
and development of new software products and enhancements to existing
software products are expensed as incurred until technological
feasibility has been established. The Company considers technological
feasibility to be established when all planning, designing, coding, and
testing has been completed according to design specifications. After
technological feasibility has been established, any additional costs
would be capitalized in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Through March 31,
1999, software development has been substantially completed
concurrently with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date.
(h) Unaudited Pro Forma Presentation--Under the terms of the Company's
agreements with the holders of the redeemable convertible preferred
stock (See Note 6), all of such preferred stock will be converted
automatically into shares of common stock upon the closing of the
Company's initial public offering. The unaudited pro forma balance
sheet information at December 31, 1999 reflects the conversion of the
Series A stock into 1,447,846 shares of common stock as if the
conversion occurred on December 31, 1999.
(i) Purchased Software--Purchased software is amortized on a straight-line
basis, generally over five years. Amortization expense for fiscal years
1997, 1998, and 1999 was $26,000, $44,000, and $76,000, respectively.
(j) Property and Equipment--Property and equipment are stated at cost.
Depreciation on property and equipment is computed on a straight-line
basis over the estimated useful lives of the assets, generally ranging
from five to seven years. Leasehold improvements are depreciated over
the shorter of the estimated useful life of the assets or the term of
the related lease. Repairs and maintenance are expensed as incurred;
major improvements and betterments are capitalized.
(k) Intangible Assets--Intangible assets consist of marketing support
rights that were acquired from another company under a two-year
contract. These costs are being amortized over the two-year contract
period using the straight-line method of amortization.
(l) Impairment of Long-Lived Assets--The Company reviews its long-lived
assets, including property and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amounts
of the assets may not be fully recoverable. In the event an evaluation
of recoverability is required, the estimated future undiscounted net
cash flows of the assets would be compared to the carrying amounts of
the assets to determine if a write-down is required.
(m) Revenue Recognition--The Company derives revenue principally from two
sources, product license fees for the use of the OPNET technology-based
software products, and service fees for maintenance, consulting, and
training related thereto. Software license revenues are recognized upon
shipment provided that fees are fixed and determinable, there are no
significant modifications required, and collection of the related
receivable is probable. Where significant modifications are required,
software license revenues are recognized along with consulting fees on
a percentage-of-completion basis as the modifications are performed.
Consulting is generally performed under fixed price agreements and
revenues are recorded using the percentage of completion method
measured by the relationship of costs incurred to the estimated total
costs of the contract. Training is provided on a daily-fee basis with
revenue recognized as the services are performed. Maintenance revenue
is deferred and
F-8
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
recognized on a straight-line basis over the term of the agreement;
amounts received in advance of revenue recognition are classified as
deferred revenue. In fiscal year 1999, the Company adopted Statement of
Position 97-2, "Software Revenue Recognition." This change did not have
a significant effect on the Company's financial statements.
(n) Income Taxes--The income tax provision includes income taxes currently
payable plus the net change during the year in deferred tax assets or
liabilities. Deferred tax assets and liabilities reflect the
differences between the carrying value under generally accepted
accounting principles and tax values of assets and liabilities using
enacted tax rates for the period in which the difference is expected to
reverse.
(o) Advertising Costs--Advertising costs are expensed as incurred and
include $137,425, $156,125 and $373,233 for the fiscal years ended
March 31, 1997, 1998 and 1999, respectively.
(p) Foreign Currency Transactions--Revenues denominated in foreign
currencies are translated at the prevailing exchange rate during the
reporting period. Gain or loss on foreign exchange is reported in the
Consolidated Statements of Operations.
(q) Net Income (Loss) Per Share--Basic net income (loss) per share has been
computed using the weighted average number of common shares outstanding
during the period; diluted net income (loss) per share includes
dilutive stock options and convertible preferred stock.
(r) Stock-Based Compensation--In 1993, the Company instituted an Incentive
Stock Option Plan (the "1993 Plan"), intended to qualify as such under
the provisions of Section 422 of the Internal Revenue Code of 1986, as
amended. In addition, during fiscal year 1999, the Company began
issuing nonqualified stock options. The Company grants stock options
for a fixed number of shares to employees, with an exercise price not
less than the fair market value of the shares, as determined by the
1993 Plan committee, on the date of the grant.
The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." In October
1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). As permitted
by SFAS 123, the Company accounts for stock-based compensation in
accordance with APB Opinion No. 25, and accordingly, recognizes
compensation expense for fixed stock option grants only when the
exercise price is less than the fair value of the shares on the date of
the grant. Pro forma net income and pro forma net income per share
disclosures are provided for employee stock option grants made in fiscal
years 1998 and 1999 as if the fair-value-based method defined in SFAS
123 had been applied (see Note 10).
(s) Redeemable Preferred Stock--The Company accretes the increase in the
redemption value of its Series A redeemable convertible preferred stock
through a charge to retained earnings based upon the redemption dates
prescribed in the Amended and Restated Certificate of Incorporation.
The period of accretion began on the September 1997 issuance date and
ends on the prescribed redemption dates beginning October 2002 and
continuing through October 2005.
(t) Reclassifications--Certain reclassifications have been made to the
prior-year financial statements to conform to the current-year
presentation.
(u) Recently Issued Accounting Pronouncements--In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. As amended by Statement
of Financial Accounting Standard No. 137, this standard will be
effective for the Company for the fiscal years and quarters beginning
after March 31, 2001, and requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
F-9
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Company has not completed the process of evaluating the impact of this
statement and is therefore unable to disclose the potential impact that
implementing SFAS No. 133 will have on its financial position or results
of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101--Revenue Recognition in Financial
Statements. This SAB expresses the SEC's views on applying generally
accepted accounting principles to revenue recognition in financial
statements. The Company does not expect the application of this SAB to
have a material impact on its financial statements.
2. INTANGIBLE ASSETS
Under the terms of an agreement, effective March 1, 1999, the Company
acquired a new distribution channel and rights to a royalty stream, as well as
marketing support rights, from another company, for $1.0 million. The
agreement is for a two-year period and may be extended by mutual agreement.
The Company paid $500,000 in cash and the balance is due July 30, 1999.
Under the terms of the agreement, the other company agreed to refund the
full $1.0 million if certain conditions are not met. The Company is amortizing
the cost over the two-year minimum period, using the straight-line method.
3. PROPERTY AND EQUIPMENT
At March 31, 1998 and 1999, property and equipment were as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Computer equipment................................. $ 1,789,000 $ 2,406,000
Office furniture and equipment..................... 694,000 735,000
----------- -----------
Total............................................ 2,483,000 3,141,000
Less: accumulated depreciation..................... (1,006,000) (1,407,000)
----------- -----------
Property and equipment--net........................ $ 1,477,000 $ 1,734,000
=========== ===========
</TABLE>
Depreciation expense for fiscal years 1997, 1998, and 1999 was $195,000,
$302,000, and $450,000, respectively.
4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of March 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Accrued bonuses......................................... $ -- $ 331,000
401(k) contributions.................................... 33,000 --
Accrued vacation........................................ 87,000 178,000
Accrued contractual payments............................ -- 500,000
Other................................................... 75,000 120,000
-------- ----------
Total................................................. $195,000 $1,129,000
======== ==========
</TABLE>
F-10
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
5. INCOME TAXES
The components of the provision for income taxes for the years ended March
31, 1997, 1998, and 1999, were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Current provision:
Federal................................ $ 662,000 $ 876,000 $ 238,000
State.................................. 220,000 299,000 76,000
---------- ---------- ---------
Total current provision.............. 882,000 1,175,000 314,000
---------- ---------- ---------
Deferred (benefit) provision:
Federal................................ 168,000 (31,000) (323,000)
State.................................. 55,000 (10,000) (91,000)
---------- ---------- ---------
Total deferred (benefit) provision... 223,000 (41,000) (414,000)
---------- ---------- ---------
Total (benefit) provision for income
taxes............................... $1,105,000 $1,134,000 $(100,000)
========== ========== =========
</TABLE>
At March 31, 1998 and 1999, respectively, the components of the Company's
deferred tax assets and deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued vacation expense............................. $ 25,000 $ 44,000
Deferred revenue..................................... 37,000 495,000
Deferred rent........................................ 21,000 14,000
Other temporary differences.......................... 23,000 92,000
--------- ---------
Total deferred tax assets.......................... 106,000 645,000
--------- ---------
Deferred tax liabilities:
Cash to accrual conversion........................... (246,000) (321,000)
Accelerated depreciation............................. (129,000) (152,000)
Other temporary differences.......................... (9,000) (36,000)
--------- ---------
Total deferred tax liabilities..................... (384,000) (509,000)
--------- ---------
Net deferred tax assets (liabilities).............. $(278,000) $ 136,000
========= =========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory U.S. Federal income tax rate to income before taxes as a result
of the following:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. Federal rate............................ 34% 34% 34%
Increase (decrease) in taxes resulting from:
State income taxes--net of Federal benefit......... 7 7 7
Tax credits........................................ (1) (3) (141)
Other permanent differences--net................... 3 1 7
----- ----- -----
Effective tax rate..................................... 43% 39% (93)%
===== ===== =====
</TABLE>
F-11
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On September 30, 1997, the Company entered into a Series A Redeemable
Convertible Preferred Stock Purchase Agreement (the "Agreement") with two
investors. The Company authorized 160,000 shares of the Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred Stock") and issued and
sold 144,640 shares, $.001 par value, for $7,000,576. Each holder of Series A
Preferred Stock is entitled to vote on all matters to be taken before the
stockholders of the Company and is entitled to the number of votes equal to the
number of whole shares of Common Stock into which such holder's shares of
Series A Preferred Stock could be converted on the record date for the
determination of shareholders entitled to vote on such matter.
Any share of the Series A Preferred Stock may, at the option of the holder,
be converted at any time into fully paid and nonassessable shares of Common
Stock. The number of shares of Common Stock to which a holder of Series A
Preferred Stock shall be entitled upon conversion shall be the product obtained
by multiplying the Applicable Conversion Rate by the number of shares of Series
A Preferred Stock being converted. The Conversion Rate is defined as the
quotient obtained by dividing the "Initial Purchase Price" of $48.40 by the
Applicable Conversion Value which (after giving effect to the Company's 10-for-
1 common stock split) is $4.84 per share at March 31, 1999. The Applicable
Conversion Value may be adjusted from time to time upon certain conditions such
as sale of Common Stock, issuance of warrants, options, and rights to Common
Stock, and extraordinary Common Stock events.
The holders of record of outstanding Series A Preferred Stock shall be
entitled to receive, out of any assets of the Company legally available
therefore, such dividends as may from time to time be declared by the Company's
board of directors. In the event of any liquidation, dissolution, or winding up
of the Company, whether voluntary or involuntary, before any distribution may
be made with respect to the Common Stock or any other series of capital stock,
holders of each outstanding share of Series A Preferred Stock shall be entitled
to be paid out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, an amount equal to the
"Initial Purchase Price" of each share of Series A Preferred Stock, as adjusted
for any stock split or combination, reclassification, or similar event (as so
adjusted the "Liquidation Amount"). The "Initial Purchase Price" per share of
the Series A Preferred Stock, as issued as of September 30, 1997, is $48.40.
The Series A Preferred Stock shall automatically be converted into Common
Stock upon the occurrence of a "Qualified Public Offering," which shall mean an
underwritten public offering of capital stock of the Company pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
with gross proceeds in excess of $20,000,000 and an offering price per share of
such capital stock at least three times the then-existing applicable conversion
value of the Series A Preferred Stock.
At the written election of the holders of more than 50% of the then
outstanding shares of Series A Preferred Stock given during the thirty-day
period commencing on each of October 1, 2002, 2003, 2004, 2005, the Company
shall (1) redeem pro rata from all holders of Series A Preferred Stock within
60 days of its receipt of such election, 25% of the shares of Series A
Preferred Stock outstanding on October 1, 1997 or (2) redeem all outstanding
shares of Series A Preferred Stock concurrently with the occurrence of a
"liquidity event," which is defined as (1) the liquidation, winding up or
dissolution of the Company, (2) the sales of all or substantially all of the
assets of the Company, or (3) the merger or consolidation of the Company with
or into another entity. The redemption amount is based upon the Liquidation
Amount for purposes of these redemptions.
Each outstanding share of Series A Preferred Stock must be redeemed by the
Company within the 60-day period following receipt by the Company of written
notice from the holders of more than 50% of the outstanding shares of such
class, given during the 12 month period commencing on October 1, 2005, at a per
F-12
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
share price equal to the higher of (a) the Liquidation Amount, or (b) the fair
market value of such share. The fair market value of the Series A Preferred
Stock shall be determined by negotiation between the Company and the holders of
the Series A Preferred Stock or by an independent appraisal.
The difference between the carrying amounts of the Series A Preferred Stock
of, $6,920,000, and $6,934,000 as of March 31, 1998, and 1999, respectively,
and the redemption amount of $7,000,576, based upon the liquidation amount,
represents the cost of issuance, which is being accreted pro rata over the
period beginning on the September 1997 issuance date and ending on the
prescribed redemption dates beginning October 2002 and continuing through
October 2005.
7. RELATED PARTY TRANSACTIONS
The Company sells consulting services to a certain customer through another
company, which is majority-owned by one of the executive officers of the
Company. Such sales totaled $30,000 during fiscal year 1997, $20,000 during
fiscal year 1998, and $36,000 during fiscal year 1999. The Company had
receivables of $6,000 as of March 31, 1997 and no accounts receivable balance
due from the other company as of March 31, 1998 and 1999.
8. COMMITMENTS AND CONTINGENCIES
OPNET leases office space under noncancelable operating leases. The leases
for office space contain escalation clauses that provide for increased rentals
based primarily on increases in real estate taxes, operating expenses, or the
average consumer price index. Total rent expense under all leases for fiscal
years 1997, 1998, and 1999 was $387,000, $525,000, and $677,000, respectively.
At March 31, 1999, future minimum lease payments required under noncancelable
leases were as follows:
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
2000............................................................. $ 576,000
2001............................................................. 199,000
2002............................................................. 209,000
2003............................................................. 125,000
----------
Total minimum lease payments................................... $1,109,000
==========
</TABLE>
9. RETIREMENT PLAN
Effective August 1, 1993, OPNET established a 401(k) retirement plan (the
"Plan") covering all eligible employees, as defined. Eligible employees who are
at least 21 years old may participate. Under the terms of the Plan,
participants may defer a portion of their salaries as employee contributions.
The Company makes matching contributions, and may make discretionary and extra
contributions. Employee contributions and extra contributions made by the
Company are 100% vested immediately. In general, matching and discretionary
contributions made by the Company vest ratably over a five-year period. The
Company's contributions under this Plan for fiscal years 1997, 1998, and 1999
were $77,000, $92,000 and $140,000, respectively.
F-13
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
10. NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No.128, Earnings Per Share. This statement requires dual presentation of
basic and diluted earnings per share on the face of the income statement. Basic
earnings per share is to be computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share is to reflect the potential dilution
that could occur if securities or other contracts to issue common shares were
exercised or converted into common shares for all periods presented.
During fiscal year 1999, the Board of Directors approved a 10-for-1 stock
split of all of the shares of the common stock of the Company authorized,
issued, and outstanding. All shares have been adjusted to reflect this change.
The following is a reconciliation of the amounts used in calculating basic
and diluted net income per common share:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Income (Numerator):
Net income applicable to common shares
(basic)................................ $1,492,000 $1,766,000 $ 193,000
Plus:
Accretion of transaction costs on
redeemable convertible preferred
stock.................................. -- 9,000 14,000
---------- ---------- ----------
Net income (diluted).................... $1,492,000 $1,775,000 $ 207,000
========== ========== ==========
Shares (Denominator):
Weighted average shares outstanding
(basic)................................ 7,782,500 7,435,090 7,107,337
Effect of other dilutive securities:
Options............................... 118,877 439,719 530,278
Redeemable convertible preferred
stock................................ -- 723,200 1,446,400
---------- ---------- ----------
Weighted average shares outstanding
(diluted).............................. 7,901,377 8,598,009 9,084,015
========== ========== ==========
Net income per common share:
Basic net income applicable per common
share.................................. $ 0.19 $ 0.24 $ 0.03
Diluted net income per common share..... $ 0.19 $ 0.21 $ 0.02
</TABLE>
F-14
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
11. STOCK OPTION PLANS
The 1993 Incentive Stock Option Plan (the "1993 Plan") provides for the
granting of incentive stock options to purchase up to 2,000,000 shares of
common stock of the Company. The option price must be equal to or greater than
the fair market value, as determined by the 1993 Plan Committee. Options are
granted for terms of up to 10 years, and generally vest over periods ranging
from one to six years from the date of grant.
During fiscal year 1999, the Company also granted stock options under three
separate nonqualified stock option agreements. These options were granted for a
ten-year period and vest over three years.
Option transactions were as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Options outstanding, March 31, 1996............ 185,000 $0.21
Options granted.............................. 213,000 0.40
Options canceled............................. (50,500) 0.36
---------
Options outstanding, March 31, 1997............ 347,500 0.31
Options granted.............................. 546,685 1.30
Options canceled............................. (8,000) 0.50
---------
Options outstanding, March 31, 1998............ 886,185 0.92
Options granted.............................. 416,650 2.80
Options exercised............................ (13,000) 0.23
Options canceled............................. (82,095) 1.09
---------
Options outstanding, March 31, 1999............ 1,207,740 1.56
=========
Options exercisable as of March 31, 1999....... 11,250 0.25
=========
Options available for future grant at March 31,
1999.......................................... 944,260
=========
</TABLE>
At March 31, 1999, options outstanding were as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Remaining
Exercise Price Outstanding Contractual Life
-------------- ----------- ----------------
<S> <C> <C>
$ 0.121 12,000 5.0 years
$ 0.190 100,000 7.7 years
$ 0.268 43,000 6.0 years
$ 0.404 162,500 7.0 years
$ 0.537 252,090 5.1 years
$ 2.200 326,970 6.2 years
$ 3.000 311,180 7.5 years
</TABLE>
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted as of March 31, 1997, 1998, and 1999, using
the minimum value method permitted by SFAS No. 123 for nonpublic entities. The
weighted average fair value at date of grant for options granted during fiscal
years 1997, 1998, and 1999 was $0.09, $0.25 and $0.44 per share, respectively.
F-15
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
The weighted average assumptions used for options granted during fiscal
years 1997, 1998, and 1999 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Risk-free interest rate................... 6.00% 6.00% 4.78%
Expected dividend yield................... 0.00% 0.00% 0.00%
Expected life............................. 4 years 4 years 4 years
Volatility factor......................... -- -- --
The pro forma effects of applying SFAS No. 123 for fiscal years 1997, 1998,
and 1999 would be as follows:
<CAPTION>
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Pro forma net income...................... $1,490,000 $1,758,000 $174,000
Pro forma net income per share--basic..... $ 0.19 $ 0.24 $ 0.02
Pro forma net income per share--diluted... $ 0.19 $ 0.21 $ 0.02
</TABLE>
Option grants subsequent to March 31, 1999--(unaudited)
At various dates during the nine months ended December 31, 1999, the Company
granted a total of 124,006 options to employees with exercise prices below the
estimated fair market value at the dates of grant. The Company recorded
compensation expense of $15,000 for the nine months ended December 31, 1999
resulting in a remaining deferred compensation balance of $106,000 at December
31, 1999. In addition, during January 2000, the Company granted an additional
49,500 options to employees with exercise prices below the estimated fair
market value at the dates of grant.
12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in one industry segment, the development and sale of
computer software programs and related services. No single customer accounted
for 10% or more of the Company's accounts receivable or revenues as of or for
the fiscal years ended March 31, 1997, 1998 or 1999. In addition, there were no
sales to any individual country except for the United States where such sales
accounted for 10% or more of total revenue. Substantially all assets are held
in the United States for the fiscal years ended March 31, 1997, 1998 or 1999.
Revenues by geographic destination and as a percentage of total revenues are
as follows:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Geographic Area by Destination
United States......................... $ 5,463,000 $ 7,624,000 $ 8,279,000
International......................... 3,152,000 4,305,000 3,724,000
----------- ----------- -----------
$ 8,615,000 $11,929,000 $12,003,000
=========== =========== ===========
<CAPTION>
Fiscal Year
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Geographic Area by Destination
United States......................... 63.4% 63.9% 69.0%
International......................... 36.6 36.1 31.0
----------- ----------- -----------
100% 100% 100%
=========== =========== ===========
</TABLE>
F-16
<PAGE>
OPNET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
13. VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts receivable
reserve accounts:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Charges to End of
of Period Expenses Deductions Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended -
March 31, 1997.................... $-- $ -- $-- $ --
March 31, 1998.................... -- -- -- --
March 31, 1999.................... -- 185,000 -- 185,000
</TABLE>
14. SUBSEQUENT EVENTS
On January 20, 2000, the Company accelerated the vesting of an executive
officer's options to purchase 100,000 shares of common stock. The officer
exercised the option in full on that date and borrowed $231,024 from the
Company to pay income taxes incurred by him upon purchasing the shares under
the option, as evidenced by a promissory note. The Company has agreed to make
additional loans to the officer if it is subsequently determined that he owes
additional taxes in connection with the purchase of the shares. The current and
any subsequent borrowings under this agreement bear interest at an annual rate
of 6% and are due on the earlier of the second anniversary of the date of
issuance of the note or the first anniversary of this offering.
On March 13, 2000, the Board of Directors approved, among other things,
resolutions:
(a) To increase the authorized capital stock of the Company to
105,160,000 shares, consisting of 100,000,000 shares of common stock, par
value $.001 per share, 160,000 shares of Series A redeemable convertible
preferred stock, and 5,000,000 shares of undesignated preferred stock, par
value $.001 per share, to be effective upon the closing of an initial
public offering;
(b) To adopt, subject to stockholder approval, the 2000 Stock Incentive
Plan pursuant to which the Company may grant incentive stock options, non-
qualified stock options, stock appreciation rights, performance share
awards, and restricted and unrestricted stock awards for the purchase of
1,500,000 shares of common stock;
(c) To adopt, subject to stockholder approval, the 2000 Employee Stock
Purchase Plan, pursuant to which the Company may issue up to an aggregate
of 300,000 shares of common stock;
(d) To adopt, subject to stockholder approval, the 2000 Director Stock
Option Plans, with 150,000 shares reserved for issuance, pursuant to which
non-employee members of the Board of Directors receive automatic annual
grants of stock options;
(e) To make no further grants of options or stock awards under the 1993
Incentive Stock Option Plan upon approval of the 2000 Stock Incentive Plan;
and
(f) To make a public offering of up to $70,000,000 of Common Stock.
(g) To issue 322,975 additional options, with an exercise price equal to
the initial public offering price per share, in the offering.
* * * * * *
F-17
<PAGE>
[Inside Back Cover]
OPNET Logo
Case Studies
Software that Understands Networks
Descriptions of several OPNET customer case studies appear here.
<PAGE>
[Outside Back Cover]
Example Service Provider and Enterprise Network Diagram
Illustrating the Technologies and Protocols addressed by the OPNET Suite of
Products
A diagram appears here, illustrating how OPNET products are used in different
network settings.
Three interlocking ovals, each labeled "Carriers," appears in the center of the
diagram. The words "Internet (BGP, MPLS, ICMP, MBGP, ATM, SONET, WDM)" are
centered over the ovals.
Graphics captioned "routers" surround the ovals, depicting links from the
Internet to various network settings.
Graphics in the outside ring depict Public Narrowband Network (which contains a
diagram depicting SS7 and Circuit), Public Broadband Network (which contains a
diagram depicting Industrial Network, CLEC, Enterprise Network (ATM)), Cellular
Service Provider, Enterprise Network (which contains a diagram depicting ASP),
ISP (Network), Enterprise Network (which is linked to a diagram depicting Frame
Relay), ISP (Dial-up/Modem Users), and Enterprise Network (which has a diagram
depicting FDDI Backbone)
OPNET Logo
OPNET Technologies, Inc.
3400 International Drive NW, Washington, DC, 20008
<PAGE>
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 discounts and commissions, 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 fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $15,180
NASD filing fee..................................................... 6,250
Nasdaq National Market listing fee.................................. *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees)................... 25,000
Transfer agent and registrar fees and expenses...................... *
Miscellaneous....................................................... *
-------
Total............................................................. *
=======
</TABLE>
- --------
* To be filed by amendment.
The Registrant will bear all expenses shown above.
Item 14. Indemnification of Directors and Officers.
The Registrant's Third 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 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"), 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
II-1
<PAGE>
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 Third Amended and Restated Certificate of Incorporation
and Form of Amended and Restated By-Laws filed as Exhibits 3.2 and 3.4 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 does not give effect to an anticipated stock split of the
Registrant's common stock or the conversion of the Registrant's series A
convertible preferred stock into common stock upon the completion of this
offering. Pursuant to the Registrant's stock split, each share of common stock
will be split into a to-be-determined number of shares. Upon the completion of
this offering, each share of series A convertible preferred stock will
automatically convert into a to be determined number of shares of common stock.
Since March 1, 1997, the Registrant has issued the following securities that
were not registered under the Securities Act as summarized below.
(a) Issuances of Capital Stock.
In September 1997, the Registrant sold 144,640 shares of series A
convertible preferred stock to two private investors for an aggregate sale
price of $7,000,576.
In November 1998, the Registrant sold 10,000 shares of common stock to each
of Dr. Finn and Mr. Stasior for a purchase price of $30,000.
(b) Certain Grants and Exercises of Stock Options.
The Registrant's Amended and Restated 1993 Incentive Stock Option Plan was
adopted by the Board of Directors in January 1994 and approved by the
stockholders in January 1994. In November 1998 the Board of Directors issued
options for 20,000 shares each to Dr. Finn and Mr. Stasior. As of February 29,
2000, options to purchase 1,188,124 shares of common stock were outstanding
under the 1993 Plan.
In January 2000, the Registrant issued 100,000 shares of common stock
pursuant to the exercise of a stock option for an aggregate exercise price of
$19,000.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 of
the Securities Act. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Second Amended and Restated Certificate of Incorporation
3.2* Form of Third Amended and Restated Certificate of Incorporation of the
Registrant, to be filed at the completion of this offering
3.3 By-Laws of the Registrant
3.4* Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the completion of this offering
4.1* Specimen common stock certificate
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the rights of
holders of common stock of the Registrant
5.1* Opinion of Hale and Dorr LLP
10.1 Series A Preferred Stock Purchase Agreement, dated as of September 30,
1997, by and among the Registrant, Summit Ventures IV, L.P. and Summit
Investors III, L.P.
10.2 Shareholders Agreement, dated as of September 30, 1997, by and among
the Registrant, Summit Ventures IV, L.P., Summit Investors III, L.P.,
Marc A. Cohen and Alain J. Cohen
10.3 Registration Rights Agreement, dated as of September 30, 1997, by and
among the Registrant, Summit Ventures IV, L.P., Summit Investors III,
L.P., Marc A. Cohen and Alain J. Cohen
10.4 Stock Repurchase Agreement, dated as of September 30, 1997, by and
between the Registrant and Marc A. Cohen
10.5 Stock Repurchase Agreement, dated as of September 30, 1997, by and
between the Registrant and Alain J. Cohen
10.6 Stock Purchase and Option Agreement, dated as of November 1, 1999,
between the Registrant and Steven G. Finn
10.7 Stock Purchase and Option Agreement, dated as of November 1, 1999,
between the Registrant and William F. Stasior
10.8 Stock Repurchase Agreement, dated as of September 30, 1997, by and
between the Registrant and George M. Cathey
10.9 Stock Purchase and Option Agreement, dated as of December 4, 1995,
between the Registrant and George M. Cathey, as amended on January 20,
2000
10.10* Amended and Restated 1993 Incentive Stock Option Plan
10.11* 2000 Stock Incentive Plan
10.12* 2000 Employee Stock Purchase Plan
10.13* 2000 Director Stock Option Plan
10.14 Employment Agreement, dated as of December 4, 1995, between the
Registrant and George M. Cathey
10.15 Non-competition Agreement, dated as of September 30, 1997, between the
Registrant and Marc A. Cohen
10.16 Non-competition Agreement, dated as of September 30, 1997, between the
Registrant and Alain J. Cohen
10.17 Loan Agreement, dated as of January 20, 2000, between the Registrant
and George M. Cathey
10.18 Secured Promissory Note, dated as of January 20, 2000, issued by
George M. Cathey to the Registrant
10.19* Form of Employment Agreement between the Registrant and Joseph F.
Greeves
10.20* Form of Employment Agreement between the Registrant and Pradeep K.
Singh
10.21 Agreement of Lease, dated as of June 18, 1993, between the Registrant
and International Telecommunication Satellite Organization, as amended
on October 26, 1994, as amended on April 28, 1995, as amended on
September 8, 1995, as amended on April 28, 1999, as amended on
September 7, 1999
10.22 Sublease Agreement, dated as of November 1, 1997, between the
Registrant and WJLA-TV
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules:
All 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
of 1933, as amended (the "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 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 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 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 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 Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C., on this 15th day
of March, 2000.
OPNET TECHNOLOGIES, INC.
By: /s/ Marc A. Cohen
_________________________
Marc A. Cohen
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers, directors and authorized representatives of
OPNET Technologies, Inc. hereby severally constitute and appoint Marc A. Cohen,
Alain J. Cohen, Joseph F. Greeves and Brent B. Siler, and each of them singly,
our true and lawful attorneys with full power to them, and each of them singly,
with full powers of substitution and resubstitution, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-1
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement, and any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b), and generally to do all
such things in our names and on our behalf in our capacities as officers and
directors to enable OPNET Technologies, Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, or their substitute or
substitutes, to said Registration Statement and any and all amendments thereto
or to any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b).
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/ Marc A. Cohen Chairman of the Board of March 15, 2000
______________________________________ Directors and Chief
Marc A. Cohen Executive Officer
(Principal Executive
Officer)
/s/ Alain J. Cohen President, Chief March 15, 2000
______________________________________ Technology Officer and
Alain J. Cohen Director
/s/ Joseph F. Greeves Senior Vice President, March 15, 2000
______________________________________ Finance and Chief
Joseph F. Greeves Financial Officer
(Principal Financial
and Accounting Officer)
/s/ Bruce R. Evans Director
______________________________________
Bruce R. Evans March 15, 2000
/s/ Steven G. Finn Director
______________________________________
Steven G. Finn March 15, 2000
/s/ William F. Stasior Director
______________________________________
William F. Stasior March 15, 2000
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Second Amended and Restated Certificate of Incorporation
3.2* Form of Third Amended and Restated Certificate of Incorporation of the
Registrant, to be filed at the completion of this offering
3.3 By-Laws of the Registrant
3.4* Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the completion of this offering
4.1* Specimen common stock certificate
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the rights of
holders of common stock of the Registrant
5.1* Opinion of Hale and Dorr LLP
10.1 Series A Preferred Stock Purchase Agreement, dated as of September 30,
1997, by and among the Registrant, Summit Ventures IV, L.P. and Summit
Investors III, L.P.
10.2 Shareholders Agreement, dated as of September 30, 1997, by and among
the Registrant, Summit Ventures IV, L.P., Summit Investors III, L.P.,
Marc A. Cohen and Alain J. Cohen
10.3 Registration Rights Agreement, dated as of September 30, 1997, by and
among the Registrant, Summit Ventures IV, L.P., Summit Investors III,
L.P., Marc A. Cohen and Alain J. Cohen
10.4 Stock Repurchase Agreement, dated as of September 30, 1997, by and
between the Registrant and Marc A. Cohen
10.5 Stock Repurchase Agreement, dated as of September 30, 1997, by and
between the Registrant and Alain J. Cohen
10.6 Stock Purchase and Option Agreement, dated as of November 1, 1999,
between the Registrant and Steven G. Finn
10.7 Stock Purchase and Option Agreement, dated as of November 1, 1999,
between the Registrant and William F. Stasior
10.8 Stock Repurchase Agreement, dated as of September 30, 1997, by and
between the Registrant and George M. Cathey
10.9 Stock Purchase and Option Agreement, dated as of December 4, 1995,
between the Registrant and George M. Cathey, as amended on January 20,
2000
10.10* Amended and Restated 1993 Incentive Stock Option Plan
10.11* 2000 Stock Incentive Plan
10.12* 2000 Employee Stock Purchase Plan
10.13* 2000 Director Stock Option Plan
10.14 Employment Agreement, dated as of December 4, 1995, between the
Registrant and George M. Cathey
10.15 Non-competition Agreement, dated as of September 30, 1997, between the
Registrant and Marc A. Cohen
10.16 Non-competition Agreement, dated as of September 30, 1997, between the
Registrant and Alain J. Cohen
10.17 Loan Agreement, dated as of January 20, 2000, between the Registrant
and George M. Cathey
10.18 Secured Promissory Note, dated as of January 20, 2000, issued by
George M. Cathey to the Registrant
10.19* Form of Employment Agreement between the Registrant and Joseph F.
Greeves
10.20* Form of Employment Agreement between the Registrant and Pradeep K.
Singh
10.21 Agreement of Lease, dated as of June 18, 1993, between the Registrant
and International Telecommunication Satellite Organization, as amended
on October 26, 1994, as amended on April 28, 1995, as amended on
September 8, 1995, as amended on April 28, 1999, as amended on
September 7, 1999
10.22 Sublease Agreement, dated as of November 1, 1997, between the
Registrant and WJLA-TV
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
MIL 3, INCORPORATED
ARTICLE I
OFFICES
SECTION 1.1. Registered Office. The registered office of the corporation
shall be in Wilmington, Delaware.
SECTION 1.2. Corporate Office. The corporation may have its executive
office or offices at such place or places as the board of directors, in its
discretion, may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. Time and Place. Any meeting of the stockholders may be held
at such time and such place, either within or without the State of Delaware, as
shall be designated from time to time by resolution of the board of directors or
as shall be stated in a duly authorized notice of the meeting.
SECTION 2.2. Annual Meetings. The annual meetings of the stockholders
shall be held each year on such date and at such time as the board of directors
may determine, for the purpose of electing a board of directors and transacting
such other business as may properly be brought before the meeting.
SECTION 2.3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called buy the president or the board of
directors and shall be called by the president or secretary at the written
request of stockholders owning at least 10% of the shares of any class of the
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
SECTION 2.4. Notices. Written notice stating the place, date, and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given not less than ten nor more than
sixty days before the date of the meeting, except as otherwise required by
statute or the certificate of incorporation, either personally or by mail,
prepaid telegram, telex, cable gram, facsimile transmission,
1
<PAGE>
overnight courier or radiogram, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his address as it appears on the stock records of the
corporation. If given personally or otherwise than by mail, such notice shall be
deemed to be given when either handed to the stockholder or delivered to the
stockholder's address as it appears on the stock records of the corporation.
SECTION 2.5. Record Date. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting, or at any
adjournment of a meeting, of stockholders; or entitled to express consent to
corporate action in writing without a meeting; or entitled to receive payment of
any dividend or other distribution or allotment of any rights; or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock;
or for the purpose of any other lawful action; the board of directors may fix,
in advance, a record date, which shall not be more than sixty nor less than
fifteen days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed, (i) the record date for
determining stockholders entitled to notice of or to vote at any meeting shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived by all stockholders, at the close of business on
the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action without a meeting shall be the day on which the first consent is
expressed; and (iii) 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 other 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.
SECTION 2.6. Voting List. The secretary shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held (which place shall be specified in the notice of
the meeting) or, if not so specified, at the place where the meeting is to be
held. The list shall be produced and kept at the place of the meeting during
the whole time thereof and may be inspected by any stockholder who is present.
SECTION 2.7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote at the meeting, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the certificate of incorporation. If, however, such a quorum
shall not be present at any meeting of stockholders, the stockholders entitled
to vote, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice if the time and place are
announced at the meeting, until a quorum shall be present. At such adjourned
meeting at
2
<PAGE>
which a quorum shall be present, any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.8. Voting and Proxies. At every meeting of the stockholders,
each stockholder shall be entitled to one vote, in person or by proxy, for each
share of the capital stock having voting power held by such stockholder, but no
proxy shall be voted on after three years from its date unless the proxy
provides for a longer period. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes or
of the certificate of incorporation, a different vote is required, in which case
such express provision shall govern.
SECTION 2.9. Waiver. Attendance of a stockholder of the corporation,
either in person or by proxy, at any meeting, whether annual or special, shall
constitute a waiver of notice of such meeting, except where a stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. A written waiver of notice of any such meeting signed by a
stockholder or stockholders entitled to such notice, whether before, at, or
after the time for notice or the time of the meeting, shall be equivalent to
notice. Neither the business to be transacted at, nor the purpose of, any
meeting need be specified in any written waiver of notice.
SECTION 2.10. Consent of Stockholders in Lieu of 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 if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing. Any such
consent may be in counterparts and shall be effective as of the date of the last
signature thereon needed to make it effective unless otherwise provided therein.
Such consent shall be filed with the minutes of proceedings of the stockholders.
If the action that is consented to is such as would have required the filing of
a certificate under any provisions of the Delaware General Corporation Law if
such action had been voted upon by stockholders at a meeting, the certificate
filed shall state, in lieu of any statement concerning a vote of stockholders,
that written consent has been given in accordance with the provisions of Section
228 of the Delaware General Corporation Law, and that written notice has been
given as provided in that section.
3
<PAGE>
ARTICLE III
DIRECTORS
SECTION 3.1. Number. The number of directors shall be one or more, as
fixed from time to time by resolution of the board of directors; provided,
however, that the number of directors shall not be reduced so as to shorten the
tenure of any director at the time in office. The initial number of directors
shall be six.
SECTION 3.2. Elections. Except as provided in Section 3.3 of this
Article III, the board of directors shall be elected at the annual meeting of
the stockholders or at a special meeting called for that purpose. Each director
shall hold such office until his successor is elected and qualified or until his
earlier resignation or removal.
SECTION 3.3. Vacancies. Any vacancy occurring on the board of directors
and any directorship to be filled by reason of an increase in the board of
directors may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director. Such
newly elected director shall hold such office until his successor is elected and
qualified or until his earlier resignation or removal.
SECTION 3.4. Meetings. The first meeting of each newly elected board of
directors elected at the annual meeting of stockholders shall be held
immediately after, and at the same place as, the annual meeting of the
stockholders, provided a quorum is present, and no notice of such meeting shall
be necessary in order to legally constitute the meeting. The board of directors
may, by resolution, establish a place and time for regular meetings which may
thereafter be held without call or notice.
SECTION 3.5. Notice of Special Meetings. Special meetings may be called
by the president or by the chairman of the board of directors. Such notice may
be given to each member of the board of directors by mail by the secretary, the
president, or the chairman of the board by depositing the same in the United
States mail, postage prepaid, at least seven days before the meeting, addressed
to each director at the last address he or she has furnished to the corporation
for this purpose, and any notice so mailed shall be deemed to have been given at
the time when mailed. Notice may also be given at least three business days
before the meeting in person or by telephone or by prepaid telegram, telex,
cablegram, overnight courier, radiogram or facsimile transmission addressed as
stated above; and such notice shall be deemed to have been given when such
personal or telephone conversation occurs or at the time when such telegram,
telex, cablegram, radiogram, courier or facsimile transmission is delivered to
such address, as the case may be.
SECTION 3.6. Quorum. At all meetings of the board, a majority of the
total number of directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
otherwise specifically required by statute, the certificate of incorporation, or
these bylaws. If less than a quorum is present, the director
4
<PAGE>
or directors present may adjourn the meeting from time to time without further
notice. Voting by proxy is not permitted at meetings of the board of directors.
SECTION 3.7. Waiver. Attendance of a director at a meeting of the board
of directors shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A written waiver of notice signed by a
director or directors entitled to such notice, whether before, at, or after the
time for notice or the time of the meeting, shall be equivalent to the giving of
such notice.
SECTION 3.8. Action Without Meeting. Any action required or permitted to
be taken at a meeting of the board of directors may be taken without a meeting
if a consent in writing setting forth the action so taken shall be signed by all
of the directors and filed with the minutes of proceedings of the board of
directors. Any such consent may be in counterparts and shall be effective on
the date of the last signature thereon unless otherwise provided therein.
SECTION 3.9. Attendance by Telephone. Members of the board of directors
may participate in a meeting of such board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person as such meeting.
ARTICLE IV
OFFICERS
SECTION 4.1. Election. The corporation shall have such officers, with
such titles and duties, as the board of directors may determine by resolution,
which may include a chairman of the board of directors, a president, one or more
vice presidents, a secretary, and a treasurer and one or more assistants to such
officers. The officers shall in any event have such titles and duties as shall
enable the corporation to sign instruments and stock certificates complying with
Sections 103(a)(2) and 158 of the Delaware General Corporation Law, and one of
the officers shall have the duty to record the proceedings of the stockholders
and the directors in a book to be kept for that purpose. The officers shall be
elected by the board of directors; provided, however, that the president may
appoint one or more assistant secretaries and assistant treasurers and such
other subordinate officers as he deems necessary, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as are
prescribed in the bylaws or as may be determined from time to time by the board
of directors or the president. Any two or more offices may be held by the same
person.
SECTION 4.2. Removal and Resignation. Any officer may be removed at any
time by the affirmative vote of a majority of the board of directors. Any
officer appointed by the president may be removed at any time by the board of
directors or the president. Any officer may resign at any time by giving
written notice of his resignation
5
<PAGE>
to the president or to the secretary, and acceptance of such resignation shall
not be necessary to make it effective unless the notice so provides. Any vacancy
occurring in any office of chairman of the board of directors, president, vice
president, secretary, or treasurer shall be filled by the board of directors.
Any vacancy occurring in any other office may be filled by the president.
SECTION 4.3. Chairman of the Board of Directors. The chairman of the
board of directors, if there be one, shall preside at all meetings of the board
of directors and the stockholders. The chairman shall be the chief executive
officer of the corporation. Except where by law the signature of the president
is required, the chairman of the board of directors shall possess the same power
as the president to sign all contracts, certificates and other instruments of
the corporation which may be authorized by the board of directors. The chairman
of the board of directors shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these bylaws or
by the board of directors.
SECTION 4.4. President. In the absence of the chairman of the board of
directors, the president shall preside at meetings of the stockholders. Subject
to the direction and control of the board of directors, the president shall have
general and active management of the business of the corporation and shall see
that all orders and resolutions of the board of directors are carried into
effect. During the absence or disability of the chairman of the board of
directors, the president shall be the chief executive officer and shall exercise
all the powers and discharge all the duties of the chief executive officer. The
president may negotiate for, approve, and execute contracts, deeds, and other
instruments on behalf of the corporation as are necessary and appropriate in the
general management of the business of the corporation. The president shall
perform such additional functions and duties as the board of directors may from
time to time prescribe.
SECTION 4.5. Vice President. The vice president or, if there is more
than one, the vice presidents in the order determined by the board of directors
or, in lieu of such determination, in the order determined by the president,
shall be the officer or officers next in seniority after the president. Each
vice president shall also perform such duties and exercise such powers as are
appropriate and such as are prescribed by the board of directors or, in lieu of
or in addition to such prescription, such as are prescribed by the president
from time to time. Upon the death, absence, or disability of the president and
chairman of the board of directors, the vice president or, if there is more than
one, the vice presidents in the order determined by the board of directors or,
in lieu of such determination, in the order determined by the president, shall
perform the duties and exercise the powers of the president.
SECTION 4.6. Assistant Vice President. The assistant vice president or,
if there is more than one, the assistant vice presidents shall, under the
supervision of the president or a vice president, perform such duties and have
such powers as are prescribed by the board of directors, the president, or a
vice president from time to time.
SECTION 4.7. Secretary. The secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the board of
directors, keep the
6
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minutes of such meetings, have charge of the corporate seal and stock records,
be responsible for the maintenance of all corporate files and records and the
preparation and filing of reports to governmental agencies (other than tax
returns), have authority to affix the corporate seal to any instrument requiring
it (and when so affixed, attest it by his signature), and perform such other
duties and have such other powers as are appropriate and such as are prescribed
by the board of directors or the president from time to time.
SECTION 4.8. Assistant Secretary. The assistant secretary or, if there
is more than one, the assistant secretaries in the order determined by the board
of directors or, in lieu of such determination, by the president or the
secretary shall, in the absence or disability of the secretary or in case such
duties are specifically delegated to the assistant secretary by the board of
directors, the president, or the secretary, perform the duties and exercise the
powers of the secretary, perform such other duties and have such other powers as
are prescribed by the board of directors, the president, or the secretary from
time to time.
SECTION 4.9. Treasurer. The treasurer shall have control of the funds
and the care and custody of all the stocks, bonds, and other securities of the
corporation and shall be responsible for the preparation and filing of tax
returns. The treasurer shall receive all moneys paid to the corporation and
shall have authority to give receipts and vouchers, to sign and endorse checks
and warrants in its name and on its behalf, and give full discharge for the
same. The treasurer shall also have charge of the disbursement of the funds of
the corporation and shall keep full and accurate records of the receipts and
disbursements. The treasurer shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
shall be designated by the board of directors and shall perform such other
duties and have such other powers as are appropriate and such as are prescribed
by the board of directors or the president from time to time.
SECTION 4.10. Assistant Treasurer. The assistant treasurer or, if there
is more than one, the assistant treasurers in the order determined by the board
of directors or, in lieu of such determination, by the president or the
treasurer shall, in the absence or disability of the treasurer or in case such
duties are specifically delegated to the assistant treasurer by the board of
directors, the president, or the treasurer, perform the duties and exercise the
powers of the treasurer and shall, under the supervision of the treasurer,
perform such other duties and have such other powers as are prescribed by the
board of directors, the president, or the treasurer from time to time.
SECTION 4.11. Compensation. Officers shall receive such compensation,
if any, for their services as may be authorized or ratified by the board of
directors. Election or appointment as an officer shall not of itself create a
right to compensation for services performed as such officer.
7
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ARTICLE V
COMMITTEES
SECTION 5.1. Designation of Committees. The board of directors may
establish committees for the performance of delegated or designated functions to
the extent permitted by law, each committee to consist of one or more directors
of the corporation. In the absence of disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member(s) constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of such absent or disqualified member.
SECTION 5.2. Committee Powers and Authority. The board of directors may
provide, by resolution or by amendment to these bylaws, that a committee may
exercise all the power 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; provided,
however, that a committee may not exercise the power or authority of the board
of directors in reference to amending the certificate of incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock, adopted by the board of directors
pursuant to the certificate of incorporation, fix the designations and any of
the preferences or rights of shares of preferred stock relating to dividends,
redemption, dissolution, any distribution of property or assets of the
corporation, or the exchange of shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease, or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
these bylaws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 5.3. Committee Procedures. To the extent the board of directors
or the committee does not establish other procedures for the committee, each
committee shall be governed by the procedures established in Section 3.4 (except
as they relate to an annual meeting of the board of directors) and Sections 3.5,
3.6, 3.7, 3.8, and 3.9 of these bylaws, as if the committee were the board of
directors.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1. Expenses, Judgment, or Settlement. The corporation shall
indemnify to the fullest extent permitted by Delaware law any person who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
8
<PAGE>
venture, trust, association, or other enterprise, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit, or
proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit, or proceeding by judgment, order, settlement, conviction, upon
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
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, that he or
she had reasonable cause to believe that his conduct was unlawful.
SECTION 6.2. Expenses. The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he or she is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, association, or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action or suit, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, 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 for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
SECTION 6.3. Successful Defense. To the extent that any person referred
to in the preceding two sections of this Article VI has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred to in
such sections, or in defense of any claim, issue, or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
SECTION 6.4. Determination to Indemnify. Any indemnification under the
first two sections of this Article VI (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standard of conduct set forth therein.
Such determination shall be made (i) by the board of directors by a majority
vote of a quorum consisting of directors who where not parties to such action,
suit, or proceeding, or (ii) if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders.
9
<PAGE>
SECTION 6.5. Expense Advances. Expenses incurred by an officer or
director in defending a civil or criminal action, suit, or proceeding may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the board of directors of the corporation
in the specific case upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the corporation as
authorized in this Article VI.
SECTION 6.6. Provisions Nonexclusive. The indemnification provided by
this Article VI shall not be deemed exclusive of any other rights to which any
person seeking indemnification may be entitled, under the certificate of
incorporation or under any other bylaw, agreement, insurance policy, vote of
stockholders or disinterested directors, statute, or otherwise, both as to
action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
SECTION 6.7. Insurance. By action of the board of directors,
notwithstanding any interest of the directors in the action, the corporation
shall have power to purchase and maintain insurance, in such amounts as the
board of directors deems appropriate, on behalf of any person who is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, association, or other
enterprise, against any liability asserted against him or her and incurred by
him or her in any such capacity, or arising out of his or her status as such,
whether or not he or she is indemnified against such liability or expense under
the provisions of this Article VI and whether or not the corporation would have
the power or would be required to indemnify him or her against such liability
under the provisions of this Article VI or of the Delaware General Corporation
Law or by any other applicable law.
SECTION 6.8. Surviving Corporation. The board of directors may provide
by resolution that references to "the corporation" in this Article VI shall
include, in addition to this corporation, all constituent corporations absorbed
in a merger with this corporation so that any person who was a director or
officer of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, employee, or agent of another
corporation, partnership, joint venture, trust, association, or other entity
shall stand in the same position under the provisions of this Article VI with
respect to this corporation as he or she would if he or she had served this
corporation in the same capacity or is or was so serving such other entity at
the request of this corporation, as the case may be.
ARTICLE VII
STOCK
SECTION 7.1. Certificates. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by or in the name of the
corporation by the chairman
10
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or vice-chairman of the board of directors, or the president or a vice
president, and by the secretary or an assistant secretary, or the treasurer or
an assistant treasurer of the corporation, certifying the number of shares owned
by him or her in the corporation.
SECTION 7.2. Facsimile Signatures. Where a certificate of stock is
countersigned (i) by a transfer agent other than the corporation or its employee
or (ii) by a registrar other than the corporation or its employee, any other
signature on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed, or whose facsimile signature or signatures
have been placed upon, any such certificate shall cease to be such officer,
transfer agent, or registrar, whether because of death, resignation, or
otherwise, before such certificate is issued, the certificate may nevertheless
be issued by the corporation with the same effect as if he or she were such
officer, transfer agent, or registrar at the date of issue.
SECTION 7.3. Transfer of Stock. Transfers of shares of stock of the
corporation shall be made on the books of the corporation only upon presentation
of the certificate or certificates representing such shares properly endorsed or
accompanied by a proper instrument of assignment, except as may otherwise be
expressly provided by the laws of the State of Delaware or by order by a court
of competent jurisdiction. The officers or transfer agents of the corporation
may, in their discretion, require a signature guaranty before making any
transfer.
SECTION 7.4. Lost Certificates. The board of directors may direct that a
new certificate of stock be issued in place of any certificate issued by the
corporation that is alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance of a new certificate, require the owner of such lost, stolen, or
destroyed certificate, or his or her legal representative, to give the
corporation a bond in such sum as it may reasonably direct as indemnity against
any claim that may be made against the corporation on account of the alleged
loss, theft, or destruction of any such certificate or the issuance of such new
certificate.
SECTION 7.5. Registered Stockholders. The corporation shall be entitled
to treat the person in whose name any shares of stock are registered on its
books as the owner of any shares for all purposes and shall not be bound to
recognize any equitable or other claim or interest in such shares on the part of
any other person, whether or not the corporation shall have notice of such claim
or interest, except as expressly provided by the laws of Delaware.
ARTICLE VIII
SEAL
The board of directors may adopt and provide a seal which shall be circular
in form and shall bear the name of the corporation and the words "SEAL" and
"DELAWARE," and which, when adopted, shall constitute the corporate seal of the
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corporation. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or manually reproduced.
ARTICLE IX
FISCAL YEAR
The board of directors, by resolution, may adopt a fiscal year for the
corporation.
ARTICLE X
AMENDMENT
These bylaws may at any time and from time to time be amended, altered, or
repealed by the board of directors, but the stockholders may make additional
bylaws and may alter and repeal any bylaws whether adopted by them or otherwise.
* * * * *
12
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EXHIBIT 10.1
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
MIL 3, INCORPORATED
SUMMIT VENTURES IV, L.P.
AND
SUMMIT INVESTORS III, L.P.
Dated as of September 30, 1997
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
PURCHASE AND SALE OF SHARES
Purchase and Sale of Shares............................................... 1
1.1 Purchase and Sale of Series A Preferred Stock................. 1
1.2 The Conversion Shares......................................... 1
1.3 Closing....................................................... 1
1.4 Use of Proceeds............................................... 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Representations and Warranties of the Company............................. 2
2.1 Organization and Corporate Power.............................. 2
2.2 Authorization................................................. 3
2.3 Government Approvals.......................................... 3
2.4 Authorized and Outstanding Stock.............................. 3
2.5 Subsidiaries; Certain Investments............................. 4
2.6 Financial Information......................................... 4
2.7 Events Subsequent to the Date of the Financial
Statements.................................................... 4
2.8 Litigation.................................................... 5
2.9 Compliance with Laws and Other Instruments.................... 5
2.10 Taxes......................................................... 6
2.11 Real Property................................................. 6
2.12 Personal Property............................................. 6
2.13 Patents, Trademarks, etc...................................... 7
2.14 Agreements of Directors, Officers and Employees............... 7
2.15 Governmental and Industrial Approvals......................... 7
2.16 Federal Reserve Regulations................................... 8
2.17 Contracts and Commitments..................................... 8
2.18 Securities Act................................................ 8
2.19 Registration Rights........................................... 8
2.20 Insurance Coverage............................................ 8
2.21 Employee Matters.............................................. 8
2.22 No Brokers or Finders......................................... 9
2.23 Transactions with Affiliates.................................. 9
2.24 Assumptions, Guarantees, etc. of Indebtedness
of Other Persons.............................................. 9
2.25 Disclosures................................................... 9
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
Affirmative Covenants of the Company..................................... 9
3.1 Accounts..................................................... 10
3.2 Reports...................................................... 10
3.3 Other Information............................................ 10
3.4 Payment of Taxes............................................. 11
3.5 Maintenance of Key Man Insurance............................. 11
3.6 Compliance with Laws, etc.................................... 11
3.7 Inspection................................................... 12
3.8 Corporate Existence; Ownership of Subsidiaries............... 12
3.9 Compliance with ERISA........................................ 12
3.10 Reserved..................................................... 12
3.11 Financings................................................... 12
3.12 Meetings of the Board of Directors........................... 13
3.13 Rule 144A Information........................................ 12
3.14 Regular Course of Business................................... 13
3.15 Purchase of Shares........................................... 13
3.16 Notice of Qualified Public Offering.......................... 13
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
Negative Covenants of the Company........................................ 13
4.1 Dealings with Affiliates..................................... 14
4.2 No Conflicting Agreements.................................... 14
4.3 Restricted Activities........................................ 14
ARTICLE V
PURCHASE RIGHTS AND SIZE OF BOARD OF DIRECTORS
Purchase Rights and Size of Board of Directors........................... 14
5.1 Right of Purchase............................................ 14
5.2 Definition of New Securities................................. 14
5.3 Notice from the Company...................................... 15
5.4 Sale by the Company.......................................... 15
5.5 Size of Board of Directors................................... 15
5.6 Termination of Rights........................................ 15
</TABLE>
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<TABLE>
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ARTICLE VI
INVESTMENT REPRESENTATIONS
Investment Representations............................................... 15
6.1 Representations and Warranties............................... 15
6.2 Permitted Sales; Legends..................................... 16
6.3 Confidentiality Agreement.................................... 17
6.4 Mandatory Conversion......................................... 17
ARTICLE VII
CONDITIONS OF INVESTORS' OBLIGATION
Conditions of Investors' Obligation...................................... 18
7.1 Effect of Conditions......................................... 18
7.2 Representations and Warranties............................... 18
7.3 Performance.................................................. 18
7.4 Certified Documents, etc..................................... 18
7.5 No Material Adverse Change................................... 18
7.6 Shareholders' Agreement...................................... 18
7.7 Reserved..................................................... 18
7.8 Registration Rights Agreement................................ 18
7.9 Amendment to Certificate of Incorporation.................... 19
7.10 Non-Competition Agreements................................... 19
7.11 Board Election............................................... 19
7.12 Consents and Waivers......................................... 19
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATION
Conditions of the Company's Obligation................................... 19
</TABLE>
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<TABLE>
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ARTICLE IX
CERTAIN DEFINITIONS
Certain Definitions...................................................... 19
ARTICLE X
TERMINATION
Termination.............................................................. 22
10.1 Termination by Mutual Written Consent........................ 22
10.2 Termination for Breach or Failure to Satisfy
Conditions................................................... 22
10.3 Termination for Delay........................................ 22
10.4 Rights After Termination..................................... 22
ARTICLE XI
MISCELLANEOUS
Miscellaneous............................................................ 22
11.1 Survival of Representations.................................. 22
11.2 Parties in Interest.......................................... 23
11.3 Shares Owned by Affiliates................................... 23
11.4 Amendments and Waivers....................................... 23
11.5 Notices...................................................... 23
11.6 Expenses..................................................... 24
11.7 Counterparts................................................. 24
11.8 Effect of Headings........................................... 24
11.9 Adjustments.................................................. 25
11.10 Governing Law................................................ 25
</TABLE>
EXHIBITS
- --------
A Amended and Restated Certificate of Incorporation
B Opinion of Company Counsel
C Shareholders' Agreement
D Stock Repurchase Agreement
E Registration Rights Agreement
F Non-Competition Agreement
G Confidentiality Agreement
H Stock Transfer Agreement
I Audited Financial Statements
iv
<PAGE>
J Unaudited Financial Statements
SCHEDULES
---------
1.1 List of Purchasers and Shares to be Purchased
v
<PAGE>
September 30, 1997
Summit Ventures IV, L.P.
Summit Investors III, L.P.
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, Massachusetts 02210
Attn: Bruce R. Evans
Re: Series A Preferred Stock
------------------------
Gentlemen:
MIL 3, Incorporated, a Delaware corporation (the "Company"), hereby agrees
with you as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
---------------------------
1.1 Purchase and Sale of Series A Preferred Stock. At the Closing (as
---------------------------------------------
defined in Section 1.3), the Company will sell to you (each an "Investor" and
together the "Investors"), and the Investors will purchase, an aggregate of
144,640 shares of the Company's Series A Convertible Preferred Stock, par value
$.001 per share (the "Series A Preferred Stock"), at a price of $48.40 per
share, for an aggregate purchase price of $7,000,576.00 payable as provided in
Section 1.4. The Series A Preferred Stock shall have the rights, terms and
privileges set forth in the Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") attached hereto as Exhibit A. The shares
---------
of Series A Preferred Stock purchased pursuant to this Section 1.1 are sometimes
referred to herein as the "Purchased Shares." The number of Purchased Shares to
be sold by the Company to, and to be purchased by, each Investor is set forth in
Schedule 1.1 attached hereto.
- ------------
1.2 The Conversion Shares. The Company has authorized and reserved and
---------------------
hereby covenants that it will continue to reserve, free of any preemptive rights
or encumbrances, a sufficient number of its authorized but unissued shares of
common stock, par value $.01 per share (the "Common Stock"), to satisfy the
rights of conversion of the holders of the Purchased Shares in accordance with
the terms of the Certificate of Incorporation. The shares of Common Stock
issued or issuable upon conversion of the Purchased Shares are sometimes
referred to herein as the "Conversion Shares."
1.3 Closing. Subject to the satisfaction or waiver of the conditions
-------
set forth in Articles VII and VIII hereof, the sale and purchase of the
Purchased Shares shall be made at a
1
<PAGE>
closing (the "Closing") to be held at the offices of Verner, Liipfert, Bernhard,
McPherson & Hand, Chartered, 901 15th Street, N.W., Washington, D.C., at 10:00
a.m. on the business day following the date on which each of the conditions to
closing have been satisfied or waived in accordance herewith, or at such other
time and on such other date as the Investors and the Company may mutually agree.
Payment at the Closing for the Purchased Shares shall be by wire transfer in
immediately available federal funds to the Company's account at Riggs National
Bank of Washington listed on Schedule 1.3 attached hereto. Each Investor shall
------------
pay that amount for the Purchased Shares being acquired by it at the Closing as
set forth opposite the name of such Investor on Schedule 1.1 attached hereto. At
------------
the Closing, the Company will deliver to each Investor a certificate
representing the Purchased Shares purchased by such Investor, issued in such
Investor's name.
1.4 Use of Proceeds. The Company may use the proceeds received upon the
---------------
sale of the Purchased Shares (i) to repurchase up to an aggregate of 69,483
shares of Common Stock from those persons listed on Schedule 1.4 attached hereto
------------
at a repurchase price not in excess of the price per share set forth in such
Schedule, each such person to sell such shares and to receive such consideration
as are set forth opposite the name of such person on Schedule 1.4, (ii) to pay
------------
all fees, costs and expenses incurred by the Company in connection with the
transactions contemplated by this Agreement, including, without limitation, the
costs and expenses of the Investors which the Company is obligated to pay
pursuant to Section 11.6 hereof, and/or (iii) for working capital purposes.
Persons from whom Common Stock is repurchased (the "Selling Shareholders") in
accordance with this Section 1.4 shall enter into a Stock Repurchase Agreement
with the Company substantially in the form attached hereto as Exhibit D. The
---------
Company will, promptly following the Closing, provide the Tender Notice to each
of the Selling Shareholders in accordance with such Stock Repurchase Agreements
and shall apply its best efforts to consummate each such repurchase as soon as
practicable in accordance with such agreements. Any repurchase of the shares of
Common Stock in accordance with this Section 1.4 shall be effected within 180
days after the Closing hereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
In order to induce the Investors to purchase the Purchased Shares, the
Company makes the following representations and warranties which shall be true,
correct and complete in all respects on the date hereof and as of the Closing:
2.1 Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to own its properties and to
carry on its business as presently conducted. The Company is duly licensed or
qualified to do business as a foreign corporation in each jurisdiction where the
absence of such license or qualification, if required, would have a material
adverse effect on the business, condition (financial or other), assets,
properties or operations of the Company.
2
<PAGE>
2.2 Authorization. The Company has all necessary corporate power and
-------------
has taken all necessary corporate action required for the due authorization,
execution, delivery and performance by the Company of this Agreement, the
Shareholders' Agreement attached hereto as Exhibit C, the Registration Rights
---------
Agreement (the "Registration Rights Agreement") attached hereto as Exhibit E,
---------
the Non-Competition Agreements attached hereto as Exhibit F, and the
---------
Confidentiality Agreement attached hereto as Exhibit G (collectively, the
---------
"Related Agreements"), and any other agreements or instruments executed or to be
executed by the Company in connection herewith or therewith and the consummation
of the transactions contemplated herein or therein, and for the due
authorization, issuance and delivery of the Purchased Shares, and the Conversion
Shares issuable upon conversion of the Purchased Shares. Sufficient shares of
authorized but unissued Common Stock have been reserved for issuance upon
conversion of the Purchased Shares. The issuance of the Purchased Shares is not
and will not be subject to any preemptive right, right of first refusal or the
like. Assuming due execution and delivery by each of the Investors of this
Agreement and the Related Agreements to which either of the Investors is a
party, this Agreement, the Related Agreements and the other agreements and
instruments executed by the Company in connection herewith or therewith will
each be a valid and binding obligation of the Company enforceable in accordance
with its respective terms.
2.3 Government Approvals. No consent, approval, license or
--------------------
authorization of, or designation, declaration or filing with, any court or
governmental authority is or will be required on the part of the Company in
connection with the execution, delivery and performance by the Company of this
Agreement, any of the Related Agreements and any other agreements or instruments
executed by the Company in connection herewith or therewith, or in connection
with the issuance of the Purchased Shares or the issuance of the Conversion
Shares upon conversion of the Purchased Shares, except for (i) those which have
already been made or granted, (ii) the filing of the Certificate of
Incorporation with the Secretary of State of the State of Delaware, and (iii)
the filing of registration statements with the Securities and Exchange
Commission (the "Commission") and of such registration statements and related
documents with any applicable state securities commission as specifically
contemplated in the Registration Rights Agreement attached hereto as Exhibit E.
---------
2.4 Authorized and Outstanding Stock. At the Closing, the authorized
--------------------------------
capital stock of the Company will consist of (i) 2,000,000 shares of Common
Stock, of which 778,250 shares are validly issued and outstanding and held of
record and owned beneficially as set forth in Schedule 2.4 attached hereto, and
------------
of which 339,020 shares are held by the Company as treasury shares, and (ii)
400,000 shares of Preferred Stock, of which 160,000 shares will have been
designated as Series A Preferred Stock with the rights, terms and privileges set
forth in the Certificate of Incorporation and of which 144,640 shares of Series
A Preferred Stock will, upon consummation of the Closing, be issued and
outstanding. All issued and outstanding shares of capital stock are, and when
issued in accordance with the terms hereof, all Purchased Shares and Conversion
Shares issued upon conversion of the Purchased Shares will be, duly and validly
authorized, validly issued and fully paid and non-assessable and free from any
restrictions on
3
<PAGE>
transfer, except for restrictions imposed (i) by federal or state securities or
"blue-sky" laws, (ii) pursuant to this Agreement, any Related Agreement or
created by any of the Investors, (iii) solely with respect to shares other than
Purchased Shares or Conversion Shares, under stock option or similar agreements
between the Company and its employees, or (iv) pursuant to those certain Stock
Transfer Agreement (copies of which are attached hereto as Exhibit H), the
---------
Shareholders Agreement, or the Stock Purchase and Option Agreement between the
Company, on one hand, and each of the persons listed on Schedule 2.4, on the
------------
other hand. Except as set forth on Schedule 2.4, there are no outstanding
------------
warrants, options, commitments, preemptive rights, rights to acquire or
purchase, conversion rights or demands of any character relating to the capital
stock or other securities of the Company.
2.5 Subsidiaries; Certain Investments. The Company has no Subsidiaries.
---------------------------------
Except as set forth in Schedule 2.5 attached hereto, the Company has no
------------
investment or other interest in, or any outstanding loan or advance to or from,
any Person, including, without limitation, any officer, director or shareholder
of the Company.
2.6 Financial Information. The Company has previously delivered to the
---------------------
Investors the (a) financial statements of the Company for the fiscal year ended
March 31, 1997, audited by Deloitte & Touche, LLP ("Deloitte & Touche"), the
Company's certified public accountants (the "Audited Financial Statements", and
a copy of which is attached hereto as Exhibit I) and (b) the unaudited balance
---------
sheet of the Company at, and the unaudited interim income statement with
reconciliations for the five months ended, August 31, 1997 (the "Unaudited
Financial Statements", and a copy of which is attached hereto as Exhibit J).
---------
The Audited Financial Statements and the Unaudited Financial Statements
(collectively, the "Financial Statements") are complete and correct, are in
accordance with the books and records of the Company and present fairly in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods the financial condition and results of operations
of the Company as of the date and for the period shown (except in respect to the
absence of notes and customary year-end adjustments consistent with past
practice relating to the Unaudited Financial Statements). The Company has no
liability, contingent or otherwise, which is not adequately reflected in or
reserved against in the Financial Statements that could materially and adversely
affect the financial condition of the Company. Since the date of the Unaudited
Financial Statements, (i) there has been no change in the business, assets,
liabilities, condition (financial or otherwise) or operations of the Company
except for changes in the ordinary course of business which, individually or in
the aggregate, have not been materially adverse, and (ii) none of the business,
condition (financial or otherwise), operations, property or affairs of the
Company has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
2.7 Events Subsequent to the Date of the Financial Statements. Except
---------------------------------------------------------
as contemplated herein, in the Related Agreements, or as set forth on Schedule
--------
2.7 attached hereto, since March 31, 1997, the Company has not (i) issued any
- ---
stock, bond or other corporate security, (ii) borrowed any amount or incurred or
become subject to any liability (absolute, accrued or contingent), except
liabilities in the ordinary course of business, (iii) discharged or
4
<PAGE>
satisfied any lien or encumbrance or incurred or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities shown
on the Financial Statements and current liabilities incurred since March 31,
1997 in the ordinary course of business, (iv) declared or made any payment or
distribution to stockholders or purchased or redeemed any shares of its capital
stock or other securities, (v) mortgaged, pledged or subjected to lien any of
its assets, tangible or intangible, other than liens of current real property
taxes not yet due and payable, (vi) sold, assigned or transferred any of its
tangible assets except in the ordinary course of business, or canceled any debt
or claim, except in the ordinary course of business, (vii) sold, assigned,
transferred or granted any license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, except
pursuant to license or other agreements entered into in the ordinary course of
business, (viii) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation, (x) made any material change in the manner
of business or operations of the Company, (xi) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby or
(xii) entered into any commitment (contingent or otherwise) to do any of the
foregoing.
2.8 Litigation. Except as otherwise set forth on Schedule 2.8 attached
---------- ------------
hereto, there is no litigation or governmental proceeding or investigation,
pending or, to the Company's knowledge, threatened, against the Company or
affecting any of the Company's properties or assets, or against any officer, key
employee or shareholder of the Company in his capacity as such, nor, to the
Company's knowledge, has there occurred any event or does there exist any
condition on the basis of which any litigation, proceeding or investigation
might properly be instituted with any substantial chance of recovery where such
recovery would likely have a material adverse effect on the Company. Neither
the Company, nor any officer, key employee or shareholder of the Company in his
capacity as such is, to the knowledge of the Company, in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency which may materially and adversely
affect the business or assets of the Company.
2.9 Compliance with Laws and Other Instruments. Except as set forth on
------------------------------------------
Schedule 2.9 attached hereto, the Company is in compliance with all of the
- ------------
provisions of this Agreement and of its certificate of incorporation and by-
laws, and in all material respects with the provisions of each mortgage,
indenture, lease, license, other agreement or instrument, judgment, decree,
judicial order, statute, and regulation by which it is bound or to which it or
any of its properties is subject. Neither the execution, delivery or
performance of this Agreement and the Related Agreements, nor the offer,
issuance, sale or delivery of the Purchased Shares, or the Conversion Shares
upon conversion of the Purchased Shares, with or without the giving of notice or
passage of time, or both, will violate, or result in any breach of, or
constitute a default under, or result in the imposition of any encumbrance upon
any asset of the Company pursuant to any provision of the Company's certificate
of incorporation or by-laws, or any statute, rule or regulation, contract,
lease, judgment, decree or other document or instrument by which the Company is
bound or to which the Company or any of its respective properties is subject, or
will cause the Company to
5
<PAGE>
lose the benefit of any right or privilege it presently enjoys or cause any
Person who is expected normally to do business with the Company to discontinue
to do so on the same basis.
2.10 Taxes. The Company has filed all tax returns (including statements
-----
of estimated taxes owed) required to be filed within the applicable periods for
such filings and has paid all taxes required to be paid, and has established
adequate reserves (net of estimated tax payments already made) for the payment
of all taxes payable in respect to the period subsequent to the last periods
covered by such returns. No deficiencies for any tax are currently assessed
against the Company and, except as set forth on Schedule 2.10 attached hereto,
-------------
no tax returns of the Company have ever been audited and, to the knowledge of
the Company, there is no such audit pending or contemplated. There is no tax
lien, whether imposed by any federal, state or local taxing authority,
outstanding against the assets, properties or business of the Company. For the
purposes of this Agreement, the term "tax" shall include all federal, state and
local taxes, including income, franchise, property, sales, withholding, payroll
and employment taxes.
2.11 Real Property.
-------------
(a) The Company owns no real property. Schedule 2.11 attached
-------------
hereto sets forth the addresses and uses of all real property that the Company
leases or subleases, and any lien or encumbrance on the Company's leasehold
interest therein, specifying in the case of each such lease or sublease, the
name of the lessor or sublessor, as the case may be, the lease term and the
rental obligations of the lessee thereunder.
(b) Except as set forth on Schedule 2.11, there is no material
-------------
violation by the Company of any law, regulation or ordinance (including without
limitation laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property leased or
subleased by the Company.
(c) There are no defaults by the Company or, to the knowledge of the
Company, by any other party thereto, which might curtail in any material respect
the present use of the Company's leased or subleased real property listed on
Schedule 2.11. The performance by the Company of this Agreement and the Related
- -------------
Agreements will not result in the termination of, or in any increase of any
amounts payable under, any lease listed on Schedule 2.11.
-------------
2.12 Personal Property. Except as set forth on Schedule 2.12 attached
----------------- -------------
hereto and except for property sold or otherwise disposed of in the ordinary
course of business since March 31, 1997, the Company owns free and clear of any
liens or encumbrances, all of the personal property reflected as owned by the
Company in the balance sheet contained in the Financial Statements, and all
other material items of personal property acquired by the Company through the
date hereof. All material items of such personal property are in operating
condition, normal wear and tear excepted.
6
<PAGE>
2.13 Patents, Trademarks, etc. Set forth on Schedule 2.13 attached
------------------------- -------------
hereto is a list and brief description of all material patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names and copyrights, and all applications for such
that are in the process of being prepared, owned by or registered in the name of
the Company, or of which the Company is a licensor or licensee or in which the
Company has any right. To the best knowledge of the Company, the Company owns
and possesses rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how
(collectively, "Intellectual Property") necessary to the conduct of its business
as conducted and as proposed to be conducted. No claim is pending or, to the
knowledge of the Company threatened, to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no basis known to the Company for
any such claim (whether or not pending or threatened). No claim is pending or,
to the knowledge of the Company, threatened, to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and
there is no basis known to the Company for any such claim (whether or not
pending or threatened). All material confidential technical information
developed by and belonging to the Company which has not been patented or
copyrighted has been protected against unauthorized use or disclosure in
accordance with standards prevailing in the industry in which the Company
operates. Except as set forth on Schedule 2.13, the Company has not granted or
-------------
assigned to any other person or entity any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to provide
the services or proposed services of the Company. No current or former
stockholder, employee, officer or director of the Company has (directly or
indirectly) any right, title or interest in any of the rights described on
Schedule 2.13 other than such right which such Person may enjoy as a stockholder
- -------------
of the Company.
2.14 Agreements of Directors, Officers and Employees. To the knowledge
-----------------------------------------------
of the Company, no director, officer or employee of the Company is in violation
of any terms of any employment contract, non-competition agreement, non-
disclosure agreement, patent disclosure or assignment agreement or other
contract or agreement containing restrictive covenants relating to the right of
any such director, officer or employee to be employed or engaged by the Company
because of the nature of the business conducted or proposed to be conducted by
the Company, or relating to the use of trade secrets or proprietary information
of others.
2.15 Governmental and Industrial Approvals. The Company has all the
-------------------------------------
material permits, licenses, orders, franchises and other rights and privileges
of all federal, state, local or foreign governmental or regulatory bodies
necessary for the Company to conduct its business as presently conducted. All
such permits, licenses, orders, franchises and other rights and privileges are
in full force and effect and no suspension or cancellation of any of them is, to
the knowledge of the Company, threatened, and none of such permits, licenses,
orders, franchises or other rights and privileges will be adversely affected by
the consummation of the transactions contemplated in this Agreement and the
Related Agreements.
7
<PAGE>
2.16 Federal Reserve Regulations. The Company has not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the sale of the
Purchased Shares will be used by the Company to purchase or carry any margin
security or to extend credit to others for the purpose of purchasing or carrying
any margin security or in any other manner which would involve a violation of
any of the regulations of the Board of Governors of the Federal Reserve System.
2.17 Contracts and Commitments. Except as referred to in this Agreement
-------------------------
or as set forth on Schedule 2.17 attached hereto, the Company has no contract,
-------------
obligation or commitment (including to make or receive royalties) which is
material or which involves a potential material commitment or any stock
redemption or stock purchase agreement, financing agreement, license, lease, or
stock option plan. For purposes of this Section 2.17, a contract, obligation or
commitment shall be deemed material if it requires future expenditures by the
Company in excess of $250,000 or might result in payments to the Company in
excess of $500,000.
2.18 Securities Act. The Company has complied and will comply with all
--------------
applicable federal or state securities laws in connection with the issuance and
sale of the Purchased Shares and the issuance of the Conversion Shares upon
conversion of the Purchased Shares. Neither the Company nor anyone acting on
its behalf has offered any of the Purchased Shares, or similar securities, or
solicited any offers to purchase any of such securities, so as to require the
issuance and sale of the Purchased Shares to be registered under the
registration provisions of the Act.
2.19 Registration Rights. The Company has not granted any rights
-------------------
relating to registration of its capital stock under the Act or state securities
laws other than those to be contained in the Registration Rights Agreement.
2.20 Insurance Coverage. Schedule 2.20 attached hereto contains an
------------------ -------------
accurate summary of the insurance policies currently maintained by the Company.
Except as described on Schedule 2.20, there are currently no claims in excess of
-------------
$10,000 pending against the Company under any insurance policies currently in
effect and covering the property, business or employees of the Company, and all
premiums due and payable with respect to the policies maintained by the Company
have been paid to date.
2.21 Employee Matters. Except as set forth on Schedule 2.21 attached
---------------- -------------
hereto, the Company does not have in effect any employment agreements,
consulting agreements, deferred compensation, pension or retirement agreements
or arrangements, bonus, incentive or profit-sharing plans or arrangements, or
labor or collective bargaining agreements, written or oral. To the knowledge of
the Company, no officers or other key employees of the Company presently intends
to terminate his employment. The Company is in compliance in all material
respects with all applicable laws and regulations relating to labor, employment,
fair employment practices, terms and conditions of employment, and wages and
hours. The Company is in material compliance
8
<PAGE>
with the terms of all plans, programs and agreements listed on Schedule 2.21,
-------------
and each such plan, program or agreement is in compliance with all of the
material requirements and provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). No such plan or program has engaged in any
"prohibited transaction" as defined in Section 4975 of the Internal Revenue Code
of 1986 (the "Code"), or has incurred any "accumulated funding deficiency" as
defined in Section 302 of ERISA, nor has any reportable event as defined in
Section 4043(b) of ERISA occurred with respect to any such plan or program. With
respect to each plan listed on Schedule 2.21, all required filings, including
-------------
all filings required to be made with the United States Department of Labor and
Internal Revenue Service, have been timely filed.
2.22 No Brokers or Finders. No person has or will have, as a result of
---------------------
the Company's issuance and sale of the Purchased Shares or the Conversion Shares
in accordance with this Agreement, any right, interest or claim against or upon
the Company for any commission, fee or other compensation as a finder or broker
because of any act or omission by the Company.
2.23 Transactions with Affiliates. Except as contemplated in this
----------------------------
Agreement or the Related Agreements or as set forth on Schedule 2.23 attached
-------------
hereto, there are no loans, leases or other continuing transactions (including
without limitation agreements or other transactions involving any significant
intellectual property of the Company) between the Company on the one hand, and
any officer or director of the Company or any person owning ten percent (10%) or
more of the Common Stock of the Company or any respective family member or
affiliate of such officer, director or shareholder on the other hand. The
current annual compensation (inclusive of salary and bonus) for each of Alain J.
Cohen and Marc A. Cohen is $270,000 and $270,000, respectively, and each also
receives benefits from the Company consisting of life, health and disability
insurance.
2.24 Assumptions, Guarantees, etc. of Indebtedness of Other Persons. The
--------------------------------------------------------------
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on or for any indebtedness of any other Person, except
guarantees by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.
2.25 Disclosures. Neither this Agreement, any Schedule or Exhibit to
-----------
this Agreement, the Related Agreements, the Financial Statements nor any other
agreement, document or written statement made by the Company and furnished by
the Company to the Investors or the Investors' counsel in connection with the
transactions contemplated hereby, contains any untrue statement of material fact
or omits to state any material fact necessary to make the statements contained
herein or therein not misleading.
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
------------------------------------
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will observe the following covenants on and after
the Closing, as long as any of the
9
<PAGE>
Purchased Shares are outstanding, except where any covenant is specifically
qualified by reference to a specified number of Purchased Shares, in which event
the Company will observe such covenant only so long as such specified percentage
of the Purchased Shares is outstanding:
3.1 Accounts. The Company will, and will cause each of its Subsidiaries
--------
to, maintain a standard system of accounts in accordance with generally accepted
accounting principles consistently applied and the Company will, and will cause
each of its Subsidiaries to, keep full and complete financial records.
3.2 Reports. Provided that at least 15% of the Purchased Shares
-------
(excluding any Conversion Shares) is outstanding, the Company will furnish to
each Investor the information set forth in this Section 3.2:
(a) Within ninety (90) days after the end of each fiscal year, a
copy of the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as at the end of such year, together with consolidated and
consolidating statements of income, shareholders' equity and cash flow of the
Company and its Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, all in
reasonable detail and duly certified by an independent public accountant of
national recognition selected by the Board of Directors of the Company.
(b) Within thirty (30) days after the end of each calendar month, a
preliminary consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the end of such month and preliminary consolidated and
consolidating statements of income, shareholders' equity and cash flow for such
month and for the period commencing at the end of the previous fiscal year and
ending with the end of such month, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the preceding
fiscal year, all in reasonable detail.
(c) Prior to the end of each fiscal year, a copy of an annual
proposed summary budget and statement of objectives for the next fiscal year.
(d) Promptly upon receipt thereof, any written report, so called
"management letters," and any other written communication submitted to the
Company or any Subsidiary by its independent public accountants relating to the
business, prospects or financial condition of the Company and its Subsidiaries.
3.3 Other Information. The Company will furnish to each Investor the
-----------------
information set forth in this Section 3.3:
(a) Promptly after the commencement thereof, notice of (i) all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company (or any Subsidiary) which,
10
<PAGE>
if successful, could have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; and (ii) all material defaults by the Company or
any Subsidiary (whether or not declared) under any agreement for money borrowed
(unless waived or cured within applicable grace periods);
(b) Promptly upon sending, making available, or filing the same, all
reports and financial statements as the Company (or any Subsidiary) shall send
or make available generally to the shareholders of the Company as such or to the
Commission; and
(c) Such other information with regard to the business, properties
or the condition or operations, financial or otherwise, of the Company or its
Subsidiaries as is readily available to the Company without unreasonable effort
and expense and as the Investors may from time to time reasonably request.
3.4 Payment of Taxes. The Company will pay and discharge (and cause any
----------------
Subsidiary to pay and discharge) all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company (or any Subsidiary), provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if the Company or such Subsidiary shall have set aside on its books adequate
reserves with respect thereto.
3.5 Maintenance of Key Man Insurance. The Company shall, at its
--------------------------------
expense, use its reasonable best efforts to obtain within thirty (30) days after
the Closing and thereafter so long as at least 15% of the Purchased Shares
(excluding any Conversion Shares) is outstanding shall maintain, a life
insurance policy with a responsible and reputable insurance company payable to
the Company on the lives of Marc A. Cohen (as long as he remains an officer or
employee or is actively involved in the day-to-day operations of the Company)
and Alain J. Cohen (as long as he remains an officer or employee or is actively
involved in the day-to-day operations of the Company), each such policy in the
face amount of $2.0 million. The Company will not cause or permit any
assignment of the proceeds of such policies and will not borrow against such
policies. The Company will add one designee of the Investor as a notice party
to each such policy, and will request that the issuer of each such policy
provide such designee with ten (10) days' notice before such policy is
terminated (for failure to pay premium or otherwise) or assigned, or before any
change is made in the designation of the beneficiary thereof.
3.6 Compliance with Laws, etc. The Company will comply (and cause each
--------------------------
of its Subsidiaries to comply) with all applicable laws, rules, regulations and
orders of any governmental authority, the noncompliance with which could
materially adversely affect the business or condition, financial or otherwise,
of the Company and its Subsidiaries, taken as a whole.
11
<PAGE>
3.7 Inspection. At any reasonable time during normal business hours and
----------
from time to time, but not more frequently than once per calendar quarter for
all Investors and transferees of Investors as a group, upon five (5) days'
written notice, the Company (and each of its Subsidiaries) will permit any one
or more of the Investors who then own, of record or beneficially, or have the
right to acquire, any of the Conversion Shares, or any transferee of an Investor
who owns, of record or beneficially, or has the right to acquire, at least five
percent (5%) of the then outstanding Common Stock, or any of the agents or
representatives of the foregoing Persons, to examine and make copies of and
extracts from the records and books of account of and visit the properties of
the Company (and any of its Subsidiaries) and to discuss the Company's affairs,
finances and accounts with any of its officers or directors; provided, however,
-------- -------
that any Person or Persons exercising rights under this Section 3.7 shall (i)
use all reasonable efforts to ensure that any such examination or visit results
in a minimum of disruption to the operations of the Company and (ii) shall agree
in writing to keep any proprietary information of the Company disclosed to it in
the course of such inspection confidential in accordance with the
Confidentiality Agreement (substantially in the form of Exhibit G) executed (or
---------
with respect to any transferee, to be executed and delivered to the Company as a
condition precedent to the exercise of such inspection rights) by such Person
and not use such proprietary information for any purpose in competition with the
Company's business. The rights granted under this Section 3.7 shall be in
addition to any rights which any Investor may have under applicable law in its
capacity as a shareholder of the Company.
3.8 Corporate Existence; Ownership of Subsidiaries. The Company will,
----------------------------------------------
and will cause its Subsidiaries to, at all times preserve and keep in full force
and effect their corporate existence, and rights and franchises material to the
business of the Company and its Subsidiaries, taken as a whole, and will
qualify, and will cause each of its Subsidiaries to qualify, to do business as a
foreign corporation in any jurisdiction where the failure to do so would have a
material adverse effect on the business, condition (financial or other), assets,
properties or operations of the Company and its Subsidiaries, taken as a whole.
3.9 Compliance with ERISA. The Company will comply (and cause each of
---------------------
its Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist which could permit any
such plan to be terminated under circumstances which cause the lien provided for
in Section 3068 of ERISA to attach to the assets of the Company or any of its
Subsidiaries.
3.10 Reserved.
--------
3.11 Financings. The Company will promptly provide to the Board of
----------
Directors the details and terms of, and any brochures, registration statements
or investment memoranda prepared by the Company related to, any possible
financing of any nature for the Company (or any of its Subsidiaries), whether
initiated by the Company or any other Person.
12
<PAGE>
3.12 Meetings of the Board of Directors. The Board of Directors shall
----------------------------------
hold regular meetings not less frequently than once every 90 days.
3.13 Rule 144A Information. The Company shall, upon the written request
---------------------
of any Investor, provide to such Investor and to any prospective qualified
institutional buyer (as defined in Rule 144A under the Act) from the Investor of
the Purchased Shares or Conversion Shares designated by such Investor, such
financial and other information concerning the Company as is immediately
available to the Company and that can be obtained by the Company without undue
effort or expense and as such Investor may reasonably determine is required to
permit such prospective sale to such qualified institutional buyer to comply
with the requirements of Rule 144A promulgated under the Act, provided, that
--------
prior to such disclosure, such qualified institutional buyer first enters into a
confidentiality agreement with the Company substantially in the form of the
Confidentiality Agreement attached hereto as Exhibit G.
---------
3.14 Regular Course of Business. The Company agrees that on and after
--------------------------
the date hereof and prior to the Closing that it will carry on its business
diligently and in the ordinary course and substantially in the same manner as
heretofore carried on and will use its reasonable best efforts to preserve its
present business organization intact, keep available the services of its present
officers, agents and employees and preserve its present relationships with
suppliers, customers and other persons having business dealings with it.
3.15 Purchase of Shares. Until 180 days after the Closing, the Company
------------------
shall have the option to seek to and to repurchase up to an aggregate of 69,483
shares of Common Stock from the shareholders of the Company listed on Schedule
--------
l.4 in accordance with Section 1.4 hereof, and the stock certificates
- ---
representing such shares as shall be so repurchased shall be canceled and
retired.
3.16 Notice of Qualified Public Offering. The Company shall provide the
-----------------------------------
Investors with thirty (30) days' prior notice of the filing of a registration
statement under the Act which contemplates a Qualified Public Offering.
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
---------------------------------
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will comply (and will cause each Subsidiary to
comply) with each of the provisions of this Article IV on and after the date
hereof and until the consummation of the first Qualified Public Offering;
provided, however, that the provisions of Section 4.1 shall continue in force
- -------- -------
only so long as there are Purchased Shares outstanding and the provisions of
Section 4.3 shall continue in force only as stated therein.
13
<PAGE>
4.1 Dealings with Affiliates. The Company will not enter into any
------------------------
transaction including, without limitation, any loans or extensions of credit or
royalty agreements with any officer or director of the Company or any Subsidiary
or holder of five percent (5%) or more of any class of capital stock of the
Company, or any member of their respective immediate families or any corporation
or other entity directly or indirectly controlled by one or more of such
officers, directors or shareholders or members of their immediate families,
except on terms no less favorable to the Company than could be obtained from an
unaffiliated third party as determined by a majority of the disinterested
directors of the Company.
4.2 No Conflicting Agreements. The Company agrees that neither it nor
-------------------------
any Subsidiary will, without the consent of the Investors, enter into or amend
any agreement, contract, commitment or understanding which would restrict or
prohibit the exercise by the Investors of any of their rights under this
Agreement or any of the Related Agreements, nor amend or waive any provisions of
the Stock Repurchase Agreements with those persons referred to on Schedule 1.4.
------------
4.3 Restricted Activities. The Company agrees that on and after the
---------------------
date hereof and prior to Closing it will not take any action that would require
disclosure under Section 2.7 of this Agreement.
ARTICLE V
PURCHASE RIGHTS AND SIZE OF BOARD OF DIRECTORS
----------------------------------------------
5.1 Right of Purchase. The Company hereby grants to the Investors so
-----------------
long as the Investors collectively shall own, of record and beneficially, at
least 33% of the Purchased Shares (not including Conversion Shares or other
Common Stock), the right to purchase all or part of their pro rata share of New
Securities (as defined in Section 5.2) which the Company, from time to time,
proposes to sell and issue. An Investor's pro rata share, for purposes of this
Article V, is, at the time of determination, the ratio of (a) the number of
shares of Common Stock issuable upon conversion of the number of Purchased
Shares which such Investor then owns to (b) the sum of the number of shares of
Common Stock issuable upon conversion of all Purchased Shares then outstanding
plus the number of shares of Common Stock then outstanding. The Investors shall
have a right of over-allotment pursuant to this Article V such that to the
extent an Investor does not exercise its pro rata purchase right in full
--- ----
hereunder, such shares of New Securities which such Investor had the right to
but did not purchase may be purchased by the other Investor.
5.2 Definition of New Securities. "New Securities" shall mean any
----------------------------
capital stock of the Company whether now authorized or not, and rights, options
or warrants to purchase capital stock, and securities of any type whatsoever
that are, or may become convertible into or exchangeable for capital stock,
issued on or after the Closing; provided that the term "New Securities" does not
--------
include (a) securities issued in a public offering whether or not it is a
Qualified Public Offering; (b) securities purchased under this Agreement or
Conversion Shares issuable upon conversion of the Purchased Shares; (c) Common
Stock issued as a stock dividend to holders of Common Stock or upon any stock
split, subdivision or combination of shares of
14
<PAGE>
Common Stock; (d) Series A Preferred Stock issued as a dividend to holders of
the Series A Preferred Stock or upon any stock split, subdivision or combination
of the Series A Preferred Stock; and (e) up to an aggregate of the number of
shares of Common Stock equal to the sum of (i) 200,000 shares issuable upon
exercise of options governed by the Company's 1995 Incentive Stock Option Plan,
plus (ii) the 10,000 shares issuable to George M. Cathey in accordance with
other agreements listed in Schedule 2.4.
------------
5.3 Notice from the Company. In the event the Company proposes to
-----------------------
undertake an issuance of New Securities, it shall give each Investor written
notice of its intention, describing the type of New Securities and the price and
the terms upon which the Company proposes to issue the same. The Investors shall
have 20 business days from the date of receipt of any such notice to agree to
purchase their aggregate pro rata share of such New Securities for the price and
upon the terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
5.4 Sale by the Company. In the event the Investors fail to exercise in
-------------------
full their right to purchase their aggregate pro rata share of New Securities,
the Company shall have 120 days thereafter to sell the New Securities with
respect to which the Investors' right was not exercised, at a price and upon
terms no more favorable to the purchaser thereof than specified in the Company's
notice. To the extent the Company does not sell all the New Securities offered
within said 120 day period, the Company shall not thereafter issue or sell such
New Securities without first again offering such securities to the Investors in
the manner provided above.
5.5 Size of Board of Directors. As long as the Investors collectively
--------------------------
shall own, of record and beneficially, at least 33% of the Purchased Shares
(excluding Conversion Shares or other Common Stock), the size of the Board of
Directors shall not exceed seven members.
5.6 Termination of Rights. The rights granted to the Investors under
---------------------
this Article V are not transferrable or assignable to any Person and shall
expire and be of no further force or effect immediately on the earliest of (i)
such date that the Investors no longer collectively own of record and
beneficially at least 33% of the Purchased Shares (not including Conversion
Shares or other Common Stock), or (ii) the consummation of a Qualified Public
Offering.
ARTICLE VI
INVESTMENT REPRESENTATIONS
--------------------------
6.1 Representations and Warranties. In order to induce the Company to
------------------------------
offer for sale and sell the Purchased Shares and the Conversion Shares, each
Investor hereby makes the following representations and warranties which shall
be true, correct and complete in all respects as of the Closing and as of the
date of delivery of any Conversion Shares:
(a) Assuming due execution and delivery by the Company of this
Agreement and the Related Agreements, this Agreement and the Related Agreements
to which such Investor
15
<PAGE>
is a party constitute legal, valid and binding obligations of such Investor,
enforceable against such Investor in accordance with their respective terms;
(b) Such Investor has been advised and understands that the Purchased
Shares have not been, and the Conversion Shares and any New Securities will not
be, registered under the Act or the securities laws of any jurisdiction, and
that in this connection, the Company is relying in part on the representations
of such Investor set forth in this Article VI;
(c) Such Investor has been further advised and understands that no
public market now exists for any of the securities issued by the Company and
that a public market may never exist for the Purchased Shares, Conversion Shares
and any New Securities;
(d) Such Investor is purchasing the Purchased Shares, and to the
extent it acquires any Conversion Shares or any New Securities is or will be
acquiring such Conversion Shares or New Securities, as the case may be, for
investment purposes, for its own account and not with a view to, or for sale in
connection with, any distribution thereof in violation of federal or state
securities laws;
(e) By reason of its business or financial experience, such Investor
has the capacity to protect its own interest in connection with the transactions
contemplated hereunder;
(f) Such Investor is aware of the Company's business affairs and
financial condition and has had an opportunity to ask questions and receive
answers from the Company's management and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision to acquire the
Purchased Shares and, as applicable, to acquire any Conversion Shares or New
Securities; provided, however, that nothing in this Section 6.1 shall be deemed
-------- -------
to vitiate or limit the representations, warranties and covenants of the Company
contained in this Agreement;
(g) Such Investor is an "accredited investor" as defined in Regulation
D under the Act and was not formed for the purpose of acquiring the Purchased
Shares or Conversion Shares or any New Securities; and
(h) No person has or will have, as a result of any transaction
contemplated by this Agreement, any right, interest or claim against or upon the
Company or any of its Subsidiaries for any commission, fee or other compensation
as a finder or broker because of any act or omission by such Investor.
6.2 Permitted Sales; Legends. Notwithstanding the foregoing
------------------------
representations, the Company agrees that it will permit, (i) a transfer of
Purchased Shares, Conversion Shares or New Securities by an Investor that is a
partnership to one or more of its partners, where no consideration is exchanged
therefor by such partners, or to a retired or withdrawn partner who retires or
withdraws after the date hereof in full or partial distribution of his interest
in such
16
<PAGE>
partnership, or to the estate of any such partner or the transfer by gift, will
or intestate succession of any partner to his spouse or to the siblings, lineal
descendants or ancestors of such partner or his spouse, or to a trust created
for the benefit of one or more of the foregoing, if the transferee prior to such
transfer, executes and delivers to the Company a Confidentiality Agreement
substantially in the form attached hereto as Exhibit G and agrees in writing to
---------
be subject to the duties and obligations hereof to the same extent as if it were
an original Investor hereunder and (ii) a sale or other transfer of any of the
Purchased Shares, Conversion Shares or New Securities, in each case covered by
clause (i) or (ii) upon obtaining assurance satisfactory to the Company prior to
any such sale or other transfer that such transaction is exempt from the
registration requirements of, or is covered by an effective registration
statement under, the Act and applicable state securities or "blue-sky" laws,
including, without limitation, receipt of an unqualified opinion to such effect
of counsel reasonably satisfactory to the Company. Notwithstanding anything to
the contrary herein, except in accordance with the Shareholders Agreement, no
distribution, sale or transfer of Purchased Shares, Conversion Shares, Common
Stock or any other interest of the Company shall be made by any Investor, or its
successor, transferee, trustees or assigns, whether pursuant to this Section 6.2
or otherwise, to any competitor of the Company (as determined in said
Shareholders Agreement).
The certificates representing the Purchased Shares and any Conversion
Shares issuable upon conversion thereof, and any New Securities acquired by an
Investor, or by any successor, transferee or assignee, shall bear a legend
evidencing such restriction on transfer substantially in the following form:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended (the "Act") or the securities laws of any state, and
are subject to certain restrictions on transfer set forth in an
agreement dated September 30, 1997 between the corporation and the
holder of these shares. In addition to compliance with said
restrictions, the shares may not be transferred by sale, assignment,
pledge or otherwise unless (i) a registration statement for the shares
under the Act is in effect or (ii) the corporation has received an
opinion of counsel, which opinion is reasonably satisfactory to the
corporation, to the effect that such registration is not required
under the Act."
6.3 Confidentiality Agreement. Each Investor has duly authorized,
-------------------------
executed and delivered to the Company a Confidentiality Agreement substantially
in the form attached hereto as Exhibit G.
---------
6.4 Mandatory Conversion. The Investors acknowledge that the Series A
--------------------
Preferred Stock will be subject to mandatory conversion into Common Stock upon
the occurrence of a Qualified Public Offering in accordance with the terms of
the Amended and Restated Certificate of Incorporation attached hereto as Exhibit
-------
A.
- -
17
<PAGE>
ARTICLE VII
CONDITIONS OF INVESTORS' OBLIGATION
-----------------------------------
7.1 Effect of Conditions. The obligation of the Investors to purchase
--------------------
and pay for the Purchased Shares at the Closing shall be subject to the
satisfaction of each of the conditions stated in the following Sections of this
Article, unless waived by the Investors.
7.2 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in this Agreement shall be true and correct on the date
of Closing with the same effect as though made on and as of that date, and the
Investors shall have received a certificate dated as of such Closing and signed
on behalf of the Company to that effect.
7.3 Performance. The Company shall have performed and complied with all
-----------
of the agreements, covenants and conditions contained in this Agreement required
to be performed or complied with by it at or prior to such Closing, and the
Investors shall have received a certificate dated as of such Closing and signed
on behalf of the Company to that effect.
7.4 Certified Documents, etc. The Investors shall have received a copy
------------------------
of the Company's Certificate of Incorporation, as amended, certified by the
Secretary of State of the State of Delaware and copies of the Company's By-Laws
certified by its Secretary, as well as any and all other documents, including
certificates as to votes adopted and incumbency of officers and certificates
from appropriate authorities as to the legal existence and tax good standing of
the Company, and an opinion of counsel to the Company, which the Investors or
their counsel may reasonably request.
7.5 No Material Adverse Change. The business, properties, assets or
--------------------------
condition (financial or otherwise) of the Company shall not have been materially
adversely affected since the date of this Agreement, whether by fire, casualty,
act of God or otherwise, and there shall have been no other changes in the
business, properties, assets, condition (financial or otherwise), management or
prospects of the Company that would have a material adverse effect on the
business or assets of the Company.
7.6 Shareholders' Agreement. A Shareholders' Agreement substantially in
-----------------------
the form of Exhibit C attached hereto shall have been executed by each Investor,
---------
the Company and the shareholders named as parties therein.
7.7 Reserved.
--------
7.8 Registration Rights Agreement. The Registration Rights Agreement
-----------------------------
shall have been executed by the Company, each of the Investors and the other
persons named as parties therein.
18
<PAGE>
7.9 Amendment to Certificate of Incorporation. The Certificate of
-----------------------------------------
Incorporation of the Company shall have been amended and restated to provide
for, among other things, the authorization of the Series A Preferred Stock with
the terms set forth in the Certificate of Incorporation attached as Exhibit A
---------
hereto.
7.10 Non-Competition Agreements. Each of Marc A. Cohen and Alain J.
--------------------------
Cohen shall have executed a Non-Competition Agreement substantially in the form
attached as Exhibit F hereto.
---------
7.11 Board Election. Concurrently with the Closing, the Board of
--------------
Directors of the Company shall, except in respect of an independent director,
have been constituted in accordance with Section 5.5 and the Shareholders
Agreement.
7.12 Consents and Waivers. The Company shall have obtained all consents
--------------------
or waivers necessary, at the time of the Closing, to execute this Agreement and
the other agreements and documents contemplated herein, to issue the Purchased
Shares and the Conversion Shares, and to carry out the transactions contemplated
hereby and thereby. All corporate and other action and governmental filings
necessary at the time of the Closing to effectuate the terms of this Agreement,
the Related Agreements, and other agreements and instruments executed and
delivered by the Company in connection herewith, and to issue and sell the
Purchased Shares and the Conversion Shares, shall have been made or taken.
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATION
--------------------------------------
The Company's obligation to sell the Purchased Shares shall be subject to
(a) the compliance and performance by the Investors with all of the agreements,
covenants and conditions contained in this Agreement and required to be
performed or complied with by the Investors at or before the Closing and to
accuracy on the date of the Closing of the representations and warranties of the
Investors contained in this Agreement, and (b) the execution and delivery by the
Investors with, the Shareholders Agreement and the Confidentiality Agreement
substantially in the form of Exhibits C and G attached hereto.
---------- -
ARTICLE IX
CERTAIN DEFINITIONS
-------------------
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Agreement" means this Series A Preferred Stock Purchase Agreement as from
time to time amended and in effect among the parties.
19
<PAGE>
"Applicable Conversion Value" shall mean the Applicable Conversion Value of
the Series A Preferred Stock under Section 5(c) of Article V of Exhibit A
---------
attached hereto.
"Closing" shall have the meaning set forth in Section 1.3.
"Commission" shall have the meaning set forth in Section 2.3.
"Common Stock" means (a) the Company's Common Stock as authorized on the
date of this Agreement, (b) any other capital stock of any class or classes of
the Company authorized on or after the date hereof, the holders of which shall
have the right, without limitation as to amount, either to all or to a share of
the balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, provided that
--------
Common Stock shall not include any shares of Series A Preferred Stock, and (c)
any other securities of the Company into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" means and shall include MIL 3, Incorporated, a Delaware
corporation, and its successors and assigns.
"Conversion Shares" shall have the meaning set forth in Section 1.2.
"Indebtedness" means all obligations, contingent and otherwise, for
borrowed money which are required to be reflected as indebtedness on a balance
sheet prepared in accordance with generally accepted accounting principles
including, without limitation, any current portion of long-term indebtedness and
all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
"Investor" shall have the meaning set forth in Section 1.1.
"Knowledge," "known" and words of similar import when used in respect of
the Company mean and include only the actual conscious awareness or knowledge of
the senior executive officers of the Company.
"New Securities" shall have the meaning set forth in Section 5.2.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Purchased Shares" shall have the meaning set forth in Section 1.1.
20
<PAGE>
"Qualified Public Offering" means the closing of a public offering by the
Company pursuant to a registration statement filed and declared effective under
the Act covering the offer and sale of Common Stock in which the aggregate gross
proceeds are over $20 million and in which the price per share of Common Stock
equals or exceeds three times the then Applicable Conversion Value of the Series
A Preferred Stock determined pursuant to Exhibit A attached hereto.
---------
"Related Agreements" shall have the meaning set forth in Section 2.2.
"Series A Preferred Stock" shall have the meaning set forth in Section 1.1.
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company and/or any of its other Subsidiaries (as
herein defined) directly or indirectly owns at the time more than fifty percent
(50%) of the outstanding voting shares of every class of such corporation,
association or other business entity other than directors' qualifying shares.
21
<PAGE>
ARTICLE X
TERMINATION
10.1 Termination by Mutual Written Consent. This Agreement may be
-------------------------------------
terminated, and the transactions contemplated hereby abandoned, at any time
prior to the Closing by the written agreement of the Company and the Investors.
10.2 Termination for Breach or Failure to Satisfy Conditions. This
-------------------------------------------------------
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time before the Closing (or any date to which the Closing may
have been extended by the written agreement of the parties obligated to perform
on such Closing) by any party obligated to perform on the Closing if the
conditions for its benefit set forth in Article VII or VIII, as the case may be,
have not been satisfied on or prior to the Closing (or any such extended date
for Closing) and if the conditions for the benefit of the other parties have
been satisfied or waived, and if such performing party shall have given written
notice of termination to the non-performing party.
10.3 Termination for Delay. Unless earlier terminated in accordance with
---------------------
Section 10.1 or 10.2, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned by the Company or the Investors if the
Closing does not occur by October 31, 1997, provided, however, that the right to
-------- -------
terminate this Agreement under this Section 10.3 shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date.
10.4 Rights After Termination. Upon termination of this Agreement under
------------------------
this Article X, the parties shall be released from all obligations arising
hereunder, except as to any liability for misrepresentations, breach or default
in connection with any warranty, representation, covenant, duty or obligation
given, occurring or arising prior to the date of termination and except as to
the parties' obligations under Section 11.6 hereof.
ARTICLE XI
MISCELLANEOUS
11.1 Survival of Representations. The representations, warranties,
---------------------------
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transaction contemplated hereby, and shall terminate as
to any such representations or warranties by the Company on the earlier of
January 1, 1999 or thirty (30) days after the delivery by the Company of an
unqualified audit report on the Company's financial statements for the year
ended March 31, 1998, provided, however, that the representations in (a)
-------- -------
Sections 2.4 and 2.22 shall terminate on the third anniversary of the Closing,
and (b) Section 2.10 shall terminate on the expiration of the applicable
limitations period for the subject tax return.
22
<PAGE>
11.2 Parties in Interest. Except as otherwise set forth herein, all
-------------------
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any of the Purchased Shares or Conversion Shares). The parties agree to
maintain in confidence the terms of the purchase of the Purchased Shares
hereunder, except that the Investors may disclose such terms to the partners in
the Investors in the ordinary course and except that the Company may disclose
such terms to its shareholders and outside advisors in the ordinary course and
in connection with any filing or information required to be submitted to any
governmental agency.
11.3 Shares Owned by Affiliates. For the purposes of applying all
--------------------------
provisions of this Agreement which condition the receipt of information or
access to information upon ownership of a specified number or percentage of
shares, the shares owned of record by any affiliate of a Investor shall, if such
affiliate has complied with all requirements under this Agreement relating to
the transfer of such shares, be deemed to be owned by such Investor. For the
purpose of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by or under common control with, an Investor and any
general or limited partner of an Investor at the date of this Agreement.
Without limiting the foregoing, each Investor shall be considered an affiliate
of each other Investor.
11.4 Amendments and Waivers. Amendments or additions to this Agreement
----------------------
may be made, agreements with any decision of the Company may be made, and
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) upon the written consent of the
Company and the holders of a majority of the outstanding Purchased Shares.
Prompt notice of any such amendment or waiver shall be given to any party hereto
who did not consent to such amendment or waiver. This Agreement (including the
Schedules and Exhibits annexed hereto, which are an integral part of this
Agreement) constitutes the full and complete agreement of the parties with
respect to the subject matter hereof.
11.5 Notices. All notices, requests, consents, reports and demands shall
-------
be in writing and shall be hand delivered, or mailed, postage prepaid, to the
Company or to the Investors at the address set forth below or to such other
address as may be furnished in writing to the other parties hereto:
The Company: MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman of
the Board and Chief Executive
Officer
23
<PAGE>
with copy to: Verner, Liipfert, Bernhard, McPherson
& Hand, Chartered
Suite 700
901 15th Street, N.W.
Washington, D.C. 20005
Attn: Harold I. Freilich, Esquire
The Investors: Summit Ventures IV, L.P.
Summit Investors III, L.P.
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, Massachusetts 02210
Attn: Bruce R. Evans
with copy to: Hutchins, Wheeler & Dittmar,
A Professional Corporation
101 Federal Street
Boston, MA 02120
Attention: James Westra, Esquire
Notices given in accordance with the foregoing shall be deemed received (i) upon
receipt, if hand delivered, and (ii) five business days after deposited in the
U.S. mail, if sent by mail.
11.6 Expenses. Each party hereto will pay its own expenses in connection
--------
with the transactions contemplated hereby, provided, however, that if the
-------- -------
purchase of Series A Preferred Stock by the Investor is consummated, the Company
shall pay all reasonable legal expenses (including fees and disbursements)
actually incurred by the Investors in connection with the purchase of the Series
A Preferred Stock, including in connection with the investigation, preparation,
execution and delivery of this Agreement (and due diligence related thereto) and
the other instruments and documents to be delivered hereunder and the
transactions contemplated hereby and thereby, in an aggregate amount not to
exceed $25,000.
11.7 Counterparts. This Agreement and any Exhibit hereto may be executed
------------
in multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more
counterparts of this Agreement or any Exhibit hereto may be delivered via
telecopier, with the intention that they shall have the same effect as an
original counterpart hereof.
11.8 Effect of Headings. The Article and Section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
24
<PAGE>
11.9 Adjustments. All provisions of this Agreement shall be
-----------
automatically adjusted to reflect any stock dividend, stock split or other such
form of recapitalization.
11.10 Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of New York and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
[Signatures on next page]
25
<PAGE>
If you are in agreement with the foregoing, please sign in the space
indicated below and return this letter to the Company, whereupon this letter
shall become a binding agreement among us.
Very truly yours,
MIL 3, INCORPORATED
By: /s/ Alain Cohen
--------------------------------
Name: Alain Cohen
Title: President
INVESTORS:
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co. IV
Its General Partner
By: /s/ Bruce R. Evans
------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Bruce R. Evans
-----------------------
General Partner
<PAGE>
Schedule 1.1
List of Investors and Number of Shares to be Purchased
------------------------------------------------------
<TABLE>
<CAPTION>
Investor Number of Purchased Shares Aggregate Purchase Price
- -------- -------------------------- ------------------------
<S> <C> <C>
Summit Ventures IV, L.P. 138,422 Shares $6,699,627
Summit Investors III, L.P. 6,218 Shares 300,949
-------------- ----------
144,640 Shares $7,000,576
============== ==========
</TABLE>
<PAGE>
EXHIBIT 10.2
SHAREHOLDERS AGREEMENT (the "Agreement") made as of the 30th day of
September, 1997, by and among SUMMIT VENTURES IV, L.P. ("Summit Ventures"), a
Delaware limited partnership; SUMMIT INVESTORS III, L.P. ("Summit Investors"), a
Delaware limited partnership; MARC A. COHEN ("M. Cohen"), an individual residing
in Washington, D.C.; and ALAIN J. COHEN ("A. Cohen"), an individual residing in
Washington, D.C. (Summit Investors and Summit Ventures are each sometimes
referred to herein as an "Investor" and collectively as the "Investors"; A.
Cohen and M. Cohen are each sometimes referred to herein as a "Current
Shareholder" and collectively as the "Current Shareholders"; and all of the
parties hereto are sometimes referred to herein individually as a "Shareholder"
and collectively as the "Shareholders.")
WITNESSETH:
WHEREAS, in accordance with a Series A Preferred Stock Purchase Agreement
(the "Purchase Agreement") dated as of September 30, 1997, among the Investors
and MIL 3, Incorporated (the "Company"), (a) Summit Investors has purchased from
the Company a total of 6,218 shares of the Company's Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"), and
(b) Summit Ventures has purchased from the Company a total of 138,422 shares of
the Series A Preferred Stock; and
WHEREAS, A. Cohen currently owns 400,000 shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), and M. Cohen currently
owns 250,000 shares of the Common Stock; and
WHEREAS, it is a condition to the obligations of the Company and the
Investors under the Purchase Agreement that this Agreement be executed and
delivered by the parties hereto, and the parties are willing to execute and
deliver this Agreement and to be bound by the provisions hereof.
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
below, and the parties' desire to provide for continuity of ownership of the
Company to further the interests of the Company and its present and future
shareholders, the parties hereby agree with each other as follows:
1. Certain Definitions. The term "Shares" shall mean and include, when
-------------------
used in respect of (a) a Current Shareholder, all shares of Common Stock owned
by such Shareholder at the time of determination, and (b) an Investor, all
shares of Series A Preferred Stock owned by such Investor at the time of
determination and all shares of Common Stock which such Investor may at such
time own and thereafter acquire in connection with conversion of such Series A
Preferred Stock. Other terms used with initial capital letters and not defined
herein shall have the meanings set forth in the Purchase Agreement.
<PAGE>
2. Restriction on Transfers.
------------------------
(a) No Shareholder shall Transfer all or any of its Shares except in
compliance with this Agreement, and any attempted Transfer of any Shares in
contravention of this Agreement shall be void and of no force and effect.
(b) The term "Transfer" shall mean and include any sale, exchange,
assignment, disposition, bequest, gift, pledge, mortgage, hypothecation, or
other disposition, whether voluntary, involuntary or by operation of law, and
whether resulting from death, bankruptcy, insolvency or otherwise.
(c) Notwithstanding anything to the contrary contained in this Agreement:
(i) each Current Shareholder may Transfer, without the necessity to
comply with Section 3 or 4, any or all of his Shares
(x) by way of gift to his spouse, to any of his lineal
descendants or ancestors, or to any trust for the benefit of any one
or more of such Current Shareholder, his spouse or his lineal
descendants or ancestors, as long as the aggregate amount of all such
Transfers contemplated by this clause (x) by such Current Shareholder
does not exceed 20% of the Shares held by such Shareholder on the date
hereof (after giving effect to the Company's repurchase of 30,000
shares of Common Stock from A. Cohen and 20,833 shares of Common Stock
from M. Cohen in accordance with those certain Stock Repurchase
Agreements dated as of September 30, 1997, between the Company, on one
hand, and each of A. Cohen and M. Cohen, on the other hand, and as
adjusted for any stock splits, stock dividends or other
recapitalizations), or
(y) to the other Current Shareholder in accordance with a
written agreement to be entered between them governing the purchase
and sale of his Shares upon death, or
(z) in a public offering registered under the Securities Act of
1933, as amended (the "Act"); and
(ii) each Current Shareholder may Transfer any or all of his Shares by
will or the laws of descent and distribution (each of the Transfers
contemplated in this clause (ii) and in clause (i) above is hereinafter
sometimes referred to as a "Permitted Transfer" and each such transferee as
a "Permitted Transferee.");
provided, however, that any such transferee under clause (i) or (ii) of this
- -------- -------
Section 2(c) (other than a transferee in a public offering as contemplated
above) shall, if it has not already done so, agree in writing with the other
Shareholders, as a condition to such transfer, to be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Current Shareholder Transferring such Shares.
2
<PAGE>
(d) Except as otherwise expressly provided herein, neither Investor may
Transfer any of its Shares to any "competitor" (as hereafter defined) of the
Company without first obtaining the written consent of the Current Shareholders.
The term "competitor" shall mean (x) each of Systems & Networks (otherwise known
as the "Alta Group"), SES, CACI, Make Systems, Networks Analysis Center, Network
General, Cadence, Mentor Graphics, Bay Networks, Optimal Networks, Netsys
Technologies, Cisco, Netstuite, ImageNet, Ltd., GRC International (GRCI), Inc.,
TeleniX Corporation, Network Tools and NetFusion and (y) any other person,
entity, division or project that is or intends to be engaged in investigating,
developing, marketing, selling, investing in or otherwise commercially
exploiting any product or services substantially similar to any product or
service that the Company or any of its affiliates is or intends to be engaged in
investigating, developing, marketing, selling, investing in or otherwise
commercially exploiting. No person shall be deemed to be a competitor of the
Company solely by virtue of the fact that such person owns one percent (1%) or
less of the outstanding shares of another person whose securities are publicly
traded and who is a competitor of the Company, provided that the owner of such
--------
shares is not an affiliate of such competitor.
(i) Prior to any proposed Transfer, the subject Investor shall
provide notice to the Current Shareholders and the Company of the number of
Shares proposed to be transferred and the name of, and reasonably
sufficient information concerning, the proposed transferee (including,
without limitation, information concerning the lines of business of such
proposed transferee and a signed, written representation from the
transferee that it is not a competitor (as defined above) of the Company)
so as to enable the Board of Directors of the Company to determine whether
or not such proposed transferee is a competitor of the Company.
(ii) The Board shall, within 10 days after receipt of all of such
information, advise the Investor of its determination as to whether or not
such proposed transferee is a competitor of the Company.
(iii) Following the expiration of the 10 day period referred to in
clause (ii) above, the subject Investor may transfer any of its Shares to
the proposed transferee unless the Board has advised the Investor within
such 10 day period (x) of the Board's determination that the proposed
transferee is a competitor of the Company or (y) that the Investor has
failed to provide the Board with sufficient information to make such
determination.
(iv) Notwithstanding anything to the contrary herein, the Investors
may not transfer any Shares to any person identified in clause (x) of the
second sentence of Section 2(d) unless (1) the Board affirmatively consents
thereto in writing or (2) either of the Current Shareholders has or is then
transferring any of his Shares to such identified person.
(v) If the Investor provides notice to the Company, (1) within five
days of the Investor's receipt of the Board's determination, that the
Investor disagrees with the determination that the proposed transferee is a
competitor of the Company, or (2) within five days of the Investor's second
submission to the Board of information concerning the proposed transferee,
that the Investor believes it has furnished reasonably sufficient
information to the Board concerning the proposed transferee, then the
Investor and a representative of the Board
3
<PAGE>
shall meet within five days of such notice to seek to resolve such
disagreement. If such disagreement cannot be resolved within five days of
such meeting, then it shall, upon election by the Investor or the Board, be
submitted to arbitration in accordance with the following procedures.
(x) Either the Investor or the representative of the Board may
by written notice (the "Arbitration Notice") to the other, refer such
disagreement for final settlement by arbitration in accordance with the
commercial arbitration rules (the "Rules") then in force of the American
Arbitration Association (the "AAA"), as modified by the procedures set
forth herein. The arbitration shall be held in the Washington, D.C.
metropolitan area.
(y) The arbitration shall be conducted by three arbitrators.
Each of the representative of the Board and the Investor shall appoint one
arbitrator, and each appointing party shall notify the other appointing
party of the name of its appointee within five days of the date of the
Arbitration Notice. The two arbitrators so appointed shall together,
within five days after the date on which the first two arbitrators were
required to be appointed, appoint the third, presiding arbitrator. If an
arbitrator must be replaced for any reason, the party that appointed such
arbitrator shall appoint a substitute arbitrator within 10 days of the date
upon which such replacement became necessary. If such appointing party
fails to appoint any arbitrator (whether the original or replacement
arbitrator, as the case may be) within the time limits provided hereunder,
such arbitrator(s) shall, upon the written request of the other party to
the arbitration that has made its appointment, be appointed by the
presiding arbitrator.
(z) The arbitral panel shall determine a date on which it shall
commence taking evidence, which date shall be not less than 10 days after
the panel has been appointed. The arbitral panel shall by a majority, in
its absolute discretion, determine the course of action to be followed and
its decision shall be issued in writing within 10 days after the conclusion
of the relevant proceedings. Any award of the arbitral panel shall be
final and binding, and judgment upon any arbitral award may be entered and
enforced by any court or judicial authority of competent jurisdiction.
(vi) Any transferee of Shares from an Investor as contemplated by
this Section 2(d) shall, if it has not already done so, agree in writing
with the other Shareholders, as a condition to such transfer, to be bound
by this provisions of this Section 2(d).
(vii) The restrictions in this Section 2(d) shall not limit or
interfere with the right of the Investors to transfer Shares:
(x) in accordance with Section 4 to a Proposed Purchaser (as
defined in Section 4); or
(y) to any other person to whom a Current Shareholder has or is
then transferring Shares, whether directly or in connection with any
merger or other business combination transaction involving the
Company.
4
<PAGE>
(e) All certificates evidencing the Shares shall have the following
legend, in addition to any legend required by the Purchase Agreement:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND ARE
TRANSFERRABLE ONLY UPON COMPLIANCE WITH THAT CERTAIN SHAREHOLDERS
AGREEMENT DATED AS OF SEPTEMBER 30, 1997, A COPY OF WHICH IS ON FILE
WITH THE CORPORATE SECRETARY OF MIL 3, INCORPORATED. THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH AGREEMENT."
A copy of this Agreement shall be delivered to the corporate secretary of
the Company, and shall be shown to any person identified by a Shareholder in
writing to the corporate secretary.
3. Right of First Offer on Transfer by Current Shareholder.
-------------------------------------------------------
(a) Except for Permitted Transfers, a Current Shareholder may only
Transfer his Shares after satisfaction of each of the following conditions.
(b) If a Current Shareholder desires to Transfer any of his Shares in any
transaction that does not constitute a Permitted Transfer, such Shareholder (the
"Offering Shareholder") shall first provide written notice (the "Offer Notice")
to each Investor of the number of Shares that he proposes to Transfer (the
"Offered Shares"), the floor cash purchase price therefor (the "Floor Price")
and the other terms of the proposed sale. The Offer Notice shall constitute a
conditional irrevocable offer to sell a pro rata portion (as hereinafter
--- ----
determined) of the Offered Shares to each Investor in accordance with this
Section 3 at the Floor Price. An Investor's pro rata portion of the Offered
--- ----
Shares shall be equal to the product of (i) the number of Offered Shares, times
(ii) a fraction, (x) the numerator of which is the number of Shares then owned
by such Investor and (y) the denominator of which is the total number of Shares
then owned by both Investors.
(c) Each Investor shall have 30 days from the date of delivery of the
Offer Notice (the "Offer Period") to deliver a written notice to the Offering
Shareholder accepting such offer on the terms specified therein; failure to
deliver such written acceptance within the Offer Period shall be deemed a
rejection of the Offer Notice. If an Investor accepts such offer, it shall,
within 60 days thereafter, purchase the Offered Shares in accordance with the
terms specified in the Offer Notice. In the event that an Investor fails to
purchase the Offered Shares in accordance with the preceding sentence, the
Offering Shareholder shall thereafter have the right to offer and sell such
Offered Shares on the terms and conditions specified in the Offer Notice without
first having to comply with the procedures specified in this Section 3.
(d) If an Investor does not accept the offer to purchase its pro rata
--- ----
portion of the Offered Shares, the Offering Shareholder shall then have 60 days
from the date of the expiration of the Offer Period to offer such Shares to
another transferee at a price equal to or exceeding the Floor Price and to
conclude said transaction. If the Offering Shareholder has not concluded said
transaction at the
5
<PAGE>
termination of such 60-day period, then the Offering Shareholder shall, in
connection with any other Transfer (except a Permitted Transfer) again have to
comply with the provisions of this Section 3.
(e) The rights granted to the Investors in this Section 3 are not
transferable or assignable to any person.
4. Right of Participation in Certain Sales.
---------------------------------------
(a) Provided that the Investors together own at least 48,214 shares of
Series A Preferred Stock (as adjusted for stock splits, stock dividends and
other recapitalizations), if at any time either Current Shareholder who,
together with such Current Shareholder=s spouse, lineal descendants and
ancestors, and any trust for the benefit of such Current Shareholder, his
spouse, lineal descendants or ancestors, then holds more than 10% of the sum of
all of the issued and outstanding Shares of Common Stock and of the number of
shares of Common Stock issuable upon conversion of all outstanding shares of
Series A Preferred Stock proposes to sell, dispose of or otherwise transfer for
cash, in a single transaction or a series of related bona fide transactions
---- ----
(other than a Permitted Transfer) with any person, any shares of Common Stock
which, together with all other transfers, sales and dispositions by such Current
Shareholder to persons in transactions other than Permitted Transfers, exceed
37,000 shares of Common Stock in the case of A. Cohen, or 22,916 shares of
Common Stock in the case of M. Cohen, in each case as adjusted for stock splits,
stock dividends or other recapitalizations (each such Current Shareholder, to
the extent such sale, transfer or disposition exceeds such applicable amount, is
herein referred to as a "Disposing Shareholder"), the Disposing Shareholder
shall, unless the Investors have purchased all of such Shares in accordance with
Section 3, refrain from effecting such transaction unless, prior to the
consummation thereof, the Investors shall have been afforded the opportunity to
join in such sale, disposition or transfer on a pro rata basis, as hereinafter
--- ----
provided.
(b) Prior to the consummation of any transaction subject to this Section 4
with respect to a particular number of the Shares then owned by the Disposing
Shareholder (the "Disposition Amount"), the Disposing Shareholder shall cause
the person who proposes to acquire such Shares (the "Proposed Purchaser") to
offer (the "Purchase Offer") in writing to each Investor to purchase shares of
Common Stock that would be owned by such Investor upon conversion of such
Investor's Series A Preferred Stock, such that the aggregate number of shares of
Common Stock to be so purchased from each Investor shall be not less than the
number equal to the product of (i) the Disposition Amount multiplied by (ii) a
fraction, (x) the numerator of which is the total number of shares of Common
Stock issuable to such Investor upon conversion of all of the Series A Preferred
Stock then owned by such Investor and (y) the denominator of which is the sum of
(1) the total number of shares of Common Stock issuable to both Investors upon
conversion of all of the Series A Preferred Stock then owned by both Investors
plus (2) the total number of shares of Common Stock then owned by the Disposing
Shareholder. Such purchase shall be made at the highest price per share and on
such other terms and conditions as the Proposed Purchaser has offered to
purchase shares of Common Stock from the Disposing Shareholder, and the
aggregate number of shares of Common Stock purchased by the Proposed Purchaser
from the Disposing Shareholder and the Investor(s) shall equal the Disposition
Amount.
6
<PAGE>
(c) Each Investor shall have 20 days from the receipt of the Purchase
Offer in which to provide written notice that it accepts such Purchase Offer;
failure to deliver such written acceptance within such period shall be deemed a
rejection of such Purchase Offer. If the Purchase Offer is accepted in
accordance with the foregoing, the closing of such purchase shall occur within
15 days after such acceptance or at such other time as such Investor, the
Disposing Shareholder and the Proposed Purchaser may agree. Each Investor that
desires to participate in such sale as contemplated herein shall, on or prior to
closing of such sale, convert into Common Stock that number of shares of its
Series A Preferred Stock as shall equal the number of shares of Common Stock to
be sold by it at such closing to the Proposed Purchaser.
(d) In the event that a sale, disposition or other transfer subject to
this Section 4 is to be made to a Proposed Purchaser who is not a Permitted
Transferee, the Disposing Shareholder shall notify the Proposed Purchaser that
the sale, disposition or other transfer is subject to this Section 4 and shall
ensure that no sale, disposition or other transfer by the Disposing Shareholder
is consummated without the Proposed Purchaser first complying with this Section
4.
(e) The rights granted to the Investors in this Section 4 are not
transferable or assignable to any person.
5. Election of Directors and Compensation Committee.
------------------------------------------------
(a) At each annual meeting of the shareholders of the Company, and at each
special meeting of the shareholders of the Company called for the purpose of
electing directors of the Company, and at any time at which shareholders of the
Company shall have the right to, or shall, vote for election of directors of the
Company, then, and in each event, the Shareholders shall vote all Shares owned
by them for the election of a Board of Directors consisting of not more than
seven directors, two of which directors shall be designated as follows:
(i) one director shall be designated jointly by the Investors (which
designee shall initially be Bruce R. Evans and whose successor, if any,
shall either be (x) a general partner or officer of any entity which
controls either of the Investors or (y) a person of good business
reputation experienced in telecommunications, networking or software; and
(ii) one independent director, who shall not be an employee of the
Company or affiliated with any Shareholder, shall be designated jointly by
the Investors and the Current Shareholders.
(b) The Company shall pay all direct travel expenses incurred by any
director in connection with the attendance of Board functions.
(c) The Shareholders shall vote their shares so as to cause to be formed
two Compensation Committees of the Board of Directors (each a "Compensation
Committee") comprised of three directors. One Compensation Committee shall
determine the compensation for A. Cohen and shall be comprised of M. Cohen and
the two directors designated in accordance with Section 5(a)(i) and (ii); the
other Compensation Committee shall determine the compensation for M. Cohen and
shall be
7
<PAGE>
comprised of A. Cohen and the two directors designated in accordance with
Section 5(a)(i) and (ii). The overall compensation packages (including salary,
bonus, equity participation and benefits) for each of A. Cohen and M. Cohen
shall be established by the Compensation Committees at a minimum level not less
than each of their compensation levels as of the date of this Agreement as set
forth on Schedule A attached hereto. The Compensation Committee shall, by
----------
majority vote of its members, not less frequently than annually, determine what
level of compensation for each of A. Cohen and M. Cohen in excess of that
specified on Schedule A is appropriate.
-------- -
(d) The Shareholders shall use their best efforts to appoint the
independent director referred to in Section 5(a)(ii) as soon as practicable
following the Closing.
(e) The provisions of Section 5(a), (b), (c) and (d) shall apply only so
long as the Investors (not including any transferee or assignee of either
Investor) together hold at least 48,214 shares of Series A Preferred Stock, as
adjusted for stock splits, stock dividends and other recapitalizations.
(f) The Shareholders agree, as long as the Investors together hold at
least 7,230 shares of Series A Preferred Stock (as adjusted for stock splits,
stock dividends and other recapitalizations), and provided that the Current
Shareholders and their affiliates own more than 50% of the sum of the number of
shares of Common Stock outstanding plus the number of shares of Common Stock
issuable upon conversion of the then outstanding shares of Series A Preferred
Stock, to provide the Investors with at least one (1) days= advance notice of
any action taken by the Current Shareholders by written consent in reliance upon
Section 228 of the Delaware General Corporation Law.
6. Term. This Agreement shall terminate immediately prior to the
----
effective date of the first registration statement on Form S-1 filed by the
Company under the Act. In addition, the provisions of Section 2(a), (b) and (c)
(but not Section 2(d)), and of Section 3, shall terminate (if not already
terminated) on the first date on which the Investors together hold less than
7,230 shares of Series A Preferred Stock (as adjusted for stock dividends, stock
splits and other recapitalizations).
7. Miscellaneous.
-------------
(a) Amendments and Waivers. Amendments or additions to this Agreement may
----------------------
be made, and compliance with any term, covenant, agreement, condition or
provision set forth herein may be omitted or waived (either generally or in a
particular instance and either retroactively or prospectively) upon the written
consent of each of the parties.
(b) Notices. All notices, requests, consents, reports and demands shall be
-------
in writing and shall be hand delivered, or mailed, postage prepaid, to the
Company, the Current Shareholders and to the Investors at the addresses set
forth below, or to such other address as may be furnished in writing by a party
to the other parties hereto:
If to the Company and/or the Current Shareholders:
MIL 3, Incorporated
3400 International Drive, N.W.
8
<PAGE>
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman of
the Board of and Chief Executive
Officer
with copy to:
Verner, Liipfert, Bernhard, McPherson
& Hand, Chartered
Suite 700
901 15th Street, N.W.
Washington, D.C. 20005
Attn: Harold I. Freilich, Esquire
If to the Investors:
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, MA 02210
Attn: Bruce R. Evans
with copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Attn: James Westra, Esquire
Notices given in accordance with the foregoing shall be deemed received (i)
upon receipt, if hand delivered, and (ii) five business days after deposited in
the U.S. mail, if sent by mail.
(c) Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the matters contemplated herein. This Agreement
supersedes any and all prior understandings as to the subject matter of this
Agreement.
(d) Equitable Relief. Each of the parties recognizes that the other
----------------
parties shall not have an adequate remedy at law if any party fails to comply
with the provisions of this Agreement, and that damages will not be readily
ascertainable, and each party expressly agrees that in the event of any failure
by it to comply with this Agreement, the other parties shall be entitled to seek
specific performance of its obligations hereunder and that it will not oppose an
application seeking such specific performance.
9
<PAGE>
(e) Binding Effect; Assignment. This Agreement shall be binding upon and,
--------------------------
except as specified herein, inure to the benefit of the successors and assigns
of the respective parties hereto, provided, however, that each such successor
-------- -------
and assign first executes and delivers to the other parties hereto a counterpart
of this Agreement.
(f) General; Definitions. The Section headings contained in this Agreement
--------------------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. Reference to the term "Section" herein is to a
Section of this Agreement. In this Agreement the singular includes the plural,
the plural the singular, and the use of any gender includes the neuter,
masculine and feminine genders.
(g) Severability. If any provision of this Agreement shall be found by any
------------
court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, with all the other provisions hereof
continuing in full force and effect.
(h) Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall constitute an original but all of which together shall
constitute one and the same instrument.
(i) Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of New York and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
(j) Third Party Beneficiaries. This Agreement is made for the benefit of
-------------------------
the parties hereto and shall not confer any rights or benefits on any person not
a party hereto.
[Signatures on following page]
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Shareholders' Agreement to
be duly executed as of the date first above written.
/s/ Marc A. Cohen
------------------------------
Marc A. Cohen
/s/ Alain J. Cohen
------------------------------
Alain J. Cohen
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its: General Partner
By: Stamps, Woodsum & Co. IV
Its: General Partner
By: /s/ Bruce R. Evans
--------------------
Its:
SUMMIT INVESTORS III, L.P.
By: /s/ Bruce R. Evans
-------------------------
Its: General Partner
The undersigned hereby joins in the foregoing Agreement for purposes of
agreeing to comply with Sections 2(d), 5(b) and 7.
MIL 3, Incorporated
By: /s/ Marc A. Cohen
-----------------------
Its: Chairman
<PAGE>
SCHEDULE A
Minimum Compensation Level
--------------------------
Alain J. Cohen: $270,000 per annum (salary and bonus) plus life, health and
disability insurance.
Marc A. Cohen: $270,000 per annum (salary and bonus) plus life, health and
disability insurance.
<PAGE>
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT (the "Agreement") made as of September 30,
1997, by and among MIL 3, INCORPORATED (the "Company"), a Delaware corporation;
SUMMIT VENTURES IV, L.P. ("Summit Ventures"), a Delaware limited partnership;
SUMMIT INVESTORS III, L.P. ("Summit Investors"), a Delaware limited partnership;
ALAIN J. COHEN ("A. Cohen"), an individual residing in Washington, D.C.; and
MARC A. COHEN ("M. Cohen"), an individual residing in Washington, D.C. (Summit
Investors and Summit Ventures are each sometimes referred to herein as an
"Investor" and collectively as the "Investors.")
WITNESSETH:
WHEREAS, the Company and the Investors entered into a Series A Preferred
Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of September
30, 1997 in accordance with which the Investors have acquired a total of 144,640
shares of the Company's Series A Convertible Preferred Stock, par value $.001
per share (the "Series A Preferred Stock"), and
WHEREAS, the Company desires to grant to each of the Investors, A. Cohen
and M. Cohen certain rights with respect to the registration under the
Securities Act of 1933, as amended (the "Act") of certain shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), they may
hold.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound hereby, agree as
follows:
Section 1. Certain Definitions. Terms used herein with initial capital
-------------------
letters but not defined herein shall have the meanings set forth in the Stock
Purchase Agreement. In addition, as used in this Agreement, the following terms
shall have the following respective meanings:
"Act" has the meaning set forth in the recitals to this Agreement.
"Affiliate" means when used with respect to a specified person, a
person who directly or indirectly, through one or more intermediaries, controls,
is controlled by or is under common control with such specified person. The
term "control" (including the terms "controlling" and "controlled") means the
power to direct or to cause the direction of the management and policies of a
person, whether by virtue of stock ownership, by contract or otherwise.
1
<PAGE>
"Applicable Conversion Value" has the meaning set forth in the
Certificate of Incorporation.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation dated September 29, 1997, filed by the Company with
the Secretary of State of the State of Delaware to, among other things,
authorize and fix the terms, privileges and preferences of the Series A
Preferred Stock.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Common Stock" has the meaning set forth in the recitals to this
Agreement.
"Conversion Shares" means shares of Common Stock issuable or issued
upon conversion of the Series A Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means the person who is then the record owner of Registrable
Securities or Other Registrable Securities.
"Initiating Holder" has the meaning set forth in Section 2(a).
"Management Holder" means each of A. Cohen or M. Cohen and his
respective successors or assignees who is a Holder of Other Registrable
Securities.
"Other Registrable Securities" means (i) shares of Common Stock held
by and at the time issuable to the Management Holders and (ii) all shares of
Common Stock issued in respect of the shares described in clause (i) upon any
stock split, stock dividend, recapitalization or other similar event. As to any
particular Other Registrable Securities, once issued such securities shall cease
to be Other Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the Act
and such securities shall have been disposed of, or (b) such securities shall
have been distributed to the public pursuant to Rule 144 (or any successor rule)
under the Act or pursuant to Section 4(1) (or any successor provision) of the
Act.
"Qualified Public Offering" means the closing of a public offering by
the Company pursuant to a registration statement filed and declared effective
under the Act covering the offer and sale of Common Stock in which the aggregate
gross proceeds are over $20 million and in which the price per share equals or
exceeds three times the then Applicable Conversion Value of the Series A
Preferred Stock determined in accordance with the Certificate of Incorporation.
2
<PAGE>
"Register," "registered" and "registration" means a registration
effected by preparing and filing a registration statement in compliance with the
Act and applicable rules and regulations thereunder, and the declaration or
ordering by the Commission of the effectiveness of such registration statement.
"Registrable Securities" means: (i) all of the Conversion Shares held
by and at the time issuable to the Investors, (ii) all other shares of Common
Stock hereafter acquired by either Investor pursuant to the purchase rights
granted by the Shareholders Agreement; and (iii) all shares of Common Stock
issued in respect of the shares described in clauses (i) or (ii) upon any stock
split, stock dividend, recapitalization or other similar event. As to any
particular Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have been filed and declared effective under the
Act and such securities shall have been disposed of, or (b) such securities
shall have been distributed to the public pursuant to Rule 144 (or any successor
rule) under the Act or pursuant to Section 4(1) (or any successor provision) of
the Act.
"Registration Expenses" means all expenses incurred by the Company in
accordance with Sections 2 or 3 hereof, including, without limitation, all
registration and filing fees, printing expenses, transfer taxes, fees and
disbursements of counsel for the Company, "Blue-sky" fees and expenses, the
expense of any special audits incident to or required by any such registration,
and reasonable fees and disbursements of one common counsel for each group of
all Selling Shareholders comprised of (i) the Investors (or their respective
successors or assignees) or (ii) the Management Holders (or their respective
successors or assignees).
"Restricted Securities" has the meaning set forth in Rule 144 under
the Act.
"Selling Expenses" means all (i) underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and Other
Registrable Securities and (ii) fees of counsel (other than one common counsel
for each group of Selling Shareholders comprised of (a) the Investors (or their
respective successors or assignees) or (b) the Management Holders (or their
respective successors or assignees)).
"Selling Shareholder" means each person selling Common Stock in
accordance with the registration rights contemplated by this Agreement.
"Series A Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Stock Purchase Agreement" has the meaning set forth in the recitals
to this Agreement.
"Underwriter" means the representative of the underwriter(s) selected
to underwrite an offering of securities in accordance with this Agreement.
3
<PAGE>
Section 2. Demand Registration.
-------------------
(a) If on any two occasions after the date of the Company's first
Qualified Public Offering, the Company shall receive from any of (x) the
Investors, (y) A. Cohen or (z) M. Cohen a written request (in any such
case, the Holder(s) providing such request is hereinafter sometimes
referred to as an "Initiating Holder(s)") that the Company effect the
registration of Registrable Securities or Other Registrable Securities, as
the case may be, representing at least twenty-five percent (25%) of the
Registrable Securities or Other Registrable Securities, as the case may be,
then held by and issuable to (1) the Investors (or their successors or
assignees) if the Initiating Holder is an Investor (or a successor or
assignee of an Investor), (2) A. Cohen (or his successors or assignees) if
the Initiating Holder is A. Cohen (or his successors or assignees), or (3)
M. Cohen (or his successors or assignees) if the Initiating Holder is M.
Cohen (or his successors or assignees) (or any lesser percentage if the
reasonably anticipated aggregate price to the public of the Registrable
Securities or Other Registrable Securities, as applicable, to be included
in such registration by such Holder would exceed $5,000,000) in connection
with a firm commitment underwriting by a nationally recognized Underwriter
selected by such Initiating Holder(s) and reasonably acceptable to the
Company, the Company shall:
(i) promptly (and in no event less than 30 days before the
anticipated filing date of such registration statement) give written
notice of the proposed registration to all other Holders; and
(ii) as soon as practicable, use all of its commercially
reasonable best efforts to effect such registration as may be so
requested and as would permit or facilitate the sale and distribution
of such portion of such Registrable Securities or Other Registrable
Securities, as applicable, as are specified in such request, together
with such portion of the Registrable Securities and Other Registrable
Securities of Holders joining in such request as are specified in a
written request by such Holder(s) given within 30 days after receipt
of such written notice from the Company.
(b) The right of any Holder to registration pursuant to this Section
2 shall be conditioned upon such Holder's participation, and the inclusion
of such Holder's Registrable Securities or Other Registrable Securities, in
the underwriting (unless otherwise mutually agreed by such Holder, the
Underwriter and a majority in interest of the Initiating Holder(s) to the
extent provided herein. A Holder may elect to include in such underwriting
all or a part of the Registrable Securities or Other Registrable Securities
it holds.
(c) The Company shall, together with all Holders of Registrable
Securities and of Other Registrable Securities proposing to distribute
their securities through such
4
<PAGE>
underwriting, enter into an underwriting agreement in customary form with
the Underwriter.
(d) Notwithstanding any other provision of this Section 2, if the
Underwriter advises the Initiating Holder(s) in writing that the inclusion
in the subject registration statement of Registrable Securities or Other
Registrable Securities held by Holders other than Initiating Holder(s)
would limit the number of Registrable Securities or Other Registrable
Securities sought to be included by the Initiating Holder(s) or reduce the
offering price thereof, then the Registrable Securities and Other
Registrable Securities held by Holders other than Initiating Holder(s)
shall be excluded from such registration to the extent so required by such
limitation (such exclusion to be in the order of priority specified in
Section 3(d). No Registrable Securities or Other Registrable Securities so
excluded from the underwriting by reason of the Underwriter's above
marketing limitation shall be included in such registration. If any Holder
of Registrable Securities or Other Registrable Securities disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom
by written notice to the Company, the Underwriter and the Initiating
Holder(s) The securities so withdrawn shall also be withdrawn from
registration. If the Underwriter has not limited the number of Registrable
Securities and Other Registrable Securities to be underwritten, the Company
may include its securities for its own account in such registration if the
Underwriter so agrees and if the number of Registrable Securities and Other
Registrable Securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(e) No registration initiated by any of the Initiating Holders
hereunder shall count as a registration under this Section 2 unless and
until the Company has incurred expenses equal to at least $20,000 related
to the preparation of such registration.
(f) The Company shall not be required to effect any registration
under this Section 2 if (i) the Company is, at the time at which it
receives any such request by an Initiating Holder, conducting or, has
before receipt of such request, notified the Holders that it had planned,
within 60 days of receipt by the Company of such request, to conduct an
offering of its securities and the Company reasonably believes that such
offering would be adversely affected by the requested registration, (ii)
such request is received by the Company within six months after the
effective date of the registration statement relating to the Company's
first Qualified Public Offering, (iii) such request is received by the
Company within three months after the effective date of any other
registration statement relating to the Company's securities, (iv) the
filing of the registration statement would require the Company to furnish
audited financial statements customarily prepared at the end of its fiscal
year other than in respect of such fiscal year, or (v) the filing of the
registration statement would require the Company to furnish unaudited
financial statements customarily prepared at the end of its fiscal quarters
other than in respect of its regularly reported interim quarterly periods.
5
<PAGE>
Section 3. "Piggy-Back" Registrations.
-------------------------
(a) If, at any time after the date of the Company's first Qualified
Public Offering, the Company shall determine to register any of its
securities, either for its own account or for the account of a security
holder or holders (including an Initiating Holder) exercising its
registration rights, other than a registration relating solely to employee
benefit plans, or a registration on any registration form which does not
permit secondary sales, or a registration relating solely to a Commission
Rule 145 transaction, or a registration that does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of Registrable Securities or Other Registrable
Securities, the Company will:
(i) promptly (and in no event less than 30 days before the
anticipated filing date of such registration statement) give to each
Holder of Registrable Securities and Other Registrable Securities
written notice thereof, which shall include the number of shares the
Company or other security holder proposes to register and, if known,
the name of Underwriter selected by the Company (if the registration
is for the account of the Company) or by such other person initiating
such registration and reasonably acceptable to the Company; and
(ii) use all of its commercially reasonable best efforts to
include in such registration all the Registrable Securities and Other
Registrable Securities specified in a written request or requests made
by any Holder within 30 days after the date of delivery of the written
notice from the Company described in clause i) above.
(b) The right of any Holder to registration pursuant to this Section
3 shall be conditioned upon such Holder's participation, and the inclusion
of such Holder's Registrable Securities or Other Registrable Securities, in
the underwriting (unless otherwise agreed by the Company, a majority in
interest of the person(s) initiating such registration, and the
Underwriter).
(c) All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and any other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the Underwriter. The Company
shall use all of its commercially reasonable best efforts to cause the
Underwriter of such proposed underwritten offering to permit the
Registrable Securities and Other Registrable Securities requested to be
included in the registration statement for such offering to be included on
the same terms and conditions as any similar securities of the Company
included therein.
(d) Notwithstanding any other provision of this Section 3, if the
Underwriter advises the Company that the inclusion of Registrable
Securities and/or Other Registrable Securities in the subject registration
statement would limit the number of securities
6
<PAGE>
originally determined to be included therein or would reduce the offering
price thereof, then the Underwriter may require a limitation on the number
of shares offered pursuant to such registration statement, as follows:
(i) Any securities of the Company held by officers and
directors of the Company (other than Registrable Securities or Other
Registrable Securities) shall be excluded from such registration and
underwriting to the extent required by such limitation: and
(ii) if a limitation on the number of shares is still
required, then:
(a) if the registration is for the account of the
Company, Registrable Securities and Other Registrable Securities
shall be excluded from such registration and underwriting to the
extent required by such limitation, in proportion, as nearly as
practicable, to the respective amount of Registrable Securities
and Other Registrable Securities which had been requested to be
included in such registration, prior to limiting the inclusion of
the securities of the Company for the account of the Company; and
(b) if the registration is at the request of an
Initiating Holder(s) of Registrable Securities and does not
include shares to be sold by the Company (except pursuant to the
last sentence of this Section 3), Registrable Securities and
Other Registrable Securities of each other Holder shall be
excluded to the extent required by such limitation, in
proportion, as nearly as practicable, to the amount of
Registrable Securities and Other Registrable Securities which had
been requested to be included in such registration in accordance
with this Section 3; and
(c) if the registration is at the request of an
Initiating Holder(s) of Other Registrable Securities and does not
include shares to be sold by the Company (except pursuant to the
last sentence of this Section 3), Registrable Securities and
Other Registrable Securities of each other Holder shall be
excluded to the extent required by such limitation, in
proportion, as nearly as practicable, to the amount of
Registrable Securities and Other Registrable Securities which had
been requested to be included in such registration in accordance
with this Section 3.
(e) If any Holder of Registrable Securities, Other Registrable
Securities or any officer or director disapproves of the terms of any such
underwriting, such person may, prior to effectiveness of the registration,
elect to withdraw therefrom by written notice to the Company and the
Underwriter. Any securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
7
<PAGE>
(f) If the registration is for the account of a person other than the
Company and the Underwriter has not limited the number of Registrable
Securities and Other Registrable Securities requested to be registered
under this Section 3, the Company may include its securities for its own
account in such registration if the Underwriter so agrees and if the number
of Registrable Securities and Other Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
Section 4. Market Stand-Off Agreement.
--------------------------
(a) To the extent not inconsistent with applicable law, each Holder
(and each officer and director of the Company, if any) whose securities are
included in a registration statement in accordance with this Agreement,
agrees not to effect any public sale or distribution of the issue being
registered or a similar security of the Company, including a sale pursuant
to Rule 144 under the Act, during the 60 day period beginning on the
effective date of such registration statement (except as part of such
registration), if and to the extent requested by the Company in the case of
the non-underwritten public offering or if and to the extent requested by
the Underwriter in the case of an underwritten public offering.
(b) The Company agrees, if requested by the Underwriter for an
offering of Registrable Securities or Other Registrable Securities (or
other securities of the Company), (i) not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the 120 day
period beginning on the effective date of such registration statement,
except as part of such underwritten offering and except pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms thereto,
and (ii) to use all of its commercially reasonable best efforts to cause
each holder (other than a Holder) of its equity securities or any
securities convertible into or exchangeable or exercisable for any of such
securities to agree not to effect any such public sale or distribution of
such securities during such periods.
(c) Each Holder agrees that any market stand-off period required by
the Underwriter of any offering in which such Holder is participating shall
supersede this Section 4.
Section 5. Expenses of Registration. All Registration Expenses incurred
------------------------
in connection with any registration, qualification or compliance pursuant to
Sections 2 or 3 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the holders of the securities registered, pro rata on the basis of the
--- ----
number of their shares so registered.
8
<PAGE>
Section 6. Registration on Form S-3. From and after the date of the first
------------------------
effective registration statement on Form S-1 filed by the Company, the Company
shall use all of its commercially reasonable best efforts to qualify for
registration on Form S-3 or any comparable or successor form; and to that end
the Company shall register (whether or not required by law to do so) the Common
Stock as a class under the Exchange Act following the effective date of the
first registration of any securities of the Company on Form S-1 or any
comparable or successor form.
Section 7. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Agreement, the Company will keep each
Holder of Registrable Securities or Other Registrable Securities included in
such registration advised in writing as to the initiation of such registration
and as to the completion thereof. At its expense, the Company will do the
following for the benefit of such Holders:
(a) keep such registration effective for a period of 120 days or
until the Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) use all of its commercially reasonable best efforts to register
or qualify the Registrable Securities or Other Registrable Securities
covered by such registration under the applicable securities or "Blue-sky"
laws of such jurisdictions as the Selling Shareholders may reasonably
request; provided, however, that the Company shall not be obligated to
-------- -------
qualify to do business in any jurisdiction where it is not then so
qualified or otherwise required to be so qualified or to take any action
which would subject it to the service of process in suits other than those
arising out of such registration;
(c) furnish such number of prospectuses and other documents incident
thereto as any such Holder from time to time may reasonably request;
(d) in connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, enter into any
underwriting agreement reasonably necessary to effect the offer and sale of
Common Stock, provided, however, that such underwriting agreement contains
-------- -------
customary underwriting provisions and is entered into by the Holders whose
securities are included therein and provided further, however, that if the
-------- ------- -------
Underwriter so requests, the underwriting agreement will contain customary
contribution provisions on the part of the Company;
(e) to the extent then permitted under applicable professional
guidelines and standards, obtain a comfort letter from the Company's
independent public accountants in customary form and covering such matters
of the type customarily covered by comfort letters and an opinion from the
Company's counsel in customary form and covering such
9
<PAGE>
matters of the type customarily covered in a public issuance of securities,
in each case addressed to the Holders whose securities are included in the
subject registration statement, and provide copies thereof to such Holders;
and
(f) permit counsel to the Selling Shareholders whose expenses are
being paid pursuant to this Agreement to inspect and copy such of the
Company's corporate documents as he may reasonably request.
Section 8. Indemnification.
---------------
(a) The Company will, and hereby does, indemnify each Holder of
Registrable Securities and/or Other Registrable Securities, each of its
officers, directors and partners, and each person controlling such Holder
within the meaning of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
and each underwriter, if any, and each person who controls such underwriter
within the meaning of the Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Act or the Exchange Act or the
securities act of any state or any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company
in connection with any such registration, qualification or compliance, and
will reimburse each such Holder, each of its officers, directors and
partners, and each person controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, whether or not
resulting in any liability, provided, however, that the Company will not be
-------- -------
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement (or
alleged untrue statement) or omission (or alleged omission) based upon
written information furnished to the Company by such Holder or underwriter
and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities or Other Registrable
Securities held by him are included in such registration, qualification or
compliance, indemnify the Company, each of its directors and officers and
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of the Act and the rules and regulations
thereunder, each other person whose securities are included in such
registration and each of their officers, directors and partners, and each
person controlling such other person, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out
10
<PAGE>
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse the
Company, each such other person and such other person's directors,
officers, partners, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, whether or not
resulting in liability, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder and stated to
be specifically for use therein, provided, however, the liability of each
-------- -------
Holder shall not exceed the lesser of (A) that proportion of the total of
such losses, claims, damages or liabilities indemnified against equal to
the proportion of the total number of Registrable Securities or Other
Registrable Securities , as applicable, sold by such Holder through such
registration, to the total number of the Company's securities included in
such registration, or (B) the aggregate proceeds (net of discounts)
received by such Holder upon the sale of the Registrable Securities or
Other Registrable Securities as applicable.
(c) Each person entitled to indemnification under this Section 8 (the
"Indemnified Person") shall give notice to the person required to provide
indemnification (the "Indemnifying Person") promptly after such Indemnified
Person has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Person to give such notice shall
not relieve the Indemnifying Person of its obligations under this Section 8
(except and to the extent the Indemnifying Person has been prejudiced as a
consequence thereof). The Indemnifying Person will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Person promptly after receiving the aforesaid
notice from such Indemnified Person, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Person, provided that the
--------
Indemnified Person may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Person,
and provided, further, that if the defendants in any such action shall
-------- -------
include both the Indemnified Person and the Indemnifying Person and the
Indemnified Person shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Persons which are
different from or additional to those available to the Indemnifying Person,
the Indemnified Person or Persons shall have the right to select separate
counsel to assert such legal defenses and to otherwise participate in the
defense of such action on behalf of such Indemnified Person or Persons and
the fees and expenses of such counsel shall be paid by the Indemnifying
Person, and provided, further, however, that the Company shall not be
-------- ------- -------
responsible for paying the fees of more than one counsel for each of (x)
all Investors and their successors or assigns who may be Indemnified
Persons and (y) each of the Management Holders and their respective
11
<PAGE>
successors or assigns who may be Indemnified Persons. No Indemnifying
Person, in the defense of any such claim or litigation shall, except with
the consent of each Indemnified Person, 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 Person
of a release from all liability in respect to such claim or litigation.
Each Indemnified Person shall (i) furnish such information regarding itself
or the claim in question as an Indemnifying Person may reasonably request
in writing and as shall be reasonably required in connection with defense
of such claim and litigation resulting therefrom and (ii) reasonably assist
the Indemnifying Person in any such defense, provided that the Indemnified
--------
Person shall not be required to expend its funds in connection with such
assistance.
(d) Neither the Company nor any Holder shall be required to effect
any registration under Section 2 or Section 3 of this Agreement pursuant to
which it would be required to execute an underwriting agreement which
imposes indemnification or contribution obligations on the Company more
onerous than those imposed hereunder.
Section 9. Information from Holders. Each Holder of Registrable
------------------------
Securities and Other Registrable Securities included in any registration shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement or otherwise required
by applicable state or federal securities laws.
Section 10. Limitations on Registration Rights. The Company shall not
----------------------------------
enter into any agreement with any person who has after the date of this
Agreement acquired any newly issued securities of the Company which agreement
gives such person (a) the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, such securities owned by such person, unless under the terms
of such agreement, such person may include such securities in any such
registration only to the extent that the inclusion of its securities will not
limit the number of Registrable Securities or Other Registrable Securities
sought to be included by the Holders of Registrable Securities or Other
Registrable Securities or reduce the offering price thereof; or (b) the right to
require the Company to initiate any registration of any securities of the
Company on terms more favorable than provided to the Investors hereunder.
Section 11. Exception to Registration. The Company shall not be required
--------------------------
to effect a registration under this Agreement of Registrable Securities or Other
Registrable Securities if and to the extent in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to the Holders of Registrable Securities or Other Registrable
Securities, as applicable, or pursuant to no-action letter obtained by the
Company from the Commission, such Holder may sell without registration under the
Act all Registrable Securities or Other Registrable Securities for which it
requested registration (a) under the provisions of the
12
<PAGE>
Act; or (b) in the relevant three month period in accordance with the volume
limitations of Rule 144; and/or (c) in accordance with Rule 144A; provided,
--------
however, that this Section 11 shall not apply to sales made under Rule 144(k) or
- -------
any successor rule promulgated by the Commission until after the first
registration under the Act filed by the Company for an offering of its
securities to the public.
Section 12. Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may permit the
sale of Restricted Securities to the public without registration, the Company
agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act, at all times from and
after 90 days following the effective date of the first registration under
the Act filed by the Company for an offering of its securities to the
general public;
(b) use all of its commercially reasonable best efforts to file with
the Commission in a timely manner all reports and other documents required
of the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) so long as any Holder (or its successors or assignees) owns any
Restricted Securities, furnish to such Holder forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as any Holder (or
its successors or assignees) may reasonably request in availing itself of
any rule or regulation of the Commission allowing the sale of any such
securities without registration.
Section 13. Listing Application. If Common Stock of the Company shall be
-------------------
listed on a national securities exchange or on the NASDAQ National Market System
(or NASDAQ SmallCap Market, as applicable), the Company shall, at its expense,
include in its listing application all of the Registrable Securities and Other
Registrable Securities.
Section 14. Miscellaneous.
-------------
(a) Amendments and Waivers. Amendments or additions to this Agreement
----------------------
may be made, agreements with any decision of the Company may be made, and
compliance with any term, covenant, agreement, condition or provision set
forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) upon the written
consent of each of (i) the Company, (ii)
13
<PAGE>
each of the Management Holders and (ii) the Holders of a majority of the
Registrable Securities. Prompt notice of any such amendment or waiver shall
be given to each party to this Agreement who did not consent thereto.
(b) Notices. All notices, requests, consents, reports and demands
-------
shall be in writing and shall be hand delivered, or mailed, postage
prepaid, to the Company at the address set forth below, and to the
Investors and the Management Holders at the addresses set forth on Schedule
--------
A and B hereto, or to such other address as may be furnished in writing to
- -
the other parties hereto:
The Company:
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman of
the Board of and Chief Executive
Officer
with copy to:
Verner, Liipfert, Bernhard, McPherson
& Hand, Chartered
Suite 700
901 15th Street, N.W.
Washington, D.C. 20005
Attn: Harold I. Freilich, Esquire
The Investors:
The address set forth opposite the Investor's name on Schedule B
----------
attached hereto.
with copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02120
Attention: James Westra, Esquire
14
<PAGE>
The Management Holders:
The address set forth opposite each Management Holders' name on
Schedule A hereto.
----------
Notices given in accordance with the foregoing shall be deemed received (i)
upon receipt, if hand delivered, and (ii) five business days after
deposited in the U.S. mail, if sent by mail.
(c) Entire Agreement. This Agreement and the Schedules referred to
----------------
herein constitute the entire agreement of the parties with respect to the
matters contemplated herein. This Agreement and such Schedules supersede
any and all prior understandings as to the subject matter of this
Agreement.
(d) Equitable Relief. The Company recognizes and agrees that the
----------------
Holders of Registrable Securities and Other Registrable Securities shall
not have an adequate remedy at law if the Company fails to comply with the
provisions of this Agreement, and that damages will not be readily
ascertainable, and the Company expressly agrees that in the event of such
failure any such Holder shall be entitled to seek specific performance of
the Company's obligations hereunder and that the Company will not oppose an
application seeking such specific performance.
(e) Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the successors and assigns of the respective
parties hereto, provided, however, that each such successor and assign
-------- -------
first executes and delivers to the other parties hereto a counterpart of
this Agreement.
(f) General; Definitions. The headings contained in this Agreement
--------------------
are for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement. In this Agreement the singular
includes the plural, the plural the singular, and the use of any gender
includes the neuter, masculine and feminine genders.
(g) Severability. If any provision of this Agreement shall be found
------------
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be
invalid or unenforceable. Such provision shall, to the maximum extent
allowable by law, be modified by such court so that it becomes enforceable,
and, as modified, shall be enforced as any other provision hereof, with all
the other provisions hereof continuing in full force and effect.
(h) Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which together shall constitute an original but all
of which together shall constitute but one and the same instrument.
15
<PAGE>
(i) Governing Law. This Agreement shall be deemed a contract made
-------------
under the laws of the State of New York and together with the rights and
obligations of the parties hereunder, shall be construed under and governed
by the laws of such State.
(j) Third Party Beneficiaries. This Agreement is made for the benefit
-------------------------
of the parties hereto and their successors or assigns, and, except as
contemplated in Section 8, shall not confer any rights or benefits on any
person not a party hereto.
[Signatures on following page]
16
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
/s/ Alain J. Cohen
------------------------------------
Alain J. Cohen
/s/ Marc A. Cohen
------------------------------------
Marc A. Cohen
MIL 3, INCORPORATED
By: /s/Marc A. Cohen
----------------------------------
Name: Marc A. Cohen
Its: Chairman
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its: General Partner
By: Stamps, Woodsum & Co. IV
Its: General Partner
By: /s/ Bruce R. Evans
------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Bruce R. Evans
-----------------------------
Its: General Partner
<PAGE>
SCHEDULE A
----------
Management Holders
- ------------------
Marc A. Cohen, Chairman of the Board and
Chief Executive Officer
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Alain J. Cohen, President
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
<PAGE>
SCHEDULE B
----------
Investors
- ---------
Summit Investors III, L.P.
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, MA 02210
Attn: Bruce R. Evans
Summit Ventures IV, L.P.
c/o Summit Partners
600 Atlantic Avenue
Suite 2800
Boston, MA 02210
Attn: Bruce R. Evans
<PAGE>
EXHIBIT 10.4
STOCK REPURCHASE AGREEMENT dated as of September 30, 1997, by and between
MIL 3, INCORPORATED (the "Company"), a Delaware corporation, and MARC A. COHEN
(the "Shareholder"), an individual residing in the District of Columbia.
WITNESSETH:
WHEREAS, Summit Ventures IV, L.P. and Summit Investors III, L.P. (together
the "Investors") and the Company have entered into a Series A Preferred Stock
Purchase Agreement (the "Series A Purchase Agreement") contemplating the sale by
the Company to the Investors of a total of 144,640 shares of the Company's newly
authorized Series A Preferred Stock (the "Series A Preferred Stock"), at a price
of $48.40 per share; and
WHEREAS, the Shareholder desires to sell to the Company, and the Company
desires to repurchase from the Shareholder, 20,833 shares (the "Common Shares")
of the Company's common stock, par value $.01 per share, owned by the
Shareholder, at a price of $48.40 per Common Share, or an aggregate of
$1,008,317 (the "Repurchase Price").
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein, the parties hereto, intending legally to be bound hereby,
agree as follows:
1. Notice of Repurchase. Not later than one business day following
---------------------
consummation by the Company of the sale of the Series A Preferred Stock to the
Investors in accordance with the Series A Purchase Agreement (the "Series A
Closing"), the Company shall provide written notice (the "Tender Notice") to the
Shareholder of the date (the "Closing Date") on which the Company will
repurchase the Common Shares.
2. Closing.
--------
(a) Following receipt by the Shareholder of the Tender Notice, the
Shareholder shall, on or before the Closing Date, deliver to the Company at its
offices specified in Section 5 below, one or more certificates evidencing the
Common Shares, accompanied by one or more undated stock transfers duly executed
in blank by the Shareholder.
(b) Subject to (i) consummation of the Series A Closing and (ii)
compliance by the Shareholder with the terms and conditions herein, on the
Closing Date, the Company shall repurchase the Common Shares for the Repurchase
Price, which shall be paid by check drawn in the name of the Shareholder.
3. Representations. The Shareholder represents and warrants that (a) he
----------------
is the sole and exclusive legal and beneficial owner of the Common Shares, free
and clear of all liens, claims and encumbrances (collectively, the "Liens"),
other than any such Lien that may exist in favor of the Company, (b) he has full
right, power and authority to sell, transfer and convey the Common
<PAGE>
Shares to the Company as contemplated hereby, and (c) he is familiar with the
business and affairs of the Company and has had an opportunity to ask questions
of, and receive answers from, the Company's management concerning the terms and
conditions of this Agreement, the Series A Purchase Agreement, and the Company.
4. Survival; Limitation of Liability. The Shareholder's representations
----------------------------------
and warranties in Section 3 shall survive the execution and delivery of this
Agreement and the closing of the sale and repurchase of the Common Shares
contemplated hereby, and shall terminate on the first anniversary of the Closing
Date. Notwithstanding anything to the contrary herein, the liability of the
Shareholder for any breach of his representations and warranties shall not
exceed the Repurchase Price.
5. Notices. All notices or other communications required or permitted to
--------
be delivered hereunder shall be in writing signed by the party giving the notice
and sent by express delivery service, or regular or certified mail, addressed as
follows:
If to the Company:
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman
and Chief Executive Officer
If to the Shareholder:
Marc A. Cohen
c/o MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc J. Cohen, Chairman
and Chief Executive Officer
Notices given in accordance with the foregoing shall be deemed received (i)
upon receipt, if hand delivered, and (ii) five business days after deposited in
the U.S. mail, if sent by mail.
6. Entire Agreement. This Agreement shall constitute the entire agreement
----------------
of the parties with respect to the matters contemplated herein. This Agreement
supersedes any and all prior understandings as to the subject matter of this
Agreement.
7. Amendments, Waivers and Consents. Any provision in this Agreement to
--------------------------------
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance
2
<PAGE>
with any covenant or provision herein may be omitted or waived, only by a
writing signed by the parties.
8. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the successors and assigns of the parties hereto.
9. General; Definitions. The headings contained in this Agreement are for
--------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular, and the masculine gender includes the neuter,
masculine and feminine genders.
10. Severability. If any provision of this Agreement shall be found by
------------
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, with all the other provisions hereof
continuing in full force and effect.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be considered an original and both of which together shall
constitute one and the same instrument.
12. Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of New York and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
13. Third Party Beneficiaries. This Agreement is made for the benefit of
-------------------------
the parties hereto and shall not confer any rights or benefits on any person not
a party hereto.
[Signatures on next page]
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date for first above written.
MIL 3, INCORPORATED
By: /s/ Alain Cohen
-----------------------------
Name: Alain Cohen
Title: President
/s/ Marc A. Cohen
-------------------------------
MARC A. COHEN
4
<PAGE>
EXHIBIT 10.5
STOCK REPURCHASE AGREEMENT dated as of September 30, 1997, by and between
MIL 3, INCORPORATED (the "Company"), a Delaware corporation, and ALAIN J. COHEN
(the "Shareholder"), an individual residing in the District of Columbia.
WITNESSETH:
WHEREAS, Summit Ventures IV, L.P. and Summit Investors III, L.P. (together
the "Investors") and the Company have entered into a Series A Preferred Stock
Purchase Agreement (the "Series A Purchase Agreement") contemplating the sale by
the Company to the Investors of a total of 144,640 shares of the Company's newly
authorized Series A Preferred Stock (the "Series A Preferred Stock"), at a price
of $48.40 per share; and
WHEREAS, the Shareholder desires to sell to the Company, and the Company
desires to repurchase from the Shareholder, 30,000 shares (the "Common Shares")
of the Company's common stock, par value $.01 per share, owned by the
Shareholder, at a price of $48.40 per Common Share, or an aggregate of
$1,452,000 (the "Repurchase Price").
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein, the parties hereto, intending legally to be bound hereby,
agree as follows:
1. Notice of Repurchase. Not later than one business day following
--------------------
consummation by the Company of the sale of the Series A Preferred Stock to the
Investors in accordance with the Series A Purchase Agreement (the "Series A
Closing"), the Company shall provide written notice (the "Tender Notice") to the
Shareholder of the date (the "Closing Date") on which the Company will
repurchase the Common Shares.
2. Closing.
-------
(a) Following receipt by the Shareholder of the Tender Notice, the
Shareholder shall, on or before the Closing Date, deliver to the Company at its
offices specified in Section 5 below, one or more certificates evidencing the
Common Shares, accompanied by one or more undated stock transfers duly executed
in blank by the Shareholder.
(b) Subject to (i) consummation of the Series A Closing and (ii)
compliance by the Shareholder with the terms and conditions herein, on the
Closing Date, the Company shall repurchase the Common Shares for the Repurchase
Price, which shall be paid by check drawn in the name of the Shareholder.
1
<PAGE>
3. Representations. The Shareholder represents and warrants that (a) he
----------------
is the sole and exclusive legal and beneficial owner of the Common Shares, free
and clear of all liens, claims and encumbrances (collectively, the "Liens"),
other than any such Lien that may exist in favor of the Company, (b) he has full
right, power and authority to sell, transfer and convey the Common Shares to the
Company as contemplated hereby, and (c) he is familiar with the business and
affairs of the Company and has had an opportunity to ask questions of, and
receive answers from, the Company's management concerning the terms and
conditions of this Agreement, the Series A Purchase Agreement, and the Company.
4. Survival; Limitation of Liability. The Shareholder's representations
----------------------------------
and warranties in Section 3 shall survive the execution and delivery of this
Agreement and the closing of the sale and repurchase of the Common Shares
contemplated hereby, and shall terminate on the first anniversary of the Closing
Date. Notwithstanding anything to the contrary herein, the liability of the
Shareholder for any breach of his representations and warranties shall not
exceed the Repurchase Price.
5. Notices. All notices or other communications required or permitted to
--------
be delivered hereunder shall be in writing signed by the party giving the notice
and sent by express delivery service, or regular or certified mail, addressed as
follows:
If to the Company:
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman
and Chief Executive Officer
If to the Shareholder:
Alain J. Cohen
3101 New Mexico Avenue, N.W.
Apt. 810
Washington, D.C. 20016
Notices given in accordance with the foregoing shall be deemed received (i)
upon receipt, if hand delivered, and (ii) five business days after deposited in
the U.S. mail, if sent by mail.
6. Entire Agreement. This Agreement shall constitute the entire agreement
----------------
of the parties with respect to the matters contemplated herein. This Agreement
supersedes any and all prior understandings as to the subject matter of this
Agreement.
2
<PAGE>
7. Amendments, Waivers and Consents. Any provision in this Agreement to
--------------------------------
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein may be omitted or
waived, only by a writing signed by the parties.
8. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the successors and assigns of the parties hereto.
9. General; Definitions. The headings contained in this Agreement are for
--------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular, and the masculine gender includes the neuter,
masculine and feminine genders.
10. Severability. If any provision of this Agreement shall be found by
------------
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, with all the other provisions hereof
continuing in full force and effect.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be considered an original and both of which together shall
constitute one and the same instrument.
12. Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of New York and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
13. Third Party Beneficiaries. This Agreement is made for the benefit of
-------------------------
the parties hereto and shall not confer any rights or benefits on any person not
a party hereto.
[Signatures on next page]
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date for first above written.
MIL 3, INCORPORATED
By: /s/ Marc A. Cohen
------------------------------
Name: Marc A. Cohen
Title: Chairman
/s/ Alain J. Cohen
-------------------------------
ALAIN J. COHEN
4
<PAGE>
EXHIBIT 10.6
STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement") made this 1st day of
November 1998, by and between MIL 3, INCORPORATED (the "Company"), a corporation
organized and existing under the laws of the State of Delaware, and STEVEN FINN
(the "Purchaser"), an individual residing in Massachusetts. The Company and the
Purchaser are sometimes collectively referred to herein as the "Parties" and
each individually as a "Party."
WITNESSETH:
WHEREAS, the Purchaser is a member of the Board of Directors of the Company
and is familiar with the Company and its business, and
WHEREAS, the Company desires to sell, and Purchaser desires to purchase,
ten thousand (10,000) shares of the Company's common stock, par value $.001 (the
"Common Stock"), and the Company desires to grant to the Purchaser an option to
acquire up to 20,000 shares of Common Stock, in each case in accordance with the
terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto, intending legally to be bound hereby, agree as
follows:
ARTICLE I
Sale of the Common Stock; Grant of Option
-----------------------------------------
1.1 Sale of the Common Stock. Subject to the terms and conditions
------------------------
hereof, and provided that the Purchaser remains a Director of the Company, the
Company will sell to the Purchaser, and the Purchaser will purchase from the
Company, ten thousand (10,000) shares of Common Stock at a purchase price (the
"Purchase Price") of $3.00 per share, or a total of $30,000.
1.2 Option.
------
(a) Option to Purchase. Subject to the terms and conditions hereof,
------------------
the Company grants to the Purchaser an option (the "Option") to purchase twenty
thousand (20,000) shares of Common Stock (the "Option Stock") at an exercise
price of $3.00 per share. The Option may be exercised only to the extent and
during the periods described below, and in any event on or before 5:00 p.m. on
November 30, 2008 (the "Option Expiration Date"; such period so ending during
which the Option may be exercised is hereafter sometimes referred to as the
"Option Term"):
1
<PAGE>
(i) During the period commencing November 30, 1999 until the Option
Expiration Date, the Purchaser may exercise the Option to purchase up to
ten thousand (10,000) shares of Common Stock;
(ii) During the period commencing November 30, 2000 until the Option
Expiration Date, the Purchaser may exercise the Option to purchase up to a
further five thousand (5,000) shares of Common Stock; and
(iii) During the period commencing November 30, 2001 until Option
Expiration Date, the Purchaser may exercise the Option to purchase up to a
further five thousand (5,000) shares of Common Stock.
(b) Certain Other Termination Provisions.
------------------------------------
(i) The Option and all rights hereunder with respect thereto,
to the extent such Option and such rights shall not have been exercised,
shall immediately terminate and become null and void on the Option
Expiration Date.
(ii) Notwithstanding anything to the contrary set forth in this
Agreement, if the Purchaser's association as a Director of the Company has
terminated for any reason, the Option, if and to the extent not previously
exercised, shall immediately terminate and become null and void except
where the termination of such association is by reason of the Purchaser's
death during the Option Term, provided, however, that termination of the
-------- -------
Purchaser's association as a Director of the Company shall not be deemed a
termination for purposes of this Agreement if and for as long as the
Purchaser is a member of the board of directors of any parent or subsidiary
of the Company.
(iii) Notwithstanding anything to the contrary set forth in this
Agreement, upon termination of the Purchaser's association as a Director of
the Company by reason of death during the six (6) month period preceding
the Option Expiration Date, the Option shall terminate upon the expiration
of the six (6) month period following such death.
(c) Exercise.
--------
(i) The Purchaser may only exercise the Option with respect to
the Option Stock by giving written notice to the Company during the Option
Term of intent to exercise; the Purchaser's estate, or the person or
persons to whom the option is transferred by will or the laws of descent
and distribution (the "Permitted Transferee"), may only exercise the Option
with respect to the Option Stock by giving written notice to the Company on
or prior to the Option Expiration Date or, if the Purchaser's death occurs
during the six (6) month period preceding the Option Expiration Date,
during the six (6) month period after the Purchaser's death. The notice of
exercise shall specify that the
2
<PAGE>
Purchaser (or his estate or a Permitted Transferee, if applicable) is
exercising the Option and the date of exercise thereof.
(ii) If the Purchaser (or his estate or a Permitted Transferee,
if applicable) fails to pay for any of the Option Stock specified in such
notice or fails to accept delivery thereof, the Option shall immediately
terminate and become null and void.
(d) Adjustments. In the event of a reorganization, recapitalization,
-----------
change of shares, stock split, stock dividend, reclassification, subdivision or
combination of shares or any other change in the corporate structure or shares
of capital stock of the Company, the Company shall make such adjustment as is
appropriate in the number and kind of shares of Common Stock subject to the
Option or in the exercise price; provided, however, that no such adjustment
-------- -------
shall give the Purchaser any additional benefits under the Option.
(e) Merger or Other Business Combination. If and to the extent the
------------------------------------
Option has not been fully exercised or terminated, the Company shall provide the
Purchaser (or his estate or each Permitted Transferee, if applicable) with
thirty (30) days notice prior to the consummation of any merger or other
business combination involving the Company during the Option Term. Purchaser
(or his estate or each Permitted Transferee, if applicable) shall have the right
to exercise the Option and pay for the Option Stock during the thirty (30) day
period after such notice, following which the Option shall terminate and become
null and void.
(f) Transfer. During the Purchaser's lifetime, the Option shall be
--------
exercisable only by the Purchaser or any guardian or legal representative of the
Purchaser, and the Option shall not be transferable except, in case of the death
of the Purchaser, by will, or the laws of descent and distribution to a
Permitted Transferee, nor shall the Option be subject to attachment, execution
or other similar process. In the event of (i) any attempt by the Purchaser (or
his estate or any Permitted Transferee, if applicable) to alienate, assign,
pledge, hypothecate or otherwise dispose of the Option, except as expressly
provided for herein, or (ii) the levy of any attachment, execution or similar
process upon the rights or interests hereby conferred, the Company may terminate
the Option by notice to the Purchaser (or his estate or permitted Transferee, if
applicable), and it shall thereupon become null and void.
(g) No Rights as to Membership on Board of Directors or Employment.
--------------------------------------------------------------
Neither the granting of the Option nor its exercise shall be construed as
granting to the Purchaser any right with respect to continuance as a member of
the board of directors of the Company, or of any parent or subsidiary of the
Company, or of employment with the Company, or any parent or subsidiary of the
Company.
1.3 No Rights as Shareholder. Notwithstanding anything to the contrary
------------------------
set forth in this Agreement, until the Purchaser (or his estate or Permitted
Transferee, if applicable) shall have fully paid for the shares of Common Stock
or the Option Stock in accordance with this Agreement, the Purchaser (or his
estate or Permitted Transferee, if applicable) shall not be considered a
shareholder with respect to such shares, shall have no rights to exercise any
voting or other rights with respect thereto, and shall not be entitled to any
compensation or consideration for any such
3
<PAGE>
rights which have not been exercised by full payment to the Company in
accordance with this Agreement.
ARTICLE II
Closings; Deliveries
--------------------
2.1 Closings.
--------
(a) The closing of the purchase and sale of the Common Stock
contemplated by Section 1.1 shall be held at 12:00 noon on November 30, 1998 at
the offices of the Company at 3400 International Drive, N.W., Washington, D.C.
20008.
(b) The closing of the purchase and sale of the Option Stock
contemplated by Section 1.2 shall be held at 10:00 a.m. at the offices of the
Company on the fifth (5th) business day (or such other day as agreed by the
Company and the Purchaser) after Purchaser (or his estate or Permitted
Transferee, if applicable) has provided written notice to the Company of
exercise of the Option.
2.2 Deliveries. At each closing, (a) the Company shall deliver to the
----------
Purchaser (or his estate or Permitted Transferee, if applicable) a certificate
for the number of shares of Common Stock to be purchased by the Purchaser (or
his estate or Permitted Transferee, if applicable) at such closing, registered
in the name of the Purchaser (or his estate or Permitted Transferee, if
applicable), and (b) the Purchaser (or his estate or each Permitted Transferee,
if applicable) shall deliver to the Company the aggregate Purchase Price per
share (in the case of the purchase contemplated by Section 1.1) or the aggregate
exercise price of the applicable Option Stock (in the case of exercise of the
Option), in the form of a cashier's or certified check or money order payable to
the Company, along with a letter (substantially in the form of Attachment A
------------
hereto) signed by the Purchaser (or his estate or each Permitted Transferee, if
applicable) reciting the representations and warranties contained in Sections
3.1 and 3.2 of this Agreement.
ARTICLE III
Representations and Warranties
------------------------------
The Purchaser (or his estate or Permitted Transferee, if applicable)
represents and warrants to the Company as follows:
3.1 Investment. The Purchaser (or his estate or Permitted Transferee,
----------
as applicable) is acquiring the Common Stock and the Option Stock, as
applicable, for his (or its) own account for investment and not with a view to
any distribution thereof; the Purchaser (or his estate or Permitted Transferee,
as applicable) has no agreement, undertaking, arrangement, obligation or
commitment providing for the disposition thereof; and the Purchaser (or his
estate or Permitted Transferee, as applicable) understands that the Common Stock
and the Option Stock, as applicable,
4
<PAGE>
has not been registered under the Securities Act of 1933, as amended, and will
bear the legends specified in Section 3.3.
3.2 Receipt of Information. The Purchaser (or his estate or Permitted
----------------------
Transferee, as applicable) has been furnished access to the business and other
records of the Company and such additional information and documents as the
Purchaser (or his estate or Permitted Transferee, as applicable) has requested,
and has been afforded an opportunity to ask questions of and receive answers
from representatives of the Company concerning the terms and conditions of this
Agreement, the purchase of the Common Stock and the Option Stock, as applicable,
the Company's business, financial condition and prospects, and all other matters
deemed relevant by the Purchaser (or his estate or Permitted Transferee, as
applicable).
3.3 Legends. Each certificate representing (a) the Common Stock, (b)
-------
the Option Stock, and (c) any other securities issued in respect of the Common
Stock and/or the Option Stock, whether upon any stock split, stock dividend,
conversion, recapitalization, merger, consolidation or similar event, unless the
securities evidenced by such certificate shall have been registered under the
Securities Act of 1933, as amended, shall be imprinted with legends in the
following form (in addition to any other legend required under applicable state
securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
"THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET
FORTH IN A STOCK PURCHASE AND OPTION AGREEMENT DATED NOVEMBER __,
1998, BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, AND MAY
ONLY BE SOLD, TRANSFERRED OR ASSIGNED IN ACCORDANCE THEREWITH. A
COPY OF SAID AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE
OFFICES OF THE COMPANY."
ARTICLE IV
Transfer Restrictions
---------------------
4.1 Transfer Restrictions.
---------------------
(a) Notwithstanding anything to the contrary set forth herein, no
shares of Common Stock or Option Stock acquired by the Purchaser (or his estate
or Permitted Transferee,
5
<PAGE>
if applicable) hereunder may be sold, transferred, assigned, pledged or
otherwise disposed of (each, a "Transfer"), unless the Purchaser (or his estate
or Permitted Transferee, if applicable) has (a) entered into and complied with
such "lock-up" agreements (restricting public sale of the Common Stock and
Option Stock for a reasonable period of time, not to exceed one hundred and
eighty days) as required by underwriters of the Company's securities in
connection with the Initial Public Offering (as hereafter defined) thereof and
(b) first obtained the written approval of the Company's board of directors,
such approval not to be unreasonably withheld. If the Company's board of
directors does not approve such Transfer, the Company shall notify the Purchaser
(or his estate or Permitted Transferee, if applicable) in writing of that fact
and the reasons for its objection to the Transfer within sixty (60) days of
written notice from the Purchaser (or his estate or Permitted Transferee, if
applicable) that the Purchaser (or his estate or Permitted Transferee, if
applicable) desires to Transfer such shares of Common Stock or Option Stock.
(b) The obligation of the Purchaser (or his estate or Permitted
Transferee, if applicable) to obtain the prior approval of the Company's board
of directors in respect to any sale, transfer, assignment, pledge or other
disposition of the Common Stock or the Option Stock shall terminate upon the
effectiveness of the Company's Initial Public Offering (as hereafter defined).
(c) As used herein, the term "Initial Public Offering" shall mean the
first public offering of Common Stock of the Company, which offering is effected
pursuant to a registration statement other than on Form S-8 filed with, and
declared effective by, the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
ARTICLE V
Miscellaneous
-------------
5.1 Notices. Any notice required or permitted under this Agreement shall
-------
be in writing and may be personally served or sent by facsimile or telex
transmission or mail and shall be deemed to have been given as follows: if
personally served, when served; if by facsimile transmission, when the
transmission is completed to the proper telefax number and confirmation of
receipt of the telefax is received; if by telex transmission, when the
transmission is completed to the proper telex number and confirmation of
delivery of the telex is received; or if mailed, on the fifth business day after
deposit in the mail with airmail postage prepaid and properly addressed. The
Parties shall promptly inform one another of any change in their addresses. For
purposes hereof, the addresses of the Parties (until notice of a change thereof
is given as provided herein) shall be as follows:
6
<PAGE>
To the Company:
MIL 3, Incorporated
3400 International Drive, NW
Washington, DC 20008
Attn: Marc A. Cohen
Telephone: (202) 364-8390
Facsimile: (202) 364-8554
with a copy to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 15th Street, N.W.
Washington, DC 20005
Attn: Harold I. Freilich
Telephone: (202) 371-6242
Facsimile: (202) 371-6279
To the Purchaser:
Steven Finn
2 Barry Drive
Framingham, MA 01702
Telephone: (508) 875-7426
Facsimile: (530) 654-6155
5.2 Entire Agreement. This Agreement sets forth the entire
----------------
understanding between the Parties with respect to the subject matter hereof, and
all prior discussions, memoranda of understanding, protocols of intent, letters
of intent, term sheets and similar writings with regard hereto, are superseded
and hereby terminated.
5.3 Amendments. All amendments, deletions and additions to this
----------
Agreement shall be in writing, signed by the Parties or their duly authorized
representatives.
5.4 No Waiver of Rights. No failure or delay by a Party in the exercise
-------------------
of any power, right or privilege hereunder shall operate as a waiver thereof.
The partial or single exercise by a Party of any power, right or privilege shall
not preclude the further or later exercise of that, or any other, power, right
or privilege.
5.5 Severability. If any one or more provisions in this Agreement,
------------
other than provisions constituting a material consideration to a Party, shall be
invalid or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remainder of this Agreement shall not be
affected or impaired; provided, however, in such event the Parties shall use
-------- -------
their reasonable best efforts to achieve the purpose of the invalid or
unenforceable provision by a new legally valid stipulation.
7
<PAGE>
5.6 Third Parties. None of the provisions of this Agreement shall be
-------------
for the benefit of or enforceable by any third parties except to the extent
expressly set forth herein as to the Purchaser's estate.
5.7 Headings. The inserted headings are for convenience only and shall
--------
not be used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in one or two
------------
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
5.9 Binding Effect. This Agreement shall be binding on the Parties and
--------------
their legal successors and permitted assignees and transferees.
5.10 Remedies. Each of the Parties will be entitled to enforce its
--------
rights under this Agreement specifically, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The Parties agree and acknowledge that money damages may
not be an adequate remedy for any breach of the provisions of this Agreement and
that either Party may in its sole discretion apply to any court of law or equity
of competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
5.11 Choice of Law. All questions arising under this Agreement shall be
-------------
governed by the laws of the District of Columbia (other than its choice of law
principles).
****************
[Signatures on Next Page]
8
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Stock Purchase and
Option Agreement on the day and year first above written.
MIL 3, INCORPORATED,
a Delaware corporation
By: /s/ Marc A. Cohen
----------------------------------
Name: Marc A. Cohen
Title: Chairman of the Board
/s/ Steven G. Finn
----------------------------------
Steven Finn
<PAGE>
Attachment A
------------
[Date]
Marc A. Cohen
Chairman of the Board of
Directors
MIL 3, Incorporated
3400 International Drive, NW
Washington, DC 20008
Dear Mr. Cohen:
This letter is delivered in connection with the undersigned's
[purchase of/exercise of an option to purchase] _________ shares of Common
Stock, par value $.001, of MIL 3, Incorporated (the "Company") in accordance
with Section 2.2 of that certain Stock Purchase and Option Agreement (the
"Agreement") dated as of November __, 1998 between the Company and [me/Steven
Finn]. Terms used in this letter with initial capital letters but not defined
herein shall have the meanings specified in the Agreement. The undersigned
represents and warrants to the Company as follows:
The undersigned is acquiring the [Common Stock/Option Stock] for
[his/its] own account for investment and not with a view to any distribution
thereof; the undersigned has no agreement, undertaking, arrangement, obligation
or commitment providing for the disposition thereof; and the undersigned
understands that the [Common Stock/Option Stock] has not been registered under
the Securities Act of 1933, as amended, and will bear the legends specified in
Section 3.3 of the Agreement.
The undersigned has been furnished access to the business and other
records of the Company and such additional information and documents as the
undersigned has requested, and has been afforded an opportunity to ask questions
of and receive answers from representatives of the Company concerning the terms
and conditions of this Agreement, the purchase of the [Common Stock/Option
Stock], the Company's business, financial condition and prospects, and all other
matters deemed relevant by the undersigned.
Very truly yours,
<PAGE>
November __, 1998
Marc A. Cohen
Chairman of the Board of
Directors
MIL 3, Incorporated
3400 International Drive, NW
Washington, DC 20008
Dear Mr. Cohen:
This letter is delivered in connection with my purchase of ten
thousand (10,000) shares of Common Stock, par value $.001, of MIL 3,
Incorporated (the "Company") in accordance with Section 2.2 of that certain
Stock Purchase and Option Agreement (the "Agreement") dated as of November __,
1998 between the Company and me. Terms used in this letter with initial capital
letters but not defined herein shall have the meanings specified in the
Agreement. I represent and warrant to the Company as follows:
I am acquiring the Common Stock for my own account for investment and
not with a view to any distribution thereof; I have no agreement, undertaking,
arrangement, obligation or commitment providing for the disposition thereof; and
I understand that the Common Stock has not been registered under the Securities
Act of 1933, as amended, and will bear the legends specified in Section 3.3 of
the Agreement.
I have been furnished access to the business and other records of the
Company and such additional information and documents as I have requested, and I
have been afforded an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement, the purchase of the Common Stock, the Company's business, financial
condition and prospects, and all other matters deemed relevant by me.
Very truly yours,
Steven Finn
11
<PAGE>
EXHIBIT 10.7
STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement") made this 1st day of
November 1998, by and between MIL 3, INCORPORATED (the "Company"), a corporation
organized and existing under the laws of the State of Delaware, and WILLIAM
STASIOR (the "Purchaser"), an individual residing in Maryland. The Company and
the Purchaser are sometimes collectively referred to herein as the "Parties" and
each individually as a "Party."
WITNESSETH:
WHEREAS, the Purchaser is a member of the Board of Directors of the Company
and is familiar with the Company and its business, and
WHEREAS, the Company desires to sell, and Purchaser desires to purchase,
ten thousand (10,000) shares of the Company's common stock, par value $.001 (the
"Common Stock"), and the Company desires to grant to the Purchaser an option to
acquire up to 20,000 shares of Common Stock, in each case in accordance with the
terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto, intending legally to be bound hereby, agree as
follows:
ARTICLE I
Sale of the Common Stock; Grant of Option
-----------------------------------------
1.1 Sale of the Common Stock. Subject to the terms and conditions hereof,
------------------------
and provided that the Purchaser remains a Director of the Company, the Company
will sell to the Purchaser, and the Purchaser will purchase from the Company,
ten thousand (10,000) shares of Common Stock at a purchase price (the "Purchase
Price") of $3.00 per share, or a total of $30,000.
1.2 Option.
------
(a) Option to Purchase. Subject to the terms and conditions hereof,
------------------
the Company grants to the Purchaser an option (the "Option") to purchase twenty
thousand (20,000) shares of Common Stock (the "Option Stock") at an exercise
price of $3.00 per share. The Option may be exercised only to the extent and
during the periods described below, and in any event on or before 5:00 p.m. on
November 30, 2008 (the "Option Expiration Date"; such period so ending during
which the Option may be exercised is hereafter sometimes referred to as the
"Option Term"):
1
<PAGE>
(i) During the period commencing November 30, 1999 until the Option
Expiration Date, the Purchaser may exercise the Option to purchase up to
ten thousand (10,000) shares of Common Stock;
(ii) During the period commencing November 30, 2000 until the Option
Expiration Date, the Purchaser may exercise the Option to purchase up to a
further five thousand (5,000) shares of Common Stock; and
(iii) During the period commencing November 30, 2001 until Option
Expiration Date, the Purchaser may exercise the Option to purchase up to a
further five thousand (5,000) shares of Common Stock.
(b) Certain Other Termination Provisions.
------------------------------------
(i) The Option and all rights hereunder with respect thereto,
to the extent such Option and such rights shall not have been exercised,
shall immediately terminate and become null and void on the Option
Expiration Date.
(ii) Notwithstanding anything to the contrary set forth in this
Agreement, if the Purchaser's association as a Director of the Company has
terminated for any reason, the Option, if and to the extent not previously
exercised, shall immediately terminate and become null and void except
where the termination of such association is by reason of the Purchaser's
death during the Option Term, provided, however, that termination of the
-------- -------
Purchaser's association as a Director of the Company shall not be deemed a
termination for purposes of this Agreement if and for as long as the
Purchaser is a member of the board of directors of any parent or subsidiary
of the Company.
(iii) Notwithstanding anything to the contrary set forth in this
Agreement, upon termination of the Purchaser's association as a Director of
the Company by reason of death during the six (6) month period preceding
the Option Expiration Date, the Option shall terminate upon the expiration
of the six (6) month period following such death.
(c) Exercise.
--------
(i) The Purchaser may only exercise the Option with respect to
the Option Stock by giving written notice to the Company during the Option
Term of intent to exercise; the Purchaser's estate, or the person or
persons to whom the option is transferred by will or the laws of descent
and distribution (the "Permitted Transferee"), may only exercise the Option
with respect to the Option Stock by giving written notice to the Company on
or prior to the Option Expiration Date or, if the Purchaser's death occurs
during the six (6) month period preceding the Option Expiration Date,
during the six (6) month period after the Purchaser's death. The notice of
exercise shall specify that the
2
<PAGE>
Purchaser (or his estate or a Permitted Transferee, if applicable) is
exercising the Option and the date of exercise thereof.
(ii) If the Purchaser (or his estate or a Permitted Transferee,
if applicable) fails to pay for any of the Option Stock specified in such
notice or fails to accept delivery thereof, the Option shall immediately
terminate and become null and void.
(d) Adjustments. In the event of a reorganization, recapitalization,
-----------
change of shares, stock split, stock dividend, reclassification, subdivision or
combination of shares or any other change in the corporate structure or shares
of capital stock of the Company, the Company shall make such adjustment as is
appropriate in the number and kind of shares of Common Stock subject to the
Option or in the exercise price; provided, however, that no such adjustment
-------- -------
shall give the Purchaser any additional benefits under the Option.
(e) Merger or Other Business Combination. If and to the extent the
------------------------------------
Option has not been fully exercised or terminated, the Company shall provide the
Purchaser (or his estate or each Permitted Transferee, if applicable) with
thirty (30) days notice prior to the consummation of any merger or other
business combination involving the Company during the Option Term. Purchaser
(or his estate or each Permitted Transferee, if applicable) shall have the right
to exercise the Option and pay for the Option Stock during the thirty (30) day
period after such notice, following which the Option shall terminate and become
null and void.
(f) Transfer. During the Purchaser's lifetime, the Option shall be
--------
exercisable only by the Purchaser or any guardian or legal representative of the
Purchaser, and the Option shall not be transferable except, in case of the death
of the Purchaser, by will, or the laws of descent and distribution to a
Permitted Transferee, nor shall the Option be subject to attachment, execution
or other similar process. In the event of (i) any attempt by the Purchaser (or
his estate or any Permitted Transferee, if applicable) to alienate, assign,
pledge, hypothecate or otherwise dispose of the Option, except as expressly
provided for herein, or (ii) the levy of any attachment, execution or similar
process upon the rights or interests hereby conferred, the Company may terminate
the Option by notice to the Purchaser (or his estate or permitted Transferee, if
applicable), and it shall thereupon become null and void.
(g) No Rights as to Membership on Board of Directors or Employment.
--------------------------------------------------------------
Neither the granting of the Option nor its exercise shall be construed as
granting to the Purchaser any right with respect to continuance as a member of
the board of directors of the Company, or of any parent or subsidiary of the
Company, or of employment with the Company, or any parent or subsidiary of the
Company.
1.3 No Rights as Shareholder. Notwithstanding anything to the contrary
------------------------
set forth in this Agreement, until the Purchaser (or his estate or Permitted
Transferee, if applicable) shall have fully paid for the shares of Common Stock
or the Option Stock in accordance with this Agreement, the Purchaser (or his
estate or Permitted Transferee, if applicable) shall not be considered a
shareholder with respect to such shares, shall have no rights to exercise any
voting or other rights with respect thereto, and shall not be entitled to any
compensation or consideration for any such rights which have not been exercised
by full payment to the Company in accordance with this Agreement.
3
<PAGE>
ARTICLE II
Closings; Deliveries
--------------------
2.1 Closings.
--------
(a) The closing of the purchase and sale of the Common Stock
contemplated by Section 1.1 shall be held at 12:00 noon on November 30, 1998 at
the offices of the Company at 3400 International Drive, N.W., Washington, D.C.
20008.
(b) The closing of the purchase and sale of the Option Stock
contemplated by Section 1.2 shall be held at 10:00 a.m. at the offices of the
Company on the fifth (5th) business day (or such other day as agreed by the
Company and the Purchaser) after Purchaser (or his estate or Permitted
Transferee, if applicable) has provided written notice to the Company of
exercise of the Option.
2.2 Deliveries. At each closing, (a) the Company shall deliver to the
----------
Purchaser (or his estate or Permitted Transferee, if applicable) a certificate
for the number of shares of Common Stock to be purchased by the Purchaser (or
his estate or Permitted Transferee, if applicable) at such closing, registered
in the name of the Purchaser (or his estate or Permitted Transferee, if
applicable), and (b) the Purchaser (or his estate or each Permitted Transferee,
if applicable) shall deliver to the Company the aggregate Purchase Price per
share (in the case of the purchase contemplated by Section 1.1) or the aggregate
exercise price of the applicable Option Stock (in the case of exercise of the
Option), in the form of a cashier's or certified check or money order payable to
the Company, along with a letter signed by the Purchaser (or his estate or each
Permitted Transferee, if applicable) reciting the representations and warranties
contained in Sections 3.1 and 3.2 of this Agreement.
ARTICLE III
Representations and Warranties
------------------------------
The Purchaser (or his estate or Permitted Transferee, if applicable)
represents and warrants to the Company as follows:
3.1 Investment. The Purchaser (or his estate or Permitted Transferee,
----------
as applicable) is acquiring the Common Stock and the Option Stock, as
applicable, for his (or its) own account for investment and not with a view to
any distribution thereof; the Purchaser (or his estate or Permitted Transferee,
as applicable) has no agreement, undertaking, arrangement, obligation or
commitment providing for the disposition thereof; and the Purchaser (or his
estate or Permitted Transferee, as applicable) understands that the Common Stock
and the Option Stock, as applicable, has not been registered under the
Securities Act of 1933, as amended, and will bear the legends specified in
Section 3.3.
4
<PAGE>
3.2 Receipt of Information. The Purchaser (or his estate or Permitted
----------------------
Transferee, as applicable) has been furnished access to the business and other
records of the Company and such additional information and documents as the
Purchaser (or his estate or Permitted Transferee, as applicable) has requested,
and has been afforded an opportunity to ask questions of and receive answers
from representatives of the Company concerning the terms and conditions of this
Agreement, the purchase of the Common Stock and the Option Stock, as applicable,
the Company's business, financial condition and prospects, and all other matters
deemed relevant by the Purchaser (or his estate or Permitted Transferee, as
applicable).
3.3 Legends. Each certificate representing (a) the Common Stock, (b)
-------
the Option Stock, and (c) any other securities issued in respect of the Common
Stock and/or the Option Stock, whether upon any stock split, stock dividend,
conversion, recapitalization, merger, consolidation or similar event, unless the
securities evidenced by such certificate shall have been registered under the
Securities Act of 1933, as amended, shall be imprinted with legends in the
following form (in addition to any other legend required under applicable state
securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
"THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET
FORTH IN A STOCK PURCHASE AND OPTION AGREEMENT DATED _____________,
1998, BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, AND MAY ONLY
BE SOLD, TRANSFERRED OR ASSIGNED IN ACCORDANCE THEREWITH. A COPY OF
SAID AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE OFFICES OF THE
COMPANY."
ARTICLE IV
Transfer Restrictions
---------------------
4.1 Transfer Restrictions.
---------------------
(a) Notwithstanding anything to the contrary set forth herein, no
shares of Common Stock or Option Stock acquired by the Purchaser (or his estate
or Permitted Transferee, if applicable) hereunder may be sold, transferred,
assigned, pledged or otherwise disposed of, unless the Purchaser (or his estate
or Permitted Transferee, if applicable) has (a) entered into and complied with
such "lock-up" agreements (restricting public sale of the Common Stock and
Option Stock for a reasonable period of time, not to exceed one hundred and
eighty days) as required by
5
<PAGE>
underwriters of the Company's securities in connection with the initial Public
Offering (as hereafter defined) thereof and (b) first obtained the written
approval of the Company's board of directors.
(b) The obligation of the Purchaser (or his estate or Permitted
Transferee, if applicable) to obtain the prior approval of the Company's board
of directors in respect to any sale, transfer, assignment, pledge or other
disposition of the Common Stock or the Option Stock shall terminate upon the
effectiveness of the Company's Initial Public Offering (as hereafter defined).
(c) As used herein, the term "Initial Public Offering" shall mean the
first public offering of Common Stock of the Company, which offering is effected
pursuant to a registration statement other than on Form S-8 filed with, and
declared effective by, the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
ARTICLE V
Miscellaneous
-------------
5.1 Notices. Any notice required or permitted under this Agreement shall
-------
be in writing and may be personally served or sent by facsimile or telex
transmission or mail and shall be deemed to have been given as follows: if
personally served, when served; if by facsimile transmission, when the
transmission is completed to the proper telefax number and confirmation of
receipt of the telefax is received; if by telex transmission, when the
transmission is completed to the proper telex number and confirmation of
delivery of the telex is received; or if mailed, on the fifth business day after
deposit in the mail with airmail postage prepaid and properly addressed. The
Parties shall promptly inform one another of any change in their addresses. For
purposes hereof, the addresses of the Parties (until notice of a change thereof
is given as provided herein) shall be as follows:
To the Company:
MIL 3, Incorporated
3400 International Drive, NW
Washington, DC 20008
Attn: Marc A. Cohen
Telephone: (202) 364-8390
Facsimile: (202) 364-8554
with a copy to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 15th Street, N.W.
Washington, DC 20005
Attn: Harold I. Freilich
6
<PAGE>
Telephone: (202) 371-6242
Facsimile: (202) 371-6279
To the Purchaser:
William Stasior
11700 Beall Mountain Road
Potomac, MD 20854
Telephone: (301) 299-2348
Facsimile: (301) 299-1618
5.2 Entire Agreement. This Agreement sets forth the entire
----------------
understanding between the Parties with respect to the subject matter hereof, and
all prior discussions, memoranda of understanding, protocols of intent, letters
of intent, term sheets and similar writings with regard hereto, are superseded
and hereby terminated.
5.3 Amendments. All amendments, deletions and additions to this
----------
Agreement shall be in writing, signed by the Parties or their duly authorized
representatives.
5.4 No Waiver of Rights. No failure or delay by a Party in the exercise
-------------------
of any power, right or privilege hereunder shall operate as a waiver thereof.
The partial or single exercise by a Party of any power, right or privilege shall
not preclude the further or later exercise of that, or any other, power, right
or privilege.
5.5 Severability. If any one or more provisions in this Agreement, other
------------
than provisions constituting a material consideration to a Party, shall be
invalid or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remainder of this Agreement shall not be
affected or impaired; provided, however, in such event the Parties shall use
-------- -------
their reasonable best efforts to achieve the purpose of the invalid or
unenforceable provision by a new legally valid stipulation.
5.6 Third Parties. None of the provisions of this Agreement shall be
-------------
for the benefit of or enforceable by any third parties except to the extent
expressly set forth herein as to the Purchaser's estate.
5.7 Headings. The inserted headings are for convenience only and shall
--------
not be used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in one or two
------------
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
5.9 Binding Effect. This Agreement shall be binding on the Parties and
--------------
their legal successors and permitted assignees and transferees.
7
<PAGE>
5.10 Remedies. Each of the Parties will be entitled to enforce its rights
--------
under this Agreement specifically, to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The Parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that
either Party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
5.11 Choice of Law. All questions arising under this Agreement shall be
-------------
governed by the laws of the District of Columbia (other than its choice of law
principles).
****************
[Signatures on Next Page]
8
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Stock Purchase and
Option Agreement on the day and year first above written.
MIL 3, INCORPORATED,
a Delaware corporation
By: /s/ Marc A. Cohen
-----------------------------------
Name: Marc A. Cohen
Title: Chairman of the Board
/s/ William Stasior
-----------------------------------
William Stasior
9
<PAGE>
EXHIBIT 10.8
STOCK REPURCHASE AGREEMENT dated as of September 30, 1997, by and between
MIL 3, INCORPORATED (the "Company"), a Delaware corporation, and GEORGE CATHEY
(the "Shareholder"), an individual residing in Washington, D.C.
WITNESSETH:
WHEREAS, Summit Ventures IV, L.P. and Summit Investors III, L.P. (together
the "Investors") and the Company have entered into a Series A Preferred Stock
Purchase Agreement (the "Series A Purchase Agreement") contemplating the sale by
the Company to the Investors of a total of 144,640 shares of the Company's newly
authorized Series A Preferred Stock (the "Series A Preferred Stock"), at a price
of $48.40 per share; and
WHEREAS, the Shareholder desires to sell to the Company, and the Company
desires to repurchase from the Shareholder, 3,000 shares (the "Common Shares")
of the Company's common stock, par value $.01 per share, owned by the
Shareholder, at a price of $48.40 per Common Share, or an aggregate of
$145,200.00 ("Repurchase Price").
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein, the parties hereto, intending legally to be bound hereby,
agree as follows:
1. Notice of Repurchase. Not later than one business day following
---------------------
consummation by the Company of the sale of the Series A Preferred Stock to the
Investors in accordance with the Series A Purchase Agreement (the "Series A
Closing"), the Company shall provide not less than three (3) days written notice
(the "Tender Notice") to the Shareholder of the date (the "Closing Date") on
which the Company will repurchase the Common Shares.
2. Closing.
--------
(a) Following receipt by the Shareholder of the Tender Notice, the
Shareholder shall, on or before the Closing Date, deliver to the Company at its
offices specified in Section 5 below, one or more certificates evidencing the
Common Shares, accompanied by one or more undated stock transfers duly executed
in blank by the Shareholder.
(b) Subject to (i) consummation of the Series A Closing and (ii)
compliance by the Shareholder with the terms and conditions herein, on the
Closing Date, the Company shall repurchase the Common Shares for the Repurchase
Price, which shall be paid by check drawn in the name of the Shareholder.
<PAGE>
3. Representations. The Shareholder represents and warrants that (a) he
----------------
is the sole and exclusive legal and beneficial owner of the Common Shares, free
and clear of all liens, claims and encumbrances (collectively, the "Liens"),
other than any such Lien that may exist in favor of the Company, (b) he has full
right, power and authority to sell, transfer and convey the Common Shares to the
Company as contemplated hereby, and (c) he is familiar with the business and
affairs of the Company and has had an opportunity to ask questions of, and
receive answers from, the Company's management concerning the terms and
conditions of this Agreement, the Series A Purchase Agreement, and the Company.
4. Survival; Limitation of Liability. The Shareholder's representations
----------------------------------
and warranties in Section 3 shall survive the execution and delivery of this
Agreement and the closing of the sale and repurchase of the Common Shares
contemplated hereby, and shall terminate on the first anniversary of the Closing
Date. Notwithstanding anything to the contrary herein, the liability of the
Shareholder for any breach of his representations and warranties shall not
exceed the Repurchase Price.
5. Notices. All notices or other communications required or permitted to
--------
be delivered hereunder shall be in writing signed by the party giving the notice
and sent by express delivery service, or regular or certified mail, addressed as
follows:
If to the Company:
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman
and Chief Executive Officer
If to the Shareholder:
George Cathey
2602 Tunlaw Road, N.W. No. 4
Washington, D.C. 20007
Notices given in accordance with the foregoing shall be deemed received (i)
upon receipt, if hand delivered, and (ii) five business days after deposited in
the U.S. mail, if sent by mail.
6. Entire Agreement. This Agreement shall constitute the entire agreement
----------------
of the parties with respect to the matters contemplated herein. This Agreement
supersedes any and all prior understandings as to the subject matter of this
Agreement.
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<PAGE>
7. Amendments, Waivers and Consents. Any provision in this Agreement to
--------------------------------
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein may be omitted or
waived, only by a writing signed by the parties.
8. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the successors and assigns of the parties hereto.
9. General; Definitions. The headings contained in this Agreement are for
--------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular, and the masculine gender includes the neuter,
masculine and feminine genders.
10. Severability. If any provision of this Agreement shall be found by
------------
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, with all the other provisions hereof
continuing in full force and effect.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be considered an original and both of which together shall
constitute one and the same instrument.
12. Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of New York and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
13. Third Party Beneficiaries. This Agreement is made for the benefit of
-------------------------
the parties hereto and shall not confer any rights or benefits on any person not
a party hereto.
[Signatures on next page]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date for first above written.
MIL 3, INCORPORATED
By: /s/Marc A. Cohen
-------------------------------
Name: Marc A. Cohen
Title: Chairman
/s/George Cathey
-------------------------------
George Cathey
4
<PAGE>
EXHIBIT 10.9
STOCK PURCHASE AND OPTION AGREEMENT
THIS STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement") is made
this 4th day of December 1995, by and between MIL 3, INCORPORATED (the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, and GEORGE M. CATHEY (the "Purchaser"), an individual residing in
Washington, D.C. The Company and Purchaser are sometimes collectively referred
to herein as the "Parties" and each individually as the "Party."
WITNESSETH:
WHEREAS, Purchaser is and has been employed by the Company as a
principal engineer and project manager and is familiar with the Company and its
business, and
WHEREAS, the Company desires to sell, and Purchaser desires to
purchase, fifteen thousand (15,000) shares of the Company's Common Stock (the
"Common Stock"), par value $.01 (said 15,000 shares, the "Stock"), in accordance
with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto, intending legally to be bound hereby, agree as
follows:
ARTICLE I
Sale of the Stock; Option
-------------------------
1.1 Sale of the Stock. Subject to the terms and conditions hereof,
-----------------
provided that the Purchaser remains an employee of the Company, the Company will
sell to Purchaser, and Purchaser will purchase from the Company, fifteen
thousand (15,000) shares of the Stock at a purchase price of $1.90 per share
(the "Purchase Price"), or a total of $28,500.
1.2 Option.
------
(a) Option to Purchase. Subject to the terms and conditions
------------------
hereof, the Company grants to the Purchaser an option (the "Option") to purchase
ten thousand (10,000) shares of Common Stock (the "Option Stock") at an exercise
price of $1.90 per share. The Option only may be exercised during the period
described below that occurs after the first to occur of the following events,
and if not exercised during such period shall immediately terminate and become
null and void (such period during which the Option may be exercised is hereafter
referred to as the "Option Term"):
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(i) the sixty (60) day period following notice by the Company
to the Purchaser of a merger or other business combination involving
the Company; or
(ii) the sixty (60) day period following notice by the Company
to the Purchaser of the scheduled effectiveness of the Company's
Initial Public Offering (as defined below); or
(iii) the twelve (12) month period commencing on or after
December 4, 2005.
(b) Certain Other Termination Provisions.
------------------------------------
(i) The Option and all rights hereunder with respect
thereto, to the extent such rights shall not have been exercised,
shall terminate and become null and void on the last day of the Option
Term.
(ii) If the Purchaser's employment with the Company has
terminated for any reason, the Option, if not previously exercised,
shall immediately terminate and become null and void except where the
termination of such employment is by reason of Purchaser's death
during the Option Term.
(iii) Upon a termination of the Purchaser's employment by
reason of death during the Option Term, the Option may be exercised by
the Purchaser's estate during the Option Term.
(iv) A transfer of the Purchaser's employment between the
Company and any parent or subsidiary of the Company, or between any
parents or subsidiaries of the Company, shall not be deemed to be a
termination of the Purchaser's employment.
(v) Notwithstanding any other provisions set forth herein,
if the Purchaser shall (A) commit any act of malfeasance or wrongdoing
affecting the Company or any parent or subsidiary of the Company, (B)
breach any covenant not to compete or employment contract with the
Company or any parent or subsidiary of the Company, or (C) engage in
conduct that would warrant the termination of Purchaser's employment
for cause, the Option shall immediately terminate and become null and
void.
(c) Exercise.
--------
(i) The Purchaser (or his estate, if applicable) may only
exercise the Option with respect to all, but not less than all, of the
Option Stock by giving written notice to the Company during the Option
Term of intent to exercise. The notice of exercise shall specify that
Purchaser (or his estate, if applicable) is
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<PAGE>
exercising the Option and the date of exercise thereof, which date
shall be at least five (5) business days after the giving of such
notice unless an earlier time shall have been agreed between the
Company and the Purchaser (or his estate, if applicable).
(ii) If the Purchaser (or his estate, if applicable) fails
to pay for any of the Option Stock specified in such notice or fails
to accept delivery thereof, the Option shall immediately terminate and
become null and void.
(d) Adjustments. In the event of a reorganization,
-----------
recapitalization, change of shares, stock split, stock dividend,
reclassification, subdivision or combination of shares or any other change in
the corporate structure or shares of capital stock of the Company, the Company
shall make such adjustment as is appropriate in the number and kind of shares of
Common Stock subject to the Option or in the option exercise price; provided,
--------
however, that no such adjustment shall give the Purchaser any additional
- -------
benefits under the Option.
(e) Merger or Other Business Combination. If the Option has
------------------------------------
not been exercised or terminated, the Company shall provide Purchaser with
thirty (30) days notice prior to the consummation of any merger or other
business combination involving the Company during the period prior to December
4, 2005. Purchaser (or his estate, if applicable) shall have the right to
exercise the Option and pay for the Option Stock during the sixty (60) day
period after such notice, following which the Option shall terminate and become
null and void.
(f) Public Offering.
---------------
(i) If the Option has not been exercised or terminated, the
Company shall provide Purchaser with thirty (30) days notice prior to
the effectiveness of the Company's Initial Public Offering if it is
scheduled to become effective during the period prior to December 4,
2005. Purchaser (or his estate, if applicable) shall have the right to
exercise the Option and pay for the Option Stock during the sixty (60)
day period after such notice, following which the Option shall
terminate and become null and void.
(ii) "Initial Public Offering" as used herein means the
first public offering of Common Stock of the Company, which offering
is effected pursuant to a registration statement other than on Form S-
8 filed with, and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
(g) Transfer. During the Purchaser's lifetime, the Option shall
--------
be exercisable only by the Purchaser or any guardian or legal representative of
the Purchaser, and the Option shall not be transferable except, in case of the
death of the Purchaser, by will, or the laws of descent and distribution, nor
shall the Option be subject to attachment, execution or other similar processes.
In the event of (i) any attempt by the Purchaser to alienate, assign, pledge,
hypothecate or otherwise dispose of the Option, except as provided for herein,
or (ii) the levy of any attachment, execution or similar process upon the rights
or interests hereby conferred, the Company may
3
<PAGE>
terminate the Option by notice to the Purchaser, and it shall thereupon become
null and void.
(h) No Rights as to Employment. Neither the granting of the
--------------------------
Option nor its exercise shall be construed as granting to the Purchaser any
right with respect to continuance of employment with the Company.
1.3 No Rights as Shareholder. Notwithstanding anything to the
------------------------
contrary set forth in this Agreement, until Purchaser (or his estate, if
applicable) shall have fully paid for the shares of Stock or the Option Stock in
accordance with this Agreement, Purchaser (or his estate, if applicable) shall
not be considered a shareholder with respect to such shares, shall have no
rights to exercise any voting or other rights with respect thereto, and shall
not be entitled to any compensation or consideration for any such rights which
have not been exercised by full payment to the Company in accordance with this
Agreement.
ARTICLE II
Closings; Deliveries
--------------------
2.1 Closings.
--------
(a) The closing of the purchase and sale of the Stock
contemplated by Section 1.1 shall be held at 2 p.m. on December 15, 1995 at the
offices of the Company at 3400 International Drive, N.W., Washington, D.C.
20008.
(b) The closing of the purchase and sale of the Option Stock
contemplated by Section 1.2 shall be held at 2 p.m. at the offices of the
Company 10 business days after Purchaser has provided written notice to the
Company of his exercise of the Option.
2.2 Deliveries. At each closing, (a) the Company shall deliver to
----------
Purchaser (or his estate, if applicable) a certificate for the number of shares
of Common Stock, par value $.01, to be purchased by Purchaser (or his estate, if
applicable) at such closing, registered in the name of Purchaser (or his estate,
if applicable), and (b) Purchaser (or his estate, if applicable) shall deliver
to the Company the Purchase Price per share, in the form of a cashier's or
certified check or money order payable to the Company, along with a letter
signed by Purchaser (or his estate, if applicable) reciting the representations
and warranties contained in Sections 3.1 and 3.2 of this Agreement.
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<PAGE>
ARTICLE III
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to the Company as follows:
3.1 Investment. Purchaser is acquiring the Stock and the Option
----------
Stock, as applicable, for his own account for investment and not with a view to
any distribution thereof; Purchaser has no agreement, undertaking, arrangement,
obligation or commitment providing for the disposition thereof; and Purchaser
understands that the Stock and the Option Stock, as applicable, has not been
registered under the Securities Act of 1933, as amended, and will bear the
legends specified in Section 3.3.
3.2 Receipt of Information. Purchaser has been furnished access to
----------------------
the business and other records of the Company and such additional information
and documents as Purchaser has requested, and has been afforded an opportunity
to ask questions of and receive answers from representatives of the Company
concerning the terms and conditions of this Agreement, the purchase of the Stock
and the Option Stock, as applicable, the Company's business, financial condition
and prospects, and all other matters deemed relevant by the Purchaser.
3.3 Legends. Each certificate representing (a) the Stock, (b) the
-------
Option Stock, and (c) any other securities issued in respect of the Stock and/or
the Option Stock, whether upon any stock split, stock dividend, conversion,
recapitalization, merger, consolidation or similar event, unless the securities
evidenced by such certificate shall have been registered under the Securities
Act of 1933, as amended, shall be imprinted with legends in the following form
(in addition to any other legend required under applicable state securities
laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
"THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS
SET FORTH IN AN AGREEMENT DATED DECEMBER 4, 1995, BY AND BETWEEN
THE HOLDER HEREOF AND THE COMPANY, AND MAY ONLY BE SOLD,
TRANSFERRED OR ASSIGNED IN ACCORDANCE THEREWITH. A COPY OF SAID
AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE OFFICES OF THE
COMPANY."
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<PAGE>
ARTICLE IV
Transfer Restrictions; Repurchase
---------------------------------
4.1 Transfer Restrictions. Notwithstanding anything to the contrary
---------------------
set forth herein, no shares of Stock or Option Stock acquired by the Purchaser
(or his estate, if applicable) hereunder may be sold, transferred, assigned,
pledged or otherwise disposed of, unless the Purchaser (or his estate, if
applicable) has first obtained the written approval of the Company's board of
directors.
4.2 Repurchase.
----------
(a) Except as provided in Section 4.2(c), the Company shall have
the right to purchase all shares of the Stock and Option Stock (if any) then
held by the Purchaser (or the Purchaser's estate, if applicable) if the
Purchaser's employment with the Company has terminated for any reason, other
than death or disability, during the six (6) year period commencing on the date
first set forth above, at a price per share equal to the lesser of (i) the
Purchase Price (subject to increase in accordance with Section 4.4(a)) or (ii)
the "fair market value" of the shares of the Company's Common Stock as most
recently determined in accordance with Section 4.4(b).
(b) Except as provided in Section 4.2(c), the Company shall have
the right to purchase all shares of the Stock and Option Stock (if any) then
held by the Purchaser (or the Purchaser's estate, if applicable) if the
Purchaser's employment with the Company has terminated due to his death or
disability during the six (6) year period commencing on the date first set forth
above, at a price per share equal to the fair market value of the Company's
Common Stock as most recently determined in accordance with Section 4.4(b).
(c) Notwithstanding Sections 4.2(a) and (b), if the Purchaser's
employment with the Company terminates for any reason (including due to his
death or disability) during the six (6) year period commencing on the date first
set forth above and, if on the date of such termination, Marc A. Cohen and Alain
Cohen do not own in the aggregate at least 50% of the issued and outstanding
shares of Common Stock of the Company, then the Company shall have the right to
purchase, and the Purchaser shall have the right to require the Company to
purchase, all (but not less than all) shares of Stock and Option Stock (if any)
then held by Purchaser (or the Purchaser's estate, if applicable) at a price per
share equal to the fair market value thereof as most recently determined in
accordance with Section 4.4(b).
(d) Commencing six (6) years after the date first set forth
above, the Company shall have the right to purchase all shares of the Stock and
Option Stock (if any) then held by the Purchaser (or the Purchaser's estate, if
applicable) if the Purchaser's employment with the Company has terminated for
any reason, including due to his death or disability, at a price per share equal
to the fair market value of the Company's Common Stock as most recently
determined in accordance with Section 4.4(b).
6
<PAGE>
4.3 Exercise of Repurchase Rights.
-----------------------------
(a) The Company may exercise its right to repurchase the Stock
and the Option Stock in accordance with Sections 4.2(a), (b) or (d) at any time
by giving written notice of such exercise to Purchaser (or his estate, if
applicable) during the twelve (12) month period following the termination of
Purchaser's employment. The Company's purchase of the Stock and the Option Stock
in accordance with Section 4.2 (a), (b) or (d) shall be concluded within ninety
(90) days after the date of such notice, at a closing at the Company's principal
office, at a time and date designated by the Company upon three (3) business
days prior notice to Purchaser (or his estate, if applicable).
(b) (i) The Company may exercise its right to purchase the
Stock and the Option Stock in accordance with Section 4.2(c)
by giving written notice of such exercise to Purchaser (or
his estate, if applicable) during the thirty (30) day period
following the date of termination of Purchaser's employment.
If the Company has elected to purchase the Stock and the
Option Stock, the Company's purchase of the Stock and the
Option Stock in accordance with Section 4.2(c) shall be
concluded within ninety (90) days after the date of such
notice, at a closing at the Company's principal office, at a
time and date designated by the Company upon three (3)
business days prior notice to Purchaser (or his estate, if
applicable).
(ii) Purchaser may elect to require the Company to purchase
the Stock and the Option Stock in accordance with Section
4.2(c) by giving written notice of such election to the
Company during the thirty (30) day period following the date
of termination of Purchaser's employment. If Purchaser has
provided such notice, the Company's purchase of the Stock
and the Option Stock in accordance with Section 4.2(c) shall
be concluded within the twelve (12) month period after the
date of such notice, at a closing at the Company's principal
office, at a time and date designated by the Company upon
three (3) business days prior notice to Purchaser (or his
estate, if applicable).
(c) At each such closing contemplated in this Section 4.3, (i)
Purchaser (or his estate, if applicable) shall deliver all certificates
evidencing the shares of Stock and the Option Stock, free and clear of any
claim, lien or encumbrance, with stock powers duly executed, and Purchaser (or
his estate, if applicable) shall indemnify and hold the Company harmless against
any claims, liabilities or expenses with respect to Purchaser's (or his
estate's) ownership of such shares, and (ii) the Company shall pay for the
shares of Stock and Option Stock by cashier's check, certified check or money
order.
7
<PAGE>
4.4 Purchase Price Payable Upon Repurchase.
--------------------------------------
(a) CPI Adjustments.
---------------
(i) The Purchase Price to be paid by the Company in
accordance with Section 4.2(a) upon a purchase of each share of Stock
and Option Stock shall be increased proportionately in accordance with
the cumulative increase in the Consumer Price Index ("CPI"), measured
from (A) the monthly CPI most recently published prior to the closing
date of Purchaser's (or his estate's) acquisition of each such share
to (B) the monthly CPI most recently published prior to the date of
such purchase by the Company.
(ii) The CPI shall mean the index known as the United
States Bureau of Labor Statistics, Consumer Price Index for Urban Wage
Earners and Clerical Workers, all items, for Washington, D.C. SMSA (
1982-84=100).
(iii) If the CPI as now constituted, compiled and published
shall be revised or cease to be compiled and published during the term
of this Agreement, then the Parties shall request the Bureau of Labor
Statistics to furnish a statement converting the CPI to a figure that
would be comparable to another index published by the Bureau of Labor
Statistics and such other index shall be used in computing the
increase contemplated herein. Should the Parties not be able to secure
such appropriate conversion or adjustment, the Parties shall agree on
some other index serving the same purpose.
(b) Fair Market Value.
-----------------
(i) The "fair market value" of the Company's Common Stock
shall be such value as determined in good faith by the Employee
Committee established under the Company's 1993 Incentive Stock Option
Plan, or by any such committee under any successor plan, or in the
event no such plan or committee is in existence, by an appraiser
jointly agreed upon by the Company and the Purchaser (or his estate,
if applicable), or failing such agreement within a reasonable period
of time, by an independent appraiser appointed by the Company.
(ii) The expenses of any such appraiser contemplated in
Section 4.4(b)(i) above shall be borne by the Company, except that
such expenses shall be borne by the Purchaser (or his estate, if
applicable) in the event that the Stock is repurchased by the Company
following termination of the Purchaser's employment for good cause in
accordance with the Company's Employment Agreement with Purchaser
dated December 4, 1995.
8
<PAGE>
ARTICLE V
Miscellaneous
-------------
5.1 Notices. Any notice required or permitted under this Agreement
-------
shall be in writing and may be personally served or sent by facsimile or telex
transmission or mail and shall be deemed to have been given as follows: if
personally served, when served; if by facsimile transmission, when the
transmission is completed to the proper telefax number and confirmation of
receipt of the telefax is received; if by telex transmission, when the
transmission is completed to the proper telex number and confirmation of
delivery of the telex is received; or if mailed, on the fifth business day after
deposit in the mail with airmail postage prepaid and properly addressed. The
Parties shall promptly inform one another of any change in their addresses. For
purposes hereof, the addresses of the Parties (until notice of a change thereof
is given as provided herein) shall be as follows:
To the Company:
MIL 3 Incorporated
3400 International Drive, NW
Washington, DC 20008
Attn: Marc Cohen
Telephone: (202) 364-8390
Facsimile: (202) 364-8554
with a copy to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 15th Street, N.W.
Washington, DC 20005
Attn: Harold I. Freilich
Telephone: (202) 371-6242
Facsimile: (202) 371-6279
To the Purchaser:
George M. Cathey
2602 Tunlaw Road, N.W.
No. 4
Washington, D.C. 20007
Telephone: 202-338-7213
Facsimile: ____________
5.2 Entire Agreement. This Agreement sets forth the entire
----------------
understanding between the Parties with respect to the subject matter hereof, and
all prior discussions, memoranda
9
<PAGE>
of understanding, protocols of intent, letters of intent, term sheets and
similar writings with regard hereto, are superseded and hereby terminated.
5.3 Amendments. All amendments, deletions and additions to this
----------
Agreement shall be in writing, signed by duly authorized representatives of the
Parties.
5.4 No Waiver of Rights. No failure or delay by a party in the
-------------------
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof. The partial or single exercise by a party of any power, right or
privilege shall not preclude the further or later exercise of that, or any
other, power, right or privilege.
5.5 Severability. If any one or more provisions in this Agreement,
------------
other than provisions constituting a material consideration to a party, shall be
invalid or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remainder of this Agreement shall not be
affected or impaired; provided, however, in such event the Parties shall use
-------- -------
their reasonable best efforts to achieve the purpose of the invalid or
unenforceable provision by a new legally valid stipulation.
5.6 Third Parties. None of the provisions of this Agreement shall be
-------------
for the benefit of or enforceable by any third parties except to the extent
expressly set forth herein as to Purchaser's estate.
5.7 Headings. The inserted headings are for convenience only and
--------
shall not be used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in one or two
------------
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
5.9 Binding Effect. This Agreement shall be binding on the Parties
--------------
and their legal successors and permitted assignees.
5.10 Remedies. Each of the Parties will be entitled to enforce its
--------
rights under this Agreement specifically, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The Parties agree and acknowledge that money damages may
not be an adequate remedy for any breach of the provisions of this Agreement and
that either party may in its sole discretion apply to any court of law or equity
of competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
5.11 Choice of Law. All questions arising under this Agreement shall
-------------
be governed by the laws of the District of Columbia (other than its choice of
law principles).
[Signatures on Next Page]
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the
day and year first above written.
MIL 3 INCORPORATED,
a Delaware corporation
By: /s/ Marc A. Cohen
-----------------------
Name: Marc A. Cohen
Title: Chairman of the Board
/s/ George M. Cathey
-----------------------
George M. Cathey
11
<PAGE>
FIRST AMENDMENT TO
STOCK PURCHASE AND OPTION AGREEMENT
This First Amendment (the "Amendment") is made as of this 20th day of
January, 2000, by and among MIL 3, Incorporated, a Delaware corporation (the
"Company"), and George M. Cathey (the "Purchaser").
WITNESSETH:
WHEREAS, the Purchaser and the Company entered into a Stock Purchase and
Option Agreement dated as of December 4, 1995 (the "Agreement); and
WHEREAS, the Purchaser and the Company desire to amend the Agreement to
accelerate the vesting of the stock option set forth therein and to make other
modifications;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Agreement shall be amended as follows:
(a) The second sentence of Section 1.2(a) of the Agreement, including
clauses (i), (ii) and (iii) thereof, shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"The Option may only be exercised during the period commencing on January
20, 2000 and ending on the first to occur of the following events, and if
not exercised during such period shall immediately terminate and become
null and void (such period during which the Option may be exercised is
hereafter referred to as the "Option Term"):
(i) sixty days after notice by the Company to the Purchaser of a
merger or other business combination involving the Company;
(ii) sixty days after notice by the Company to the Purchaser of
the scheduled effectiveness of the Company's Initial Public Offering (as
defined below); or
(iii) December 4, 2006."
(b) Section 4.2 shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"4.2 [Intentionally Deleted]"
(c) Section 4.3 shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"4.3 [Intentionally Deleted]"
1
<PAGE>
(d) Section 4.4 shall be deleted in its entirety and the following
shall be inserted in lieu thereof:
"4.4 [Intentionally Deleted]"
(e) Section 5.1 shall be amended by deleting the name and address of
Verner, Liipfert, et. al. below the caption "with a copy to:" and substituting
in its place the following:
"Hale and Dorr LLP
1455 Pennsylvania Avenue, NW
Washington, D.C. 20004
Attn: Brent B. Siler
Telephone: (202) 942-8400
Facsimile: (202) 942-8484"
2. As modified hereby, the Agreement is hereby confirmed by both parties
to be in full force and effect.
3. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, and both of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
MIL 3, INCORPORATED
By: /s/ Marc A. Cohen
---------------------------
Name: Marc A. Cohen
Title: Chairman
/s/ George M. Cathey
--------------------------------
George M. Cathey
2
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
4th day of December, 1995, by and between MIL 3, INCORPORATED (the "Company"),
a Delaware corporation, and GEORGE M. CATHEY (the "Employee"), an individual
residing in Washington, D.C. The Company and Employee are sometimes collectively
referred to herein as the "Parties" and each individually as the "Party."
WITNESSETH:
WHEREAS, the Company and Employee desire to enter into this Agreement to
provide for the terms and conditions of Employee's employment as a principal
engineer and project manager of the Company.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the Parties hereto agree as follows:
ARTICLE I
TERMS AND CONDITIONS OF EMPLOYMENT
1.1 Engagement. Subject to the terms and conditions set forth in this
----------
Agreement, the Company hereby engages Employee as a principal engineer and
project manager of the Company, and Employee agrees to serve the Company in such
capacity, for a term of six (6) years commencing on the date hereof, unless
Employee sooner resigns, retires, dies, is permanently disabled, or the
Agreement is terminated as hereinafter provided.
1.2 Services.
---------
(a) Employee will perform those management and technical duties as a
principal engineer and project manager of the Company as are assigned to him
from time to time by the Company's senior management.
(b) Employee will devote his best efforts and substantially all of
his business time and attention (except for reasonable vacation periods and
periods of illness or other incapacity) to the faithful and diligent performance
of his duties hereunder, as required by the business of the Company (and its
subsidiaries and affiliates).
<PAGE>
1.3 Salary. So long as Employee is employed by the Company in accordance
------
with this Agreement, the Company will pay Employee an annual salary of
$100,000.00 subject to periodic increases at the discretion of the Company's
President, Executive Vice President or other authorized officer, such salary to
be payable in accordance with the Company's general payroll practices.
1.4 Benefits. During the term of this Agreement, Employee shall be
--------
entitled to receive from the Company and participate in all of its customary
health, pension, vacation, bonus and other fringe benefits provided to other
similarly situated employees of the Company.
1.5 Expenses. In addition to salary and any other compensation received
--------
under Sections 1.3 or 1.4, the Company shall promptly reimburse the Employee for
all reasonable travel, entertainment and miscellaneous expenses incurred by
Employee in connection with the performance of his duties under this Agreement
in proper pursuit of the Company's business, provided that the Employee properly
accounts for such expenses to the Company in accordance with the Company's
regular policies.
1.6 Covenant Not to Compete.
-----------------------
(a) In consideration of the employment, salary and other benefits
provided to Employee under this Agreement, Employee agrees that, while Employee
is employed by the Company under this Agreement and for a period of eighteen
(18) months thereafter, he will not be involved in direct competition with the
Company, except with the express written consent of the Company; specifically,
Employee will not, either directly or indirectly, for himself or on behalf of or
in conjunction with any other person, partnership, corporation or other entity,
own, maintain, engage in, render any services for, manage, have any financial
interest in, permit his name to be used in or hire or solicit any employees or
customers of the Company or its affiliates (as defined below) or subsidiaries
(as defined below) in connection with, any of the Company's products in any
market served by the Company or any subsidiary or affiliate of the Company in
the United States or any market in which the Company or its subsidiaries or
affiliates are engaged in or have, as of the date of the termination of
Employee's employment, firm plans to enter within two years after the date that
Employee's employment hereunder is terminated. The Company shall, within sixty
(60) days from the date of receipt of a written request from Employee, respond
as to whether or not the Company has firm plans to enter a specified market
within such two year period. Notwithstanding the foregoing, Employee may during
such eighteen (18) month period own up to one percent (1%) of the outstanding
voting securities of any publicly-held company.
(b) If, at the time of enforcement of any provision of Section 1.6(a)
above, a court holds that the restrictions stated therein are unreasonable under
circumstances then existing, the Parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area.
(c) In the event of a breach by Employee of the provisions of Section
1.6(a) above, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor, apply to any court of competent
jurisdiction for specific performance
2
<PAGE>
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions thereof.
(d) As used herein, the term "affiliate" means, with respect to any
person or entity, (i) any other person or entity that is directly or indirectly
controlled by, under common control with or controlling such person or entity;
(ii) any other person or entity owning beneficially or controlling five percent
(5%) or more of the equity interest in such person or entity; (iii) any officer,
director or partner of such person or entity; or (iv) any spouse or relative of
such person. As used herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person or entity, whether through the ownership of partnership
interests or voting securities, by contract or otherwise.
(e) As used herein, the term "subsidiary" means, as to any person or
entity, any other entity more than 50% of whose outstanding equity or voting
interests are owned, directly or indirectly, by such person or entity.
1.7 Confidential Information. Employee acknowledges that his Agreement
------------------------
Regarding Creative Works, Inventions and Confidentiality (the "Confidentiality
Agreement"), dated April 8, 1991, with the Company remains binding on him and in
full force and effect and is additional consideration from him to the Company
for his employment hereunder.
ARTICLE II
TERMINATION OF AGREEMENT
2.1 Termination by the Company for Good Cause. Employee's employment
-----------------------------------------
under this Agreement may be terminated by the Company for "good cause," defined
as follows:
(a) Employee's habitually willful or negligent failure to perform the
duties that he is required to perform under the terms of this Agreement or as
directed by the senior management of the Company;
(b) Employee's habitually willful violation of the reasonable and
substantial rules governing employee performance generally as fixed from time to
time by the senior management of the Company;
(c) Employee's habitual refusal to obey reasonable directions from
the senior management of the Company in a manner that amounts to willful or
negligent insubordination;
(d) Employee's commission of any act or acts of demonstrable
dishonesty resulting in a material detriment to the Company, or any breach of
the Confidentiality Agreement;
(e) Employee's conviction of a felony or other crime involving
dishonesty or moral turpitude;
3
<PAGE>
(f) Employee's inability to perform his normal duties for the Company
by reason of illness, injury or incapacity for a period of one hundred twenty
(120) substantially consecutive days;
(g) Employee's breach of any provision of this Agreement; or
(h) Employee's death or retirement.
If the Company determines that any of the events or circumstances specified
above as constituting good cause for termination has occurred, the Company may
serve a written notice upon Employee specifying such events or circumstances in
detail and describing the Company's plans with respect thereto. Thereafter,
Employee shall have a period of not less than thirty (30) days in which to cure
any alleged deficiencies in the performance of his obligations under this
Agreement which are specified in the written notice. If, after such written
notice and opportunity to cure, the Company, in good faith, makes a
determination that good cause still exists for the termination of this
Agreement, then the employment of Employee under this Agreement shall be
terminable by the Company upon delivery of a subsequent written notice to
Employee specifying the effective date of termination (which shall in no event
be earlier than the date immediately following the expiration of the thirty (30)
day cure period specified above).
2.2 Termination by the Employee. The Employee may terminate this
---------------------------
Agreement at any time, by giving (a) thirty (30) days written notice of such
termination to the Company if such notice is given within ten (10) days of any
salary decrease, or (b) ninety (90) days written notice of such termination to
the Company in all other events. The Employee shall have no right to receive
salary, compensation or other benefits for any period after the date of
termination, except as required by law.
2.3 Effect of Termination. Upon the termination of this Agreement, the
---------------------
rights of Employee or the Company which have accrued prior to the effective date
of such termination shall not be abridged, in whole or in part, or otherwise
adversely affected in any way.
ARTICLE III
GENERAL PROVISIONS
3.1 Notices. Any notice provided for in this Agreement must be in writing
-------
and must be delivered to the recipient at the address below indicated:
To the Company:
MIL 3, Incorporated
3400 International Drive
Washington, D.C. 20008
Tel. No.: (202) 364-8390
Fax No.: (202) 364-8554
Attn: Marc Cohen, Executive Vice President
4
<PAGE>
With a copy to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 15/th/ Street, N.W.
Washington, D.C. 20005
Tel. No.: (202) 371-6242
Fax No. (202) 371-6279
Attn: Harold I. Freilich, Esq.
To Employee:
George M. Cathey
2602 Tunlaw Road, N.W.
No. 4
Washington, D.C. 20007
Tel. No.: 202-338-7213
Fax No.: _______________________
or such other address or to the attention of such other person as the recipient
Party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given five (5) business
days after mailing by first class mail, certified return receipt requested, one
(1) business day after delivery to a receipted courier for next business day
delivery, or upon transmission by telex or facsimile.
3.2 Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
3.3 Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein embody the complete agreement and understanding between the
Parties and supersede and preempt any prior understandings, agreements
(including any employment agreements) or representations by or between the
Parties, written or oral, which may have related to the subject matter hereof in
any way, provided, however, that this Agreement shall not supersede or preempt
-------- -------
any agreements between the Company and the Employee relating to the Company's
1993 Incentive Stock Option Plan.
3.4 Counterparts. This Agreement may be executed on separate
------------
counterparts, each of which is deemed to be an original and both of which taken
together constitute one and the same agreement. This Agreement may be executed
and delivered by facsimile transmission.
3.5 Successors and Assigns. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Employee and the Company, and each
of their respective
5
<PAGE>
successors and assigns, except that Employee may not assign any of his rights or
obligations under Article I.
3.6 Choice of Law. All questions concerning the construction, validity
-------------
and interpretation of this Agreement will be governed by the internal law, and
not the law of conflicts, of the District of Columbia.
3.7 Remedies. Except as provided in Section 3.9, each of the Parties
--------
will be entitled to enforce its rights under this Agreement specifically, to
recover damages by reason of any provision of this Agreement and to exercise all
other rights existing in its favor. The Parties agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any Party may in its sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. The prevailing Party in any action described in
this Section 3.7 shall be entitled to payment of its reasonable attorneys' fees
from the other Party.
3.8 Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of the Company and
Employee.
3.9 Arbitration. Any dispute or controversy arising out of this
-----------
Agreement, other than such dispute or controversy concerning the Confidentiality
Agreement and/or Section 1.6, shall be determined by arbitration before an
arbitrator acceptable to the Parties. If no mutually acceptable arbitrator can
be found, each Party shall select one arbitrator, the two arbitrators so chosen
shall select a third arbitrator, and the decision of a majority of such
arbitrators shall be binding and conclusive on all Parties. Such arbitration
shall take place in Washington, D.C. in accordance with rules and procedures of
the American Arbitration Association then in effect. The judgment on any award
made by the arbitrators may be entered in any court having jurisdiction thereof,
Each party shall bear its own expenses (including the expenses and fees of the
arbitrator it selects and one-half of the fees and expenses of the third
arbitrator contemplated above) in connection with such arbitration, judgement
and enforcement, provided, however, that the filing and similar costs of
-------- -------
convening and conducting the arbitration shall be borne equally by the Parties.
3.10 Survival. Notwithstanding anything to the contrary herein, the
--------
provisions of Section 1.6 and of the Confidentiality Agreement shall survive any
termination of the Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day
and year first above written.
MIL 3 INCORPORATED,
a Delaware corporation
By: /s/ Marc A. Cohen
----------------------------
Marc A. Cohen
Chairman of the Board
/s/ George M. Cathey
--------------------------------
George M. Cathey
7
<PAGE>
EXHIBIT 10.15
NON-COMPETITION AGREEMENT (the "Agreement") made as of this 30th day of
September, 1997, by and between MIL 3, INCORPORATED (the "Company"), a Delaware
corporation, and MARC A. COHEN ("Cohen"), an individual residing in Washington,
D.C. (The Company and Cohen are each sometimes referred to herein as a "Party"
and collectively as the "Parties.")
WITNESSETH:
WHEREAS, in accordance with a Series A Preferred Stock Purchase Agreement
(the "Purchase Agreement") dated as of September, 1997 among Summit Investors
III, L.P. and Summit Ventures IV, L.P. (together, the "Investors") and the
Company, the Investors have purchased from the Company a total of 144,640 shares
of the Company's Series A Convertible Preferred Stock, par value $ .001 per
share (the "Series A Preferred Stock"); and
WHEREAS, Cohen is currently the Chairman and Chief Executive Officer of the
Company; and
WHEREAS, it is a condition to the obligations of the Investors under the
Purchase Agreement that this Agreement be executed and delivered by Cohen and
the Parties are willing to execute and deliver this Agreement and to be bound by
the provisions hereof.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties intending legally to be bound hereby, agree with each
other as follows:
1. Covenant Not to Compete.
-----------------------
(a) While Cohen is employed by the Company and, in the event that
Cohen's employment with the Company has terminated either at his voluntary
election or for "good cause" (as hereafter defined), for a period of twelve
months thereafter, Cohen agrees that he will not, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, partnership,
corporation or other entity, own, maintain, engage in, render any services for,
manage, have any financial interest in, permit his name to be used in or hire or
solicit any employees or customers of the Company for any enterprise in
competition with any of the Company's products or services in any market served
by the Company or any market in which the Company has, as of the date of such
termination, firm documented plans to enter within six months after such date.
Notwithstanding the foregoing, Cohen may during his employment and thereafter
own up to one percent (1%) of the outstanding voting securities of any publicly-
held company.
(b) If, at the time of enforcement of any provision of Section
1(a) above, a court holds that the restrictions stated therein are unreasonable
under circumstances then existing, the Parties agree that the maximum period,
scope or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area.
<PAGE>
(c) As used herein, "good cause" means a written determination
in good faith by a disinterested majority of the board of directors of the
Company after compliance with the procedures set forth in Section 1(d), which
determination specifies:
(i) Cohen's habitually willful or negligent failure to
perform the duties that he is required to perform as
directed by the board of directors of the Company;
(ii) Cohen's commission of any act or acts of demonstrable
dishonesty resulting in a material detriment to the
Company;
(iii) Cohen's conviction of a felony or other crime
involving dishonesty or moral turpitude; or
(iv) Cohen's inability to perform his normal duties for
the Company by reason of illness, injury or
incapacity for a period of one hundred twenty (120)
substantially consecutive days.
(d) If the Company asserts that any of the events or
circumstances specified in Section 1(c) above as constituting good cause for
Cohen's termination has occurred, the Company will serve a written notice upon
Cohen (with a copy to the Investors) specifying such events or circumstances in
detail. Thereafter, Cohen shall have a period of not less than thirty (30) days
in which to cure any such alleged deficiencies which are specified in such
written notice. If, after such written notice and opportunity to cure and upon
consideration of all information supplied by Cohen in response to the Company's
assertion, a disinterested majority of the Company's board of directors, in good
faith, makes a written determination that good cause for Cohen's termination
existed, then the provisions of Section 1(a) shall be applicable to Cohen's
activities.
2. Confidential Information. All information, data and documents
------------------------
concerning the Company's business and affairs provided by the Company to Cohen
in whatever form (the "Confidential Information") is confidential and
proprietary to the Company, and Cohen agrees that, except as appropriate in the
performance of his duties as Chairman and Chief Executive Officer of the
Company, and after the termination of his employment with the Company, to
protect the Confidential Information from further disclosure to any third party.
(a) Cohen's obligation to maintain the confidentiality of the
Confidential Information as set forth in this Agreement is not applicable to any
information, data or document which:
(i) is or becomes known to the public other than through
the act or omission of Cohen;
2
<PAGE>
(ii) is required to be disclosed under applicable law or
by a governmental order, decree, regulation or rule
(provided that Cohen shall give written notice to the
Company prior to such disclosure so as to permit the
Company to assert its rights and protect the
confidentiality thereof);
(iii) was acquired by Cohen from a third party which Cohen
does not know or have reason to know obtained the
same from the Company, either directly or indirectly,
under an agreement to maintain its confidentiality;
or
(iv) was developed by Cohen independently of any
information, data or document which he received from
the Company and as to which he owes no obligation of
confidentiality.
3. Miscellaneous
-------------
(a) Notices. Any notice provided for in this Agreement must be
-------
in writing and must be delivered to the recipient, by courier or by mail,
postage pre-paid, at the address below indicated:
To the Company:
MIL 3, Incorporated
3400 International Drive
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman and Chief Executive Officer
To Cohen:
Marc J. Cohen
c/o MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Attn: Marc Cohen, Chairman
and Chief Executive Officer
To the Investors:
Summit Ventures IV, L.P.
Summit Investors III, L.P.
c/o Summit Partners, L.P.
600 Atlantic Avenue
Boston, MA 02110
Attn: Bruce Evans
3
<PAGE>
with copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02120
Attn: James Westra, Esquire
or such other address or to the attention of such other person as the recipient
shall have specified by prior written notice to the sending Party. Notices
given in accordance with the foregoing shall be deemed received (i) upon
receipt, if hand delivered, and (ii) five business days after deposited in the
U.S. mail, if sent by mail.
(b) Amendments and Waivers. As long as the Investors own
----------------------
shares of the Series A Preferred Stock, this Agreement may not be amended,
modified or terminated without the prior written consent of the Investors.
Except as provided in the preceding sentence, amendments or additions to this
Agreement may be made, and compliance with any term, covenant, agreement,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
upon the written consent of each of the Parties.
(c) Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Parties with respect to the matters contemplated herein. This
Agreement supersedes any and all prior understandings as to the subject matter
of this Agreement.
(d) Equitable Relief. Each of the Parties recognizes that the
----------------
Company shall not have an adequate remedy at law if Cohen fails to comply with
the provisions of this Agreement, and that damages will not be readily
ascertainable, and Cohen expressly agrees that in the event of any failure by
him to comply with this Agreement, the Company shall be entitled to seek
specific performance of such Cohen's obligations hereunder and that Cohen will
not oppose an application seeking such specific performance.
(e) Binding Effect; Assignment. This Agreement shall be
--------------------------
binding upon and inure to the benefit of the successors and assigns of the
Parties hereto.
(f) General; Definitions. The Section headings contained in
--------------------
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement. Reference to the term "Section"
herein is to a Section of this Agreement. In this Agreement the singular
includes the plural, the plural the singular, and the use of any gender includes
the neuter, masculine and feminine genders.
(g) Severability. If any provision of this Agreement shall be
------------
found by any court of competent jurisdiction to be invalid or unenforceable, the
Parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and,
4
<PAGE>
as modified, shall be enforced as any other provision hereof, with all the other
provisions hereof continuing in full force and effect.
(h) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall constitute an original but both of which
together shall constitute one and the same instrument.
(i) Governing Law. This Agreement shall be deemed a contract
-------------
made under the laws of the State of New York and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State.
(j) Third Party Beneficiaries. This Agreement is made for the
-------------------------
benefit of the Parties hereto and shall not confer any rights or benefits on any
person not a party hereto.
[Signatures on following page]
5
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the date first above written.
/s/ Marc A. Cohen
------------------------------
MARC A. COHEN
MIL 3, INCORPORATED
By: /s/ Alain Cohen
---------------------------
Its: President
--------------------------
<PAGE>
EXHIBIT 10.16
NON-COMPETITION AGREEMENT (the "Agreement") made as of this 30th day of
September, 1997, by and between MIL 3, INCORPORATED (the "Company"), a Delaware
corporation, and ALAIN J. COHEN ("Cohen"), an individual residing in Washington,
D.C. (The Company and Cohen are each sometimes referred to herein as a "Party"
and collectively as the "Parties.")
WITNESSETH:
WHEREAS, in accordance with a Series A Preferred Stock Purchase Agreement
(the "Purchase Agreement") dated as of September 30, 1997 among Summit Investors
III, L.P. and Summit Ventures IV, L.P. (together, the "Investors") and the
Company, the Investors have purchased from the Company a total of 144,640 shares
of the Company's Series A Convertible Preferred Stock, par value $.001 per share
(the "Series A Preferred Stock"); and
WHEREAS, Cohen is currently the President of the Company; and
WHEREAS, it is a condition to the obligations of the Investors under the
Purchase Agreement that this Agreement be executed and delivered by Cohen and
the Parties are willing to execute and deliver this Agreement and to be bound by
the provisions hereof.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties intending legally to be bound hereby, agree with each
other as follows:
1. Covenant Not to Compete.
-----------------------
(a) While Cohen is employed by the Company and, in the event that
Cohen's employment with the Company has terminated either at his voluntary
election or for "good cause" (as hereafter defined), for a period of twelve
months thereafter, Cohen agrees that he will not, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, partnership,
corporation or other entity, own, maintain, engage in, render any services for,
manage, have any financial interest in, permit his name to be used in or hire or
solicit any employees or customers of the Company for any enterprise in
competition with any of the Company's products or services in any market served
by the Company or any market in which the Company has, as of the date of such
termination, firm documented plans to enter within six months after such date.
Notwithstanding the foregoing, Cohen may during his employment and thereafter
own up to one percent (1%) of the outstanding voting securities of any publicly-
held company.
(b) If, at the time of enforcement of any provision of Section
1(a) above, a court holds that the restrictions stated therein are unreasonable
under circumstances then existing, the Parties agree that the maximum period,
scope or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area.
<PAGE>
(c) As used herein, "good cause" means a written determination
in good faith by a disinterested majority of the board of directors of the
Company after compliance with the procedures set forth in Section 1(d), which
determination specifies:
(i) Cohen's habitually willful or negligent failure to
perform the duties that he is required to perform as
directed by the board of directors of the Company;
(ii) Cohen's commission of any act or acts of demonstrable
dishonesty resulting in a material detriment to the
Company;
(iii) Cohen's conviction of a felony or other crime
involving dishonesty or moral turpitude; or
(iv) Cohen's inability to perform his normal duties for
the Company by reason of illness, injury or
incapacity for a period of one hundred twenty (120)
substantially consecutive days.
(d) If the Company asserts that any of the events or
circumstances specified in Section 1(c) above as constituting good cause for
Cohen's termination has occurred, the Company will serve a written notice upon
Cohen (with a copy to the Investors) specifying such events or circumstances in
detail. Thereafter, Cohen shall have a period of not less than thirty (30) days
in which to cure any such alleged deficiencies which are specified in such
written notice. If, after such written notice and opportunity to cure and upon
consideration of all information supplied by Cohen in response to the Company's
assertion, a disinterested majority of the Company's board of directors, in good
faith, makes a written determination that good cause for Cohen's termination
existed, then the provisions of Section 1(a) shall be applicable to Cohen's
activities.
2. Confidential Information. All information, data and documents
------------------------
concerning the Company's business and affairs provided by the Company to Cohen
in whatever form (the "Confidential Information") is confidential and
proprietary to the Company, and Cohen agrees that, except as appropriate in the
performance of his duties as President of the Company, and after the termination
of his employment with the Company, to protect the Confidential Information from
further disclosure to any third party.
(a) Cohen's obligation to maintain the confidentiality of the
Confidential Information as set forth in this Agreement is not applicable to any
information, data or document which:
(i) is or becomes known to the public other than through
the act or omission of Cohen;
(ii) is required to be disclosed under applicable law or
by a governmental order, decree, regulation or rule
(provided that Cohen shall give written notice to the
Company prior to
<PAGE>
such disclosure so as to permit the Company to assert
its rights and protect the confidentiality thereof);
(iii) was acquired by Cohen from a third party which Cohen
does not know or have reason to know obtained the
same from the Company, either directly or indirectly,
under an agreement to maintain its confidentiality;
or
(iv) was developed by Cohen independently of any
information, data or document which he received from
the Company and as to which he owes no obligation of
confidentiality.
3. Miscellaneous
-------------
(a) Notices. Any notice provided for in this Agreement must be
-------
in writing and must be delivered to the recipient, by courier or by mail,
postage pre-paid, at the address below indicated:
To the Company:
MIL 3, Incorporated
3400 International Drive
Washington, D.C. 20008
Attn: Marc A. Cohen, Chairman and Chief Executive Officer
To Cohen:
Alain J. Cohen
3101 New Mexico Avenue, N.W.
Apt. 810
Washington, D.C. 20016
To the Investors:
Summit Ventures IV, L.P.
Summit Investors III, L.P.
c/o Summit Partners L.P.
600 Atlantic Avenue, Suite 2800
Boston, MA 02110
Attn: Bruce R. Evans
with copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
3
<PAGE>
Boston, MA 02120
Attn: James Westra, Esquire
or such other address or to the attention of such other person as the recipient
shall have specified by prior written notice to the sending Party. Notices
given in accordance with the foregoing shall be deemed received (i) upon
receipt, if hand delivered, and (ii) five business days after deposited in the
U.S. mail, if sent by mail.
(b) Amendments and Waivers. As long as the Investors own
----------------------
shares of the Series A Preferred Stock, this Agreement may not be amended,
modified or terminated without the prior written consent of the Investors.
Except as provided in the preceding sentence, amendments or additions to this
Agreement may be made, and compliance with any term, covenant, agreement,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
upon the written consent of each of the Parties.
(c) Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Parties with respect to the matters contemplated herein. This
Agreement supersedes any and all prior understandings as to the subject matter
of this Agreement.
(d) Equitable Relief. Each of the Parties recognizes that the
----------------
Company shall not have an adequate remedy at law if Cohen fails to comply with
the provisions of this Agreement, and that damages will not be readily
ascertainable, and Cohen expressly agrees that in the event of any failure by
him to comply with this Agreement, the Company shall be entitled to seek
specific performance of such Cohen's obligations hereunder and that Cohen will
not oppose an application seeking such specific performance.
(e) Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the successors and assigns of the Parties
hereto.
(f) General; Definitions. The Section headings contained in
--------------------
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement. Reference to the term "Section"
herein is to a Section of this Agreement. In this Agreement the singular
includes the plural, the plural the singular, and the use of any gender includes
the neuter, masculine and feminine genders.
(g) Severability. If any provision of this Agreement shall be
------------
found by any court of competent jurisdiction to be invalid or unenforceable, the
Parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, with all the other provisions
hereof continuing in full force and effect.
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<PAGE>
(h) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall constitute an original but both of which
together shall constitute one and the same instrument.
(i) Governing Law. This Agreement shall be deemed a contract
-------------
made under the laws of the State of New York and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State.
(j) Third Party Beneficiaries. This Agreement is made for the
-------------------------
benefit of the Parties hereto and shall not confer any rights or benefits on any
person not a party hereto.
[Signatures on following page]
5
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Non-Competition Agreement
to be duly executed as of the date first above written.
/s/ Alain J. Cohen
---------------------------------
Alain J. Cohen
MIL 3, INCORPORATED
By: /s/ Marc A. Cohen
------------------------------
Its: Chairman
-----------------------------
<PAGE>
EXHIBIT 10.17
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of this 20th day
of January, 2000 between MIL 3, Incorporated, a Delaware corporation (the
"Company"), and George M. Cathey ("Cathey").
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to loan to Cathey the amount required to permit
Cathey to pay federal, state and local taxes related to the exercise of the
option to purchase 100,000 shares of Common Stock, $.01 par value per share, of
the Company ("Common Stock") pursuant to the Stock Purchase and Option Agreement
(the "Option Agreement") attached hereto as Exhibit A (the shares of Common
---------
Stock acquired upon the exercise of such option shall be referred to herein as
the "Shares"); and
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, Cathey desires to issue a secured promissory note to the Company to
evidence such loan.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereby agree as follows:
1. Loan. The Company agrees to make the following loans to Cathey:
----
(a) On the date of exercise, as set forth in Section 1.2(c)(i) of the
Option Agreement, the Company shall loan an aggregate of $231,023.90 to Cathey
(the "Loan"), in exchange for the secured promissory note of Cathey, in the
principal amount of the Loan, in the form attached hereto as Exhibit B (the
---------
"Note"). The Loan shall be used by Cathey solely to pay federal, state and
local taxes incurred by Cathey in connection with the purchase of the Shares.
(b) On or about April 13, 2001, the Company shall loan to Cathey (the
"Tax Loan") such amount, to be mutually agreed upon by Cathey and the Company,
as is necessary for Cathey to pay any additional federal, state and local taxes
incurred by Cathey in connection with the purchase of the Shares, which loan
amount shall include the amount of any applicable tax withholding obligation of
the Company, in exchange for the secured promissory note of Cathey, in the
principal amount of the Tax Loan, substantially in the form attached hereto as
Exhibit C (the "Second Note").
- ---------
(c) At any time and from time to time prior to the payment in full of
the Note, the Company shall loan to Cathey (the "Second Tax Loan") such amount,
to be mutually agreed upon by Cathey and the Company, as is necessary for Cathey
to pay any additional federal, state and local taxes or any tax penalties
incurred by Cathey in connection with the purchase of the Shares, which loan
amount shall include the amount of any applicable tax withholding obligation of
the Company, in exchange for the secured promissory note of Cathey, in the
principal amount of the Second Tax Loan, substantially in the form attached
hereto as Exhibit C (the "Third Note"); provided (i) that such additional
---------
federal, state and local taxes or tax penalties shall be
1
<PAGE>
assessed by the Internal Revenue Service or the tax collection authority of any
state or local jurisdiction as the result of an audit, or shall be determined by
any federal, state or local court, and (ii) that Cathey shall have a legal
obligation to pay such additional federal, state and local taxes or tax
penalties.
(d) Cathey's obligations under the Note, the Second Note, the Third
Note and this Agreement shall be recourse to Cathey's interest in the Collateral
(as defined in the Pledge Agreement).
(e) Notwithstanding Sections 1(b) and 1(c) of this Agreement, the
Company shall have no obligation to make the Tax Loan or the Second Tax Loan to
Cathey if, on or prior to the date of the Tax Loan or the Second Tax Loan, as
the case may be, Cathey's employment with the Company has been terminated by the
Company for "good cause" as set forth in Section 2.1 of the Employment
Agreement, dated December 4, 1995, between Cathey and the Company.
2. Security Interest. As set forth in the Pledge Agreement attached
-----------------
hereto as Exhibit D (the "Pledge Agreement"), Cathey hereby grants to the
---------
Company a security interest in the Shares to secure the payment and performance
of the Note and, if and when issued by Cathey, the Second Note and the Third
Note.
3. Investment Representations. Cathey represents, warrants and covenants
--------------------------
as follows:
(a) Cathey is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933, as
amended (the "Securities Act"), or any rule or regulation under the Securities
Act.
(b) Cathey has had such opportunity as he has deemed adequate to
obtain from representatives of the Company such information as is necessary to
permit him to evaluate the merits and risks of his investment in the Company.
(c) Cathey has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the purchase of
the Shares and to make an informed investment decision with respect to such
purchase.
(d) Cathey can afford a complete loss of the value of the Shares and
is able to bear the economic risk of holding such Shares for an indefinite
period.
(e) Cathey understands that (i) the Shares have not been registered
under the Securities Act and are "restricted securities" within the meaning of
Rule 144 under the Securities Act ("Rule 144"), (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available and
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one year and even then will not be available unless a
public market then exists for the Common Stock, adequate information concerning
the Company is then available to the public and other terms and conditions of
Rule 144 are complied with.
2
<PAGE>
(f) A legend substantially in the following form will be placed on
the certificate(s) representing the Shares:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be sold, transferred or
otherwise disposed of in the absence of an effective registration statement
under such Act or an opinion of counsel satisfactory to the corporation to
the effect that such registration is not required."
4. Lock-up Agreement. Cathey, if requested by the Company and the
-----------------
managing underwriter of an initial public offering of Common Stock or other
securities of the Company pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission, agrees to enter into a
lock-up agreement with such managing underwriter pursuant to which Cathey will
agree not to sell publicly or otherwise transfer or dispose of the Shares or
other securities of the Company for a specified period of time (not to exceed
180 days) from the effective date of such registration statement.
5. Notices. All notices, demands and other communications provided for
-------
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, courier service, personal
delivery or facsimile (provided that "answer back" confirmation is received by
the sender of the facsimile):
(a) if to the Company:
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, D.C. 20008
Facsimile: (202) 364-8554
Attn: Chief Financial Officer
with a copy to:
Hale and Dorr LLP
1455 Pennsylvania Ave., N.W.
Washington, DC 20004-1008
Facsimile: (202) 942-8484
Attn: Brent Siler, Esq.
3
<PAGE>
(b) if to Cathey:
George M. Cathey
1608 Q Street, N.W.
Washington, D.C. 20009
All such notices and communications shall be deemed to have been duly given
(a) when delivered by hand, if personally delivered, (b) when delivered by
courier, if delivered by commercial overnight courier service, (c) when mailed,
five business days after being deposited in the mail, postage prepaid, or (d)
when "answer back" confirmation is received by the sender, if sent by facsimile.
Any party may, from time to time, change its address by sending a notice with
the new address in accordance with the provisions of this Section 5.
6. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
Cathey may not assign any of his rights under this Agreement without the written
consent of the Company. The Company may assign any of its rights under this
Agreement without the written consent of Cathey. No person or entity other than
the parties hereto and their successors and permitted assigns is intended to be
a beneficiary of this Agreement.
7. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of Cathey or the Company in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement and any consent
to any departure by any party from the terms of any provision of this Agreement
shall be effective (i) only if it is made or given in writing and signed by
Cathey and the Company and (ii) only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Agreement, no notice to or demand on any party in any case
shall entitle any party hereto to any other or further notice or demand in
similar or other circumstances.
8. Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed shall be deemed to be an
original and both of which taken together shall constitute one and the same
agreement.
9. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
10. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the District of Columbia, without regard to the
principles of conflicts of law of such jurisdiction.
4
<PAGE>
11. Jurisdiction. Each party to this Agreement hereby irrevocably agrees
------------
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby shall be brought in the
courts of the District of Columbia or of the United States of America for the
District of Columbia and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum.
Each party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 5, such service to become effective 10 days after such
mailing.
12. Severability. If any one or more of the provisions contained herein,
------------
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired.
13. Entire Agreement. This Agreement, together with the Exhibits hereto,
----------------
is intended by the parties as a final expression of their agreement and is
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth herein or therein. This Agreement,
together with the Exhibits hereto, supersedes all prior agreements and
understandings between the parties with respect to such subject matter. The
parties acknowledge and agree than this Agreement does not supersede the Stock
Purchase and Option Agreement, dated as of December 4, 1995, between the
parties, which remains in full force and effect.
14. Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person or entity) as may be reasonably required to carry out or to
perform the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
MIL 3, INCORPORATED
By: /s/ Marc A. Cohen
--------------------------
Name: Marc A. Cohen
Title: Chairman
/s/ George M. Cathey
------------------------------
George M. Cathey
5
<PAGE>
EXHIBIT A
STOCK PURCHASE AND OPTION AGREEMENT
THIS STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement") is made
this 4th day of December 1995, by and between MIL 3, INCORPORATED (the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, and GEORGE M. CATHEY (the "Purchaser"), an individual residing in
Washington, D.C. The Company and Purchaser are sometimes collectively referred
to herein as the "Parties" and each individually as the "Party."
WITNESSETH:
WHEREAS, Purchaser is and has been employed by the Company as a
principal engineer and project manager and is familiar with the Company and its
business, and
WHEREAS, the Company desires to sell, and Purchaser desires to
purchase, fifteen thousand (15,000) shares of the Company's Common Stock (the
"Common Stock"), par value $.01 (said 15,000 shares, the "Stock"), in accordance
with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto, intending legally to be bound hereby, agree as
follows:
ARTICLE I
Sale of the Stock; Option
-------------------------
1.1 Sale of the Stock. Subject to the terms and conditions hereof,
-----------------
provided that the Purchaser remains an employee of the Company, the Company will
sell to Purchaser, and Purchaser will purchase from the Company, fifteen
thousand (15,000) shares of the Stock at a purchase price of $1.90 per share
(the "Purchase Price"), or a total of $28,500.
1.2 Option.
------
(a) Option to Purchase. Subject to the terms and conditions
------------------
hereof, the Company grants to the Purchaser an option (the "Option") to purchase
ten thousand (10,000) shares of Common Stock (the "Option Stock") at an exercise
price of $1.90 per share. The Option only may be exercised during the period
described below that occurs after the first to occur of the following events,
and if not exercised during such period shall immediately terminate and become
null and void (such period during which the Option may be exercised is hereafter
referred to as the "Option Term"):
(i) the sixty (60) day period following notice by the
1
<PAGE>
Company to the Purchaser of a merger or other business combination
involving the Company; or
(ii) the sixty (60) day period following notice by the Company
to the Purchaser of the scheduled effectiveness of the Company's
Initial Public Offering (as defined below); or
(iii) the twelve (12) month period commencing on or after
December 4, 2005.
(b) Certain Other Termination Provisions.
------------------------------------
(i) The Option and all rights hereunder with respect
thereto, to the extent such rights shall not have been exercised,
shall terminate and become null and void on the last day of the Option
Term.
(ii) If the Purchaser's employment with the Company has
terminated for any reason, the Option, if not previously exercised,
shall immediately terminate and become null and void except where the
termination of such employment is by reason of Purchaser's death
during the Option Term.
(iii) Upon a termination of the Purchaser's employment by
reason of death during the Option Term, the Option may be exercised by
the Purchaser's estate during the Option Term.
(iv) A transfer of the Purchaser's employment between the
Company and any parent or subsidiary of the Company, or between any
parents or subsidiaries of the Company, shall not be deemed to be a
termination of the Purchaser's employment.
(v) Notwithstanding any other provisions set forth
herein, if the Purchaser shall (A) commit any act of malfeasance or
wrongdoing affecting the Company or any parent or subsidiary of the
Company, (B) breach any covenant not to compete or employment contract
with the Company or any parent or subsidiary of the Company, or (C)
engage in conduct that would warrant the termination of Purchaser's
employment for cause, the Option shall immediately terminate and
become null and void.
(c) Exercise.
--------
(i) The Purchaser (or his estate, if applicable) may only
exercise the Option with respect to all, but not less than all, of the
Option Stock by giving written notice to the Company during the Option
Term of intent to exercise. The notice of exercise shall specify that
Purchaser (or his estate, if applicable) is exercising the Option and
the date of exercise thereof, which date shall be at least five (5)
business days after the giving of such notice unless an earlier time
shall
2
<PAGE>
have been agreed between the Company and the Purchaser (or his estate,
if applicable).
(ii) If the Purchaser (or his estate, if applicable) fails
to pay for any of the Option Stock specified in such notice or fails
to accept delivery thereof, the Option shall immediately terminate and
become null and void.
(d) Adjustments. In the event of a reorganization,
-----------
recapitalization, change of shares, stock split, stock dividend,
reclassification, subdivision or combination of shares or any other change in
the corporate structure or shares of capital stock of the Company, the Company
shall make such adjustment as is appropriate in the number and kind of shares of
Common Stock subject to the Option or in the option exercise price; provided,
--------
however, that no such adjustment shall give the Purchaser any additional
- -------
benefits under the Option.
(e) Merger or Other Business Combination. If the Option
------------------------------------
has not been exercised or terminated, the Company shall provide Purchaser with
thirty (30) days notice prior to the consummation of any merger or other
business combination involving the Company during the period prior to December
4, 2005. Purchaser (or his estate, if applicable) shall have the right to
exercise the Option and pay for the Option Stock during the sixty (60) day
period after such notice, following which the Option shall terminate and become
null and void.
(f) Public Offering.
---------------
(i) If the Option has not been exercised or terminated,
the Company shall provide Purchaser with thirty (30) days notice prior
to the effectiveness of the Company's Initial Public Offering if it is
scheduled to become effective during the period prior to December 4,
2005. Purchaser (or his estate, if applicable) shall have the right to
exercise the Option and pay for the Option Stock during the sixty (60)
day period after such notice, following which the Option shall
terminate and become null and void.
(ii) "Initial Public Offering" as used herein means the
first public offering of Common Stock of the Company, which offering
is effected pursuant to a registration statement other than on Form S-
8 filed with, and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
(g) Transfer. During the Purchaser's lifetime, the Option shall
--------
be exercisable only by the Purchaser or any guardian or legal representative of
the Purchaser, and the Option shall not be transferable except, in case of the
death of the Purchaser, by will, or the laws of descent and distribution, nor
shall the Option be subject to attachment, execution or other similar processes.
In the event of (i) any attempt by the Purchaser to alienate, assign, pledge,
hypothecate or otherwise dispose of the Option, except as provided for herein,
or (ii) the levy of any attachment, execution or similar process upon the rights
or interests hereby conferred, the Company may terminate the Option by notice to
the Purchaser, and it shall thereupon become null and void.
3
<PAGE>
(h) No Rights as to Employment. Neither the granting of the
--------------------------
Option nor its exercise shall be construed as granting to the Purchaser any
right with respect to continuance of employment with the Company.
1.3 No Rights as Shareholder. Notwithstanding anything to the
------------------------
contrary set forth in this Agreement, until Purchaser (or his estate, if
applicable) shall have fully paid for the shares of Stock or the Option Stock in
accordance with this Agreement, Purchaser (or his estate, if applicable) shall
not be considered a shareholder with respect to such shares, shall have no
rights to exercise any voting or other rights with respect thereto, and shall
not be entitled to any compensation or consideration for any such rights which
have not been exercised by full payment to the Company in accordance with this
Agreement.
ARTICLE II
Closings; Deliveries
--------------------
2.1 Closings.
--------
(a) The closing of the purchase and sale of the Stock
contemplated by Section 1.1 shall be held at 2 p.m. on December 15, 1995 at the
offices of the Company at 3400 International Drive, N.W., Washington, D.C.
20008.
(b) The closing of the purchase and sale of the Option Stock
contemplated by Section 1.2 shall be held at 2 p.m. at the offices of the
Company 10 business days after Purchaser has provided written notice to the
Company of his exercise of the Option.
2.2 Deliveries. At each closing, (a) the Company shall deliver
----------
to Purchaser (or his estate, if applicable) a certificate for the number of
shares of Common Stock, par value $.01, to be purchased by Purchaser (or his
estate, if applicable) at such closing, registered in the name of Purchaser (or
his estate, if applicable), and (b) Purchaser (or his estate, if applicable)
shall deliver to the Company the Purchase Price per share, in the form of a
cashier's or certified check or money order payable to the Company, along with a
letter signed by Purchaser (or his estate, if applicable) reciting the
representations and warranties contained in Sections 3.1 and 3.2 of this
Agreement.
4
<PAGE>
ARTICLE III
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to the Company as follows:
3.1 Investment. Purchaser is acquiring the Stock and the Option
----------
Stock, as applicable, for his own account for investment and not with a view to
any distribution thereof; Purchaser has no agreement, undertaking, arrangement,
obligation or commitment providing for the disposition thereof; and Purchaser
understands that the Stock and the Option Stock, as applicable, has not been
registered under the Securities Act of 1933, as amended, and will bear the
legends specified in Section 3.3.
3.2 Receipt of Information. Purchaser has been furnished access
----------------------
to the business and other records of the Company and such additional information
and documents as Purchaser has requested, and has been afforded an opportunity
to ask questions of and receive answers from representatives of the Company
concerning the terms and conditions of this Agreement, the purchase of the Stock
and the Option Stock, as applicable, the Company's business, financial condition
and prospects, and all other matters deemed relevant by the Purchaser.
3.3 Legends. Each certificate representing (a) the Stock, (b) the
-------
Option Stock, and (c) any other securities issued in respect of the Stock and/or
the Option Stock, whether upon any stock split, stock dividend, conversion,
recapitalization, merger, consolidation or similar event, unless the securities
evidenced by such certificate shall have been registered under the Securities
Act of 1933, as amended, shall be imprinted with legends in the following form
(in addition to any other legend required under applicable state securities
laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
"THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS SET FORTH IN AN AGREEMENT DATED DECEMBER 4,
1995, BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, AND
MAY ONLY BE SOLD, TRANSFERRED OR ASSIGNED IN ACCORDANCE
THEREWITH. A COPY OF SAID
5
<PAGE>
AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE OFFICES OF
THE COMPANY."
ARTICLE IV
Transfer Restrictions; Repurchase
---------------------------------
4.1 Transfer Restrictions. Notwithstanding anything to the
---------------------
contrary set forth herein, no shares of Stock or Option Stock acquired by the
Purchaser (or his estate, if applicable) hereunder may be sold, transferred,
assigned, pledged or otherwise disposed of, unless the Purchaser (or his estate,
if applicable) has first obtained the written approval of the Company's board of
directors.
4.2 Repurchase.
----------
(a) Except as provided in Section 4.2(c), the Company shall have
the right to purchase all shares of the Stock and Option Stock (if any) then
held by the Purchaser (or the Purchaser's estate, if applicable) if the
Purchaser's employment with the Company has terminated for any reason, other
than death or disability, during the six (6) year period commencing on the date
first set forth above, at a price per share equal to the lesser of (i) the
Purchase Price (subject to increase in accordance with Section 4.4(a)) or (ii)
the "fair market value" of the shares of the Company's Common Stock as most
recently determined in accordance with Section 4.4(b).
(b) Except as provided in Section 4.2(c), the Company shall have
the right to purchase all shares of the Stock and Option Stock (if any) then
held by the Purchaser (or the Purchaser's estate, if applicable) if the
Purchaser's employment with the Company has terminated due to his death or
disability during the six (6) year period commencing on the date first set forth
above, at a price per share equal to the fair market value of the Company's
Common Stock as most recently determined in accordance with Section 4.4(b).
(c) Notwithstanding Sections 4.2(a) and (b), if the Purchaser's
employment with the Company terminates for any reason (including due to his
death or disability) during the six (6) year period commencing on the date first
set forth above and, if on the date of such termination, Marc A. Cohen and Alain
Cohen do not own in the aggregate at least 50% of the issued and outstanding
shares of Common Stock of the Company, then the Company shall have the right to
purchase, and the Purchaser shall have the right to require the Company to
purchase, all (but not less than all) shares of Stock and Option Stock (if any)
then held by Purchaser (or the Purchaser's estate, if applicable) at a price per
share equal to the fair market value thereof as most recently determined in
accordance with Section 4.4(b).
(d) Commencing six (6) years after the date first set forth
above, the Company shall have the right to purchase all shares of the Stock and
Option Stock (if any) then held by the Purchaser (or the Purchaser's estate, if
applicable) if the Purchaser's employment with the Company has terminated for
any reason, including due to his death or disability, at a price per share equal
to the fair market value of the Company's Common Stock as most recently
6
<PAGE>
determined in accordance with Section 4.4(b).
4.3 Exercise of Repurchase Rights.
-----------------------------
(a) The Company may exercise its right to repurchase the Stock
and the Option Stock in accordance with Sections 4.2(a), (b) or (d) at any time
by giving written notice of such exercise to Purchaser (or his estate, if
applicable) during the twelve (12) month period following the termination of
Purchaser's employment. The Company's purchase of the Stock and the Option Stock
in accordance with Section 4.2 (a), (b) or (d) shall be concluded within ninety
(90) days after the date of such notice, at a closing at the Company's principal
office, at a time and date designated by the Company upon three (3) business
days prior notice to Purchaser (or his estate, if applicable).
(b) (i) The Company may exercise its right to purchase
the Stock and the Option Stock in accordance with Section
4.2(c) by giving written notice of such exercise to
Purchaser (or his estate, if applicable) during the thirty
(30) day period following the date of termination of
Purchaser's employment. If the Company has elected to
purchase the Stock and the Option Stock, the Company's
purchase of the Stock and the Option Stock in accordance
with Section 4.2(c) shall be concluded within ninety (90)
days after the date of such notice, at a closing at the
Company's principal office, at a time and date designated by
the Company upon three (3) business days prior notice to
Purchaser (or his estate, if applicable).
(ii) Purchaser may elect to require the Company to purchase
the Stock and the Option Stock in accordance with Section
4.2(c) by giving written notice of such election to the
Company during the thirty (30) day period following the date
of termination of Purchaser's employment. If Purchaser has
provided such notice, the Company's purchase of the Stock
and the Option Stock in accordance with Section 4.2(c) shall
be concluded within the twelve (12) month period after the
date of such notice, at a closing at the Company's principal
office, at a time and date designated by the Company upon
three (3) business days prior notice to Purchaser (or his
estate, if applicable).
(c) At each such closing contemplated in this Section 4.3, (i)
Purchaser (or his estate, if applicable) shall deliver all certificates
evidencing the shares of Stock and the Option Stock, free and clear of any
claim, lien or encumbrance, with stock powers duly executed, and Purchaser (or
his estate, if applicable) shall indemnify and hold the Company harmless against
any claims, liabilities or expenses with respect to Purchaser's (or his
estate's) ownership of such shares, and (ii) the Company shall pay for the
shares of Stock and Option Stock by cashier's check, certified check or money
order.
7
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4.4 Purchase Price Payable Upon Repurchase.
--------------------------------------
(a) CPI Adjustments.
---------------
(i) The Purchase Price to be paid by the Company in
accordance with Section 4.2(a) upon a purchase of each share of Stock
and Option Stock shall be increased proportionately in accordance with
the cumulative increase in the Consumer Price Index ("CPI"), measured
from (A) the monthly CPI most recently published prior to the closing
date of Purchaser's (or his estate's) acquisition of each such share
to (B) the monthly CPI most recently published prior to the date of
such purchase by the Company.
(ii) The CPI shall mean the index known as the United
States Bureau of Labor Statistics, Consumer Price Index for Urban Wage
Earners and Clerical Workers, all items, for Washington, D.C. SMSA
(1982-84=100).
(iii) If the CPI as now constituted, compiled and published
shall be revised or cease to be compiled and published during the term
of this Agreement, then the Parties shall request the Bureau of Labor
Statistics to furnish a statement converting the CPI to a figure that
would be comparable to another index published by the Bureau of Labor
Statistics and such other index shall be used in computing the
increase contemplated herein. Should the Parties not be able to secure
such appropriate conversion or adjustment, the Parties shall agree on
some other index serving the same purpose.
(b) Fair Market Value.
-----------------
(i) The "fair market value" of the Company's Common Stock
shall be such value as determined in good faith by the Employee
Committee established under the Company's 1993 Incentive Stock Option
Plan, or by any such committee under any successor plan, or in the
event no such plan or committee is in existence, by an appraiser
jointly agreed upon by the Company and the Purchaser (or his estate,
if applicable), or failing such agreement within a reasonable period
of time, by an independent appraiser appointed by the Company.
(ii) The expenses of any such appraiser contemplated in
Section 4.4(b)(i) above shall be borne by the Company, except that
such expenses shall be borne by the Purchaser (or his estate, if
applicable) in the event that the Stock is repurchased by the Company
following termination of the Purchaser's employment for good cause in
accordance with the Company's Employment Agreement with Purchaser
dated December 4, 1995.
8
<PAGE>
ARTICLE V
Miscellaneous
-------------
5.1 Notices. Any notice required or permitted under this
-------
Agreement shall be in writing and may be personally served or sent by facsimile
or telex transmission or mail and shall be deemed to have been given as follows:
if personally served, when served; if by facsimile transmission, when the
transmission is completed to the proper telefax number and confirmation of
receipt of the telefax is received; if by telex transmission, when the
transmission is completed to the proper telex number and confirmation of
delivery of the telex is received; or if mailed, on the fifth business day after
deposit in the mail with airmail postage prepaid and properly addressed. The
Parties shall promptly inform one another of any change in their addresses. For
purposes hereof, the addresses of the Parties (until notice of a change thereof
is given as provided herein) shall be as follows:
To the Company:
MIL 3 Incorporated
3400 International Drive, NW
Washington, DC 20008
Attn: Marc Cohen
Telephone: (202) 364-8390
Facsimile: (202) 364-8554
with a copy to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 15th Street, N.W.
Washington, DC 20005
Attn: Harold I. Freilich
Telephone: (202) 371-6242
Facsimile: (202) 371-6279
To the Purchaser:
George M. Cathey
2602 Tunlaw Road, N.W.
No. 4
Washington, D.C. 20007
Telephone: 202-338-7213
Facsimile: _________________
5.2 Entire Agreement. This Agreement sets forth the entire
----------------
understanding between the Parties with respect to the subject matter hereof, and
all prior discussions, memoranda of understanding, protocols of intent, letters
of intent, term sheets and similar writings with regard hereto, are superseded
and hereby terminated.
9
<PAGE>
5.3 Amendments. All amendments, deletions and additions to this
----------
Agreement shall be in writing, signed by duly authorized representatives of the
Parties.
5.4 No Waiver of Rights. No failure or delay by a party in the
-------------------
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof. The partial or single exercise by a party of any power, right or
privilege shall not preclude the further or later exercise of that, or any
other, power, right or privilege.
5.5 Severability. If any one or more provisions in this Agreement,
------------
other than provisions constituting a material consideration to a party, shall be
invalid or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remainder of this Agreement shall not be
affected or impaired; provided, however, in such event the Parties shall use
-------- -------
their reasonable best efforts to achieve the purpose of the invalid or
unenforceable provision by a new legally valid stipulation.
5.6 Third Parties. None of the provisions of this Agreement
-------------
shall be for the benefit of or enforceable by any third parties except to the
extent expressly set forth herein as to Purchaser's estate.
5.7 Headings. The inserted headings are for convenience only and
--------
shall not be used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in one or two
------------
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
5.9 Binding Effect. This Agreement shall be binding on the Parties
--------------
and their legal successors and permitted assignees.
5.10 Remedies. Each of the Parties will be entitled to enforce
--------
its rights under this Agreement specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The Parties agree and acknowledge that money damages may
not be an adequate remedy for any breach of the provisions of this Agreement and
that either party may in its sole discretion apply to any court of law or equity
of competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
5.11 Choice of Law. All questions arising under this Agreement shall
-------------
be governed by the laws of the District of Columbia (other than its choice of
law principles).
[Signatures on Next Page]
10
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
day and year first above written.
MIL 3 INCORPORATED,
a Delaware corporation
By: _____________________________
Name: Marc A. Cohen
Title: Chairman of the Board
_________________________________
George M. Cathey
11
<PAGE>
EXHIBIT B
SECURED PROMISSORY NOTE
January 20, 2000
$231,023.90 Washington, D.C.
FOR VALUE RECEIVED, George M. Cathey (the "Maker") promises to pay to MIL
3, Incorporated, a Delaware corporation (the "Company"), or order, at the
offices of the Company or at such other place as the holder of this Note may
designate, the principal sum of $231,023.90, together with interest on the
unpaid principal balance of this Note from time to time outstanding equal to
6.0% per year until paid in full. Principal and accrued interest shall be due
and payable in full on the earlier of (i) the second anniversary of the date of
this Note or (ii) the first anniversary of the closing of an initial public
offering of equity securities of the Company pursuant to a registration
statement filed with the Securities and Exchange Commission.
Interest on this Note shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. All payments by the Maker under this
Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain property
of the Maker pursuant to a pledge agreement of even date herewith between the
Maker and the Company (the "Pledge Agreement").
The Maker's obligations under this Note are also fully recoverable from the
Maker's personal assets.
This Note shall become immediately due and payable without notice or demand
upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) the effective date of termination of the Maker's employment with the
Company, if the Maker's employment with the Company shall be
terminated by the Company for "good cause" as set forth in Section 2.1
of the Employment Agreement, dated December 4, 1995, between the Maker
and the Company (the "Employment Agreement");
(2) the date of the final determination of any breach by the Maker of (i)
the covenant not to compete set forth in Section 1.6 of the Employment
Agreement or (ii) any of the terms of the Agreement Regarding Creative
Works, Inventions and Confidentiality, dated as of April 8, 1991,
between the Maker and the Company;
(3) the institution against the Maker or any endorser or guarantor of this
Note of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within thirty (30) days
of filing;
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(4) the institution by the Maker or any endorser or guarantor of this Note
of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally or the making by the Maker or any endorser or guarantor of
this Note of a composition or an assignment or trust mortgage for the
benefit of creditors;
(5) the occurrence of any event of default under the Pledge Agreement; or
(6) if the Maker dies or becomes incapacitated, or if a conservator or
guardian of the Maker is appointed, or if the Maker suffers any other
legal disability.
Upon the occurrence of an Event of Default, the holder shall have then, or
at any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the District of Columbia or
afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after the
date on which such amount first became overdue at an annual rate which is two
(2) percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
In no event shall any interest charged, collected or reserved under this
Note exceed the maximum rate then permitted by applicable law and if any such
payment is paid by the Maker, then such excess sum shall be credited by the
holder as a payment of principal.
All payments by the Maker under this Note shall be made without set-off or
counterclaim and be free and clear and without any deduction or withholding for
any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount paid
may be applied to principal or interest in such order and manner as shall be
determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty or other
document shall impair the obligation of the Maker to pay all amounts under this
Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion. The Maker and every endorser or guarantor of
2
<PAGE>
this Note regardless of the time, order or place of signing waives presentment,
demand, protest and notices of every kind and assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral, and to the addition or release
of any other party or person primarily or secondarily liable.
This Note may be prepaid in whole or in part at any time or from time to
time by the Maker. Any such prepayment shall be without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of the
District of Columbia and this Note is executed as an instrument under seal.
IN WITNESS WHEREOF, this Note has been executed by an authorized
representative of the undersigned as of the date first written above.
______________________________
George M. Cathey
3
<PAGE>
EXHIBIT C
SECURED PROMISSORY NOTE
___________, ____
$____________ Washington, D.C.
FOR VALUE RECEIVED, George M. Cathey (the "Maker") promises to pay to MIL
3, Incorporated, a Delaware corporation (the "Company"), or order, at the
offices of the Company or at such other place as the holder of this Note may
designate, the principal sum of $____________, together with interest on the
unpaid principal balance of this Note from time to time outstanding equal to
6.0% per year until paid in full. Principal and accrued interest shall be due
and payable in full on the earlier of (i) the second anniversary of the date of
this Note or (ii) the first anniversary of the closing of an initial public
offering of equity securities of the Company pursuant to a registration
statement filed with the Securities and Exchange Commission.
Interest on this Note shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. All payments by the Maker under this
Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain property
of the Maker pursuant to a pledge agreement dated as of January 20, 2000 between
the Maker and the Company (the "Pledge Agreement").
The Maker's obligations under this Note are also fully recoverable from the
Maker's personal assets.
This Note shall become immediately due and payable without notice or demand
upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) the effective date of termination of the Maker's employment with the
Company, if the Maker's employment with the Company shall be
terminated by the Company for "good cause" as set forth in Section 2.1
of the Employment Agreement, dated December 4, 1995, between the Maker
and the Company (the "Employment Agreement");
(2) the date of the final determination of any breach by the Maker of (i)
the covenant not to compete set forth in Section 1.6 of the Employment
Agreement or (ii) any of the terms of the Agreement Regarding Creative
Works, Inventions and Confidentiality, dated as of April 8, 1991,
between the Maker and the Company;
(3) the institution against the Maker or any endorser or guarantor of this
Note of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within thirty (30) days
of filing;
1
<PAGE>
(4) the institution by the Maker or any endorser or guarantor of this Note
of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally or the making by the Maker or any endorser or guarantor of
this Note of a composition or an assignment or trust mortgage for the
benefit of creditors;
(5) the occurrence of any event of default under the Pledge Agreement; or
(6) if the Maker dies or becomes incapacitated, or if a conservator or
guardian of the Maker is appointed, or if the Maker suffers any other
legal disability.
Upon the occurrence of an Event of Default, the holder shall have then, or
at any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the District of Columbia or
afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after the
date on which such amount first became overdue at an annual rate which is two
(2) percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
In no event shall any interest charged, collected or reserved under this
Note exceed the maximum rate then permitted by applicable law and if any such
payment is paid by the Maker, then such excess sum shall be credited by the
holder as a payment of principal.
All payments by the Maker under this Note shall be made without set-off or
counterclaim and be free and clear and without any deduction or withholding for
any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount paid
may be applied to principal or interest in such order and manner as shall be
determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty or other
document shall impair the obligation of the Maker to pay all amounts under this
Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or
2
<PAGE>
the Pledge Agreement shall operate as a waiver of such right or of any other
right of such holder, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion. The Maker and every endorser or guarantor of this Note
regardless of the time, order or place of signing waives presentment, demand,
protest and notices of every kind and assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange or
release of collateral, and to the addition or release of any other party or
person primarily or secondarily liable.
This Note may be prepaid in whole or in part at any time or from time to
time by the Maker. Any such prepayment shall be without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of the
District of Columbia and this Note is executed as an instrument under seal.
IN WITNESS WHEREOF, this Note has been executed by an authorized
representative of the undersigned as of the date first written above.
______________________________
George M. Cathey
3
<PAGE>
EXHIBIT D
PLEDGE AGREEMENT
This is a pledge agreement made as of the 20th day of January, 2000 between
George M. Cathey ("Pledgor") and MIL 3, Incorporated, a Delaware corporation
("Pledgee").
1. Pledge of Collateral. Pledgor hereby grants Pledgee a security
--------------------
interest in the Shares (as defined in that certain Loan Agreement, dated as of
the date hereof, between Pledgor and Pledgee (the "Loan Agreement")), which
Pledgor has delivered to Pledgee, as well as all other instruments, documents,
stock certificates, money and goods as may be issued to Pledgee or become
issuable to Pledgee in connection with such stock from time to time, whether
through delivery by Pledgor or otherwise (collectively, the "Collateral").
2. Obligations Secured. The security interest in the Collateral granted
-------------------
hereby secures payment and performance of the Note and, if and when issued by
Pledgor, the Second Note and the Third Note (each as defined in the Loan
Agreement), together with all interest, fees, charges and expenses with respect
to the Note and, if and when issued by Pledgor, the Second Note and the Third
Note (collectively, the "Obligations").
3. Pledgee's Rights and Duties with Respect to the Collateral. Pledgee's
----------------------------------------------------------
only duty with respect to the Collateral shall be to exercise reasonable care to
secure the safe custody thereof. Pledgee shall have the right but not the
obligation to (a) demand, sue for, receive and collect all money or money
damages payable on account of any Collateral, (b) protect, preserve or assert
any other rights of Pledgor or take any other action with respect to the
Collateral and (c) pay any taxes, liens, assessments, insurance premiums or
other charges pertaining to Collateral. Any expenses incurred by Pledgee under
the preceding sentence shall be paid by Pledgor upon demand, become part of the
Obligations secured by the Collateral and bear interest at the rate provided in
the first paragraph of the Note until paid. Pledgee shall be relieved of all
responsibility for the Collateral upon surrendering it to Pledgor.
4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants and
----------------------------------
covenants (a) that he is and will be the lawful owner of the Collateral, (b)
that the Collateral is and will be fully paid and non-assessable, (c) that the
Collateral is and will remain free and clear of all liens, encumbrances and
security interests, (d) that Pledgor has the sole right and lawful authority to
pledge the Collateral and otherwise to comply with the provisions hereof and (e)
that Pledgor has obtained the consent and agreement of all persons who have
contractual rights or restrictions with respect to the Collateral to the pledge,
disposition and other rights of Pledgee herein. In the event that any adverse
claim is asserted in respect of the Collateral or any portion thereof, except
such as may result from an act of Pledgee not authorized hereunder, Pledgor
promises and agrees to indemnify Pledgee and hold Pledgee harmless from and
against any losses, liabilities, damages, expenses, costs and reasonable counsel
fees incurred by Pledgee in exercising any right, power or remedy of Pledgee
hereunder or defending, protecting or enforcing the security interests created
hereunder. Any such loss, liability or expense so incurred shall be paid by
Pledgor upon demand, become part of the Obligations secured by the Collateral
and bear interest at the rate provided in the first paragraph of the Note until
paid.
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<PAGE>
5. Voting of Collateral. While Pledgor is not in default hereunder,
--------------------
Pledgor may vote stock and other securities pledged as Collateral.
6. Dividends and Other Distributions. While Pledgor is not in default
---------------------------------
hereunder, Pledgor may receive cash dividends and other cash distributions
payable with respect to Collateral, provided, however, that Pledgor shall
-------- -------
immediately inform Pledgee of the receipt of any such dividend or other
distribution and shall hold the amount thereof in trust for Pledgee unless and
until Pledgee shall in writing release Pledgor from such trust. Pledgor shall
cause all non-cash dividends and distributions with respect to Collateral to be
distributed directly to Pledgee, to be held by Pledgee as additional Collateral,
and if any such distribution is made to Pledgor, Pledgor shall receive such
distribution in trust for Pledgee and shall immediately transfer it to Pledgee.
7. Pledgor's Default. Pledgor shall be in default hereunder upon the
-----------------
occurrence of any of the following events:
(a) if any proceeding under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership, insolvency or
other similar law affecting the rights of creditors generally is instituted
against Pledgor or any indorser or guarantor of the Note, the Second Note or the
Third Note (collectively, the "Notes"), which proceeding is not dismissed within
thirty (30) days of filing;
(b) if any proceeding under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership, insolvency or
other similar law affecting the rights of creditors generally is instituted by
Pledgor or any indorser or guarantor of the Notes, or if a composition or an
assignment or trust mortgage for the benefit of creditors is made by Pledgor or
any indorser or guarantor of the Notes;
(c) if Pledgor dies or becomes incapacitated, or if a conservator or
guardian of Pledgor is appointed, or if Pledgor suffers any other legal
disability;
(d) if any lien, encumbrance or adverse claim of any nature whatsoever
is asserted with respect to any Collateral;
(e) if any warranty of Pledgor hereunder is or shall become false;
(f) if Pledgor fails to fulfill any obligation hereunder; or
(g) if Pledgor fails to pay or perform any of the Obligations when
such payment or performance is due.
8. Pledgee's Rights upon Default. Upon the occurrence of any default as
-----------------------------
defined in the preceding section, Pledgee may, if Pledgee so elects in its sole
option:
(a) at any time and from time to time, sell, assign and deliver the
whole or any part of the Collateral at a sale through a broker in a public
market where securities of the type constituting such Collateral are usually
traded, without any advertisement, presentment, demand for performance, protest,
notice of protest, notice of dishonor or any other notice;
2
<PAGE>
(b) at any time and from time to time sell, assign and deliver all or
any part of the Collateral, or any interest therein, at any other public or
private sale, for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and on such terms as Pledgee in
its absolute discretion may determine, provided that (i) at least ten days'
--------
notice of the time and place of any such sale shall be given to Pledgor, (ii) in
the case of any private sale, such notice shall also contain the minimum terms
of the proposed sale, and (iii) Pledgee shall obtain a fair market value price
for the Collateral, as reasonably determined by the Board of Directors of
Pledgee;
(c) exercise the right to vote, the right to receive cash dividends
and other distributions and all other rights with respect to the Collateral as
though Pledgee were the absolute owner thereof, whether or not such rights were
retained by Pledgor as against Pledgee before default; and
(d) exercise all other rights available to a secured party under the
Uniform Commercial Code and other applicable law.
9. Application of Sale Proceeds. In the event of a sale of Collateral
----------------------------
pursuant to Section 8, the proceeds shall first be applied to the payment of the
expenses of the sale, including brokers' commissions, counsel fees, any taxes or
other charges imposed by law upon the Collateral or the transfer thereof and all
other charges paid or incurred by Pledgee pertaining to the sale; and, second,
to satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. Notices. All notices, demands and other communications provided for
-------
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, courier service, personal
delivery or facsimile (provided that "answer back" confirmation is received by
the sender of the facsimile):
(a) if to Pledgee:
MIL 3, Incorporated
3400 International Drive, N.W.
Washington, DC 20008
Facsimile: (202) 364-8554
Attn: Chief Financial Officer
with a copy to:
Hale and Dorr LLP
1455 Pennsylvania Ave., N.W.
Washington, DC 20004-1008
Facsimile: (202) 942-8484
Attn: Brent B. Siler, Esq.
(b) if to Pledgor:
George M. Cathey
1608 Q Street, N.W.
Washington, DC 20009
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<PAGE>
All such notices and communications shall be deemed to have been duly given
(a) when delivered by hand, if personally delivered, (b) when delivered by
courier, if delivered by commercial overnight courier service, (c) when
mailed, five business days after being deposited in the mail, postage
prepaid, or (d) when "answer back" confirmation is received by the sender,
if sent by facsimile. Any party may, from time to time, change its address
by sending a notice with the new address in accordance with the provisions
of this Section 10.
11. Duration of Pledge Agreement. The rights and obligations of Pledgor
----------------------------
and Pledgee under this Pledge Agreement shall terminate at such time as all
of the Obligations are paid in full. At such time, the remaining
Collateral, if any, shall be surrendered to Pledgor.
12. Successors and Assigns. This Pledge Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Pledgor may not assign any of his rights under this Pledge
Agreement without the written consent of Pledgee. Pledgee may assign any
of its rights under this Pledge Agreement without the written consent of
Pledgor. No person or entity other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Pledge Agreement.
13. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of Pledgor or Pledgee in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(b) Any amendment, supplement or modification of or to any provision
of this Pledge Agreement, any waiver of any provision of this Pledge
Agreement and any consent to any departure by any party from the terms
of any provision of this Pledge Agreement shall be effective (i) only
if it is made or given in writing and signed by Pledgor and Pledgee
and (ii) only in the specific instance and for the specific purpose
for which made or given. Except where notice is specifically required
by this Pledge Agreement, no notice to or demand on any party in any
case shall entitle any party hereto to any other or further notice or
demand in similar or other circumstances.
14. Counterparts. This Pledge Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and both of which taken together shall constitute
one and the same agreement.
15. Headings. The headings in this Pledge Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning
hereof.
16. Governing Law. This Pledge Agreement shall be governed by and
-------------
construed in accordance with the laws of the District of Columbia, without
regard to the principles of conflicts of law of such jurisdiction.
4
<PAGE>
17. Jurisdiction. Each party to this Pledge Agreement hereby irrevocably
------------
agrees that any legal action or proceeding arising out of or relating to
this Pledge Agreement or any agreements or transactions contemplated hereby
shall be brought in the courts of the District of Columbia or of the United
States of America for the District of Columbia and hereby expressly submits
to the personal jurisdiction and venue of such courts for the purposes
thereof and expressly waives any claim of improper venue and any claim that
such courts are an inconvenient forum. Each party hereby irrevocably
consents to the service of process of any of the aforementioned courts in
any such suit, action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the address set forth in
Section 10, such service to become effective 10 days after such mailing.
18. Severability. If any one or more of the provisions contained herein,
------------
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired.
19. Entire Agreement. This Pledge Agreement is intended by the parties as
----------------
a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth herein. This Pledge Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
The parties acknowledge and agree that this Pledge Agreement does not
supersede the Stock Purchase and Option Agreement, dated as of December 4,
1995, between the parties, which remains in full force and effect.
20. Further Assurances. Each of the parties shall execute such documents
------------------
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any
notices to, or making any filings with, any governmental authority or any
other person or entity) as may be reasonably required to carry out or to
perform the provisions of this Pledge Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be executed and delivered by their authorized representatives as of the date
first above written.
MIL 3, INCORPORATED
By: ______________________________
Name:
Title:
____________________________________
George M. Cathey
6
<PAGE>
EXHIBIT 10.18
SECURED PROMISSORY NOTE
January 20, 2000
$231,023.90 Washington, D.C.
FOR VALUE RECEIVED, George M. Cathey (the "Maker") promises to pay to MIL
3, Incorporated, a Delaware corporation (the "Company"), or order, at the
offices of the Company or at such other place as the holder of this Note may
designate, the principal sum of $231,023.90, together with interest on the
unpaid principal balance of this Note from time to time outstanding equal to
6.0% per year until paid in full. Principal and accrued interest shall be due
and payable in full on the earlier of (i) the second anniversary of the date of
this Note or (ii) the first anniversary of the closing of an initial public
offering of equity securities of the Company pursuant to a registration
statement filed with the Securities and Exchange Commission.
Interest on this Note shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. All payments by the Maker under this
Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain property
of the Maker pursuant to a pledge agreement of even date herewith between the
Maker and the Company (the "Pledge Agreement").
The Maker's obligations under this Note are also fully recoverable from the
Maker's personal assets.
This Note shall become immediately due and payable without notice or demand
upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) the effective date of termination of the Maker's employment with the
Company, if the Maker's employment with the Company shall be
terminated by the Company for "good cause" as set forth in Section 2.1
of the Employment Agreement, dated December 4, 1995, between the Maker
and the Company (the "Employment Agreement");
(2) the date of the final determination of any breach by the Maker of (i)
the covenant not to compete set forth in Section 1.6 of the Employment
Agreement or (ii) any of the terms of the Agreement Regarding Creative
Works, Inventions and Confidentiality, dated as of April 8, 1991,
between the Maker and the Company;
(3) the institution against the Maker or any endorser or guarantor of this
Note of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within thirty (30) days
of filing;
<PAGE>
(4) the institution by the Maker or any endorser or guarantor of this Note
of any proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors
generally or the making by the Maker or any endorser or guarantor of
this Note of a composition or an assignment or trust mortgage for the
benefit of creditors;
(5) the occurrence of any event of default under the Pledge Agreement; or
(6) if the Maker dies or becomes incapacitated, or if a conservator or
guardian of the Maker is appointed, or if the Maker suffers any other
legal disability.
Upon the occurrence of an Event of Default, the holder shall have then, or
at any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the District of Columbia or
afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after the
date on which such amount first became overdue at an annual rate which is two
(2) percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
In no event shall any interest charged, collected or reserved under this
Note exceed the maximum rate then permitted by applicable law and if any such
payment is paid by the Maker, then such excess sum shall be credited by the
holder as a payment of principal.
All payments by the Maker under this Note shall be made without set-off or
counterclaim and be free and clear and without any deduction or withholding for
any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount paid
may be applied to principal or interest in such order and manner as shall be
determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty or other
document shall impair the obligation of the Maker to pay all amounts under this
Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion. The Maker and every endorser or guarantor of
2
<PAGE>
this Note regardless of the time, order or place of signing waives presentment,
demand, protest and notices of every kind and assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral, and to the addition or release
of any other party or person primarily or secondarily liable.
This Note may be prepaid in whole or in part at any time or from time to
time by the Maker. Any such prepayment shall be without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of the
District of Columbia and this Note is executed as an instrument under seal.
IN WITNESS WHEREOF, this Note has been executed by an authorized
representative of the undersigned as of the date first written above.
/s/ George M. Cathey
-----------------------
George M. Cathey
3
<PAGE>
EXHIBIT 10.21
7 July 1993
Mr. Alain Cohen
MIL 3
3400 International Dr.,
Suite 4L
N.W., Washington D.C. 20008
Subject: Letter Agreement on Administration of Building Common Areas
In connection with the Agreement of lease between INTELSAT and MIL 3, Inc.
(INTEL-L-1433) dated 16 June 1993, INTELSAT ("Landlord") and MIL 3 ("Tenant")
hereby agree to the terms of this letter agreement which further clarify the
Lease and Building Rules and Regulations. The Landlord hereby agrees to make
appropriate adjustments within its procedures to adhere to the following
clarifications:
4. Signage:
The Landlord shall develop uniform building signage standards for all Multi-
Tenant common areas which shall include directory locations, suite numbers and
proprietary signage at suite entrances, on glass, doors or adjacent vicinity
within the pod floor. No signage shall be installed without prior written
consent of Landlord. (INTELSAT is currently working with an outside vendor to
assist in developing signage standards and will convey the results to the Tenant
no later that 31 August 1993.)
6. Art work:
No tenant art work shall be installed within the Multi-Tenant common areas
without prior written consent of Landlord, who shall first obtain the consent of
all affected parties. The Landlord shall bear no liability for any such art
work.
10. Quiet Enjoyment:
The Landlord agrees to protect the Tenant's quiet enjoyment of the demised
premises in a commercially reasonable fashion and if the Landlord permits
receptions to be held within the building areas adjacent to the Tenant's
premises, Landlord shall (1) provide five (5) days advance notice of the
reception, unless Landlord itself has less than five (5) days notice, in which
case, Landlord shall notify tenant as soon as reasonably possible, (2) prevent
the placement of obstacles in front of the double doors leading to the atrium
adjacent to Pod 4L to maintain a minimum safe clearance of five (5) feet, and
(3) prevent the placement of wires and/or cabling
<PAGE>
by suite entrances or by the double doors leading to the atrium adjacent to Pod
4L which do not protect the safety of the building occupants.
40. (of the lease) Reporting of Payments:
With regard to the Reporting of Payments clause, INTELSAT has concluded that the
requirement for a certification by MIL 3's auditors under the Reporting of
Payments clause does not apply as it is INTELSAT's view that the net value of
this contract falls below the $500,000 threshold.
If you are in agreement with the above clarifications please sign below as an
acknowledgement and return to me.
Sincerely,
/s/ Robert A. Lambert
- -----------------------------------------
Robert A. Lambert
Department Manager,
Facilities Management and Office Services
Acknowledgement: /s/ Alain Cohen Date: 7/16/93
------------------ ---------
MIL 3 ( or designated representative)
cc: C. Lewis
D. Meltzer
Mil 3 Lease file
<PAGE>
5 August 1993
Mr. Alain Cohen
MIL 3, Inc.
3400 International Dr., N.W.
Suite 4L
Washington D.C. 20008
Dear Alain:
Attached for your files is a fully signed original of INTEL-L-1433 and a
copy of the signed letter agreement, dated 7 July 1993.
All rental payments and inquiries should be directed to Tuula Sumpter,
Shannon & Luchs Polinger, at (202) 944-8235. If you have any questions
regarding the Lease, please feel free to contact me.
Sincerely,
/s/ Cecilia R. Lewis
------------------------------
Cecilia R. Lewis
Special Projects Administrator
Attachment
cc: K. Gross/MIL 3, Inc.
R. Lambert w/o attachment
D. Meltzer w/o attachment
file
<PAGE>
INTEL-L-1433
AGREEMENT OF LEASE
BETWEEN
INTERNATIONAL TELECOMMUNICATIONS
SATELLITE ORGANIZATION
AND
MIL 3, INC
DATE: 18 June 1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article No. Title Page
- ----------- ----- ----
<S> <C> <C>
1. DEMISED PREMISES............................... 1
2. TERM........................................... 2
3. USE............................................ 3
4. RENTAL......................................... 4
5. RENTAL ESCALATION.............................. 8
6. SECURITY DEPOSIT............................... 10
7. PREOCCUPANCY WORK AGREEMENT.................... 10
8. ASSIGNMENT AND SUBLETTING...................... 11
9. CLEANING AND MAINTENANCE BY TENANT............. 13
10. ALTERATIONS.................................... 13
11. SIGNS AND FURNISHINGS.......................... 14
12. ENTRY FOR HOUSEKEEPING, REPAIRS AND INSPECTIONS 15
13. INSURANCE RATING............................... 15
14. TENANT'S EQUIPMENT............................. 16
15. INDEMNITY AND PUBLIC LIABILITY INSURANCE....... 17
16. SERVICES AND UTILITIES......................... 18
17. METERED UTILITIES.............................. 22
18. RESPONSIBILITY FOR DAMAGE TO DEMISED PREMISES.. 23
19. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND
PERSONS........................................ 23
20. FIRE AND OTHER CASUALTY DAMAGE TO DEMISED
PREMISES....................................... 24
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Article No. Title Page
- ----------- ----- ----
<S> <C> <C>
21. BANKRUPTCY OR INSOLVENCY....................... 25
22. DEFAULT OF TENANT.............................. 28
23. WAIVER......................................... 31
24. FIRST MORTGAGE................................. 31
25. ATTORNMENT..................................... 32
26. CONDEMNATION................................... 32
27. RULES AND REGULATIONS.......................... 33
28. RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT;
LATE PAYMENTS.................................. 33
29. NO PARTNERSHIP................................. 34
30. NO REPRESENTATIONS BY LANDLORD................. 34
31. BROKERS........................................ 34
32. NOTICES........................................ 35
33. ESTOPPEL CERTIFICATES.......................... 35
34. COVENANTS OF LANDLORD.......................... 36
35. SURRENDER OF DEMISED PREMISES.................. 36
36. HOLDING OVER................................... 37
37. LIEN FOR RENT.................................. 37
38. UNDERLYING LEASE............................... 37
39. SALES AND EXCISE TAXES......................... 38
40. REPORTING OF PAYMENTS.......................... 38
41. GENDER......................................... 39
42. BENEFIT AND BURDEN............................. 39
</TABLE>
- -ii-
<PAGE>
<TABLE>
<CAPTION>
Article No. Title Page
- ----------- ----- ----
<S> <C> <C>
43. GOVERNING LAW.................................. 39
44. WAIVER OF TRIAL BY JURY........................ 39
45. OPTION TO LEASE ADDITIONAL OFFICE SPACE........ 39
46. PARKING OPTION................................. 40
47. MISCELLANEOUS.................................. 40
48. ENTIRE AGREEMENT............................... 41
Exhibit A Plan of Demised Premises 1A
Exhibit B Preoccupancy Work 1B
Exhibit C Rules and Regulations 1C
Exhibit D Plan of Phase I of the Office Building 1D
Exhibit E Letter of 17 December 1992 1E
</TABLE>
-iii-
<PAGE>
LEASE
-----
THIS LEASE number INTEL-L-1433 is made and entered into this 18th day of
June, 1993, by and between the International Telecommunications Satellite
Organization ("Landlord") and MIL 3, Inc. ("Tenant").
In consideration of the agreements hereinafter set forth, the parties
hereto mutually agree as follows:
1. DEMISED PREMISES
----------------
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
four (4) separate areas of office space (the "demised premises"), outlined on
Exhibit A attached hereto, located on the second and fourth levels of Pod L of
Phase II of the office building situated at 3400 International Drive, N.W.,
Washington, D.C. 20008-3098. All references in this lease to the "Building"
shall mean only Phase II of the office building, a plan of which is provided in
Exhibit D attached hereto. The demised premises constitute a total of 7,172
square feet of rentable area, which includes a proportionate share of the common
areas of Pod L as well as a proportionate share of the common areas of the
Building. The four separate areas of office space constituting the demised
premises have been measured by Landlord to be 1,441 and 1,261 square feet of
rentable area in Pod 4L; and 2,151 and 2,319 square feet of rentable area in Pod
2L. The rentable area calculation consists of the net useable area of office
space (NU) plus the proportionate share of common corridor areas within a pod
floor (P), multiplied by the proportionate share of the common areas of the
Building (Core Factor)(1.08) (i.e., [NU + P] x 1.08). Tenant shall have the
right, at its sole expense, to measure one or more of the spaces after
construction is completed to verify Landlord's measurements. If Tenant's
measurements (based on the most recent version of the Washington Board of
Realtor's Standard Method of Measurement) reveals a discrepancy of more than 1%
between the rentable area provided in this Lease and the rentable area based on
said measurement, the parties agree to amend the terms of this Lease to conform
to the actual measurement. Tenant hereby agrees that Landlord shall have the
right, for the purposes of accommodating other tenants of Pod L or otherwise, to
increase or decrease the dimensions, change the configuration, or to otherwise
alter the common corridors;
<PAGE>
however, any such alteration of the common areas shall not increase or decrease
the amount of common area attributable to Tenant as specified in this Article.
2. TERM
----
A. The term of this Lease (hereinafter referred to as the "term") shall be
for a period of five (5) years commencing on the date (the "Lease
Commencement Date") which corresponds to the later of (a) the date that
Landlord notifies Tenant that Landlord's Work (as set forth in Exhibit B of
this Lease) is substantially complete and the demised premises are available
for occupancy by Tenant (which notification shall be given on or about 15
April 1993) or (b) three (3) business days following execution of this lease
by both parties. The term shall expire at midnight on the date (the "Lease
Expiration Date") which is five (5) years after the Lease Commencement Date.
B. Option to Renew
---------------
Tenant shall have and is hereby granted the option to renew or extend
the term of this Lease for an additional period of five (5) years (the
"Renewal Period"). Subject to the provisions of paragraph C of this
Article, the renewal option shall be exercisable by Tenant giving written
notice to Landlord of the exercise of such renewal option at least six (6)
months prior to the expiration of the initial term of this Lease. The
Renewal Period shall be upon the same terms, covenants and conditions as
set forth herein with respect to the initial term of this Lease, except
that (i) the fixed monthly rental payable pursuant to Article 4 during such
Renewal Period shall be equal to the greater of (a) the fixed monthly
rental payable hereunder during the Lease Adjustment Year (hereafter
defined) immediately prior to the commencement of such Renewal Period, or
(b) the market rate of fixed monthly rental for comparable office space in
the area prevailing at the commencement of such Renewal Period; provided,
however, that the fixed monthly rental payable for the first year of the
Renewal Period shall not exceed by more than 3% the fixed monthly rental
payable by Tenant during the last Lease Adjustment Year of the initial
term. Thereafter, the fixed monthly rental may be adjusted annually at 30%
of the increase in the Consumer Price Index; however, each year's increase
shall not exceed 3% of the fixed monthly rental for the previous Lease
Adjustment Year. All references in
-2-
<PAGE>
this Lease to the term hereof shall be construed to mean the initial term
and such Renewal Period, unless the context clearly indicates another
meaning is intended.
C. Conditions of Exercise of Option to Renew
-----------------------------------------
The renewal option referred to in paragraph B of this Article may not
be exercised by Tenant if, at the time specified in paragraph B for
exercising such option, (i) this Lease shall not be in full force and
effect, (ii) Tenant shall not be in possession of the demised premises, or
(iii) an Event of Bankruptcy (as defined in Article 21) or an event of
default (as defined in Article 22) shall have occurred and shall be
continuing. If Tenant shall fail to exercise the renewal option granted
hereunder during the time or in the manner provided in paragraph B for the
exercise thereof, or if at the time specified for the exercise of such
renewal option, Tenant shall not be entitled to exercise such option
because of the provisions of this paragraph C, then and in any such event,
such renewal option shall be absolutely void and of no force and effect.
3. USE
---
Tenant shall use and occupy the demised premises solely for office use in
accordance with applicable regulations, and for no other purpose; provided,
however, that Tenant may use the demised premises for the production and sales
of computer software and documentation. Tenant will not use or occupy the
demised premises for any unlawful, disorderly, or hazardous purpose, and will
comply with all present and future laws, ordinances, regulations and orders of
all governmental authorities having jurisdiction over the demised premises.
Tenant will not suffer any act to be done or any condition to exist on the
demised premises which may interfere unreasonably with the use of any other
property or improvements within the International Center. Notwithstanding
anything to the contrary, Tenant may bring and keep ordinary office supplies
within the demised premises.
-3-
<PAGE>
4. RENTAL
------
A. Fixed Monthly Rental
--------------------
Tenant shall pay to Landlord a fixed monthly rental of Five Thousand Four
Hundred and One Dollars ($5,401.00) for the office spaces located in Pod 2L and
Five Thousand and Forty Four Dollars ($5,044.00) for the office spaces located
in Pod 4L due and payable in advance on the first (1st) day of each and every
calendar month during the term of this Lease and any renewals of such term
pursuant to Article 2; however, the fixed monthly rental for the first full
month of the first lease year (exclusive of the abatement for this month) shall
be due and payable upon execution of this Lease.
Landlord shall abate fifty percent (50%) of the fixed monthly rental for each of
the first twelve (12) months of the first lease year.
B. Operating Costs
----------------
(1) In addition to the fixed monthly rental set forth in paragraph A
above, Tenant shall pay to Landlord throughout the term of this Lease,
as additional rental, two percent (2%) (being the approximate and agreed
upon proportion which the floor area of the demised premises [7,172]
bears to the architectural and engineering (A&E) design figure for total
area of the Building [296,733]) of the Actual Operating Expenses. Tenant
shall receive an annual credit in the amount of $300 to be applied
toward payment of Operating Expenses.
(2) The Projected Operating Expenses are estimated to be Four Dollars
and Fifty Cents ($4.50) per square foot of total area of the Building
for 1993.
(3) Upon the Lease Commencement Date, and thereafter at the beginning of
each calendar year during the term of this Lease, Landlord shall provide
Tenant with a statement showing Landlord's Projected Operating Expenses
for such calendar year. Tenant's proportionate share of the Projected
Operating Expenses shall be due and payable, in equal monthly
installments, in advance, on the first (1st) day of each and every
calendar month of such year.
-4-
<PAGE>
(4) Within the period of ninety (90) days (or as soon thereafter as
possible) after the close of each calendar year during the term of this
Lease, Landlord shall give Tenant a statement of such year's Actual
Operating Expenses and a comparison of same with the Projected Operating
Expenses. Tenant's proportionate share of the amount by which the Actual
Operating Expenses for such year exceeds the Projected Operating
Expenses for such year shall be due and payable by Tenant within thirty
(30) days of receipt of said statement. If any year-end statement
provided by Landlord to Tenant pursuant to this paragraph shows that the
Actual Operating Expenses during the year covered by that statement was
less than the Projected Operating Expenses on which monthly payments
were made for that year, Tenant's proportionate share of the
overpayments for that year may be deducted by Tenant from its next
payment or payments of fixed monthly rental. Any such overpayments by
Tenant during the last calendar year of the term of this Lease shall be
refunded within ninety (90) days after the close of such calendar year,
unless an event of default shall have occurred and shall be continuing.
(5) "Actual Operating Expenses", as that term is used herein, shall
consist of all operating expenses of the Building. Actual Operating
Expenses shall be computed on the accrual basis and shall include all
expenditures to maintain all facilities in operation of the Building and
such additional facilities in subsequent years as may be reasonably
determined by Landlord to be necessary. Actual Operating Expenses shall
mean all expenses, costs and disbursements (but not replacement of
capital investment items or specific costs especially billed to and paid
by specific tenants or any fines and penalties imposed upon Landlord or
its agents, except if incurred by Landlord as a result of an act or
omission of Tenant) of every kind and nature which Landlord shall pay or
become obligated to pay because of or in connection with the ownership
and operation of the Building, including but not limited to, the
following:
(a) Wages and salaries of all employees engaged in the operation,
maintenance, housekeeping, or security of the Building and grounds,
including payroll, taxes, insurance and benefits relating thereto.
-5-
<PAGE>
(b) All supplies and materials used in the operation, maintenance,
housekeeping, and security of the Building and grounds.
(c) Cost of all utilities including surcharges for the Building and
the cost of water, sewer, power, heating, lighting, air conditioning
and ventilation for the Building.
(d) Cost of all maintenance, housekeeping, and service agreements
for the grounds, the Building and the equipment therein, including
but not limited to, security and energy management services, window
cleaning, snow removal, elevator maintenance, and janitorial
service.
(e) Cost of all insurance relating to the Building and grounds,
including the cost of casualty and liability insurance applicable to
the Building and grounds, and Landlord's personal property used in
connection therewith.
(f) Cost of repairs and general maintenance (excluding repairs and
general maintenance paid by proceeds of insurance or by Tenant or
other third parties, and alterations attributable solely to tenants
of the Building other than Tenant).
(g) Management fees for the management of the Building.
(h) The costs of any additional services not provided to the
Building or grounds at the Lease Commencement Date but thereafter
provided by Landlord in the prudent management of the Building as a
whole.
(i) The cost of any capital improvements made to the Building or
grounds after the Lease Commencement Date that reduce other
operating expenses or are required under any governmental law or
regulation that was not applicable to the Building or grounds at the
time it was constructed, such cost thereof to be amortized over such
reasonable period as Landlord shall determine in accordance with
Generally Accepted Accounting Principles
-6-
<PAGE>
(GAAP) together with interest on the unamortized balance at the rate
of 10% per annum.
(j) Property taxes imposed upon the demised premises by the District
of Columbia or the Government of the United States, but only to the
extent the rate of such taxes exceeds $2.15 for each $100 of
assessed market value.
(6) Operating Expenses shall be "net" only, and for that purpose shall
be reduced by the amounts of any reimbursement, refund or credit
received or receivable by Landlord with respect to any item of cost that
is included in operating expenses. The following items shall be excluded
from the definition of operating expenses as used herein:
(a) Interest on debt or amortization payments on any mortgage or
rental under any ground lease or other underlying lease;
(b) Any real estate brokerage commissions or other cost incurred in
procuring other tenants;
(c) Any advertising expenses;
(d) Salaries of officers and employees of Landlord to the extent not
engaged in the management of the Building;
(e) The cost of any items for which Landlord is reimbursed by
insurance or otherwise; and
(f) The cost of any repairs, alterations, improvements or other
items which are made in order to prepare for a new tenant's
occupancy.
(7) Tenant at its expense shall have the right at all reasonable times
to audit Landlord's books and records relating to Actual Operating
Expenses under this Lease for any year or years for which additional
rental payments pursuant to this
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<PAGE>
paragraph B become due; or at Landlord's sole discretion Landlord will
provide such audit prepared by an independent certified public
accountant.
(8) Tenant's obligation for amounts set forth herein shall survive the
termination or expiration of this Lease, provided that said amounts were
incurred before the date of expiration or termination.
C. Tenant shall pay all rental without demand, deduction, setoff or
counterclaim, by check to such party and address as Landlord may designate
by written notice to Tenant. If Landlord shall at any time or times accept
said rental after it shall become due and payable, such acceptance shall not
excuse delay upon subsequent occasions, or constitute a waiver of any or all
of Landlord's rights hereunder. If the Lease Commencement Date occurs on a
day other than the first day of a calendar month, or the lease term ends on
a day other than the last day of a calendar month, the fixed monthly rental,
for the partial month(s), shall be appropriately prorated at the rate of
one-thirtieth (1/30th) of said fixed monthly rental for each day of such
partial months during which this Lease is in effect. If the Lease
Commencement Date occurs on a day other than the first day of a calendar
month, the prorated fixed monthly rental for the first partial month shall
be payable in advance on the Lease Commencement Date. If the Lease
Commencement Date occurs on a day other than the first day of a calendar
year, or the lease term ends on a day other than the last day of a calendar
year, the additional rental for increases in operating costs, for the
partial year(s), shall be appropriately prorated at the rate of one-three
hundred and sixty fifth (1/365th) of said additional rental for each day of
such partial years during which this Lease is in effect.
5. RENTAL ESCALATION
-----------------
The fixed monthly rental shall be adjusted (but not decreased) for each
calendar year of the term, commencing on January 1, 1994 and on January 1 for
each succeeding calendar year (the "Adjustment Year"), on the following terms
and conditions: The fixed monthly rental for each Adjustment Year shall be the
sum of (i) the fixed monthly rental for the prior calendar year and (ii) thirty
percent of the product of the fixed monthly rental for the prior calendar year
and a fraction, the numerator of which shall be the difference (but not less
than zero) between (a) the
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Consumer Price Index for All Urban Consumers, All Items, Washington, D.C.
Metropolitan Area, Base 1982-84=100, issued by the Bureau of Labor Statistics of
the U.S. Department of Labor (hereinafter referred to as the "Consumer Price
Index") for November prior to the first day of such Lease Adjustment Year and
(b) the Consumer Price Index for November prior to the commencement of the prior
calendar year and the denominator of which shall be the Consumer Price Index for
the November prior to the commencement of the prior calendar year; provided,
however, that each year's increase in fixed monthly rental based upon the
Consumer Price Index shall not exceed 3% of the fixed monthly rental for the
previous Lease Adjustment Year; provided, however, that the fixed monthly rental
for the 1994 calendar year shall be the sum of the fixed monthly rental for the
1993 calendar year and fifty percent (50%) of item (ii) above. With the first
payment of fixed monthly rental during a Lease Adjustment Year which is due at
least fifteen (15) days after Tenant's receipt of a statement (the "Escalation
Statement") from Landlord specifying the fixed monthly rental payable during
such Lease Adjustment Year (computed as aforesaid), Tenant shall pay the fixed
monthly rental specified therein for such month and, in addition, shall pay the
difference for all prior months of such Lease Adjustment Year between the fixed
monthly rental so specified and the fixed monthly rental which Tenant was
theretofore required to pay for such prior months. Thereafter, Tenant shall pay
the fixed monthly rental specified in the Escalation Statement until the first
fixed monthly rental payment due at least fifteen (15) days after Tenant
receives the next Escalation Statement, when Tenant shall make the payments
specified in the preceding sentence.
If the Consumer Price Index is replaced by a successor index published by
the Department of Labor (or successor agency), such successor index shall be
substituted for the Consumer Price Index with such adjustments as may be
published by the Department of Labor (or successor agency) to reconcile such
successor index with the Consumer Price Index. If the Consumer Price Index (or
such successor index) shall be discontinued with no successor index, the parties
shall attempt to agree upon a substitute index. If the parties are unable to
agree upon a substitute index, then the matter shall be determined by
arbitration in accordance with the then prevailing rules of the American
Arbitration Association, and judgment upon the award rendered shall be final and
binding upon the parties, and may be entered in any court of competent
jurisdiction.
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<PAGE>
6. SECURITY DEPOSIT
----------------
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
the sum of Ten Thousand Four Hundred and Forty Five Dollars ($10,445.00), less
amounts already deposited with Landlord under INTEL-L-811 ($6,636.00) which
shall be applied by Landlord towards satisfying Tenant's obligation under this
Article, with Landlord as security for the full and faithful performance by
Tenant of each and every term, provision, covenant, and condition of this Lease.
Landlord shall not be required to keep the security deposit separate from its
other funds and Tenant shall not be entitled to any interest on the security (it
is noted that in lieu of interest, Landlord and Tenant have agreed to an annual
credit of $300 towards Tenant's Operating Expenses payments as indicated in
paragraph 4(b)(1)). In the event that Tenant is in default of any of the terms,
provisions, covenants, and conditions of this Lease, including but not limited
to payment of any rental, Landlord may use, apply, or retain the whole or any
part of the security so deposited for the payment of any such sum in default, or
for any other sum which Landlord may expend or be required to expend by reason
of Tenant's default, including any damages or deficiencies in the reletting of
the premises, whether such damage or deficiency may occur before or after any
repossession proceeding or other reentry by Landlord. If the Landlord utilizes
any of the security deposit in curing a default on the part of Tenant, Tenant
shall immediately pay Landlord the amount necessary to restore the security
deposit to its original amount. The security deposit or any lesser amount
properly remaining under this Lease, shall be returned to Tenant within thirty
(30) days after expiration of the term of this Lease. The holding, use,
application, or retention of the security deposit by Landlord shall not be
deemed to restrict Landlord's right to possession of the demised premises or to
limit Tenant's liability, under this Lease while the Lease is in full force and
effect. Upon termination or expiration of this Lease, the holding, use,
application, or retention of the security deposit (or some portion thereof) by
Landlord will reduce Tenant's monetary obligations to Landlord by the amount
held, used, applied, or retained.
7. PREOCCUPANCY WORK AGREEMENT
---------------------------
Landlord at its sole expense will provide the design services and will
finish the demised premises in accordance with the provisions set forth in
Exhibit B attached hereto and made a part
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<PAGE>
hereof. Landlord shall have no obligation to make any alternations, additions or
improvements to the demised premises except as set forth in Exhibit B; provided,
however, Tenant may, at its own expense, substitute a higher grade item for that
of a building-standard item (e.g., door locks) in which case Tenant shall
receive a credit from INTELSAT for the cost of the building-standard item being
replaced. Immediately following the Lease Commencement Date, Landlord shall work
diligently to complete any remaining construction items identified by Landlord
and Tenant in connection with the required construction. Landlord shall exercise
its best efforts to assure that all such construction items are completed no
later than sixty (60) days following the Lease Commencement Date. Within this
period, Tenant shall inform Landlord in writing of any such construction items,
and Landlord shall work diligently to complete such items within the sixty (60)
day period.
8. ASSIGNMENT AND SUBLETTING
-------------------------
A. Landlord's Consent Required
---------------------------
Tenant may not assign, transfer, mortgage or encumber this Lease, nor
sublet the demised premises, or any part thereof, nor shall any assignment
or transfer of this Lease be effectuated by operation of law or otherwise,
without first obtaining the prior written consent of Landlord, whose
consent shall not be unreasonably withheld or delayed. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be wholly void and shall confer no rights upon any third
parties. The consent of Landlord to any assignment, transfer, or
subletting to any third party shall not be construed as a waiver or release
of Tenant from the terms of any covenant or obligation under this Lease,
nor shall the collection or acceptance of rental from any such assignee,
transferee, subtenant or occupant constitute a waiver or release of Tenant
of any covenant or obligation contained in this Lease, nor shall any such
assignment, transfer or subletting be construed to relieve Tenant from
obtaining the consent in writing of Landlord to any further assignment or
subletting. In the event that Tenant defaults hereunder, Tenant hereby
assigns to Landlord the rental due from any subtenant of Tenant and hereby
authorizes each such subtenant to pay said rental directly to Landlord.
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<PAGE>
B. Tenant's Application (Assignment and Sublease)
----------------------------------------------
In the event that Tenant desires at any time to assign this Lease or
to sublet the demised premises or any portion thereof, Tenant shall submit
notice thereof to Landlord at least sixty (60) days prior to the proposed
effective date of the assignment or sublease ("Proposed Effective Date"),
in writing, which shall include: (a) a request for permission to assign or
sublease, setting forth the Proposed Effective Date, which shall be no less
than sixty (60) nor more than ninety (90) days after the date such notice
was submitted; (b) the name of the proposed subtenant or assignee; (c) the
nature of the proposed subtenant's or assignee's business to be carried on
in the demised premises; (d) the terms, provisions, covenants and
conditions of the proposed sublease or assignment; and (e) current
financial information (audited, if available) of Tenant and the proposed
subtenant or assignee, Tenant shall also promptly submit such additional
information as Landlord may request in order to make a reasoned judgment.
C. Recapture
---------
If Tenant proposes to assign this Lease or to sublet the demised
premises or any portion thereof, Landlord may, at its option, exercisable
upon written notice to Tenant within thirty (30) days after receipt of the
notice from Tenant set forth in paragraph B above, elect to recapture the
demised premises or portion thereof which Tenant proposes to sublease, and
terminate this Lease with respect to such recaptured premises. If Landlord
does not elect to recapture pursuant to this paragraph C, Tenant may
thereafter enter into a valid assignment or sublease with respect to the
demised premises provided Landlord consents thereto, and provided further
that (a) such assignment or sublease is executed within ninety (90) days
after notification to Landlord of such proposal, and (b) the rental
therefrom is not more than that stated in such notification.
D. Sharing of Sublet Profits
-------------------------
In the event that Tenant sublets the demised premises or any portion
thereof in accordance with the provisions of this Article, Tenant shall pay
to Landlord, in addition
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to all other payments required by this Lease, 25% of the amount by which
the proceeds of such sublease exceed Tenant's payments to Landlord for any
monthly period.
9. CLEANING AND MAINTENANCE BY TENANT
----------------------------------
Tenant will keep the demised premises and the fixtures and equipment
therein in clean, safe and sanitary condition, will take good care thereof, will
suffer no waste or injury thereto, and will at its sole cost and expense,
promptly make all repairs and perform all maintenance, in and to the demised
premises that are necessary to keep the demised premises in good order and
repair and in a safe and rentable condition, but Tenant shall not be responsible
for maintenance items assumed by Landlord under the terms of this Lease.
Without limiting the generality of the foregoing, Tenant, at its sole cost and
expense, is specifically required to make promptly all repairs (i) to the
demised premises, and (ii) to the interior glass windows, plate glass doors, and
any fixtures or appurtenances composed of glass. Tenant shall make all repairs
to the demised premises caused by any act or omission of Tenant, or its
employees, agents or invitees. In the event Tenant fails to maintain the
demised premises in good order, condition and repair, Landlord may (but shall
not be obligated to) give Tenant notice to do such acts as are reasonably
required to so maintain the demised premises. In the event that after such
notice Tenant shall fail to promptly commence such work and diligently prosecute
it to completion, then Landlord shall have the right to do such acts and expend
such funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant promptly after
demand with interest at the Default Interest Rate defined in Article 28 of this
Lease. Landlord shall have no liability to Tenant for any damage,
inconvenience, or interference with respect to the use of the demised premises
by Tenant as a result of performing any such work.
10. ALTERATIONS
-----------
Tenant will not make or permit anyone to make any alterations, additions or
improvements, structural or otherwise (hereinafter referred to as
"Alterations"), in or to the demised premises or the Building, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
Tenant may wire the demised premises for low-voltage electrical signal purposes
provided the wiring is routed through wall conduits, above panel
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ceilings, or below panel flooring and provided such wiring is approved in
writing in advance by Landlord. All Alterations made or permitted to be made by
Tenant shall be at Tenant's sole cost and expense. If any mechanic's lien is
filed against the demised premises, the Building, and/or the Land, for work or
materials done for, or furnished to, Tenant (other than for work or materials
supplied by Landlord), such mechanic's lien shall be discharged by Tenant within
ten (10) days thereafter, at Tenant's sole cost and expense, by the payment
thereof or by the filing of any bond required by law. If Tenant shall fail to
discharge any such mechanic's lien, Landlord may, at its option, discharge the
same and treat the cost thereof as additional rental hereunder, payable with the
monthly installment of rental next becoming due; and such discharge by Landlord
shall not be deemed to waive the defaulting of Tenant in not discharging the
same. Tenant will indemnify and hold Landlord harmless from and against any and
all expenses, liens, claims, or damages to person or property which may or might
arise by reason of the making of any Alterations. If any Alteration is made
without the prior written consent of Landlord, Landlord may correct or remove
same, and Tenant shall be liable for all costs and expenses so incurred by
Landlord. All Alterations in or to the demised premises or the Building made by
either party shall immediately become the property of Landlord; provided,
however, nothing in this Article shall be construed to impair Tenant's rights in
its personal property, and its trade fixtures, machinery and equipment which
were installed by Tenant, at its sole cost and expense.
11. SIGNS AND FURNISHINGS
---------------------
With the exception of notices and signs posted by Tenant within the demised
premises which cannot be seen from the common areas within the Building or from
the grounds outside the Building, no sign, advertisement or notice shall be
inscribed, painted, affixed or displayed by Tenant on any part of the outside or
the inside of the Building except as is approved in advance by Landlord in
writing, which approval shall not be unreasonably withheld, and if any such
sign, advertisement or notice is exhibited, without Landlord's approval,
Landlord shall have the right to remove the same and Tenant shall be liable for
any and all costs and expenses incurred by Landlord by said removal. Landlord
shall have the right to prescribe the weight and position of safes and other
heavy equipment or fixtures that Tenant desires to install in the demised
premises. Tenant shall not place a load upon any floor exceeding the floor load
per square foot area which such floor was designed to carry, as specified by
Landlord upon request. Any and all
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<PAGE>
damage or injury to the demised premises or the Building caused by moving the
property of Tenant into or out of the demised premises, or due to the same being
on the demised premises, shall be repaired by and at the sole cost and expense
of Tenant. No furniture, equipment or other bulky matter of any description will
be received into the Building or carried in the elevators except with prior
consent of Landlord. Tenant shall give Landlord twenty-four (24) hours' prior
notice of the timing of all moving of furniture, machinery, equipment and other
material within the public areas and all such moving shall be conducted in such
manner as Landlord may reasonably require in the interests of all tenants in the
Building. Prior consent of Landlord is not required for Tenant personnel
carrying small hand-held items and equipment under 100 lbs. that can be
conveniently transported through the Building common areas and into the
elevators by a single person using a "luggage-style" handcart with rubber tires;
however, Tenant personnel shall transport such items through the Building common
areas only in a safe and courteous fashion. Tenant may hang pictures, logos, and
other wall furnishings, using small finishing nails, screws or hooks, within the
demised premises provided that substantial damage to the interior walls is not
inflicted. Tenant agrees to remove promptly from the sidewalks adjacent to the
Building any of Tenant's furniture, machinery, equipment or other property.
12. ENTRY FOR HOUSEKEEPING, REPAIRS AND INSPECTIONS
-----------------------------------------------
Tenant will permit Landlord, or its representatives, to enter the demised
premises, at all reasonable times, without diminution of the rental payable by
Tenant, to examine, inspect, protect and maintain the same, to make such
alterations and/or repairs as in the judgment of Landlord may be deemed
necessary to perform housekeeping chores, and, during the last one hundred
eighty (180) days of the term of this Lease, to exhibit the demised premises to
prospective tenants after five business days advance notification to Tenant.
13. INSURANCE RATING
----------------
Tenant will not conduct or permit to be conducted any activity or place any
machinery, equipment or other property in or about the demised premises, which
will in any way, increase the rate of insurance premiums on the Building; and if
any increase in the rate of insurance premiums is stated by any insurance
company or by the applicable Insurance Rating Bureau to be due to any such
activity or property in or about the demised premises, such statement shall be
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conclusive evidence that the increase in such rate is due to such activity or
property and, as a result thereof, Tenant shall be liable for such increase, as
additional rental hereunder, and shall reimburse Landlord therefor; provided,
however, that Landlord has provided Tenant with notice of such activity.
14. TENANT'S EQUIPMENT
------------------
Tenant will not install or operate in the demised premises any electrically
operated equipment, machinery or other property, other than electric
typewriters, calculators, personal computers, desktop or deskside engineering
workstation computers, laser printers, radios, tape recorders and other audio
equipment, televisions and other video equipment, refrigerators, desktop
electronics test, measurement, and prototyping equipment, standard size office
copiers, telex and fax machines, other standard office equipment, and any
special equipment approved in writing by Landlord, provided such equipment or
pieces of equipment does not require special outlet or current exceeding 16 amps
per 20 amp. circuits and such equipment does not exceed the floor loads set
forth in Exhibit B, without first obtaining the prior written consent of
Landlord and a mutually acceptable separate written agreement setting forth the
terms and conditions on which additional electrical power for such items is to
be furnished, including among other things, a provision for payment by Tenant of
additional rental in compensation for such excess consumption of utilities and
for the cost and expense of such additional wiring as may be occasioned by the
operation of said equipment, machinery or other property. Tenant shall not
install, any other property of any kind or nature whatsoever which may
necessitate any changes, replacements or addition to, or in the use of, the
water, heating, plumbing, air conditioning, or electrical systems of the
Building without first obtaining the prior written consent of Landlord.
Business machines and mechanical equipment or other property belonging to Tenant
which cause noise or vibration that may be transmitted to any part of the
Building to such a degree as to be objectionable to Landlord or to any tenant in
the Building shall be installed and maintained by Tenant, at Tenant's sole cost
and expense, on vibration eliminators or other devices sufficient to eliminate
such noise and vibration.
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<PAGE>
15. INDEMNITY AND PUBLIC LIABILITY INSURANCE
----------------------------------------
Tenant will indemnify and hold harmless Landlord from and against any loss,
damage, liability, claim, cost or expense (including reasonable attorneys' fees)
incurred by or claimed against Landlord occasioned by or resulting from any
default of Tenant hereunder or any act or omission on the part of Tenant, its
agents, employees, or invitees or arising from or in connection with Tenant's
use or occupancy of the demised premises or which relates to the business of
Tenant, except to the extent due to the negligence or willful misconduct of
Landlord or Landlord's employees or agents. Notwithstanding the foregoing,
Tenant shall not be liable to Landlord for any loss or damage to personal
property or injury to persons, whether or not the result of any act or omission
of Tenant, to the extent that Landlord is compensated therefor by Landlord's
insurance. The preceding sentence shall not constitute a waiver of any
subrogation rights of Landlord's insurer. Tenant shall not be liable for any
interruption or loss to Landlord's business from any cause. Tenant shall obtain
and maintain in effect at all times during the term of this Lease a policy of
comprehensive public liability insurance, naming Landlord and any mortgagee of
the Building as additional insureds, protecting Landlord, Tenant and any such
mortgagee against any liability for bodily injury, death or property damage
occurring upon, in or about any part of the Building, the grounds, or the
demised premises arising from any of the items set forth in this Article against
which Tenant is required to indemnify Landlord, with such policies to afford
protection (i) with respect to bodily injury or death to the limit of not less
than One Million Dollars ($1,000,000) to any one person and to the limit of not
less than Three Million Dollars ($3,000,000) with respect to any one accident,
and (ii) with respect to damage to the property of any one owner to the limit of
not less than Five Hundred Thousand Dollars ($500,000). Such insurance policies
shall be issued by responsible insurance companies licensed to do business in
the District of Columbia. A certificate of insurance evidencing the issuance of
such insurance policy, together with evidence of payment of premiums thereon,
shall be delivered to Landlord upon Landlord's written request prior to the
Lease Commencement Date and at least thirty (30) days before the expiration date
of any policy evidenced by a certificate previously furnished. Neither the
issuance of any insurance policy required under this Lease, nor the minimum
limits specified herein with respect to Tenant's insurance coverage, shall be
deemed to limit or restrict in any way Tenant's liability arising under or out
of this Lease.
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<PAGE>
Landlord shall maintain in effect at all times property and liability insurance
policies providing a commercially reasonable level of insurance commensurate
with a first-class office building.
16. SERVICES AND UTILITIES
----------------------
A. Landlord shall provide, without cost or expense to Tenant, the necessary
mains, feeders, pipes, ducts and conduits to bring electricity services and
heating, ventilation and air conditioning (HVAC) services to the demised
premises. Landlord shall also provide all connections and all outlets,
risers, wiring, piping, duct work or other means of interior distribution of
electricity and HVAC service within the demised premises.
B. As long as Tenant is not in default under any of the provisions of this
Lease, Landlord shall provide the following facilities and services to
Tenant without additional charge to Tenant (except as otherwise provided
herein):
(1) Landlord will provide restroom facilities and necessary lavatory
supplies, including hot and cold running water, at those points of
supply provided for general use of other tenants in the Building, and
routine maintenance, painting and electric lighting service for all
public areas and special service areas of the Building in the manner and
to the extent that is standard for similar first-class buildings in
Washington, D.C.
(2) Landlord will provide access to the demised premises on a full-
time twenty-four hour a day basis, subject to such reasonable
regulations as Landlord may impose for security purposes.
(3) Landlord will provide heating, ventilation and air conditioning
(HVAC) services as follows:
(a) Landlord will provide HVAC services Monday through Friday from
8:00 A.M. to 6:00 P.M., and Saturday from 9:00 A.M. to 1:00 P.M.
(holidays recognized by Landlord excepted but not to exceed fourteen
(14) holidays per year unless otherwise agreed in writing between
Landlord and Tenant) on an all year round basis.
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<PAGE>
(b) Landlord will maintain the building HVAC system, as well as
the means of interior distribution within the demised premises, and
will use all reasonable care to maintain the system in proper and
efficient operating condition. Landlord will not be responsible for
the failure of the air conditioning system to meet normal
requirements, if such failure results from the occupancy of the
demised premises by more than an average of one person for each 100
square feet, or from faults in any interior distribution system
provided by Tenant.
(c) Tenant agrees to keep and cause to be kept closed, at all
times, exterior doors in the demised premises, except for normal
ingress and egress, and Tenant agrees to cooperate fully with
Landlord and to abide by all the regulations and requirements which
Landlord may reasonably prescribe for the proper functioning and
protection of said HVAC system.
(d) Landlord will maintain the above building standard air
conditioning unit identified in Exhibit B for one (1) year and will
be responsible for all service and repairs of problems reported by
Tenant within one (1) year of the Lease Commencement Date. Landlord
will be responsible for design defects for a period of five years.
In the event of a dispute between Landlord and Tenant as to whether
a repair is required due to a design defect, such dispute shall be
finally settled by a third party contractor. Electricity will be
provided to this air conditioning unit on a full-time twenty-four
hour a day basis.
(4) Landlord will provide hot and cold running water on a full-time
twenty-four hour a day basis, subject to such reasonable regulations as
Landlord may impose. Landlord will use all reasonable care to maintain
the building plumbing system, as well as the interior plumbing within
the demised premises, in proper and efficient operating condition. In
the event that a problem with the building plumbing system or the
interior plumbing within the demised premises is caused
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<PAGE>
by an act or omission of Tenant, Landlord will correct such problem at
Tenant's sole cost and expense.
(5) Landlord will provide electrical energy which Tenant requires in
the demised premises for lighting purposes and for operation of
electrical office equipment, machinery and other property normally
associated with use of space for office purposes but not including any
additional requirement of Tenant caused by installation or operation of
equipment, machinery or property as to which prior written consent of
Landlord is required under Article 14. Overhead lighting will be
provided Monday through Friday from 7:00 A.M. to 11:00 P.M., and
Saturday from 7:00 A.M. to 3:00 P.M. (holidays recognized by Landlord
excepted but not to exceed fourteen (14) holidays per year unless
otherwise agreed in writing between Landlord and Tenant).
(6) Landlord will provide after hours lighting and HVAC services at
reasonable hourly rates; provided, that Tenant shall give notice to
Landlord prior to 1:00 P.M. on the day such service is required in the
case of after hours service on weekdays, prior to 3:00 P.M. on the
Friday preceding the day such service is required in the case of after
hours service on weekends, and prior to 1:00 P.M. on the last business
day preceding the holiday on which such service is required in the case
of after hours service on holidays.
(7) Landlord will provide after hours Monday through Friday
maintenance and housekeeping services, including replacement of
fluorescent bulbs, glass cleaning, dusting, sweeping, vacuuming, and
removal of trash, in a manner consistent with the standard for similar
first-class office buildings in Washington, D.C. Such services shall
also include cleaning the showers, sinks, and kitchen areas within the
demised premises.
(8) Landlord will make available for Tenant's ordinary business usage
conference rooms and meeting rooms, provided that Tenant shall give
Landlord forty-eight (48) hours advance notice, and provided that such
facilities are not scheduled to be used by Landlord or committed for use
to other eligible users. Tenant's use of
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Landlord's conference rooms, adjacent atria, and other areas designed
for common use by Building occupants for receptions shall require prior
written permission from Landlord for each individual occasion, which
permission shall not unreasonably be withheld. Permission shall be
considered reasonably withheld if such facilities are scheduled for use
by Landlord or committed for use to other eligible users. Any added
costs for services such as set-up, restoration, security, engineering
and catering arising from Tenant's use of Landlord's reception rooms or
other facilities for any purpose shall be paid by Tenant on a direct
cost basis plus any general administrative costs to INTELSAT. Catering
service is available in the Building.
(9) Landlord shall maintain the Building common areas in good, safe,
and sanitary condition and repair.
(10) Landlord shall maintain security which is adequate in Landlord's
reasonable judgment for the Building.
(11) Landlord shall provide at least one operational elevator in the
Building at all times. After notice of an elevator problem, Landlord
shall undertake to make appropriate repairs with due diligence.
(12) Tenant shall be entitled to full access to the cafeteria
facilities during normal hours of operation.
C. If Landlord fails to provide any of the services specified in this
Article, and any such failure continues for fourteen (14) days after
Landlord receives written notification from Tenant, if such failure renders
the demised premises unsuitable for normal commercial purposes, then
Tenant's obligation to pay rent hereunder shall be reduced in proportion to
the extent the premises are rendered unsuitable for normal commercial
purposes. If Landlord's failure to provide services affects a substantial
portion of the demised premises, and renders the demised premises unsuitable
for normal commercial purposes, and continues for more than thirty (30)
days, Tenant may, by written notice to
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Landlord, terminate this Lease upon a date not less than thirty (30) days
after the date of such notice.
D. Any failure by Landlord to furnish the foregoing services as a result of
governmental restrictions, energy shortages or from any cause beyond the
control of Landlord shall not render Landlord liable in any respect for
damages to either person or property, or loss of Tenant's business, nor be
construed as an eviction of Tenant, nor work an abatement of rental, nor
relieve Tenant from Tenant's obligations hereunder. If the Building
equipment should cease to function properly, Landlord shall use reasonable
diligence to repair the same. Landlord shall also use reasonable diligence
to rectify any problem adversely affecting any of the above services and
utilities.
17. METERED UTILITIES
-----------------
Notwithstanding any contrary provision of this Lease, Tenant agrees to bear
no less than that portion of the cost of the services provided by Landlord as
described in Article 16 above, which clearly reflects the use by Tenant upon or
with respect to the demised premises and the services provided by Landlord with
respect thereto, such as computer utility costs and unusual electricity, air
conditioning, heat or water requirements; and Landlord may, in its sole
discretion, increase or decrease, from time to time during the term of this
Lease, the portion of such costs of such services to be paid by Tenant which
reasonably approximates Tenant's use thereof in excess of the Building Standards
established by Landlord from time to time for normal use of the demised
premises. Landlord's engineering department may determine or estimate Tenant's
excess use of utility services using industry standards or Landlord may, in its
sole discretion, install separate meters or submeters to measure Tenant's actual
consumption of utility resources in excess of the Building Standards established
by Landlord from time to time for normal use of the demised premises. The costs
and expenses related to installing such meters or submeters shall be borne by
Landlord. In the event of excess consumption of utility services, Landlord
shall bill Tenant periodically for utility usage upon or with respect to the
demised premises, in excess of the Building Standards established by Landlord
from time to time for normal use, together with a reasonable administration
charge. The amount specified in such bill shall
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become additional rental due and payable with the installment of fixed monthly
rental next becoming due under the terms of this Lease.
18. RESPONSIBILITY FOR DAMAGE TO DEMISED PREMISES
---------------------------------------------
All injury or damage to the demised premises or the Building caused by
Tenant or any of its agents, employees and invitees, shall be repaired promptly
by Tenant at Tenant's sole cost and expense. If Tenant shall fail to so repair,
Landlord shall have the right to make such repairs or replacements and any cost
or expense so incurred by Landlord shall be paid by Tenant, in which event such
cost and expense shall become additional rental due and payable with the
installment of fixed monthly rental next becoming due under the terms of this
Lease. All injury or damage to the demised premises or the Building caused by
the act or omission of Landlord, or any of its agents, employees and invitees,
shall be the responsibility of Landlord and shall be repaired with due diligence
and as soon as practicable, at Landlord's sole cost and expense, and in no event
shall Tenant be liable for any such injury or damage caused by the act or
omission of Landlord or any of its agents, employees and invitees.
19. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSONS
-----------------------------------------------------
All personal property of Tenant and its employees, agents and invitees in
or about the demised premises shall be and remain at their sole risk. Landlord
shall not be liable for any damage to or loss of such personal property arising
from any act or omission of any person, or from any cause other than any damage
or loss except to the extent that it results directly from the negligence or
willful misconduct of Landlord. Landlord shall not be liable for any personal
injury, including death, to Tenant, its employees, agents, or invitees, arising
from the use, occupancy or condition of the demised premises except to the
extent it arises from the negligence or willful misconduct of Landlord.
Notwithstanding the foregoing, Landlord shall not be liable to Tenant for any
loss or damage to personal property or injury, including death, to persons,
whether or not the result of Landlord's negligence or willful misconduct, to the
extent that Tenant is compensated therefor by Tenant's insurance. The preceding
sentence shall not constitute a waiver of subrogation rights of Tenant's
insurer. Landlord shall not be liable for any interruption or loss to Tenant's
business from any cause.
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20. FIRE AND OTHER CASUALTY DAMAGE TO DEMISED PREMISES
--------------------------------------------------
A. Damage Generally
----------------
If the demised premises shall be damaged by fire or other cause, other
than a cause resulting from the act or omission of Tenant or its agent,
employee or invitee, Landlord shall as soon as practicable after such
damage occurs (taking into account the time necessary to effectuate a
satisfactory settlement with any insurance company) repair the demised
premises to the condition originally furnished by Landlord, at the sole
cost and expense of Landlord, on the Lease Commencement Date, and the
rental shall be reduced in proportion to the extent the demised premises
are rendered untenantable, as reasonably agreed to by Landlord and Tenant,
until such repairs are completed. Landlord shall not be obligated to
restore any alterations, additions or improvements to the demised premises
installed by Tenant, including but not limited to those installed pursuant
to Articles 7 and 10, it being expressly agreed and understood that Tenant
shall carry insurance to cover such alterations, additions and improvements
and Landlord shall not be required to insure such alterations, additions
and improvements under such insurance as Landlord may carry upon the
demised premises. No compensation or reduction of rent will be paid or
allowed 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 or the grounds.
B. Exceptions to Obligation to Rebuild
-----------------------------------
Notwithstanding the provisions of paragraph A of this Article, if
substantial alteration or reconstruction of the Building shall, in the
opinion of Landlord, be required as a result of damage by fire or other
cause (whether or not the demised premises shall have been damaged by such
fire or other cause and whether or not such damage is covered by insurance
carried by Landlord), or if the proceeds of available insurance are less
than one hundred percent (100%) of the cost of restoration, or if the
damage to the demised premises or the Building is a result of an uninsured
risk, then this Lease and the term and estate hereby granted may be
terminated by Landlord by its giving to Tenant, within one hundred twenty
(120) days after the date of such damage, a notice specifying a
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date, not less than sixty (60) days after giving of such notice, for such
termination. In the event of the giving of such notice of termination, this
Lease and the term and estate hereby granted shall cease and terminate as
of the date specified therefor in such notice, and the fixed monthly rental
and all other rental payable hereunder shall be prorated as of the date of
termination. Additionally, it is agreed that if the demised premises or the
Building is so substantially destroyed that reconstruction cannot be
substantially completed within one hundred twenty (120) days from the date
of destruction, Tenant may elect to terminate this Lease by giving Landlord
written notice of such election within sixty (60) days after the date of
such damage. Such termination shall be effective as of the date specified
in such notice, which date shall not be less than sixty (60) days after
said notice. Notwithstanding the foregoing, in the event that the demised
premises are not damaged but the Building is substantially destroyed,
Tenant shall have the above termination rights only in the event that said
destruction of the Building (considering all relevant factors) results in
the demised premises being unsuitable for normal commercial purposes.
21. BANKRUPTCY OR INSOLVENCY
------------------------
A. Events of Bankruptcy
--------------------
The following shall be Events of Bankruptcy under this Lease:
(1) Tenant's becoming insolvent, as that term is defined in Title 11
of the United States Code, entitled Bankruptcy, 11 U.S.C., Para. 101
et seq. (The "Bankruptcy Code"), or under the applicable insolvency
laws of any State, District, Commonwealth or Territory of the United
States ("Insolvency Laws");
(2) 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;
(3) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
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(4) 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
later; or
(5) Tenant's making or consenting to an assignment for the benefit
of creditors or a common law composition of creditors.
B. Landlord's Remedies
-------------------
(1) Termination of Lease
--------------------
Upon the 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 subparagraph B.(1) 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 in bankruptcy
is unable to comply with the provisions of subparagraphs B.(4) and
B.(5) hereof; otherwise 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 subparagraph
B.(1). Any other notice to quit or notice of Landlord's intention to
reenter 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; however, such
termination shall not effect the right of Landlord to recover from
Tenant all rental and any other sums accrued up to the time of
termination or recovery of possession by Landlord, whichever is later,
and any other monetary damages or loss of reserved rental sustained by
Landlord.
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<PAGE>
(2) Suit for Possession
-------------------
Upon termination of this Lease pursuant to subparagraph B.(1)
hereof, Landlord may proceed to recover possession of the demised
premises under and by virtue of the provisions of the laws of the
District of Columbia, or by such other proceedings, including reentry
and possession, as may be applicable.
(3) Reletting of Demised Premises
-----------------------------
Upon termination of this Lease pursuant to subparagraph B.(1)
hereof, the demised premises may be relet by Landlord for such rental
and upon such terms as are not unreasonable under the circumstances
and, if the full rental reserved under this Lease (and any of the
cost, expenses or damages incurred by Landlord) shall not be realized
by Landlord, Tenant shall be liable for all such costs, expenses and
damages sustained by Landlord in accordance with the provisions of
Article 22 hereof.
(4) 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 this Article 21 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 (a) promptly cures all defaults under this Lease, (b) promptly
compensates Landlord for monetary damages incurred as a result of such
default, and (c) provides adequate assurance of future performance.
(5) Adequate Assurance of Future Performance
----------------------------------------
Landlord and Tenant hereby agree in advance that adequate
assurance of future performance, as used in subparagraph B.(4) hereof
shall mean that all of the following minimum criteria must be met: (a)
the Trustee must pay to Landlord at the time the next installment of
monthly rental is then due and payable under this Lease, in addition
to payment of such fixed monthly rental, an amount equal
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to the next three (3) months monthly rental due under this Lease, said
amount to be held by Landlord as an additional security deposit in
accordance with the provisions of Article 6 and this Article 21, until
either the Trustee or Tenant defaults in its payments of rental or
other obligations under this Lease (whereupon Landlord shall have the
right to draw on such funds) or until the expiration of this Lease
(whereupon the funds shall be returned to the Trustee or Tenant); (b)
the Tenant or Trustee must agree to pay to Landlord, at any time the
Landlord is authorized and does draw on the funds, the amount
necessary to restore such funds to the original level required by said
provision; and (c) the Trustee must agree that the use of the premises
as stated in this Lease will remain unchanged.
(6) Failure to Provide Adequate Assurance
-------------------------------------
In the event Tenant is unable to (a) cure its defaults, (b)
reimburse Landlord for its monetary damages, (c) pay the rental due
under this Lease, or any other payments required of Tenant under this
Lease, on time (or within ten (10) days of the due date), and (d) meet
the criteria and obligations imposed by subparagraph B.(5) hereof,
then 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 paragraph B hereof.
22. DEFAULT OF TENANT
-----------------
A. Breach of Obligations
---------------------
If Tenant shall (a) fail to pay any installment of rental as aforesaid
or fail to timely make any other payment required by the terms and
provisions hereof and such failure to pay shall continue for more than ten
(10) days after written notice thereof to Tenant by Landlord; or (b)
violate or fail to perform any of the other terms, conditions, provisions,
covenants or agreements herein made by Tenant, and if such violation or
failure shall continue for a period of ten (10) days after written notice
thereof to Tenant by Landlord, or if in a case involving a failure to
perform an obligation not involving the payment of money where such failure
to perform cannot be corrected with reasonable diligence
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<PAGE>
within ten (10) days, Tenant does not begin to correct the failure to
perform within ten (10) days after written notice thereof to Tenant by
Landlord and/or Tenant thereafter does not use reasonable diligence to
correct the failure to perform; or (c) if Tenant shall abandon or vacate
the demised premises before the Lease Expiration Date, then and in any of
said events Landlord shall have the right, at its election, then or at any
time thereafter while such event of default shall continue to give Tenant
written notice of its intent to terminate this Lease on the date of such
notice or on any later date specified therein, and on the date specified in
such notice Tenant's right to possession of the demised premises shall
cease and this Lease shall thereupon be terminated.
B. Liability of Tenant
-------------------
If Landlord terminates this Lease pursuant to this Article 22, Tenant
shall remain liable (in addition to accrued liabilities) for (i) the rental
and all other sums provided for in this Lease which would have been due and
payable to Landlord had such termination not occurred, or any and all costs
and expenses incurred by Landlord in reentering the demised premises,
repossessing the same, making good any default of Tenant, painting,
altering or dividing the demised premises, putting the same in proper
repair, protecting and preserving the same by placing therein watchmen and
caretakers, reletting the same (including any and all attorney's fees and
disbursements and brokerage fees incurred in so doing), and any and all
costs and expenses which Landlord may incur during the occupancy of any new
tenant or subtenant; less (ii) the net proceeds of any reletting prior to
the date when this Lease would have expired if it had not been terminated.
Tenant agrees to pay to Landlord the difference between items (i) and (ii)
to the foregoing sentence with respect to each month during the term of
this Lease, at the end of such month. Any suit, action or proceeding
brought by Landlord to enforce collection of such difference for any one
month shall not prejudice Landlord's right to enforce the collection of any
difference for any subsequent month. In addition to the foregoing, and
without regard to whether this Lease is terminated, Tenant shall pay to
Landlord all costs and expenses incurred, including reasonable attorney's
fees, with respect to any successful lawsuit or action instituted by
Landlord to enforce the provisions of this Lease. Landlord shall have the
right, at its sole option, to relet the whole or any part of the demised
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premises for the whole of the unexpired term of this Lease, or longer, or
from time to time for shorter periods, for any rental then obtainable,
giving such concessions of rental and making such special repairs,
alterations, improvements, additions, decorations and paintings for any new
tenant as Landlord, in its sole and absolute discretion, may deem
advisable. Tenant's liability as aforesaid shall survive the institution
of summary proceedings and the issuance of any warrant thereunder.
Landlord shall be under no obligation to relet the demised premises, but
agrees to use reasonable efforts to do so. If Landlord terminates this
Lease pursuant to this Article 22, Landlord shall have the right, at any
time, at its option, to require Tenant to pay to Landlord, on demand, as
liquidated and agreed final damages in lieu of Tenant's liability for
damages hereunder, the rental and all other charges which would have been
payable from the date of such demand to the date when this Lease would have
expired if it had not been terminated, minus the fair rental value of the
demised premises for the same period. If the demised premises shall have
been relet for all or part of the remaining balance of the term by Landlord
after a default but before presentation of proof of such liquidated
damages, the amount of rental reserved upon such reletting, absent proof to
the contrary, shall be deemed the fair rental value of the demised premises
for purposes of the foregoing determination of liquidated damages. Upon
payment of such liquidated and agreed final damages, Tenant shall be
released from all further liability under this Lease with respect to the
period after the date of such demand. For purposes of this Article 22, the
term rental shall include fixed monthly rental, additional rental and all
other charges to be paid by Tenant under this Lease. 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.
C. Attorneys' Fees
---------------
If as a result of any breach or default by Tenant in the performance
of any of the provisions of this Lease, Landlord uses the services of an
attorney in order to secure compliance with such provisions, recover
damages therefor, terminate this Lease or evict Tenant, Tenant shall
reimburse Landlord upon demand for all reasonable attorneys' fees and
expenses so incurred by Landlord, but only if Landlord prevails in such
pursuits.
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If as a result of any breach or default by Landlord in the performance
of any of the provisions of this Lease, Tenant uses the services of an
attorney in order to secure compliance with such provisions, recover
damages therefor, or terminate this Lease, Landlord shall reimburse Tenant
upon demand for all reasonable attorneys' fees and expenses so incurred by
Tenant, but only if Tenant prevails in such pursuits.
23. 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 herein contained nor of any Landlord's rights hereunder.
No waiver by Landlord of any breach of any term, covenant, provision, condition
or agreement herein contained shall operate as a waiver of such term, covenant,
provision, condition, or agreement itself, or of any subsequent breach thereof.
No payment by Tenant or receipt by Landlord of a lesser amount than the
stipulated installments of fixed monthly rental or additional rental shall be
deemed to be other than on account of the earliest stipulated fixed monthly
rental or additional rental, respectively, nor shall any endorsement or
statement on any check or letter accompanying a check for payment of rental or
any other amounts owed to Landlord 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 rental or other amount owed or to pursue any
other remedy provided in this Lease. No reentry by Landlord, and no acceptance
by Landlord of keys from Tenant, shall be considered an acceptance of a
surrender of this Lease.
24. FIRST MORTGAGE
--------------
This Lease is subject and subordinate to the lien of any first mortgage
(which term "mortgage" shall include both construction and permanent financing
and shall include deeds of trust and similar security instruments) which may now
or hereafter encumber or otherwise affect the Land and the Building or
Landlord's interest therein, and to all and any renewals, extensions,
modifications, recastings or refinancings thereof, but shall not be subordinate
to any mortgage other than a first mortgage. In confirmation of such
subordination, Tenant shall, at Landlord's request, promptly execute any
requisite or appropriate certificate or other document. Tenant agrees that in
the event that any proceedings are brought for the foreclosure of any such
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mortgage, Tenant shall attorn to the purchaser at such foreclosure sale, if
requested to do so by such purchaser, and shall recognize such purchaser as the
Landlord under this Lease, and Tenant waives the provisions of any statute or
rule of law, now or hereafter in effect, which may give or purport to give
Tenant any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event that any such foreclosure
proceeding is prosecuted or completed.
25. ATTORNMENT
----------
In the event of (a) a transfer of Landlord's interest in the Land or
Building, (b) the termination of any ground or underlying lease of the Land or
Building, or (c) the purchase of the Building or Landlord's interest therein at
a foreclosure sale or by deed in lieu of foreclosure under any first mortgage or
pursuant to a power of sale contained in any first mortgage, then in any of such
events Tenant shall attorn to and recognize the transferee or purchaser of
Landlord's interest or the lessor under the terminated ground or underlying
lease, as the case may be, as Landlord under this Lease for the balance of the
then remainder of the term, and thereafter this Lease shall continue as a direct
lease between such person, as Landlord, and Tenant, and such lessor, transferee
or purchaser shall not be liable for any act or omission of Landlord prior to
such person's succession to title, nor be subject to any offset, defense or
counterclaim, accruing prior to such lease termination or prior to such person's
succession to title, nor be bound by any payment of fixed monthly rental or
additional rental prior to such lease termination or prior to such person's
succession to title for more than two (2) months in advance. Tenant agrees
that, within five (5) days after written request therefor, it will, from time to
time, execute and deliver any instrument or other document required by any
mortgagee, transferee, purchaser or other interested person to confirm such
attornment and/or such obligation to attorn.
26. CONDEMNATION
------------
If the whole or a substantial part of the demised premises shall be taken
or condemned by any governmental authority for any public or quasi-public use or
purpose, then the term of this Lease shall cease and terminate as of the date
when title vests in such governmental authority, and the rental shall be abated
on such date. In the event that Tenant accepts replacement office space offered
by Landlord, the rental shall be equitably adjusted for the period of time, if
any,
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between the date that title vests in such governmental authority and the date
that such replacement office space is available for occupancy by Tenant. If less
than a substantial part of the demised premises is taken or condemned by any
governmental authority for any public or quasi-public use or purpose, the rental
shall be equitably adjusted on the date when title vests in such governmental
authority and this Lease shall otherwise continue in full force and effect. For
purposes hereof, a substantial part of the demised premises shall be considered
to have been taken if more than fifteen percent (15%) of the demised premises
are unusable by Tenant. In the case of any such taking or condemnation, whether
or not involving the whole or a substantial part of the demised premises, Tenant
shall have no claim against Landlord for any portion of the amount that may be
awarded as damages as a result of such taking or condemnation or for the value
of any unexpired term of this Lease.
27. RULES AND REGULATIONS
---------------------
Tenant, its agents, employees and invitees shall abide by and observe the
rules and regulations attached hereto as Exhibit C. Tenant, its agents,
employees and invitees, shall abide by and observe such other rules or
regulations as may be promulgated from time to time by Landlord for the
operation and maintenance of the Building provided that the same are not
inconsistent with the provisions of this Lease and a copy thereof is sent to
Tenant. Landlord shall be obligated to enforce, in a commercially reasonable
manner, the Building's rules and regulations as against all tenants in the
Building. In particular, Landlord will take commercially reasonable steps to
protect Tenant's quiet enjoyment of its premises.
28. RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT; LATE PAYMENTS
---------------------------------------------------------
If Tenant defaults in the making of any payment or in the doing of any act
herein required to be made or done by Tenant, then after twenty (20) days notice
from Landlord, Landlord may, but shall not be required to, make such payment or
do such act, and the amount of the cost and expense thereof, if made or done by
Landlord, with interest thereon at the Default Interest Rate (hereafter defined)
from the date paid by Landlord, shall be paid by Tenant to Landlord and shall
constitute additional rental hereunder due and payable with the next installment
of fixed monthly rental; but the making of such payment or the doing of such act
by Landlord shall not operate to cure such default or to estop Landlord from the
pursuit of any remedy to which Landlord would
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otherwise be entitled. If Tenant fails to pay any installment of rental on or
within five (5) days after the day when such installment is due and payable,
such unpaid installment shall bear interest at the rate of the Default Interest
Rate from the date which is five (5) days after the date when such installment
became due and payable to the date of payment thereof by Tenant. In addition,
Tenant shall pay to Landlord, as a "late charge," four percent (4%) of any
payment herein required to be made by Tenant which is more than ten (10) days
late to cover the costs of collecting amounts past due. Such interest and late
charge shall constitute additional rental hereunder due and payable with the
next installment of fixed monthly rental. For purposes hereof, the Default
Interest Rate shall be the prime interest rate charged by Riggs National Bank
during the period of such default plus two percent (2%) per annum.
29. NO PARTNERSHIP
--------------
Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Landlord and Tenant or to create any
other relationship between the parties hereto other than that of Landlord and
Tenant.
30. NO REPRESENTATIONS BY LANDLORD
------------------------------
Neither Landlord nor any agent, employee or representative of Landlord has
made any representations or promises with respect to the demised premises or the
Building except as herein expressly set forth, and no rights, privileges,
easements or licenses are granted to Tenant except as herein set forth.
Furthermore, Tenant understands and agrees that Landlord has made no commitment
and is under no obligation to utilize Tenant's services, to purchase any goods
from Tenant or to enter into any relationship with Tenant other than that of
Landlord and Tenant as established pursuant to the provisions of this Lease.
Tenant also acknowledges and agrees that it has not entered into this Lease in
reliance upon, nor are its obligations hereunder conditioned upon Landlord
utilizing any of its services, purchasing any goods from it, or entering into
any relationship with Tenant other than that of Landlord and Tenant.
31. BROKERS
-------
Tenant shall indemnify and hold Landlord harmless from all damages
(including reasonable attorneys' fees and costs) resulting from any claims that
may be asserted against
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Landlord by any broker, finder or other person with whom Tenant has dealt.
Tenant understands and agrees that any representation or statement by any third
party engaged by Landlord as an independent contractor which is made with regard
to the demised premises or the Building shall not be binding upon Landlord nor
serve as a modification of this Lease and Landlord shall have no liability
therefor, except to the extent such representation is also contained herein or
is approved in writing by Landlord.
32. NOTICES
-------
All notices or other communications hereunder shall be in writing and shall
be deemed duly given if delivered in person or sent by certified or registered
mail, return receipt requested, first class, postage prepaid,
(i) if to Landlord, at:
INTELSAT
3400 International Drive, N.W.
Washington, D.C. 20008-3098
Attn: Department Manager, Facilities Management and
Office Services
(ii) if to Tenant, at:
MIL 3, Inc.
Pod 4L
3400 International Drive, N.W.
Washington, D.C. 20008-3098
Attn: Mr. Alain Cohen
prior to the Lease Commencement Date and, with respect to Tenant, at the demised
premises after the Lease Commencement Date, unless notice of a change of address
is given pursuant to the provisions of this Article.
33. ESTOPPEL CERTIFICATES
---------------------
Tenant agrees, at any time and from time to time, upon not less than ten
(10) days prior written notice by Landlord, to execute, acknowledge and deliver
to Landlord a statement in
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writing (i) certifying that this Lease has been unmodified since its execution
and is in full force and effect (or if there have been modifications, that this
Lease is in full force and effect, as modified, and stating the modifications),
(ii) stating the dates, if any, to which the fixed monthly rental and additional
rental hereunder have been paid by Tenant, (iii) stating whether or not to the
knowledge of Tenant, there are then existing any defaults under this Lease (and,
if so, specifying the same), and (iv) stating the address to which notices to
Tenant should be sent. Any such statement delivered pursuant hereto may be
relied upon by Landlord or any prospective purchaser or mortgagee of the Land
and/or Building or any part thereof or estate therein.
34. COVENANTS OF LANDLORD
---------------------
Landlord covenants that it has the right to make this Lease, and that if
Tenant shall pay the rental and perform all of Tenant's obligations under this
Lease, Tenant shall, during the term hereof, freely, peaceably and quietly
occupy and enjoy the full possession of the demised premises without molestation
or hindrance by Landlord or any party claiming through or under Landlord. In
the event of any sale or transfer of Landlord's interest in the demised
premises, the covenants and obligations of Landlord under this Lease accruing
after the date of such sale or transfer shall be imposed upon such successor-in-
interest (subject to the provisions of Articles 24 and 25 hereof) and any prior
Landlord shall be freed and relieved of all covenants and obligations of
Landlord hereunder accruing after the date of such sale or transfer.
35. SURRENDER OF DEMISED PREMISES
-----------------------------
Upon the expiration or termination of the term of this Lease, Tenant shall
quit and surrender to Landlord the demised premises, including all improvements,
additions or alterations made or permitted pursuant to Articles 7 and 10, broom
clean, in good order and condition, ordinary wear and tear and acts of God
excepted, and Landlord shall have the right to reenter and resume possession of
the demised premises. Tenant shall, prior to expiration or termination of this
Lease, and at its sole cost and expense, remove all of its personal property,
trade fixtures, machinery and equipment installed in the demised premises and
restore the demised premises to the condition existing at the commencement of
the lease allowing for reasonable wear and tear, or as otherwise agreed by
Landlord and Tenant, and if such property is not removed by Tenant prior to
expiration or termination of this Lease, it shall, at Landlord's option, become
the
-36-
<PAGE>
property of Landlord and shall be surrendered with the demised premises as a
part thereof. Should Tenant fail (i) to remove any of its personal property,
trade fixtures, machinery and/or equipment, as required hereunder, or (ii) to
restore the demised premises as aforesaid, Landlord may remove same and restore
the demised premises at Tenant's sole cost and expense and Tenant shall
reimburse Landlord for all cost, expense, damages and losses which Landlord
sustains by reason of such failure by Tenant to remove and/or restore. When
Tenant surrenders the premises, Tenant may remove the upgraded locks installed
by Tenant at no cost to Tenant.
36. HOLDING OVER
------------
If Tenant shall hold possession of the demised premises after the end of
the term of this Lease, Tenant shall be deemed to be occupying the demised
premises as a Tenant from month to month, at one and one half times the monthly
rental then in effect if such holdover occurs without the Landlord's written
consent and at the monthly rental then in effect if such holdover occurs with
the Landlord's written consent, and subject to all the other terms, conditions,
provisions, covenants and obligations of this Lease insofar as the same are
applicable, or as same shall be adjusted, to a month-to-month tenancy.
37. LIEN FOR RENT
-------------
If Tenant does not cure a default under this Lease within ten (10) days
after receiving notice of such default from Landlord, or if Tenant vacates the
premises without Landlord's approval, then in either event, Landlord shall have
a lien on all property of Tenant contained within the demised premises at the
time of the default and such property shall be and remain subject to such lien
of Landlord for payment of all rental and all other sums agreed to be paid by
Tenant herein or for services or costs and expenses relating to the demised
premises that Tenant may hereafter become liable to pay to Landlord.
38. UNDERLYING LEASE
----------------
Tenant acknowledges that it has been advised of the Lease Agreement between
the Government of the United States as Lessor and Landlord as Lessee dated 8
June 1982, as amended on 22 February 1985, which is sometimes herein referred to
as the Underlying Lease.
-37-
<PAGE>
Tenant agrees that it will not do or cause to be done anything which would
constitute a breach of obligations of Landlord as Lessee under said Underlying
Lease.
39. SALES AND EXCISE TAXES
----------------------
If during the term of this Lease any governmental authority shall impose a
sales, use, excise or any other tax, with the exception of taxes based upon
Landlord's gross income, on the rentals payable by Tenant hereunder, Tenant
shall pay such tax (or reimburse Landlord for any such tax paid by Landlord)
within ten (10) days after request therefor by Landlord to Tenant.
40. REPORTING OF PAYMENTS
---------------------
A. The Tenant agrees to provide to INTELSAT any and all information
concerning any form of inducement or payment, with a value exceeding U.S.
$100 ("gratuity") which is given, directly or indirectly, at any time, by
or on behalf of the Tenant to any INTELSAT Official in connection with this
Lease. If the value of this Lease exceeds U.S. $500,000, the Tenant shall
also cause its firm of independent certified public accountants to certify
to the internal auditor of INTELSAT annually that all such information
known to such firm has been so provided.
B. If INTELSAT determines that any such gratuity has been given for the
purpose of obtaining this Lease or favorable treatment under this Lease,
INTELSAT shall be entitled to treat the giving of such gratuity as a
material breach of this Lease, to terminate this Lease by giving written
notice of termination to Tenant, and to receive from Tenant punitive
damages in addition to any other damages .
C. The rights and remedies of INTELSAT under this Article are in addition
to any other rights and remedies provided by law or under this Lease.
D. For the purposes of this Article, "INTELSAT Official" includes any
officer, agent, servant or employee of INTELSAT, its Signatories, or its
Parties, and any person accredited to attend meetings of INTELSAT organs.
-38-
<PAGE>
41. GENDER
------
Feminine or neuter pronouns shall be substituted for those of the masculine
form, and the plural shall be substituted for the singular, in any place or
places herein in which the context may require such substitution.
42. BENEFIT AND BURDEN
------------------
The provisions of this Lease shall be binding upon and inure to the benefit
of the parties hereto and each of their permitted successors and assigns.
Landlord may freely and fully assign its interest or delegate its obligations
hereunder.
43. GOVERNING LAW
-------------
It is the intention of the parties hereto that this Lease (and the terms,
conditions, provisions and covenants hereof) shall be construed and enforced in
accordance with the laws of the District of Columbia. Landlord and Tenant each
hereby waive any objection to the venue of any action filed by either party in
any court situated in the District of Columbia and each party further waives any
right, claim or power, under the doctrine of forum non conveniens or otherwise,
to transfer any such action filed by any party to any other court.
44. WAIVER OF TRIAL BY JURY
-----------------------
Each party hereby waives all right to trial by jury in any claim, action,
proceeding or counterclaim by either party against the other on any matters
arising out of or in any way connected with this Lease, the relationship of the
parties, Tenant's use or occupancy of the demised premises and/or any claim of
injury or damage.
45. OPTION TO LEASE ADDITIONAL OFFICE SPACE
---------------------------------------
In the event space in addition to the demised premises becomes available
for commercial use at any time during the Term (including any extensions
thereof) in Pods 2L, 4L or 7L, and Landlord does not require such additional
space for its own use, Landlord shall provide written notice to Tenant of the
availability of such additional space and Tenant shall have an option,
exercisable by providing written notice to Landlord no later than ten (10) days
from the date of
-39-
<PAGE>
receipt of Landlord's notice, to lease from Landlord, in addition to the demised
premises, the additional space referenced in Landlord's notice; provided,
however, that based upon Landlord's own need for office space Landlord may make
its offering of space in Pod 7L conditional upon Tenant vacating office space
within its leased premises located in Pods 4L and 2L.
46. PARKING OPTION
--------------
During the term of this Lease, Tenant shall have the right to rent from
Landlord, on a monthly basis, up to six (6) underground parking space at rates
now or hereinafter established by Landlord (currently $75.00), which rates shall
not be in excess of the monthly parking rates generally charged other Tenants in
the Building for similar parking spaces. The parking fee may be modified from
time to time at the sole discretion of Landlord, provided that the parking fee
may not exceed the market rental for similar commercial parking space in the
area.
47. MISCELLANEOUS
-------------
Window Blinds - Landlord, at its sole expense, shall promptly install
-------------
window blinds on the exterior windows of Pod 4L pending a decision by the
appropriate governmental authority. If such blinds are damaged prior to
Tenant's occupancy of the 4L space, Landlord shall repair the damage or replace
the blinds. Such window blinds shall not be removed or replaced by Landlord
unless and until such blinds are expressly prohibited by appropriate
governmental authority. Tenant may, at its sole option and expense, install
such blinds or screens in Pod 2L as soon as the appropriate governmental
approvals have been obtained.
Cable Television - Landlord shall cooperate with Tenant's efforts to obtain
----------------
cable television in its offices; however, all cabling costs associated with such
efforts and services shall be borne by Tenant.
Smoking - Throughout the term of the Lease Agreement, INTELSAT shall
-------
enforce in a commercially reasonable fashion the smoking policy set forth in the
INTELSAT Rules and Regulations (Exhibit C).
Quiet Enjoyment - Tenant's quiet enjoyment of the demised premises shall be
---------------
protected by Landlord in a commercially reasonable fashion.
-40-
<PAGE>
Final Lease Agreement - This Lease Agreement shall supersede in full the
---------------------
existing Lease Agreement between the parties, INTEL-L-811, as of the Lease
Commencement Date provided herein.
48. ENTIRE AGREEMENT
----------------
This Lease, including all exhibits, schedules and addenda attached hereto,
constitutes the entire agreement of the parties hereto, and supersedes all prior
representations, inducements, or agreements, oral or otherwise, between the
parties with respect to the subject matter hereof. No addition to, deletion of
or deviation from the provisions of this Lease shall be binding unless in
writing and duly signed by the party against whom the same is sought to be
enforced.
-41-
<PAGE>
IN WITNESS WHEREOF, on the day and year first hereinabove written, the
undersigned have executed two (2) copies of this Lease under seal.
LANDLORD
--------
International Telecommunications
Satellite Organization
3400 International Drive, N.W.
Washington, D.C. 20008-3098
Attest: By: /s/ David T. Tudge
------------------------- ------------------
Signed
David T. Tudge
------------------
Typed
Title: Vice President and
Chief Financial Officer
-----------------------
[Seal]
TENANT
------
MIL 3, Inc.
3400 International Drive, N.W.
Pod 4L
Washington, D.C. 20008-3098
Attest: /s/ Steven P. Bonarial (sp) By: /s/ Alain Cohen
------------------------------ ------------------
Signed
Alain Cohen
------------------
Typed
[Corporate Seal] Title: President
------------------
-42-
<PAGE>
Exhibit A - Page 1 of 2
MIL 3, Inc.
Pod 2L
Atrium - 6 Diagram
<PAGE>
Exhibit A - Page 2 of 2
MIL 3, Inc.
Pod 4L
Diagram
<PAGE>
Exhibit B, Page 1 of 3
PREOCCUPANCY WORK - MIL 3, INC.
INTELSAT BUILDING
(PERTAINING TO RENTAL SPACES REQUIRING MODIFICATIONS)
Partitioning: . Partitioning between suites and units to be slab to slab
and sound insulated.
. Partitioning to be constructed of 3 5/8" steel studs at
24 inches o.c. and 5/8" gypsum wallboard.
. Partitioning provided by landlord will be one linear
foot for each twelve (12) feet of rentable space.
Painting: . Three coats flat finish paint building standard color
for all office partitioning.
. Interior doors to be stained building standard red oak
or equal.
. Hallways will be covered with building standard vinyl
wallcover.
Doors: . Interior doors of rift cut red oak veneer, or equal with
glass sidelights, will be provided for each office in
the rentable space.
. Doors to be 2'-8" x 7'10" solid core, metal frame
equipped with building standard latch set.
. One suite entrance door will be provided for each tenant
with metal frame, equipped with building standard lock
set.
Floor Covering: . Building standard carpet tile 18" x 18", special grey,
including 2-1/2 vinyl straight base will be provided.
Ceiling: . Building standard suspended, acoustical tile ceiling
system provided.
Electrical: . One 120 volt duplex wall electrical outlet will be
provided for each 150 square feet of rentable space.
Telephone: . One telephone outlet will be provided for each 200
square feet of rentable space.
Outlets: . Any special cable or amperage requirements are not
included, but will be provided by the landlord at
tenant's expense.
Lighting: . One 2' x 4' recessed fluorescent lighting fixture with
parabolic lens per 80 square feet of rentable space.
Heating and . Building standard heating and cooling for normal
Air Conditioning office use and one thermostat for each 200 square
feet of rentable space is provided.
. Excess capacity, special controls and exhaust
requirements are not included, but will be provided by
landlord at tenant's expense.
<PAGE>
Exhibit B, Page 2 of 3
Window Covering: . No window covering allowed.
Floor Loads: . Floor loads are designed for 60 pounds per square foot
of live load and an additional allowance of 20 pounds
per square foot for partitioning.
Plumbing: . Landlord will provide rough plumbing from nearest
plumbing stack to one location within space at landlords
option; 1,500 square feet of rentable space minimum.
Design Services: . Consultation with landlord's space designer is provided
to prepare the documentation for tenant's space plan and
interior layout.
. Two (2) two- (2) hour planning sessions are provided and
one (1) major and two (2) minor revisions in the space
plans are allowed at no cost to tenant.
Allowance: . Enumerated above are maximum allowance quantities to be
provided by landlord at no cost to tenant. There will be
no credits for unused portions of allowance quantities.
ABS Items: . See Exhibit B, Page 3
<PAGE>
Exhibit B, Page 3 of 3
PREOCCUPANCY WORK - MIL 3, INC.
INTELSAT BUILDING
Landlord will provide, at Landlord's sole expense, the following:
1. One folding door in 4L;
2. Millwork in existing 4L space necessary to modify existing counter and
cabinets in connection with expansion of the Demo Room as illustrated. No
ABS millwork will be provided by Landlord in 2L space;
3. Two showers, two sinks, and plumbing associated with such showers and sinks
in 2L;
4. Computer Room air conditioner (three ton) in 2L;
5. Shower exhaust fans, ducts in 2L;
6. All Power Upgrades necessary to support Tenant's electrical requirements in
both 2L and 4L as enumerated in Tenant's Letter of 17 December 1992
(attached hereto as Exhibit E).
7. Existing vinyl wall covering in the hallway within the new space in 4L shall
be repaired or cleaned by Landlord where necessary.
8. All carpet tiles within the new spaces in 4L and 2L shall be homogeneous in
appearance.
9. Landlord shall repaint Tenant's preexisting office space within six (6)
months of taking occupancy under this Lease.
10. All thermostats controlling the climate within Tenant's demised premises
shall be located somewhere within Tenant's demised premises where
mechanically and commercially feasible. Landlord shall provide Tenant with a
diagram or list of the thermostats and the areas which they control.
11. Landlord shall relocate the exit sign in the 4L conference room to a less
obtrusive location.
If there are any other ABS items which are necessary to construct the
office space as illustrated in Exhibit A, Landlord shall provide such items at
its sole expense. Tenant reserves the right to alter the plans during the space
planning process. If either Landlord or Tenant alters the plans (Exhibit A) in
a way that requires additional ABS items, such items shall be paid by the party
who alters the plans.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
---------------------
The following rules and regulations have been formulated for the safety and
well-being of all the tenants of the Building. Strict adherence to these rules
and regulations is necessary so that each and every tenant will enjoy a safe and
unannoyed occupancy in the Building. Any violation of these rules and
regulations by any tenant which continues after notice from Landlord shall be
sufficient cause for termination of this Lease at the option of the Landlord.
In the event of a conflict between the terms of the Lease and the terms of these
Rules and Regulations, the terms of the Lease shall take precedence.
Landlord may, upon request by any tenant, waive the compliance by such
tenant of any of the foregoing rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord or Landlord's authorized
agent, (ii) any such waiver shall not relieve such tenant from the obligation to
comply with such rule or regulation in the future unless expressly consented to
by Landlord, and (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of complying with the foregoing rules and regulations
unless such other tenant has received a similar written waiver from Landlord.
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by any
tenant shall not be obstructed or encumbered by any tenant or used for any
purpose other than normal ingress and egress to and from the demised premises.
Landlord shall have the right to control and operate the public portions of the
Building and the grounds, and the facilities furnished for the common use of the
tenants, in such manner as Landlord deems best for the benefit of the tenants
generally. No tenant shall permit the visit to the demised premises of persons
in such numbers or under such conditions as to interfere with the use and
enjoyment by other tenants of the entrances, corridors, elevators and other
public portions or facilities of the Building or of the grounds.
2. Access to the building will be via recognised entrances only and tenants,
their employees, agents and guests will refrain from using emergency exits -
except in emergency situations.
3. Employees of each tenant shall be provided by Landlord with a photo ID
access card which will facilitate entry to the common areas in the building.
Each tenant shall be responsible for returning all such cards to the Landlord on
termination of employment of any such person - or all cards upon termination of
the lease. In the event of the loss, or failure to return any such card or
cards on termination of contract or lease, or for any other reason, tenant shall
pay Landlord all replacement costs involved.
4. No signs, pictures, awnings or other projections shall be attached to the
outside walls of the Building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the
<PAGE>
demised premises, without the prior written consent of the Landlord, which
consent will not be unreasonably withheld.
5. The lavatories and other plumbing fixtures shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose employees, agents or guests, shall have caused the same.
6. There shall be no marking, painting, drilling into or other form of
defacement or damage of any part of Building or grounds. No boring, cutting or
stringing of wires shall be permitted without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. No tenant shall
construct, install, maintain, use or operate within, or on the outside of, the
Building or on the grounds, any electrical device, wiring or apparatus in
connection with a loudspeaker or other sound system.
7. No animals, birds or pets of any kind shall be brought into or kept in or
about the Building or grounds. Automobiles, motorcycles and bicycles may be
parked in the Building garage only in designated areas and only with the
specific prior approval of Landlord. Automobiles, motorcycles and bicycles
parked without Landlord's approval, or not parked in designated areas, are
subject to removal without notice.
8. No cooking shall be done or permitted by Tenant in the Building or on the
grounds, provided, however, that Tenant may install and maintain a microwave
oven, hot plate, coffee station, beverage and/or candy vending machines in the
demised premises for the convenience and exclusive use of Tenant's employees.
No tenant shall cause or permit any unusual or objectionable odors to originate
from the demised premises.
9. No space in the Building shall be used for manufacturing.
10. No tenant shall make, or permit to be made, any disturbing noises or
disturb or interfere with occupants of this Building or neighboring buildings or
premises or those having business with them, whether by the use of any musical
instrument, radio, talking machine or in any other way. No tenant shall discard
anything into the public or common areas.
11. No firearms or controlled substances shall be brought into or kept upon the
Building or grounds.
12. No flammable, combustible or explosive fluid, chemical or substance shall
be brought or kept within the Building or upon the grounds.
13. No additional locks or bolts of any kind shall be placed upon any of the
doors or other parts of the demised premises by any tenant, nor shall any
changes be made in existing locks or the machanisms thereof, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
The doors leading to the corridors or main halls shall be kept closed during
business hours except as they may be used for normal ingress or egress. Each
tenant shall, upon the termination of his tenancy, return to Landlord all keys
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any such keys, such tenant shall pay to Landlord the cost of
replacing the locks.
<PAGE>
14. All removals, or the carrying in or out of any safes, freight, furniture,
box, container or bulky matter of any description must take place during the
hours which Landlord or its agent may determine from time to time. Landlord
reserves the right to inspect all materials to be brought into or out of the
Building or grounds, and to exclude from the Building and grounds all materials
which violates any of these Rules and Regulations or the Lease of which these
Rules and Regulations are a part.
15. Any person employed by any tenant to perform janitorial services within the
demised premises must obtain Landlord's consent prior to commencing such work,
and such persons shall, while in or outside the Building, comply with all
instructions issued by Landlord or its representatives. No tenant shall pay any
employees of Landlord or Landlord's agents to perform any work or services in or
outside the Building.
16. No tenant shall purchase spring water, ice, coffee, soft drinks, towels, or
other products or services from any company or persons who violate the Building
regulations or disturb occupants of the Building.
17. Landlord reserves the right to exclude from the Building and grounds at all
times any person who is not known or does not properly identify himself to the
Building management, receptionist or security guard on duty. Landlord may, at
his option, require all persons admitted to or leaving the Building or grounds
to register with Building security guards. Each tenant shall be responsible for
all persons for whom such tenant authorizes entry into the Building or upon the
grounds, and shall be liable to Landlord for all acts and omissions of such
persons.
18. The premises shall not be used for lodging or sleeping or any immoral or
illegal purpose.
19. The requirements of tenants will be acted upon only by the Landlord or
Landlord's designated representative. Landlord's employees shall not be
requested to perform any work or do anything outside of their regular duties
unless authorized by the management of the Landlord.
20. Canvassing, soliciting and peddling in the Building or upon the grounds is
prohibited and each tenant shall cooperate to prevent same.
21. No water cooler or plumbing fixture may be installed by any tenant without
the prior written consent of the Landlord.
22. There shall not be used in any space, or in the public or common halls of
the Building, either by any tenant or by others, any hand trucks, except those
equipped with rubber tires and side guards.
23. Mats, trash or other objects shall not be placed in the public or common
corridors.
24. There shall be no parking of vehicles or other obstructions placed in the
loading dock area.
<PAGE>
25. Landlord reserves the right at any time, upon written notice to Tenant, to
make, eliminate, or modify these Rules and Regulations as in Landlord's sole
judgement may be necessary or desirable.
26. Smoking is prohibited anywhere on INTELSAT property, including but not
limited to all offices, hallways, stairwells, garages," common areas, entrances,
parks and all surrounding grounds. This regulation applies to all building
occupants, visitors and guests.
<PAGE>
Exhibit D
Diagram
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS
SATELLITE ORGANIZATION
CERTIFICATE BY LANDLORD AND TENANT
AS TO DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION OF LEASED PREMISES
Attached to and made a part of the Agreement of Lease, dated 18 June 1993,
as amended by Lease Amendment No. 2 dated 28 April 1995, entered into by and
between International Telecommunications Satellite Organization as Landlord, and
MIL 3, Inc. as Tenant.
Landlord and Tenant do hereby declare that possession of the Additional
Office Space, 378 square feet located on the second level of Pod L of Phase II
of the INTELSAT Building, all as more fully described in Lease Amendment No. 2,
was accepted by Tenant on the 28th day of April, 1995. The commencement date
for the term of lease for this Additional Office Space is hereby established as
1 May 1995, and the termination date shall be in accordance with Article 50,
Paragraph B of Lease Amendment No. 2.
<TABLE>
<CAPTION>
<S> <C>
LANDLORD
Attest: INTELSAT
[sig] /s/ Robert A. Lambert
- ------------------------------------------- --------------------------------------------
By: Robert A. Lambert
----------------------------------------
Date: 15/5/95
---------------------------------------
TENANT
Attest: MIL 3, Inc.
/s/ Marc A. Cohen /s/ Alain Cohen
- ------------------------------------------- --------------------------------------------
By: Alain Cohen, President
----------------------------------------
Date: 5/14/95
---------------------------------------
</TABLE>
<PAGE>
LEASE AMENDMENT NO. 3
---------------------
THIS LEASE AMENDMENT NO. 3 is made and entered into this 8th day of
September 1995, by and between the International Telecommunications Satellite
Organization ("Landlord") and MIL 3, Inc., a corporation organized and existing
under the laws of the State of Maryland ("Tenant") for the purpose of amending
the LEASE dated 18 June 1993 between said parties.
WHEREAS, Landlord and Tenant entered into an Agreement of Lease on 18 June
1993 (the "Lease") for certain office space (the "demised premises") located on
the second and fourth levels of Pods L of Phase II of the office building
situated at 3400 International Drive, N.W., Washington, D.C. 20008-3098;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 1 on 26
October 1994 to provide for the temporary lease by Landlord to Tenant of 1,580
rentable square feet on the second level of Pod L of Phase II;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 2 on 28 April
1994 to provide for the temporary lease by Landlord to Tenant of 378 rentable
square feet on the second level of Pod L of Phase II;
WHEREAS, Tenant desires to lease from Landlord, in addition to other leased
space described in the Lease, 1,958 rentable square feet located in the second
level of Pod L of Phase II, 7,768 rentable square feet located in the third
level of Pod L of Phase II and 105 rentable square feet located in the fourth
level of Pod L in Phase II (the "Additional office Space");
WHEREAS, Landlord and Tenant are agreed upon the terms and conditions for
such lease of Additional Office Space; and
-2-
<PAGE>
WHEREAS, Landlord and Tenant are agreeable to amending the Lease to address
this matter;
NOW THEREFORE, in consideration of the mutual promises of Landlord and
Tenant contained herein and for other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, agree to amend the Lease as follows:
1. The following is ADDED to the end of Article 1:
Effective 17 June 1998, the square footage measurements for Pod 2L
shall be changed to 4,745 square feet of rentable area (2,260 + 2,485) and
for Pod 4L shall be changed to 2,652 square feet of rentable area (1,432 +
1,220). In the event that there are any changes to the designation of fire
corridors prior to 17 June 1998, the parties agree that the above changes
in the square footage measurements may require further adjustments.
2. In the penultimate line of Article 1, DELETE "or decrease".
3. DELETE Article 2.A in its entirety and SUBSTITUTE the following therefor:
The term of this Lease (hereinafter referred to as the "term") shall
commence on 17 June 1993 ("Lease Commencement Date") and shall expire on 31
December 1999 ("Lease Expiration Date").
-3-
<PAGE>
4. AMEND Article 2.B. by ADDING the words "(l January 2000 through 31 December
2004)" after the words "additional period of five (5) years" which appear
in the first sentence.
5. AMEND Article 4.A. by ADDING the following after the second paragraph:
Effective 17 June 1998, Tenant shall pay to Landlord a fixed monthly rental
of Five Thousand Seven Hundred Thirty-three and 54/100 ($5,733.54) for the
office spaces located in Pod 2L and Four Thousand Nine Hundred Fifty and
40/100 ($4,950.40) for the office spaces located in Pod 4L due and payable
in advance on the first (1st) day of each and every calendar month during
the term of this Lease and any renewals of such term pursuant to Article 2.
6. Article 8.B as follows:
On lines 4 and 8, SUBSTITUTE "thirty (30) days" for "sixty (60) days".
On line 9, SUBSTITUTE "one hundred eighty (180) days" for "ninety (90)
days".
DELETE subparagraph (d) and SUBSTITUTE "(d)" for "(e)".
At the end of Paragraph B, ADD, "Within thirty (30) days of execution of
any sublease or assignment made pursuant to this Article 8, Tenant shall
submit to Landlord a copy of such sublease or assignment agreement."
-4-
<PAGE>
7. AMEND Article 8.C as follows:
On line 4, DELETE "the notice from Tenant set forth in paragraph B above"
and SUBSTITUTE "Tenant's Notice of Availability of Space (which need only
describe the office space available)".
On line 6, REPLACE the phrase "or portion thereof" with the parenthetical,
(or portion thereof in floor-by-floor increments)".
On Line 13, SUBSTITUTE "one hundred eighty (180) days" for "ninety (90)
days".
8. Reverse the order of Articles 8.B and 8.C such that "Recapture" becomes
Paragraph B and "Tenant's Application (Assignment and Sublease)" becomes
Paragraph C.
9. DELETE Article 45 in its entirety and substitute the following therefor:
In the event space in addition to the demised premises becomes
available for commercial use at any time during the Term (including any
extensions thereof) in Pod 7L, and Landlord does not require such
additional space for its own use, Landlord shall provide written notice to
Tenant of the availability of such additional space and Tenant shall have
an option, exercisable by providing written notice to Landlord no later
than ten (10) days from the date of receipt of Landlord's notice, to lease
from Landlord, in addition to the demised premises, the additional space
referenced in Landlord's notice; provided, however, that based upon
Landlord's own need for office space Landlord may make its offering of
-5-
<PAGE>
space in Pod 7L conditional upon Tenant vacating office space within its
leased premises located in Pods 2L, 3L and 4L.
10. A new Article 51 shall be ADDED as follows:
51. ADDITIONAL OFFICE SPACE
The Additional Office Space described in paragraph A of this Article
51 shall be governed by the terms and conditions of this Lease unless
otherwise provided in this Article 51.
A. Demised Premises
----------------
In addition to other leased space described herein, Landlord leases to
Tenant, and Tenant hereby leases from Landlord, certain space outlined on
Exhibit H attached hereto, and located on the second level of Pod L of
Phase II of the INTELSAT Building, certain space outlined on Exhibit I
attached hereto, and located on the third level of Pod L of Phase II of the
INTELSAT Building, and certain space outlined in Exhibit J attached hereto,
and located on the fourth level of Pod L of Phase II of the INTELSAT
Building. The parties hereto agree that the Additional Office Space
constitutes 1,958 square feet of rentable area in Pod 2L, 7,768 square feet
of rentable area in Pod 3L, and 105 square feet of rentable area in Pod 4L.
This Additional Office Space shall be considered to be a portion of the
"demised premises" as used throughout this Lease, during the term specified
in Paragraph B of this Article 51, unless such meaning would be
inconsistent with the provisions of this Article 51. Tenant, at Tenant's
sole expense, shall have the right to verify Landlord's measurement of the
-6-
<PAGE>
Additional Office Space, and shall also have the right to verify the
necessity for, and location of, the additional fire corridor in Pod 3M.
Adjustments to Tenant's square footage will be made if deemed appropriate
by both parties. Tenant hereby agrees that Landlord shall have the right,
for the purposes of accommodating other tenants of Pod L or otherwise, to
increase or decrease the dimensions, change the configuration, or to
otherwise alter the common corridors; however, such alteration of the
common areas shall not materially impair Tenant's use of the demised
premises, and shall not increase the amount of common area attributable to
Tenant as specified in this Article.
B. Term
----
The term of lease for the Additional Office Space shall commence upon
the date that Landlord notifies Tenant that Landlord's work (as set forth
in Exhibits K and L of this Lease Amendment) is substantially complete;
provided, however, that in the event that construction is substantially
completed in either one of the new office spaces in 2L and 3L prior to
substantial completion of construction in the other new office space,
Landlord shall notify Tenant, and Tenant, at its sole option, shall be
entitled to take occupancy of the substantially completed space. If Tenant
so elects to take occupancy, Tenant shall so inform Landlord in writing,
and the Term for that office space shall commence upon the date that Tenant
takes occupancy of the substantially completed space. In such event,
Tenant's total monthly rental shall not include rental for the location and
square footage of the space which remains unfinished until such time as
Landlord notifies Tenant that Landlord's work as set forth in Exhibits K
-7-
<PAGE>
and L of this Lease Amendment in the remaining new office space is
substantially completed. The term of the lease for the Additional office
Space shall expire at midnight on 31 December 1999.
C. Rental
------
(i) Fixed Monthly Rental - In addition to the fixed monthly rental
specified in Paragraph A of Article 4 of this Lease, Tenant shall pay to
Landlord a sum of Two Thousand Two Hundred-two and 75/100 Dollars
($2,202.75) for the Additional Office Space in Pod 2L (1,958 rentable sq.
ft.), Twelve Thousand Nine Hundred Forty-six and 67/100 Dollars ($12,946.67)
for the Additional Office Space in Pod 3L (7,768 rentable sq. ft.), and One
Hundred Ninety-six and 00/100 Dollars ($196.00) for the Additional Office
Space in Pod 4L (105 rentable sq. ft.) due and payable in advance on the
first day of each and every calendar month during the lease term specified
in Paragraph B of this Article 51. Partial months shall be prorated.
Landlord shall abate 50% of the fixed monthly rental for the Additional
Office Space for each of the first twelve (12) months of the first lease
year. Such abatement shall commence upon the date that Landlord notifies
Tenant that all of Landlord's work as set forth in Exhibits K and L of this
Lease Amendment is substantially complete.
(ii) Operating Costs - In addition to the percentage of operating
expenses specified in Article 4.B, Tenant shall pay to Landlord throughout
the lease term specified in Paragraph B of this Article 51, as additional
rental, 0.0331 (3.31%) (being the approximate and agreed upon proportion
which the floor area of the Additional Office Space (9,831 rentable square
-8-
<PAGE>
feet) bears to the architectural and engineering (A&E) design figure for
total area of the Building) (296,733 rentable square feet) of the Actual
Operating Expenses.
In the event Tenant obtains and exercises an option to take occupancy
of the new office space in Pod 2L prior to taking occupancy of the new
office space in Pod 3L, Tenant shall pay to Landlord until the date that
Landlord notifies Tenant that all of Landlord's work as set forth in
Exhibits K and L of this Lease Amendment is substantially complete, as
additional rental, 0.0066 or (0.66%) (being the approximate and agreed upon
proportion which the floor area of the new office space in Pod 2L (1,958
rentable square feet) bears to the architectural and engineering (A&E)
design figure for total area of the Building) (296,733 rentable square
feet) of the Actual Operating Expenses. once such notice is provided by
Landlord to Tenant, Tenant shall begin paying to Landlord, as additional
rental, 0.0331 (3.31%), in lieu of the 0.0066 (.66%) of the Actual
operating Expenses.
In the event Tenant obtains and exercises an option to take occupancy
of the new office space in Pod 3L prior to taking occupancy of the new
office space in Pod 2L, Tenant shall pay to Landlord until the date that
Landlord notifies Tenant that all of Landlord's work as set forth in
Exhibits K and L of this Lease Amendment is substantially complete, as
additional rental, 0.0262 (2.62%) (being the approximate and agreed upon
proportion which the floor area of the new office space in Pod 3L (7,768
rentable square feet) bears to the architectural and engineering (A&E)
design figure for total area of the Building) (296,733 rentable square
feet) of the Actual Operating Expenses. Once such notice is provided by
-9-
<PAGE>
Landlord to Tenant, Tenant shall begin paying to Landlord, as additional
rental, 0.0331 (3.31%), in lieu of the 0.0262 (2.62%) of the Actual
Operating Expenses.
The projected Operating Expenses for 1995 are estimated to be Four
Dollars and Forty Seven Cents ($4.47) per square foot of total area of the
Building for 1995.
D. Security Deposit
----------------
Concurrently with Tenant's execution of this Lease Amendment No. 3,
Tenant shall deposit with Landlord the sum of Thirty Thousand Six Hundred
Ninety and 84/100 Dollars ($30,690.84), less amounts already deposited with
Landlord under Amendment No. 1 ($1,580.00) and Amendment No. 2 ($378.00);
$15,345.42 of which shall be used as payment of the first month's rent
actually due Landlord and the remaining portion of which shall be used as
security for the full and faithful performance by Tenant of each and every
term, provision, covenant, and condition of this Lease. Landlord shall
grant to Tenant an annual rental credit equal to 2.30% interest on the
security deposited with Landlord pursuant to this Article 51.D. The
security deposited with Landlord pursuant to this Article 51.D shall be in
addition to the security deposit previously paid by Tenant pursuant to
Article 6 of the Lease and shall be subject to the provisions of Article 6
of this Lease.
E. Preoccupancy Work
-----------------
Landlord, at its own expense, will provide design services and
construct the demised premises and Additional Office Space in accordance
-10-
<PAGE>
with the provisions set forth in Exhibits K and L attached hereto and made
a part hereof. Landlord shall have no obligation to make any alterations,
additions, or improvements to the demised premises or the Additional office
Space except as set forth in Exhibits K and L; provided, however, Tenant
may, at its own expense, substitute a higher grade item for that of a
building-standard item (e.g., door locks) in which case Tenant shall
receive a credit from INTELSAT for the cost of the building-standard item
being replaced. Subject to the need to minimize remobilization costs,
Tenant shall have the right to specify the scheduling of construction in
the different office spaces, to minimize any disruption to Tenant's
business.
F. Parking Option
--------------
Tenant shall have the right, on a one-time offer, to lease from
Landlord six (6) parking permits in the Building garage in addition to
those specified in Article 46. This parking option may be exercised by
Tenant only upon the date on which Tenant executes this Lease Amendment No.
3. The additional parking permits shall be leased by Tenant at prevailing
market rates, currently $80 per space, per month.
11. A new Exhibit H is attached hereto and incorporated herein.
12. A new Exhibit I is attached hereto and incorporated herein.
13. A new Exhibit J is attached hereto and incorporated herein.
14. A new Exhibit K is attached hereto and incorporated herein.
15. A new Exhibit L is attached hereto and incorporated herein.
-11-
<PAGE>
IN WITNESS WHEREOF, on the day and year first hereinabove written, the
undersigned have executed two copies of this Lease Amendment No. 3.
<TABLE>
<CAPTION>
LANDLORD
--------
<S> <C>
International Telecommunications Satellite
Organization
3400 International Drive, N.W.
Washington, D.C. 20008-3098
Attest: /s/ R. A. Lambert By: /s/ David T. Tudge
----------------------------------- -----------------------------------------
Signed Signed
David T. Tudge
--------------------------------------------
Title: Vice President & Chief
Financial Officer
TENANT
------
MIL 3, Inc.
3400 International Drive, N.W.
Pod 4L
Washington, D.C. 20008-3098
Attest: [sig] By: /s/ Alain Cohen
----------------------------------- -----------------------------------------
Signed Signed
--------------------------------------------
Typed
Title:
--------------------------------------
</TABLE>
-12-
<PAGE>
A new Exhibit H shall be ADDED as follows:
EXHIBIT H
PLAN OF ADDITIONAL SPACE IN POD 2L
-13-
<PAGE>
A new Exhibit I shall be ADDED as follows:
EXHIBIT I
PLAN OF ADDITIONAL SPACE IN POD 3L
-14-
<PAGE>
A new Exhibit J shall be ADDED as follows:
EXHIBIT J
PLAN OF ADDITIONAL SPACE IN POD 4L
-15-
<PAGE>
STANDARD WORK LETTER FOR TENANT IMPROVEMENTS
INTELSATBUELDING
PHASE II
<TABLE>
<CAPTION>
<S> <C>
Partitioning: . Partitioning between suites and units to be slab to slab and sound insulated.
. Partitioning to be constructed of 3 5/8" steel studs at 24 inches o.c. and 5/8' gypsum
Painting: . Three coats eggshell finish paint building standard color for all office partitioning.
. Interior doors to be stained building standard red oak or equal.
Doors: . Interior doors of rift cut red oak veneer, or equal with glass sidelights, will be provided for each
office in the rentable space.
. Doors to be 2'-8" x 7'10" solid core, metal frame equipped with building standard latch set.
One suite entrance door will be provided for each tenant with metal frame, equipped with building
standard lock set.
Floor . Building standard carpet tile 18" x 18", special grey, including 2% vinyl straight base will be
Covering: provided.
Ceiling: . Building standard suspended, acoustical tile ceiling system provided.
Electrical: . One 120 volt duplex wall electrical outlet will be provided for each 150 square feet of rentable
space.
Telephone: . One telephone outlet will be provided for each 200 square feet of rentable space.
Outlets: . Any special cable or amperage requirements are not included, but will be provided by the landlord at
tenant's expense.
Lighting: . One 2' x 4' recessed fluorescent lighting fixture with parabolic lens per 80 square feet of rentable
space.
Heating and Air . Building standard beating and cooling for normal office use and one thermostat for each 200 square
Conditioning: feet of rentable space is provided.
. Excess capacity, special controls and exhaust requirements are not included, but will be provided by
landlord at tenant's expense.
Window Covering . No window covering provided by Landlord.
Floor Loads: . Floor loads am designed for 60 pounds per square foot of live load and an additional allowance of 20
pounds per square foot for partitioning.
Plumbing: . Landlord will provide rough plumbing from nearest plumbing stack to one location within space at
landlords option; 1,500 square feet of rentable space minimum.
Design Services: . Consultation with landlord's space designer is provided to prepare the documentation for tenant's
space plan and interior layout.
. Two (2) two- (2) hour planning sessions are provided and one (1) major and two (2) minor revisions
in the space plans are allowed at no cost to tenant.
Allowance . Enumerated above are maximum allowance quantities to be provided by landlord at no cost to tenant.
There will be no credits for unused portions of allowance quantities.
</TABLE>
-16-
<PAGE>
04 May 1999
Mr. Joseph Greeves
Chief Financial Officer
MIL-3, Inc.
3400 International Drive, N.W.
Suite 4L
Washington, D.C. 20008
VIA HAND DELIVERY
-----------------
Re: Lease Amendment No. 4
Dear Mr. Greeves:
Enclosed for your files is one original, fully executed Amendment to Lease 4
INTEL-L-1433 (Lease Amendment No. 4), entered into by and between International
Telecommunications Satellite Organization as Landlord, and MIL-3, Inc. as
Tenant. A copy of the Delivery & Acceptance Certificate is also enclosed.
If you have any questions, please call me at (202) 944-8235.
Sincerely,
CHARLES E. SMITH COMMERCIAL REALTY
/s/ Karen K. Wilson
Karen K. Wilson, RPA
Lease Administrator
/kkw
Enc. (2)
cc: R. Lambert, INTELSAT
C. Diehl, C.E. Smith
Lease File
-17-
<PAGE>
LEASE AMENDMENT NO. 4
---------------------
THIS LEASE AMENDMENT NO. 4 is made this 28th day of April, 1999, by and
between the International Telecommunications Satellite Organization
("Landlord"), an international organization, and MIL 3, Inc., a corporation
organized and existing under the laws of the State of Maryland ("Tenant") for
the purpose of amending the LEASE dated 18 June 1993 between said parties.
WHEREAS, Landlord and Tenant entered into an Agreement of Lease on 18 June
1993 (the "Lease") for certain office space (the "demised premises") located on
the second and fourth levels of Pod L of Phase II of the office building
situated at 3400 International Drive, N.W., Washington, D.C. 20008-3098;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 1 on 26
October 1994 to provide for the temporary lease by Landlord to Tenant of certain
office space on the second level of Pod L of Phase II;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 2 on 28 April
1995 to provide for the temporary lease by Landlord to Tenant of certain office
space on the second level of Pod L of Phase II;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 3 on 8
September 1995 to extend the term of the Lease, to provide for the lease by
Landlord to Tenant of certain office space on the second, third and fourth
levels of Pod L of Phase II, and to amend other provisions of the Lease;
WHEREAS, Tenant desires to lease from Landlord, in addition to other leased
space described in the Lease, 3,987 rentable square feet located in the third
level of Pod M of Phase II (the "Additional office Space");
-18-
<PAGE>
WHEREAS, Landlord and Tenant are agreed upon the terms and conditions for
such lease of Additional Office Space; and
WHEREAS, Landlord and Tenant are agreeable to amending the Lease to address
this matter;
NOW THEREFORE, in consideration of the mutual promises of Landlord and
Tenant contained herein and for other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, agree to amend the Lease as follows:
1. A new Article 52 shall be ADDED as follows:
52. ADDITIONAL OFFICE SPACE
The Additional Office Space described in paragraph A of this Article
52 shall be governed by the terms and conditions of this Lease unless
otherwise provided in this Article 52.
A. Demised Premises
----------------
In addition to other leased space described herein, Landlord
leases to Tenant, and Tenant hereby leases from Landlord, certain
space outlined on Exhibit M attached hereto, and located on the third
level of Pod M of Phase II of the INTELSAT Building. The parties
hereto agree that the Additional office Space constitutes 3,987 square
feet of rentable area. This Additional Office Space shall be
considered to be a portion of the "demised premises" as used
throughout this Lease, during the term specified in Paragraph B of
this Article 52, unless such meaning would be inconsistent with the
provisions of this Article 52. Tenant, at Tenant's sole expense,
shall have the right to verify Landlord's measurement of the
Additional Office Space. Adjustments to Tenant's square footage will
be made if deemed appropriate by both parties. Tenant hereby agrees
that Landlord shall have the right, for the purposes of accommodating
other tenants of Pod M or otherwise, to increase or decrease the
dimensions, change the configuration, or to otherwise alter the common
corridors; however, such alteration of the common areas shall not
materially impair Tenant's use of the demised premises, and shall not
increase the amount of common area attributable to Tenant as specified
in this Article.
-19-
<PAGE>
B. Term
----
The term of lease for the Additional Office Space shall commence
upon 23 January 1999 and shall expire at midnight on 31 December 1999.
C. Rental
------
(i) Fixed Monthly Rental - In addition to the fixed monthly
rental specified in Paragraph A of Article 4 of this Lease, Tenant
shall pay to Landlord
(a) for the period 23 January 1999 to 8 April 1999, a sum of
Five Thousand Nine Hundred Eighty and 50/100 ($5,980.50) per
month, and
(b) for the period 9 April 1999 until expiration of this
Lease, a sum of Six Thousand Twenty Three and 69/100 Dollars
($6,023.69) per month, due and payable in advance on the first
day of each and every calendar month during the lease term
specified in Paragraph B of this Article 52. Payment for the
first month under this Lease Amendment No. 4 shall be paid
concurrently with Tenant's execution thereof. Partial months
shall be prorated.
(ii) Operating Costs - In addition to the percentage of operating
expenses specified in Article 4.B, Tenant shall pay to Landlord, for
the period 9 April 1999 until expiration of this Lease, as additional
rental, 0.0134 (1.34%) (being the approximate and agreed upon
proportion which the floor area of the Additional Office Space (3,987
rentable square feet) bears to the architectural and engineering (A&E)
design figure for total area of the Building) (296,733 rentable square
feet) of the Actual Operating Expenses.
D. Security Deposit
----------------
Concurrently with Tenant's execution of this Lease Amendment No.
4, Tenant shall deposit with Landlord the sum of Six Thousand Twenty
Three and 69/100 Dollars ($6,023.69), which shall be used as security
for the full and faithful performance by Tenant of each and every
term, provision, covenant, and condition of this Lease. The security
deposited with Landlord pursuant to this Article 52.D shall be in
addition to the security deposit previously paid by Tenant pursuant to
the Lease and shall be subject to the provisions of Article 6 of this
Lease.
E. Preoccupancy Work
-----------------
Notwithstanding any other provision of this Lease, the Additional
Office Space shall be provided by Landlord to Tenant in "AS IS"
condition.
-20-
<PAGE>
F. Parking Option
--------------
Tenant shall have the right, on a one-time offer, to lease from
Landlord three (3) parking permits in the Building garage in addition
to those specified in Article 46 and Article 51.F. This parking
option may be exercised by Tenant only upon the date on which Tenant
executes this Lease Amendment No. 4. The additional parking permits
shall be leased by Tenant at prevailing market rates, currently $80
per space, per month.
2. A new Exhibit M is attached hereto and incorporated herein.
IN WITNESS WHEREOF, on the day and year first hereinabove written, the
undersigned have executed two copies of this Lease Amendment No. 4.
<TABLE>
<CAPTION>
<S> <C>
LANDLORD
--------
International Telecommunications Satellite
Organization
3400 International Drive, N.W.
Washington, D.C.20008-3098
Attest: /s/ R. Lambert By: /s/ Joseph Corbett
---------------------------------- -----------------------------------------
Signed Signed
Joseph Corbett
--------------------------------------------
Title: Vice President &
Chief Financial Officer
TENANT
------
MIL 3, Inc.
3400 International Drive, N.W.
Pod 4L
Washington, D.C.20008-3098
Attest: /s/ A. Dalton By: /s/ Joseph F. Greeves
---------------------------------- -----------------------------------------
Signed
Joseph F. Greeves
--------------------------------------------
Typed
Title: Chief Financial Officer
</TABLE>
-21-
<PAGE>
EXHIBIT M
Mil 3 POD-3M
3,987 s.f.
-22-
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS
SATELLITE ORGANIZATION
CERTIFICATE BY LANDLORD AND TENANT
AS TO DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION OF LEASED PREMISES
Attached to and made a part of the Agreement of Lease, dated 18 June 1993,
as amended by Lease Amendment No. 4, dated 08 April 1999, entered into by and
between International Telecommunications Satellite Organization as Landlord, and
MIL 3, Inc. as Tenant.
Landlord and Tenant do hereby declare that possession of the Additional
Office Space, 3,987 square feet located on the third level of Pod M of Phase If
of the INTELSAT Building, all as more fully described in Lease Amendment No. 4,
was accepted by Tenant on the 23rd day of January 1999. The commencement date
for the term of lease for this Additional Office Space is hereby established as
23 January 1999, and the termination date shall be in accordance with Article
52, Paragraph B of Lease Amendment No. 4.
In addition, Tenant acknowledges the exercising of their right to lease
three (3) additional parking spaces within Phase II of the INTELSAT Building
Parking Garage.
<TABLE>
<CAPTION>
<S> <C>
LANDLORD
INTELSAT
Attest: By: /s/ Robert A. Lambert
-----------------------------------------
Robert A. Lambert, RPA, FMA
/s/ Karen K. Wilson
- ------------------------------------------- Date: 13 April 1999
---------------------------------------
TENANT
MIL 3, Inc.
Attest: By: /s/ Joseph F. Greeves
-----------------------------------------
Joseph F. Greeves
/s/ A. Dalton
- ----------------------------------------- Date: 4/12/99
---------------------------------------
</TABLE>
-23-
<PAGE>
12 October 1999
Mr. Joseph Greeves
Chief Financial Officer
MIL-3, Inc.
3400 International Drive, N.W.
Suite 4L
Washington, D.C. 20008 VIA HAND DELIVERY
-----------------
Re: Lease Amendment No. 5
Dear Mr. Greeves:
Enclosed for your files is one original, fully executed Amendment to Lease
#INTEL-L- 1433 (Lease Amendment No. 5), entered into by and between
International Telecommunications Satellite Organization as Landlord, and MIL-3,
Inc. as Tenant.
If you have any questions, please call me at (202) 944-8235.
Sincerely,
CHARLES E. SMITH COMPANIES
/s/ Karen K. Wilson
Karen K. Wilson, RPA
Lease Administrator
/kkw
Enc.
cc: Robert Lambert, INTELSAT
John Navolio, C.E. Smith
CES Lease File
-24-
<PAGE>
LEASE AMENDMENT NO. 5
---------------------
THIS LEASE'AMENDMENT NO. 5 is made this 7th day of September, 1999, by and
--- ---------------
between the International Telecommunications Satellite Organization
("Landlord"), an international organization, and MIL 3, Inc., a corporation
organized and existing under the laws of the State of Maryland ("Tenant") for
the purpose of amending the LEASE dated 18 June 1993 between said parties.
WHEREAS, Landlord and Tenant entered into an Agreement of Lease on 18 June
1993 (the "Lease") for certain office space (the "demised premises") located on
the second and fourth levels of Pod L of Phase II of the office building
situated at 3400 international Drive, N.W., Washington, D.C. 20008-3098;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 1 on 26
October 1994 to provide for the temporary lease by Landlord to Tenant of certain
office space on the second level of Pod L of Phase II;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 2 on 28 April
1995 to provide for the temporary lease by Landlord to Tenant of certain office
space on the second level of Pod L of Phase II;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 3 on 8
September 1995 to extend the term of the Lease, to provide for the lease by
Landlord to Tenant of certain office space on the second, third and fourth
levels of Pod L of Phase II, and to amend other provisions of the Lease;
WHEREAS, Landlord and Tenant entered into Lease Amendment No. 4 on 28 April
1999 to provide for the lease by Landlord to Tenant of certain office space on
the third level of Pod M of Phase II;
WHEREAS, Tenant desires to extend the initial term of the Lease for one
year beyond the Lease Expiration Date of 31 December 1999, and Landlord is
agreeable to that extension.
NOW THEREFORE, in consideration of the mutual promises of Landlord and
Tenant contained herein and for other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, agree to amend the Lease as follows:
1. A new Article 53 shall be ADDED as follows:
53. ONE YEAR EXTENSION
------------------
Notwithstanding Paragraph A of Article 2 and Paragraph B of Article 52
to this Lease, and without prejudice to Paragraph B of Article 2 ("Option
to Renew") to this Lease, the initial-term of this Lease shall be extended
for one year and shall expire at midnight on 31 December 2000. The fixed
monthly rental shall be adjusted for the calendar year commencing on
-25-
<PAGE>
January 1, 2000 and on January 1 for each succeeding calendar year in
accordance with Article 5 to this Lease.
IN WITNESS WHEREOF, on the day and year first hereinabove written, the
undersigned have executed two copies of this Lease Amendment No. 5.
<TABLE>
<CAPTION>
<S> <C>
LANDLORD
--------
International Telecommunications Satellite
Organization
3400 International Drive, N.W.
Washington, D.C. 20008-3098
Attest:
/s/ R. A. Lambert By: /s/ Joseph Corbett
- ------------------------------------------- ----------------------------------------
Signed Signed
Joseph Corbett
--------------------------------------------
Title: Vice President &
Chief Financial Officer
TENANT
------
MIL 3, Inc.
3400 International Drive, N.W.
Pod 4L
Washington, D.C. 20008-3098
Attest:
/s/ A. Dalton By: /s/ Joseph F. Greeves
- ------------------------------------------- ------------------------------------------
Signed Signed
Joseph F. Greeves
--------------------------------------------
Typed
Title: Chief Financial Officer
</TABLE>
-26-
<PAGE>
EXHIBIT 10.22
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made and entered into as of
November 1, 1997, by and between WJLA-TV, a division of Allbritton
Communications Company ("WJLA") and MIL 3, Inc. ("MIL 3").
WHEREAS, WJLA, as tenant, is a party to that certain Lease Agreement
("Master Lease") dated as of November 3, 1986 (a redacted copy of which is
attached hereto as Exhibit 1) wherein WJLA has leased space from the
International Telecommunications Satellite Organization ("Intelsat") in its
headquarters building ("Building") located at 3007 Tilden Street, NW,
Washington, D.C. 20008; and
WHEREAS, MIL 3 desires to sublease from WJLA a portion of the space leased
to WJLA under the Master Lease;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Subleased Premises. MIL 3 hereby subleases from WJLA and WJLA
------------------
subleases to MIL 3 for the Sublease Term defined herein a portion of the space
leased by WJLA under the Master Lease consisting of the Sixth (6th) Floor, Pod P
(excluding the link area between Pod P and Pod N) measuring approximately 7,074
rentable square feet as shown on Exhibit 2, attached hereto and incorporated
herein ("Subleased Premises"). MIL 3 shall have access to and occupy the
Subleased Premises. WJLA shall provide janitorial services (including trash
collection) and basic utilities, but shall not provide parking and security
services. Intelsat shall not provide additional parking or services to MIL 3.
2. Sublease Term. The Sublease Term shall commence on November 1, 1997
-------------
and terminate on October 31, 2002 ("Termination Date"); provided, however, that:
(a) MIL 3 may accelerate the expiration date at any time and without penalty
upon six (6) months' prior written notice to WJLA; and (b) WJLA may accelerate
the expiration date beginning November 1, 1999 without penalty upon six (6)
months' prior written notice to MIL 3 with such expiration date to be effective
no earlier than May 1, 2000.
3. Alterations. MIL 3 will not make or permit anyone to make any
-----------
alterations, additions or improvements, structural or otherwise (hereinafter
referred to as "Alterations"), in or to the demised premises or the Building,
without the prior written consent of WJLA, which consent shall not be
unreasonably withheld. All Alterations made by MIL 3 shall be at MIL 3's sole
cost and expense, and MIL 3 will indemnify and hold WJLA harmless from and
against any and all liens, claims, or damages which may arise by reason of the
making of any Alterations. Any Alterations approved by WJLA may be left in place
at the expiration of the Sublease. If any Alteration is made without the prior
written consent of WJLA, MIL 3 shall at the expiration of the Sublease, at its
sole cost and expense, remove such Alteration and restore the Sublease Premises
to its original condition, except to the extent that WJLA, in its reasonable
discretion, determines that said Alterations may remain. If MIL 3 fails to
perform such work
<PAGE>
within thirty (30) days after the expiration of the Sublease, WJLA may arrange
to have such Alteration removed at MIL 3's expense.
4. Base Rental Rate. MIL 3's monthly rent shall be the rent WJLA is
----------------
currently paying attributed to the Subleased Premises ($14,737.50 based upon an
annual rate of $25 per rentable square foot) which includes operating expenses
and real estate taxes, if any, with such rent payable on the first day of each
month of the Sublease Term. At the beginning of the second lease year (November
1, 1998) and at the beginning of each subsequent lease year of the Sublease, MIL
3's monthly rent shall increase five (5) percent.
5. Condition of Subleased Premises. MIL 3 acknowledges that the
-------------------------------
Subleased Premises are acceptable on an "as-is" basis with no build-out offset
or rental abatement. WJLA shall provide no other work or services to MIL 3
through the Sublease Term except as provided in this Sublease.
6. Access. MIL 3 shall have access to the Building and Sublease
------
Premises twenty-four (24) hours a day, seven (7) days a week, 365 days per year.
7. Building Services. WJLA, through the Master Lease, represents that
-----------------
Intelsat will maintain heating, ventilation and air conditioning services as
provided in the Master Lease. WJLA shall maintain the supplemental HVAC
equipment installed in the Subleased Premises.
8. Security Deposit. MIL 3 shall deliver to WJLA simultaneously with
----------------
the execution hereof the sum of $14,737.50 ("Security Deposit"). WJLA, as soon
as practicable thereafter, shall deposit the Security Deposit in a separate
federally insured interest-bearing savings account with interest credited to MIL
3. Provided MIL 3 has complied with all the terms and conditions of this
Sublease and no MIL 3 Event of Default has then occurred or is occurring, WJLA
shall return the Security Deposit fifteen (15) days following the later of the
last day of the Sublease or the date on which the work required by Section 3 is
completed, if any.
9. Insurance. MIL 3 shall obtain and maintain in effect at all times
---------
during the term of this Sublease a policy of comprehensive public liability
insurance, naming WJLA and Intelsat as additional insureds, protecting MIL 3,
WJLA and Intelsat against any liability for bodily injury, death or property
damage occurring upon, in or about any part of the Subleased Premises arising
from any of the items set forth in this Paragraph against which MIL 3 is
required to indemnify WJLA, with such policies to afford protection (1) with
respect to bodily injury or death to the limit of not less than One Million
Dollars ($1,000,000) to any one person and to the limit of not less than Three
Million Dollars ($3,000,000) with respect to any one accident, and (ii) with
respect to damage to the property of any one owner to the limit of not less than
Five Hundred Thousand Dollars ($500,000). Such insurance policies shall be
issued by responsible insurance companies licensed to do business in the
District of Columbia. A certificate of insurance evidencing the issuance of such
insurance policy, together with evidence of payment of premiums thereon, shall
be delivered to WJLA upon WJLA's written request prior to the Commencement Date
and at least thirty (30) days before the expiration date of any policy evidenced
by a certificate previously furnished.
-2-
<PAGE>
10. Damages. MIL 3 shall be responsible for any and all damages which
-------
occur in the Sublease Premises except to the extent they result from acts of God
or any actions taken by Intelsat or WJLA or any other tenant of the Building.
MIL 3 shall, on the Termination Date, at its own expense, remove all signs and
advertising devices and repair any damage caused by such removal.
11. Representations and Warranties of WJLA. WJLA represents and
--------------------------------------
warrants to MIL 3 that: (A) the Master Lease is valid and existing, in full
force and effect and Exhibit 1 contains a true and correct copy of the Master
Lease as amended to date (exclusive of confidential information and economic
terms and conditions) and there are no other agreements with Intelsat with
respect to the Sublease Premises; (B) there are no existing defaults on the part
of Intelsat or WJLA with respect to the Master Lease; (C) Intelsat does not hold
any claim against WJIA; and (D) there are and will be no contracts for service
or otherwise which expressly or impliedly are or will be binding upon MIL 3 or
the Sublease Premises.
12. Representations, Warranties and Covenants of MIL 3.
--------------------------------------------------
12.1. Representations, Warranties. MIL 3 acknowledges that MIL 3 has
---------------------------
received a copy of the Master Lease (with certain provisions thereof redacted by
WJLA) and agrees that this Sublease is subject to all of the terms and
conditions of the Master Lease, except as specifically redacted exempted or
modified herein.
12.2. Covenants. MIL 3 covenants and agrees to: (A) indemnify and hold
---------
harmless WJLA from MIL 3s failure to comply with the terms and conditions of the
Master Lease or this Sublease; (B) permit Intelsat and WJLA (and their agents or
representatives), who will use reasonable, good faith efforts to minimize
disruption to MIL 3's business, upon proper notice, except no prior notice is
required in the event of an emergency to enter and inspect the Sublease Premises
during normal business hours to verify MIL 3's compliance with the Sublease; (C)
furnish WJLA with copies of all renewals of insurance and all other obligations
relating to Master Lease and/or consent obligations; (D) inform WJLA in writing
of all material contacts with Intelsat and send WJLA copies of all material
correspondence with Intelsat; (E) permit WJLA to participate in any meetings
with Intelsat concerning the Master Lease; (F) subject to the provisions of
Paragraph 3, return the Sublease Premises to WRA on the Termination Date in the
condition received, reasonable wear and tear excepted. MIL 3 shall not commit or
permit to be committed on the Sublease Premises any act or omission which shall
violate any term or condition of the Master Lease or assign or sublease the
Sublease Premises except as otherwise provided for in this Sublease.
13. Master Lease; Consent.
---------------------
13.1. Incorporation by Reference; Conflicts. Capitalized terms used in
-------------------------------------
this Sublease, and not otherwise defined are used with the meaning given such
terms in the Master Lease. Except as otherwise provided in this Sublease, all of
the covenants, agreements, terms, provisions and conditions of the Master Lease
insofar as they relate to the Sublease Premises are incorporated herein and made
a part of hereof. Except where otherwise specifically provided in this Sublease,
the obligations of WJLA as tenant under the Master Lease shall be binding upon
MIL 3 during the Sublease Term, but only with respect to the Sublease Premises,
with the same
-3-
<PAGE>
force and effect as if herein set forth at length and with respect thereto the
words "Landlord" and "Tenant" as used in the Master Lease, shall be deemed to
refer to WJLA and MIL 3 respectively. In the event of a conflict between this
Sublease and the Master Lease, the Master Lease shall prevail.
13.2. Liability and Indemnity. WJLA shall not be liable with respect
-----------------------
to the Sublease Premises under the Master Lease or this Sublease for any breach,
defaults, negligence or willful omissions by Intelsat, its agents, successors or
assigns, but shall be liable only for its own acts, negligence or willful
omissions, or those of its agents, successors or assigns, and shall indemnify
and save harmless MIL 3 from same. MIL 3 shall indemnify and save harmless WJLA
and Intelsat with respect to personal injury, death or property damage in the
Sublease Premises and from any failure to comply with this Sublease and the
Master Lease to the same extent as WJIA has agreed to indemnify Intelsat under
the terms of the Master Lease.
14. Confidentiality. MIL 3 shall keep and maintain the confidentiality
---------------
of this Sublease and all information contained in the Master Lease, and shall
use it only for such purposes and in the manner previously agreed to in writing
by WJLA. Specifically, this Sublease and the Master Lease along with all terms
thereof and hereof shall be considered proprietary information of WJLA and
Intelsat, and shall not be given or disclosed to any person, firm or entity
(other than employees of MIL 3 on a "need to know" basis), and in no event shall
such proprietary information be given or disclosed to any real estate broker or
any other tenant or prospective tenant in the Building.
15. Event of Default; Remedies.
--------------------------
15.1. Event of Default. An "Event of Default" shall occur: (A) upon
----------------
the occurrence of an event of default described in the Master Lease, (each
reference to Landlord and Tenant to be deemed to refer to WJIA and MIL 3); (B)
in the event any representation or warranty which either party has made or makes
in this Sublease proves to be false or erroneous in any material way; or (C) in
the event that either party breaches or fails to observe or fails to perform any
term or covenant provided for in this Sublease and such breach or failure has
not been cured within ten (10) days after receiving written notice from the
other party of such breach or failure.
15.2. Remedies. Upon the occurrence of an Event of Default, in
--------
addition to any other rights and remedies either party may have under the
Sublease or at law or in equity, the other party shall have the rights and
remedies as set forth in this Sublease and the Master Lease.
16. Miscellaneous.
-------------
16.1. Waivers. The failure at any time of either party to require
-------
performance of any obligation provided for in this Sublease shall in no way
affect the right to require such performance at any time thereafter, nor shall
the waiver of any breach constitute a waiver of any succeeding breach of the
same or any other such provision or constitute a waiver of the responsibility of
obligation itself.
16.2. Assignment: Subleasing. MIL 3 shall not sublease, assign,
----------------------
mortgage, transfer or otherwise encumber this Sublease without the prior written
consent(s) of Intelsat, if
-4-
<PAGE>
necessary, and WJLA, which consent, in the case of WJLA, shall not be
unreasonably withheld, conditioned or delayed. This Sublease shall be binding
upon and inure to the benefit of the parties named herein and the respective
successors and permitted assigns; provided, however, that any assignment of this
Sublease by WJLA or MIL 3 shall require the prior written consent of the other
except with respect to assignments to any entity controlling, controlled by or
under common control with the assigning party.
16.3. Notices. All notices, requests, demands, communications or
-------
information which are required to be or may be given under or in connection with
this Sublease shall be in writing and shall be deemed given when delivered
personally or by facsimile copy (with transmission confirmed), or upon receipt
(or in the date rejected or returned if not accepted) after dispatch by
certified or registered first class mail, postage prepaid, return receipt
requested, or a well-recognized overnight courier, directed to the party to whom
the same is so given or made at the address or facsimile number of such party as
hereinafter set forth or such other address or facsimile number as the parties
may hereinafter designate:
If to WJLA: 3007 Tilden Street, NW
Washington, D.C. 20006
Attn: General Manager
Fax: 202-364-1943
With copies to: Allbritton Communications Company
808 17th Street, NW
Suite 300
Washington, D.C. 20008
Attn: General Counsel
Fax: 202-331-1898
If to MIL 3: MIL 3, Inc.
3400 International Drive NW
Washington, D.C. 20008
Attn: Marc Cohen
Fax: 202-364-8554
16.4. Headings. The headings of the sections of this Sublease are
--------
inserted for convenience of reference only and shall not be deemed to constitute
a part hereof.
16.5. Entire Agreement; Amendments; Precedence. This Sublease and
----------------------------------------
appended Exhibits contain the entire agreement between the parties hereto, and
supersede all previous agreements, negotiations and discussions between the
parties hereto. Any agreement made hereafter shall not operate to modify,
change, terminate or discharge this Sublease in whole or in part unless such an
agreement is in writing and is signed by both WJLA and MIL 3 and Intelsat, if
required.
16.6. Severability. If any part of, or any provision of this Sublease
------------
or any other agreement, document or writing given pursuant to or in connection
with this Sublease shall be deemed to be invalid or unenforceable in any
respect, such part shall be ineffective to the extent
-5-
<PAGE>
of such invalidity only and stricken as though never written, without in any way
affecting the remaining parts of such provisions or the remaining provisions of
this Sublease, provided that the removal of the unenforceable provision(s) does
not materially alter the benefits of the Sublease for either party.
16.7. Expenses; Brokers and Agents. WJLA and MIL 3 shall each bear its
----------------------------
own expenses and costs, including, but not limited to, attorneys' fees and
expenses. Both parties represent and warrant to each other that no brokers have
been used regarding this Sublease. WHA shall indemnify and hold MIL 3 harmless,
and MIL 3 shall indemnify and hold WJLA harmless, from and against any claim or
claims of brokerage or other commission arising from or out of any breach of the
foregoing representation and warranty by the respective indemnitors.
16.8. Counterparts. This Sublease may be executed in two counterparts,
------------
each of which, when executed, shall be deemed an original and all of which
together shall be deemed one and the same instrument.
16.9. Governing Law. This Sublease, its validity and all rights,
-------------
obligations, liabilities and responsibilities of the parties hereto, shall be
governed and interpreted in accordance with the laws of the District of Columbia
without giving effect to the principles of conflict of laws thereof.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Sublease as of the
date first noted above.
WJLA-TV, a Division of Allbritton
Communications Company:
Witness/Attest
[sig] By: /s/ Terrence J. Connelly
- -------------------------------------- ------------------------------
Terrence J. Connelly
President and General Manager
MIL 3, Inc.
Witness/Attest
/s/ Carrie L. Bell By: /s/ Marc A. Cohen
- -------------------------------------- ------------------------------
Marc A. Cohen
CEO
-7-
<PAGE>
In the City of Washington )(S)
District of Columbia )(S)
I, Barbara A. Wylie, Notary Public in and for the District of Columbia, do
hereby certify that Terrence J. Connelly, who is named as the President of WJLA
in the foregoing and attached Sublease bearing the date of November 1, 1997,
personally appeared before me in said District of Columbia, the said Terrence J.
Connelly being personally known to me as the person named in said Sublease, and
acknowledged the Sublease to be the act and deed of WJLA-TV, a division of
Allbritton Communications Company and that he delivered the same as such for the
purposes stated therein.
Given my hand and seal this 7 day of January, 1998.
/s/ Barbara A. Wylie
----------------------
Notary Public
My Commission Expires:
Barbara A. Wylie
Notary Public
District of Columbia
Commission Expires: August 31, 1998
-8-
<PAGE>
In the City of Washington )(S)
District of Columbia )(S)
I, Alma L. Fagan, Notary Public in and for the District of Columbia, do hereby
certify that Marc A. Cohen, who is named as the CEO of MIL 3 in the foregoing
and attached Sublease bearing the date of November 1, 1997, personally appeared
before me in said District of Columbia, being personally known to me as the
person named in said Sublease, and acknowledged the Sublease to be the act and
deed of MIL 3, Inc., a division of Allbritton Communications Company and that he
delivered the same as such for the purposes stated therein.
Given my hand and seal this 7th day of January, 1998.
/s/ Alma L. Fagan
-------------------
Notary Public
My Commission Expires: 7/31/02
------------
-9-
<PAGE>
OFFICE LEASE AGREEMENT
----------------------
THIS LEASE, dated as of the date specified in the Basic Lease Information,
is made between Landlord and Tenant.
ARTICLE 1
PREMISES
Section 1.01. Landlord leases to Tenant, and Tenant leases from
-------------
Landlord, for the Term (as defined below) and subject to the provisions hereof,
to each of which Landlord and Tenant mutually agree, the Premises, together with
the right to use, in common with others, subject to such reason-able security
regulations as may be imposed by Landlord from time to time, the lobbies,
entrances, stairs, elevators, off-street loading areas (for loading and
unloading of materials and supplies) and other public portions of the Building,
which Building has been and is being constructed on the real property described
in Exhibit B hereto (the "Land"). For purposes of this lease, the term
"Building" means the office towers in which the Premises will be located, as
well as the concourses, lobbies, plazas, walkways, open spaces, landscaped
areas, and similar public areas located on, above, beneath, or immediately
adjacent to the Land, and any truck accessways, loading docks, or similar
facilities, if any, which serve the office towers. While such facilities are not
a portion of the Premises hereunder, Landlord agrees that Tenant shall be
permitted a single Pod connection for access to and the right to use, and to
have officers, employees, contractors and invitees of Tenant use, the loading
dock facilities and the cafeteria all located within the INTELSAT Headquarters
Building during the Term of this lease and any extension hereof, at no
additional charge to Tenant or its officers, employees or invitees other than
payment at prevailing charges imposed on other users for food, beverages and
services provided at the cafeteria plus any additional sales tax which may be
applicable, it being understood and agreed that there will only be one
connection at a single location between the Building and the remainder of the
INTELSAT Headquarters Building.
(a) The Rentable Area of the Premises is approximately as
stated in the Basic Lease Information and shall be specifically calculated by
Landlord's architect when floor plans are complete, in accordance with Exhibit E
attached hereto. Upon such determination by Landlord's architect, the Rentable
Area of the Premises and the Annual Rental as those terms are defined in this
lease, shall be appropriately adjusted to reflect the number of square feet of
Rentable Area of the Premises as determined by such calculation. In the event of
any future increase or decrease in the size of the Premises (by reason of the
exercise by Tenant of its expansion option pursuant to Article 33 or otherwise),
Tenant's Proportionate Share shall be appropriately adjusted. Promptly after
Landlord's architect has calculated the Rentable Area of the Premises, Landlord
will give Tenant written notice of the Rentable Area of the Premises thus
calculated. In the event that Tenant disagrees with such calculation based on a
calculation performed by its architect and gives written notice to Landlord of
such disagreement within thirty (30) days after receipt of such notice
containing the calculation provided by Landlord's architect, the Rentable Area
of the Premises shall be determined in the following manner. If the Rentable
Area of the Premises as calculated by Landlord's architect is within one hundred
(100) square feet of the Rentable Area of the Premises as calculated by Tenant's
architect, then the Rentable Area of the Premises for purposes hereof shall
equal the average of the two
<PAGE>
calculations. In the event the two calculations are not within one hundred (100)
square feet, Landlord's architect and Tenant's architect shall mutually agree
upon a third licensed, qualified and independent architect. In the event
Landlord's architect and Tenant's architect are not able to agree on a third
architect within fifteen (15) days after Landlord and Tenant are notified of the
determination of the architects, either party may request that the President of
the Washington Board of Realtors appoint the third architect. The third
architect shall calculate the Rentable Area of the Premises in accordance with
Exhibit E, and such calculation will be final and binding upon both Tenant and
Landlord. Landlord and Tenant shall each bear the cost of their respective
architects, and the cost of the third architect shall be borne equally between
Landlord and Tenant.
(b) The Rentable Area of the Building shall be calculated by
Landlord's architect when the Base Building Work (as defined in Exhibit C) is
complete, in accordance with Exhibit E attached hereto, with the Rentable Area
of each floor of the Building to be calculated for purposes hereof as if such
floor were a single tenancy floor. Landlord will give Tenant written notice of
the Rentable Area of the Building thus calculated by its architect. In the event
that Tenant disagrees with such calculation based on a calculation performed by
its architect and gives written notice to Landlord of such disagreement within
thirty (30) days after receipt of such notice containing the calculation
provided by Landlord's architect, the Rentable Area of the Building shall be
determined in the following manner. If the Rentable Area of the Building as
calculated by Landlord's architect is within two hundred (200) square feet of
the Rentable Area of the Building as calculated by Tenant's architect, then the
Rentable Area of the Building for purposes hereof shall equal the average of the
two calculations. In the event the two calculations are not within two hundred
(200) square feet, Landlord's architect and Tenant's architect shall mutually
agree upon a third licensed, qualified and independent architect. In the event
Landlord's architect and Tenant's architect are not able to agree on a third
architect within fifteen (15) days after Landlord and Tenant are notified of the
determination of the architects, either party may request that the President of
the Washington Board of Realtors appoint the third architect. The third
architect shall calculate the Rentable Area of the Building in accordance with
Exhibit E, and such calculation will be final and binding upon both Tenant and
Landlord. Landlord and Tenant shall each bear the cost of their respective
architects, and the cost of the third architect shall be borne equally between
Landlord and Tenant.
(c) Tenant's Proportionate Share shall be the percentage
equivalent of a fraction having as its numerator the Rentable Area of the
Premises determined under Section 1.02(a) and having as its denominator the
Rentable Area of the Building determined under Section 1.02(b). In the event of
any future increase or decrease in the size of the Premises (by reason of the
exercise by Tenant of its expansion option pursuant to Article 33 or otherwise),
Tenant's Proportionate Share shall be appropriately adjusted.
(d) The Rentable Area of the Premises and Rentable Area of the
Building determined pursuant to this Section 1.02 shall be used as the basis for
the computation of all items of Rental and the computation of Tenant's
Proportionate Share. At the request of either party, the parties shall, from
time to time, execute instruments confirming the Rentable Area of the Premises,
the Rentable Area of the Building, and the Tenant's Proportionate Share.
-2-
<PAGE>
ARTICLE 2
TERM
Section 2.01. (a) The term of this lease (the "Term") shall begin on a
-------------
date (the "Commencement Date") which is the earlier of: (i) the date of Tenant's
occupancy of the Premises for the conduct of its normal business operations,
(ii) seven and one-half (7 1/2) months after the date on which construction of
the Base Building Work (as defined in Exhibit C) is substantially completed or
(iii) fifteen (15) days after (a) Tenant Build-out as described in Exhibit C has
been substantially completed and (b) the Communication Systems described in
Exhibit K have been installed on the Building and Land, so as to permit Tenant
to occupy the Premises and conduct its normal business operations therein, it
being stipulated that Tenant agrees, subject to delay by force majeure as
defined in Section 2.01(b), to exercise reasonable diligence to complete and
install such Tenant Build-out and Communication Systems after Tenant is afforded
access to the Land, Building and Premises for such purpose. Unless sooner
terminated, the Term shall end at midnight on the Expiration Date. Landlord
shall deliver to Tenant at least fifteen (15) days' prior written notice of the
date of substantial completion of the Base Building Work.
(b) As used herein, the term "force majeure" means a lockout,
strike or other labor or industrial circumstance (whether on the part of
employees of Landlord or Tenant), civil disturbance, future order of any
government, court or regulatory body claiming jurisdiction, act of the public
enemy, riot, sabotage, blockage, embargo, failure or inability to obtain, or
delay in obtaining materials, supplies or labor through ordinary sources by
reason of short-ages or priority or regulation or order of any government or
regulatory authority or other cause beyond the reasonable control of Landlord or
Tenant, lightning, earthquake, fire, storm, hurricane, flood, washout,
explosion, Act of God, failure or refusal by the Landlord or Tenant, as the case
may be, to perform or observe its agreements or undertakings hereunder, or any
cause whatsoever beyond the reasonable control of Landlord or Tenant, as the
case may be, or its contractors, or other representatives, whether or not
similar to any of the causes hereinabove enumerated; provided, however, that for
purposes of this definition lack of funds by Landlord or Tenant shall not be
deemed to be a cause beyond the control of Landlord or Tenant, as the case may
be, and a force majeure circumstance shall be deemed to exist only so long as
Landlord or Tenant promptly notifies the other in writing thereof specifying the
particulars and is exercising due diligence to remove or overcome such force
majeure circumstance (except that nothing contained in this definition of force
majeure or elsewhere in this lease shall require or obligate Landlord or Tenant
to settle a strike or other labor dispute when it does not wish to do so).
Section 2.02. Provided Tenant performs all of Tenant's obligations
-------------
under this lease, including the payment of Rental (as defined below), Tenant
shall, during the Term, enjoy the Premises without disturbance from Landlord or
any other persons claiming or acting by, through, or under Landlord; subject,
however, to the terms of this lease. This covenant and all other covenants of
Landlord now or hereafter in this lease shall be binding upon Landlord and its
successors only with respect to breaches based on Landlord's acts or omissions
occurring during its and their respective ownership of Landlord's interest
hereunder (including Landlord's right, title and interest in and to the Ground
Lease described in Section 25.01 and any buildings and improvements on the land
described therein).
-3-
<PAGE>
Section 2.03. Landlord shall notify Tenant of the date determined to
-------------
be the Commencement Date pursuant to Section 2.01 and, within fifteen (15) days
after delivery of such notice, Landlord and Tenant shall execute a written
instrument substantially in the form of Exhibit D attached hereto confirming
such date as the Commencement Date; provided that if Tenant in good faith
disagrees with Landlord as to the Commencement Date thus determined by Landlord,
such instrument specifying the actual Commencement Date shall not be executed
until resolution of such dispute by agreement of Tenant and Landlord or by final
judgment of a court of competent jurisdiction not subject to further appeal. Any
failure of the parties to execute such written instrument shall not affect the
validity of the Commencement Date as determined as aforesaid.
ARTICLE 3
DELIVERY OF THE PREMISES TO TENANT
Section 3.01. Landlord will endeavor to substantially complete the
-------------
floor(s) in which the Premises are located and to construct and install in the
Premises the Base Building Work (as defined in Exhibit C hereof) seven and one-
half (7-1/2) months prior to the Target Commencement Date specified in the Basic
Lease Information. If for any reason Landlord cannot deliver the Premises to
Tenant by such date, this lease shall not be void or voidable, nor shall
Landlord be liable for any loss or damage resulting therefrom. Notwithstanding
the foregoing, in the event Landlord has not substantially completed the Base
Building Work by April 1, 1989, which date shall be extended by the number of
days of Tenant delay as described in Article 6 and 7 of Exhibit C, Landlord
shall be liable to Tenant for the amount by which (i) Tenant's rent expenses in
its present space, or substitute space, as the case may be, exceed (ii) the
Rental Tenant would reasonably be obligated to pay Landlord hereunder had Tenant
been occupying the Premises (without regard to any free rent period), which
excess shall be computed for the period commencing on April 1, 1989 (as extended
aforesaid by Tenant delays) and ending on the earlier of April 1, 1990 or the
date on which Landlord, at Landlord's option sends written notice to Tenant
giving Tenant the right to terminate this lease by reason of the non-completion
of the Base Building Work. In the event Landlord has not substantially completed
the Base Building Work by April 1, 1990, which date shall be extended by the
number of days of Tenant delays as described in Article 6 and 7 of Exhibit C,
or, in the event Landlord has given Tenant the right, exercisable at any time
prior to the date on which the Base Building Work is substantially completed, to
terminate the lease pursuant to the preceding sentence, Tenant shall have the
right to terminate this lease by giving Landlord written notice of such
election, in which event neither Landlord nor Tenant shall have any further
liability or responsibility hereunder or in connection herewith; provided that
Tenant may promptly remove any property of Tenant which Tenant had placed or
installed in or on the Premises, Building or Land (and repair any damage caused
by such removal) and shall be entitled to receive a refund from Landlord of the
monthly installment of Annual Rental paid by Tenant incident to the execution of
this lease. Tenant may not, without Landlord's consent, enter or occupy the
Premises, Building or Land until the Base Building Work is substantially
completed. However, Landlord agrees that it will permit Tenant and its
contractors to have access to the Premises, Building or Land, or portions
thereof as applicable as promptly as practicable to commence construction and
installation of Tenant Build-out and Communication Systems prior tot the
substantial completion of the Base Building Work if and to the extent Landlord
determines in good faith that such work by Tenant
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or its contractors will not unreasonably interfere with the work of Landlord and
its contractors in completing the Building and Base Building Work.
Section 3.02. The scheduling and coordination of Tenant's contractors
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and their workers and mechanics will be subject to reasonable regulation by
Landlord or Landlord's contractor to avoid interferences with labor employed by
Landlord, Landlord's contractor or their mechanics or subcontractors and their
workers or mechanics. The foregoing license to enter prior to the Commencement
Date, however, is conditioned upon Tenant's workers and mechanics working in
harmony and not unreasonably interfering with the labor employed by Landlord,
Landlord's mechanics or contractors or by any other tenant or its contractors.
Any such entry before the Commencement Date shall be subject to all terms of
this lease, except the covenant to pay Rental. Landlord shall not be responsible
for any loss or damage to the Tenant Build-out.
Section 3.03. The terms of Exhibit C hereto shall govern the
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construction and-installation of Tenant Build-out.
ARTICLE 4
ACCEPTANCE OF THE PREMISES
AND BUILDING BY TENANT
Taking possession of the Premises by Tenant and commencement of its normal
business operations therein shall be conclusive evidence that Tenant: (a)
accepts the Premises as suitable for the purposes for which they are leased (b)
accepts the Building and every part and appurtenance thereof) as being in a good
and satisfactory condition; and (c) waives any defects in the Premises or the
Building except for the completion of those items, if any, on Landlord's punch
list, and latent defects, and except for the completion or correction of those
items, if any, which shall be specified by written notice given by Tenant to
Landlord within thirty (30) days after Tenant has taken possession of the
Premises and commenced its normal business operations therein. Landlord shall
not be liable, except for gross negligence or willful misconduct, to Tenant or
any of its agents, employees, licensees, servants, or invitees for any injury or
damage to person or property due to the condition or design of or any defect in
the Building or its mechanical systems and equipment which may exist or occur,
and Tenant, for itself and its agents, employees, licensees, servants, and
invitees, expressly assumes all risks of injury or damage to person or property,
either proximate or remote, resulting from the condition of the Premises or the
Building.
ARTICLE 5
RENTAL
Section 5.01. Subject to the last sentence of this Section 5.01,
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commencing on the Commencement Date, Tenant shall Day to Landlord monthly, in
advance, without demand, on the first day of each calendar month during each
Lease Year, an annual rental ("Annual Rental") in an amount equal to 1/12 of the
Annual Rental specified in the Basic Lease Information, subject to adjustment as
provided in Section 1.02, and Article 32 hereof. [redacted text] shall be
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payable in advance by Tenant on the date of execution of this lease. If the
Commencement Date is a date other than the first day of a calendar month, then
the monthly installment of Rental for the first month for which rent is owing,
being a fractional month, shall be appropriately prorated. If the Expiration
Date is a date other than the last day of a calendar month, then the monthly
installment of Rental for the last month for which rent is owing, being a
fractional month, shall be appropriately prorated. Landlord hereby waives and
abates payment of the Annual Rental for the first seven (7) months of the Term.
Section 5.02. All Rental shall be paid to Landlord by Tenant when
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due, without deduction, offset or counter-claims, in lawful money of the United
States, at Landlord's Address for Notices as specified in the Basic Lease
Information, or such other place as Landlord may from time to time designate.
The term "Rental" as used herein means the then applicable Annual Rental,
Tenant's Proportionate Share of Basic Costs Excess (as hereinafter defined), and
all other sums payable by Tenant under this lease. All past due installments of
Rental shall bear interest from the date due until paid at a rate per annum
equal to [redacted text] above the prime or base rate (the "Prime Rate")
publicly announced by The Riggs National Bank of Washington, D.C. (or its
successor), from time to time; provided, however, that any interest payable
pursuant to this Section 5.03 shall never exceed the Highest Lawful Rate. The
term "Highest Lawful Rate" as used herein shall mean the maximum rate of
interest from time to time permitted to be charged under applicable law to
Tenant with respect to the indebtedness for which such interest is charged under
this lease.
Section 5.03. It is agreed by Landlord and Tenant that no Rental for
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the use, occupancy or utilization of the Premises shall be, or is, based in
whole or in part on the net income of profits derived by any person from the
Building or the Premises, and the Tenant further agrees that it will not enter
into any sublease, license, concession or other agreement for any use, occupancy
or utilization of the Premises which provides for a rental or other payment for
such use, occupancy or utilization based in whole or in part on the net income
or profits derived by any person from the Premises so leased, used, occupied or
utilized. Nothing in the foregoing sentence, however, shall be construed as
permitting or constituting Landlord's approval of any sublease, license,
concession, or other use, occupancy, or utilization agreement not otherwise
approved by Landlord in accordance with the provisions of Article 18 hereof.
ARTICLE 6
OPERATING COSTS
Section 6.01. Throughout the Term, beginning with the Fiscal Year
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following the Fiscal Year in which the Commencement Date occurs, Tenant shall
pay Tenant's Proportionate Share of the amount ("Basic Costs Excess") by which
Basic Costs for such Fiscal Year exceed the Basic Costs Base Amount. Such
payments of Tenant's Proportionate Share of Basic Costs Excess shall be made as
follows:
(a) Before the beginning of each Fiscal Year during the Term,
commencing with the first Fiscal Year after the Fiscal Year in which the
Commencement Date occurs, Land-lord shall furnish Tenant with Landlord's
estimate of the Basic Costs Excess for such Fiscal Year. Subject to subparagraph
(b)(v) of this Section 6.01, by the first day of each month during
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such Fiscal Year, Tenant shall pay 1/12th of its Proportionate Share of the
estimated Basic Costs Excess for such Fiscal Year.
(b) (i) Within the first one hundred twenty (120) days of each
Fiscal Year during the Term (beginning with the second Fiscal Year following
calendar year 1988), and within one hundred twenty (120) days after the end of
the Fiscal Year during which the Expiration Date occurs, or as soon thereafter
as reasonably practical, Landlord shall furnish to Tenant a statement ("Expense
Statement") of the actual Basic Costs for the previous Fiscal Year, certified to
be true and accurate by Landlord to its knowledge and belief.
(ii) Within thirty (30) days after the delivery of the
Expense Statement, a lump sum payment will be made by Tenant equal to the
amount, if any, by which Tenant's Proportionate Share of the actual Basic Costs
exceeds the amount, if any, which Tenant has paid toward the estimated Basic
Cost Excess for such previous Fiscal Year.
(iii) If Tenant's Proportionate Share of the actual Basic
Costs is less than the amount Tenant has paid toward the estimated Basic Costs
Excess for such previous Fiscal Year, Landlord shall refund the excess to Tenant
within thirty (30) days after the issuance of the Expense Statement or, at
Landlord's option, Landlord shall apply such amount to the next payments of
Rental due hereunder.
(iv) The effect of the reconciliation payment or adjustment
pursuant to (ii) or (iii) above is that Tenant shall pay during each Fiscal Year
during the Term its Proportionate Share of the Basic Costs Excess.
(v) Notwithstanding anything herein contained to the
contrary, Landlord hereby waives and abates payment by Tenant of Tenant's
Proportionate Share of Basic Costs Excess for the period ending at the
expiration of twelve (12) full calendar months after the Commencement Date.
(vi) In the event that Tenant pays to Landlord Landlord's
determination of the amount due pursuant to subparagraph (b)(ii) of this Section
6.01, and included with such payment is a notice advising Landlord that Tenant
disputes the amount Landlord claims is owing together with the reasons for such
dispute in reasonable detail, then in the event that it is ultimately determined
that Tenant's payment exceeded the amount which should have been due, Tenant
shall be entitled to interest at the Prime Rate plus one percent (1%) per annum
on the amount of the overpayment from the date paid until the Landlord remits to
Tenant the amount of the overpayment.
(c) Within thirty (30) days after delivery of an Expense
Statement, Tenant shall have the right to notify Landlord if it intends to
examine Landlord's books and records with respect to such Expense Statement. If
Tenant so notifies Landlord, then Tenant and its representatives shall have the
right, at Tenant's expense, during normal business hours for a period of ninety
(90) days after Tenant's notice, to examine Landlord's books and records
relating to Basic Costs for the Building for the previous Fiscal Year. Tenant
shall notify Landlord within such ninety- (90) day period if it disputes such
Expense Statement setting forth the reasons therefor (a "Notice of Dispute"). If
Tenant either (i) fails to notify Landlord of its
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intention to examine Landlord's books and records within thirty (30) days after
delivery of an Expense Statement, or (ii) fails to give Landlord a Notice of
Dispute within the ninety- (90) day period of examination hereinabove referred
to, then Tenant shall be deemed to have accepted such Expense Statement for all
purposes hereunder. If Landlord shall have overstated Tenant's obligation for
Basic Costs for any calendar year, Landlord shall promptly refund such excess.
(d) If the Term ends on a date other than the last day of a
Fiscal Year, then the actual Basic Costs incurred during the Fiscal Year in
which the Expiration Date occurs (as the same may be adjusted pursuant to the
last paragraph of Section 6.02) shall be computed and an appropriate proration
shall be made so that Tenant pays that portion of its Proportionate Share of
Basic Costs Excess incurred during such Fiscal Year determined by reference to a
fraction, the numerator of which is the number of days during such Fiscal Year
that are included in the Term, and the denominator of which is the number of
days in such Fiscal Year.
Section 6.02. As used herein, "Basic Costs" means all expenses, costs,
-------------
and disbursements described hereinafter (net of discounts, credits, rebates or
direct reimbursements, including, without limitation, reimbursement from tenants
or other third-parties or from any insurance company or under-writer) which
Landlord incurs in connection with the operation, repair, and maintenance of the
Building (including all facilities installed in subsequent years if such
facilities are commonly installed in similar first-class office buildings in
Washington, D.C.) computed on an accrual basis. All Basic Costs shall be
determined according to generally accepted accounting principles. Basic Costs
shall include the following:
(a) Wages, salaries, and fees of all personnel or entities
(exclusive of Landlord's executive personnel) engaged in the operation, repair,
maintenance, or security of the Building, including taxes, insurance, and
benefits relating thereto and on-site rental paid by the Building manager;
provided, however, that if during the Term such personnel or entities are
working on projects being periodically developed or operated by Landlord as well
as the Building, their wages, salaries, fees, and related expenses shall be
appropriately allocated among all of such projects (based on time records to be
maintained by all personnel engaged in such projects or on some other reasonable
method of allocation) and only that portion of such expenses reasonably
allocable to the Building shall be included as a "Basic Cost"
(b) All supplies and materials used in the operation, repair,
security, and maintenance of the Building.
(c) Costs of all maintenance, janitorial, security and service
agreements for the Building and the equipment therein, including, without
limitation, alarm service, water treatment services, janitorial services, window
leaning, service on electrical and mechanical components, rubbish removal,
elevator maintenance, extermination service, plumbing service, and interior and
exterior landscaping.
(d) Cost of all insurance relating to the Building for which
Landlord is responsible hereunder, or which Landlord considers reasonably
necessary for the operation of the Building, including, the cost of property,
casualty and liability insurance applicable to the Building and Landlord's
personal property used in connection with the maintenance, repair and operation
of the Building (not including any personal property used by Landlord in
connection
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with its occupancy of any of the Building). If during any Fiscal Year (or
partial Fiscal Year) during the Term (including the Fiscal Year in which the
Commencement Date occurs), Landlord elects to self-insure with respect to
property insurance in accordance with Section 15.06, Basic Costs shall include
the cost which Landlord would otherwise have incurred at competitive prevailing
rates to obtain such property insurance for the Building; provided, however,
that when and if Landlord first elects to self-insure with respect to property
insurance on or after the Commencement Date, the deemed cost (determined on a
daily basis) of such self-insurance included in Basic Costs during the first
twelve (12) months next ensuing (or during such lesser period while Landlord
continues to self-insure with respect to property insurance) shall not
thereafter increase and shall at all times thereafter while Landlord elects to
self-insure with respect to property insurance be conclusively deemed to be the
cost (determined on a daily basis) of Landlord's self-insurance with respect to
property insurance for purposes of computing Basic Costs during any period under
this lease, except that in the event Landlord elects on one or more additional
times to self-insure with respect to property insurance after having had such
insurance provided by a third-party insurance company for a continuous period in
excess of five (5) years, then the maximum dollar amount of property insurance
which can be included in Basic Costs during such self-insurance period shall be
the cost of the third-Party insurance incurred by Landlord during the full
Fiscal Year immediately preceding the year in which Landlord so elected to self-
insure.
(e) All utility costs of common areas of the Building (that is
areas not devoted to office or retail space) including, without limitation,
costs of water, power, fuel, heating, lighting, air conditioning, and
ventilating and fees of engineers or electrical consulting firms engaged to do
work relating to such utility costs or the determination thereof, it being
understood and agreed that the electricity consumed to provide heating,
ventilating and air-conditioning to the common areas in central pumps and
facilities for providing heated and chilled to the entire Building shall be
determined by metering the electrical consumption of such central pumps and
facilities and by allocating the cost of such electricity in proportion to the
relative number of Btu's taken from (for heating) or added to (for air-
conditioning) the stream of heated and chilled water delivered to the air-
handling units serving the common areas as compared to the number of Btu's taken
from or added to (as applicable) the stream of heated and chilled water
delivered to the air-handling units serving all portions of the Building other
than the common areas, with Landlord to provide and maintain all meters
necessary to perform such allocation.
(f) Cost of repairs and maintenance of the Building.
(g) Amortization of the cost of installation of capital
improvement items (i) which are primarily to reduce operating costs for the
general benefit of the Building's tenants but not in excess of the reasonably
anticipated amount of yearly savings of operating costs resulting from such
capital improvements as determined by Landlord in good faith, (ii) which are
reasonably necessary for the continued operation of the Building as first-class
office building, or (iii) which are necessary to comply with a statute, rule,
regulation or directive promulgated by any governmental authority after the
Commencement Date, together with interest on the unamortized cost at the rate of
the Prime Rate. All such costs shall be amortized over the reasonable life of
the capital investment items, with the reasonable life and amortization schedule
being determined in accordance with generally accepted accounting principles.
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(h) Landlord's reasonable direct costs for the preparation of
Expense Statements for both outside accountants and accountants employed by
Landlord.
(i) A management fee or allowance, whether or not actually paid
by Landlord to a contract manager of the Building during a Fiscal Year, equal to
three percent (3%) of the Rental per square foot of Rentable Area payable under
this lease multiplied by the greater of (x) 90% of the Rentable Area of the
Building, or (y) the weighted daily average number of square feet of Rentable
Area of the Building occupied by tenants (including Landlord to the extent
Landlord occupies space in the Building) during the Fiscal Year. In the event
the Building is managed by a contract manager, Basic Costs shall not include
both the fee actually paid to such contract manager and an additional three
percent (3%) of the amounts specified above. Further, in any event, there shall
be excluded from Basic Costs under Section 6.02(a) the wages, salaries and fees
(and taxes, insurance and benefits and benefits related thereto) for the time of
personnel or entities devoted to performing management services or functions.
(j) Legal and appraisal fees relating to the operation, repair
or maintenance of the Building, including legal fees incurred in order to reduce
Basic Costs, including without limitation the costs (including expert witness
fees) incurred by Landlord in the filing, institution and prosecution of any
application or proceeding filed or instituted by Landlord in order to reduce the
taxes included in Basic Costs.
(k) The reasonable maintenance and repair costs which Landlord
would have incurred (and which would otherwise be included in Basic Costs) in
the absence of manufacturers and vendors warranties.
(l) One sixth (1/6th) of the costs of those items or services
which benefit generally the occupants of the INTELSAT Headquarters Building
consisting of landscaping and ground maintenance costs, the costs of snow
removal, costs of periodically washing both the exterior and interior of the
INTELSAT Headquarters Building, and the cost of diesel fuel for the emergency
generator.
If during all or part of any Fiscal Year (or partial Fiscal Year) of
the Term, Landlord shall not furnish any particular item of work or service
(which would constitute an item of Basic Costs hereunder) to 100% of the Rent-
able Area of the Building (and Landlord's total cost of supplying such items of
work or service to the Building is less than it otherwise would have been had
Landlord supplied such item to 100% of the Rentable Area of the Building),
because (i) less than all of the Building is occupied or (ii) such item of work
or service is not desired or required by any tenant, or (iii) any tenant is it
self obtaining and providing such item of work or service, then an adjustment
shall be made in computing the Basic Costs for such Fiscal Year (or partial
Fiscal Year) so that the Basic Costs shall be increased for such Fiscal Year (or
partial Fiscal Year) to the amount that would have been reasonably incurred had
Landlord provided such item of work or service to 100% of the Rentable Area of
the Building for the entire Fiscal Year (or partial Fiscal Year).
Section 6.03. Notwithstanding anything in Section 6.02 to the contrary,
-------------
Basic Costs shall not include:
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(a) any tenant work performed or alteration of space leased to
Tenant or other tenants or occupants of the Building, whether such work or
alteration is performed for the initial occupancy by such tenant or occupant or
thereafter or any work or service performed or alteration or improvement of
space provided to or for any tenant or occupant of the Building for which a
separate or special charge would be made to Tenant under the terms of this lease
if such work or service were performed or alteration or improvement of space
were provided by Landlord to or for Tenant, or which work, service, alteration
or improvement is of a nature that Landlord is not required to provide or
perform same to or for Tenant under the terms of this lease without imposing an
additional charge therefor as additional Rental or in addition to the Rental
otherwise payable under the terms hereof;
(b) costs of negotiation, preparation, amendment, extension or
enforcement of leases or which are incurred in connection with any dispute
between Landlord and any tenant or as a consequence of any violation of or
breach of a lease by any tenant;
(c) interest and amortization of indebtedness or any costs of
financing or refinancing, depreciation or ground rent (other than any amount
payable by Landlord for insurance or repairs or other items of Basic Costs under
any ground lease, to the extent such amounts are otherwise includable in Basic
Costs under Section 6.02 and 6.03 hereunder);
(d) compensation paid to officers or executives of Landlord
(other than to the extent included in the management fee referred to in Section
6.02(i));
(e) leasing commissions and advertising and promotional
expenses and any other costs of leasing or attempting to lease space in the
Building;
(f) electricity consumption other than as specifically provided
in Section 6.02(e), and Utility Costs as defined in Section 8.01(b), and any
Real Estate Taxes defined in Section 9.02 (a).
(g) If any partnership, joint venture, corporation or other
entity controlled by Landlord or in which Landlord owns any interest (other than
a minority interest in stock of a publicly-held corporation) (a "Landlord's
Affiliate") shall provide any materials or perform any work or provide any
services the cost of which is included in "Basic Costs" hereunder, the amount of
the charges of such Landlord's Affiliate for such materials, work or services to
be included in "Basic Costs" shall be limited to reasonable charges not in
excess of the charges for similar materials, work or services which would be
charged by an independent entity engaged in the business of providing or
performing such materials, work or services under a competitive contract
negotiated in good faith at arm's length; and the charges of such Landlord's
Affiliate included in "Basic Costs" shall further be reduced by the amounts, if
any, of the charges for the time of personnel (if any) employed or used by such
Land-lord's Affiliate in providing such services or performing such work which
is otherwise charged directly as a part of "Basic Costs" of operating,
maintaining or repairing the Building under Section 6.02(a);
(h) Costs of structural repairs and costs of replacement,
repair, restoration or reconstruction of the Building or any part thereof or
facilities or improvements therein
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necessitated by damage thereto or destruction thereof caused by fire, storm,
explosion or other casualty;
(i) Rental paid under any lease of elevators, air-conditioning
or heating equipment or machinery, emergency generators or other equipment or
machinery normally regarded as capital items unless such equipment (A) is used
for repair work or in an emergency situation and (B) is leased for a term of
three (3) months or less (but not including any lease which provides or is
accompanied by an option of Landlord to purchase the equipment or machinery
leased);
(j) Charges for any inventory of consumable supplies for use in
the Building prior to the time such supplies are actually taken out of inventory
for use in the Building;
(k) Compensation of clerks or other personnel working in any
commercial concession or business operated by Landlord or any Landlord's
Affiliate in the Building;
(l) Except as otherwise provided in Article 26, any costs or
expenses of operating, maintaining or repairing any parking spaces, parking
areas or parking facilities in or about the Building or Land.
Section 6.04. If the number of square feet of the Rentable Area of the
-------------
Premises changes (by reason of the exercise by Tenant of its option pursuant to
Article 33 or otherwise), then Tenant's Proportionate Share shall be adjusted
effective as of the date of any such change in accordance with Section 1.02
hereof. Any charges made pursuant to this Section 6.04 shall not alter the
computation of Basic Costs as provided in Section 6.02 of this lease. If
Tenant's Proportionate Share is adjusted, the reconciliation payments for
Tenant's Proportionate Share of Basic Costs Excess pursuant to Section 6.01(b)
for the Fiscal Year in which such change occurs shall be computed based on the
daily weighted average of Tenant's Proportionate Share during such Fiscal Year.
ARTICLE 7
SERVICES BY LANDLORD AND LANDLORD'S OBLIGATIONS
Section 7.01. While Tenant is occupying the Premises and is not in
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default under this lease, Landlord shall furnish the Premises with: (a)
passenger elevator service in common with other tenants for access to and from
the Premises twenty-four (24) hours per day and seven (7) days per week;
provided, however, that Landlord may reasonably limit the number of elevators to
be operated during periods of construction or for safety or maintenance
purposes; and (b) the services provided for in Section 8.02. In addition, while
Tenant is occupying the Premises and is not in default under this lease,
Landlord shall make available to Tenant for Tenant's use, freight elevator
service at the loading dock of the INTELSAT Headquarters Building during normal
business hours, and shall make such service available to Tenant after normal
business hours upon reasonable prior notice. If Tenant requires services which
are not specified herein and Landlord provides such services to Tenant, Tenant
will pay to Landlord, upon demand, as additional Rental, the actual cost
incurred by Landlord to provide such services including a reasonable allocation
of Landlord's overhead, administrative and related costs.
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Section 7.02. Landlord shall operate the Building as a first-class
-------------
District of Columbia modern office building. Landlord, at its cost and expense,
shall keep and maintain the Building, its fixtures, appurtenances, systems and
facilities, and the sidewalks, plazas and landscaped areas adjoining the
Building, in good working order, condition and repair and shall make all
repairs, structural and otherwise, interior and exterior, ordinary or
extraordinary, as and when needed in or about the Premises or the Building,
except the leasehold improvements and those repairs for which Tenant is
expressly responsible pursuant to any other provisions of this lease. Landlord
shall, at its expense, finish, decorate and maintain the elevator lobbies and
all other common areas in the Building, and the floors, ceilings and surface of
all walls adjacent thereto, in a manner and of a quality consistent with a
first-class District of Columbia modern office building.
Section 7.03. Landlord, at its cost and expense, shall:
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(i) keep the sidewalks, plazas and landscaped areas
adjoining the Building free of accumulation of snow and ice, dirt, refuse,
rubbish and unlawful obstructions;
(ii) keep the lobbies, common and public areas of the
Building clean and presentable;
(iii) care for and maintain the shrubbery, planting and
landscaping, if any, on the plaza or plazas adjacent to the Building or other
public areas of the Building; and
(iv) provide Tenant, its employees and invitees prompt
access (in a manner consistent with a first-class modern office building in the
District of Columbia) into the Building (through the lobby) and the Premises
twenty-four (24) hours each day, seven (7) days per week, subject to such
reasonable security regulations as may be imposed by Landlord from time to time.
(v) Provide and maintain a building directory on the
ground floor of the Building adjacent to the entrance and elevator lobby to
provide listing for Tenant and up to thirty six (36) listings for departments
and executives or employees of Tenant, of a quality and style consistent with
building directories customarily provided in first-class office buildings in
Washington, D.C.
Section 7.04. Nothing contained in this Article 7 or Section 8.02 [or
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any other provision of this lease] shall preclude Landlord from including in
Basic Costs (pursuant to Sections 6.02 and 6.03) any of the costs and expenses
referred to in this Article 7 or any other provision of this lease to the extent
the same are within the definition of Basic Costs.
ARTICLE 8
UTILITIES
Section 8.01. (a) Landlord shall, at Landlord's expense, install a
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meter or meters to determine the electricity directly furnished to the Premises,
and a meter or meters to determine the electricity furnished to a separate air
cooling chiller serving only the Premises. Tenant shall pay when due the cost
for such electricity directly to the supplying utility company. Landlord
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shall also meter, at no cost to Tenant, all electricity directly furnished to
Pods L and M of the Building, and Tenant shall not be liable or responsible for
the cost of such electricity.
(b) As used herein, the term "Utility Costs" means that part of
the cost of electricity used in central pumps and facilities providing heated
and chilled water for heating and air-conditioning within the entire Building
which is allocated to the Premises on a Btu basis as provided hereinafter. In
this regard, it is agreed that the electrical consumption of such central pumps
and facilities shall be metered and that a share of the cost of such electricity
shall be allocated to the Premises in proportion to the relative number of Btu's
taken from (for heating) or added to (for air-conditioning) the stream of heated
and chilled water delivered to the air-handling units serving the Premises as
compared to the number of Btu's taken from or added to (as applicable) the
stream of heated and chilled water delivered to the air-handling units serving
all portions of the Building other than the Premises, with Landlord to provide
and maintain all meters necessary to perform such allocation. In this regard, it
is further agreed that:
(i) Before the beginning of each Fiscal Year during the
Term, Landlord shall furnish Tenant with Landlord's estimate of the Utility
Costs for such Fiscal Year or partial Fiscal year. By the first day of each
month during such Fiscal Year, Tenant shall pay a pro rata monthly share [one-
twelfth (1/12) in the case of an entire Fiscal Year] of the estimated Utility
Costs for such Fiscal Year or partial Fiscal Year.
(ii) Within sixty (60) days after the end of each Fiscal
Year during the Term (beginning with the Fiscal Year in which the Commencement
Date occurs), or as soon thereafter as reasonably practical, Landlord shall
furnish to Tenant a statement of the actual Utility Costs for such Fiscal Year
("Utility Statement"), in reasonable detail so that Tenant can determine the
manner in which Landlord calculated the Utility Costs. Each Utility Statement
shall include, but not be limited to, a statement as to the relative numbers of
Btu's taken from or added to the stream of heated and chilled water delivered to
the air-handling units serving (i) the Premises, (ii) the common areas, and
(iii) all portions of the Building other than the Premises and common areas, and
the amounts of electricity costs allocated to such three respective portions of
the Building for the Fiscal year involved.
(iii) Within thirty (30) days after the delivery of the
Utility Statement, Tenant shall make a lump sum payment to Landlord equal to the
amount, if any, by which the actual Utility Costs exceeds the estimated payments
toward Utility Costs paid by Tenant for such previous Fiscal Year.
(iv) If the actual Utility Costs is less than the estimated
payments toward Utility Costs paid by Tenant for such previous Fiscal Year,
Landlord shall refund the excess to Tenant within thirty (30) days after the
issuance of the Utility Statement or, at Landlord's option, Landlord shall apply
such amount to the next payments of Rental due hereunder.
(v) The effect of the reconciliation payment or adjustment
pursuant to (iii) and (iv) above is that Tenant shall pay during each Fiscal
Year during the Term the actual Utility Costs.
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(c) If the Commencement Date occurs on a date other than the
first day of a Fiscal Year, or the Term ends on a date other than the last day
of a Fiscal Year, then the actual Utility Costs incurred during such partial
Fiscal Year in which the Commencement Date or the Expiration Date, as
applicable, occurs shall be computed and an appropriate calculation shall be
made so that Tenant pays only the Utility Costs incurred during such partial
Fiscal Year.
(d) Within thirty (30) days after delivery of a Utility
Statement, Tenant shall have the right to notify Landlord that it intends to
examine Landlord's books and records with respect to such Utility Statement. If
Tenant so notifies Landlord, then Tenant and its representatives shall have the
right, at Tenant's expense during normal business hours for a period of ninety
(90) days after Tenant's notice, to examine Landlord's books and records with
respect to the calculation and determination of Utility Costs for the previous
Fiscal Year. Tenant shall notify Landlord within such ninety (90) day period if
it disputes such Utility Statement, setting forth the reasons therefor (a
"Notice of Dispute"). If Tenant either (i) fails to notify Landlord of its
intention to examine Landlord's books and records within thirty (30) days after
delivery of a Utility Statement, or (ii) fails to give Landlord a Notice of
Dispute within the ninety (90) day period of examination hereinabove referred
to, then Tenant shall be deemed to have accepted such Utility Statement for all
purposes hereunder. If Landlord shall have overstated Tenant's obligation for
Utility Costs for any Fiscal Year or partial Fiscal Year, Landlord shall
promptly refund such excess with interest at the Prime Rate from the date paid
by Tenant to the date refunded by Landlord.
Section 8.02. Landlord shall, at Landlord's expense, install, operate
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and maintain all necessary machinery and equipment to provide heated and chilled
water adequate to provide air-conditioning and heating to the Premises twenty-
four (24) hours per day, seven (7) days per week, at such temperatures and in
such amounts as are customarily provided to tenants occupying comparable space
(and operating twenty-four (24) hours per day) in first-class office buildings
in Washington, D.C., and in compliance with the specifications of Exhibit C-1.
While Tenant is occupying the Premises and is not in default under this lease,
Landlord shall furnish Tenant with the following services: (a) potable water and
heated water at those points of supply provided for normal lavatory use by
tenants in the Building; (b) heating, ventilating, and/or air conditioning in
the common and public areas of the Building twenty-four (24) hours per day,
seven (7) days per week, at such temperatures and in such amounts as may
customarily be provided to tenants occupying comparable space in first-class
office buildings (operating twenty-four hours per day) in Washington, D.C.
Section 8.03. At Landlord's expense, Landlord will provide feeders
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and risers to provide electrical current to the Building and to each of the
floors of the Premises in compliance with the specifications of Exhibit C-1. Any
additional riser or risers or wiring hereafter required to meet Tenant's excess
electrical requirements will, upon Tenant's written request, be installed by
Landlord at Tenant's sole cost (if the same are necessary and will not cause
permanent damage or injury to the Building or to the Premises or cause or create
a dangerous or hazardous condition, or entail excessive or unreasonable
alterations, repairs, or expense or interfere with or disturb other tenants or
occupants).
Section 8.04. Failure to furnish, or any stoppage of, the services
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provided for in Article 7 above and this Article 8 resulting from any cause will
not make Landlord liable in any
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respect for damages to either person, property, or business, nor construed as an
eviction of Tenant, nor entitle Tenant to any abatement of rent, nor relieve
Tenant from its obligations under this lease. Should any malfunction of the
Building improvements or facilities occur, Landlord will repair such malfunction
promptly with reasonable diligence, but Tenant will have no claim for rebate,
abatement of rent or damages because of malfunctions or any interruptions in
service. Notwithstanding the foregoing, in the event of any such malfunction or
interruption in service which (i) is within Landlord's reasonable control to
remedy, (ii) renders the Premises untenantable to such extent that Tenant cannot
reasonably conduct its normal business operations in all or substantially all of
the Premises, and (iii) is continuous for ten (10) consecutive days, Rental
shall be abated for the period of time such malfunction or interruption in
service continues beyond such ten- (10) day period; and in addition, if any such
malfunction or interruption in service which (i) is within Landlord's reasonable
control to remedy, (ii) renders the Premises untenantable to such extent that
Tenant cannot reasonably conduct its normal business operations in all or
substantially all of the Premises, and (iii) is continuous for ninety (90)
consecutive days (which ninety- (90) day period shall be extended by force
majeure circumstances), the Tenant may, at its election, terminate this lease by
giving Landlord written notice of such election at any time thereafter prior to
the restoration of such services, in which event this lease shall terminate as
of the date of such notice, and except for those matters which specifically
survive termination hereof, the parties shall be relieved of all further
obligations and responsibilities under this lease.
ARTICLE 9
REAL ESTATE TAXES
Section 9.01. Landlord believes that the Land and the INTELSAT
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Headquarters Building are not subject to the imposition of real estate taxes but
Landlord desires to provide for the payment by Tenant of its share of real
estate taxes in the event that by reason of a change in ownership of Landlord's
interest or otherwise any real estate taxes are imposed with respect to the Land
and/or the INTELSAT Headquarters Building.
Section 9.02. For purposes of this Article 9, the following terms
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shall have the following meanings:
(a) "Real Estate Taxes" shall mean all taxes, assessments, and
other governmental charges (including vault rentals, if any,) applicable to the
Land, the INTELSAT Headquarters Building, or any portion thereof, or to
Landlord's personal property used in connection with the maintenance and
operation thereof (not including any personal property used in connection with
Landlord's occupancy of any part of the INTELSAT Headquarters Building). In
addition, if at any time during the Term there shall be levied, assessed, or
imposed on Landlord or the Land and/or the INTELSAT Headquarters Building by any
governmental authority, any general or special ad valorem or other charge or tax
directly upon rentals received under leases covering space in the INTELSAT
Headquarters Building, or if any fee, tax, assessment or other charge is imposed
which is measured by or based, in whole or in part, upon such rents, or if any
charge or tax is made based directly or indirectly upon the transactions
represented by leases covering space in the INTELSAT Headquarters Building, or
the occupancy or use thereof, such taxes, fees, assessments, or other charges
shall be included as "Real Estate
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Taxes;" provided, however, that any inheritance, estate, gift, franchise,
corporation, income, excess profit, transfer, net profits tax, sales tax or
excise tax (other than those specified in Section 9.03, which shall not be
included in the term Real Estate Taxes, but which Tenant shall pay directly to
the extent provided in Section 9.03), or special assessments for public
improvements, which may be assessed against Landlord shall be excluded from
"Real Estate Taxes;" and provided, further, that any amount of any tax which is
borne by any other tenant or is reimbursed to Landlord by any other tenant other
than under a rental adjustment provision of such tenant's lease corresponding
generally to this Article 9 shall be excluded from "Real Estate Taxes" (as, for
example and not by way of limitation, taxes assessed against particular
leasehold improvements or other facilities, alterations constructed or installed
by a tenant and which such tenant is required to bear and pay or for which such
tenant is required to pay specific reimbursement to Landlord).
(b) "Tax-Qualified Area" shall mean all rentable space in the
INTELSAT Headquarters Building which, for the tax year in question, is exempt
from Real Estate Taxes.
(c) "Non-Tax-Qualified Area" shall mean all rentable space in
the INTELSAT Headquarters Building other than space which is Tax-Qualified Area.
(d) "Per Square Foot Amount of Base Real Estate Taxes" shall
mean the sum of (i) Two Dollars and fifty cents ($2.50) and (ii) sixty percent
(60%) of the amount by which (A) the annualized Per Square Foot Amount of Real
Estate Taxes for the first tax year during which Real Estate Taxes are assessed
upon any Non-Tax-Qualified Area exceeds (B) Two Dollars and fifty cents ($2.50).
(e) "Per Square Foot Amount of Real Estate Taxes" for any tax
year shall mean the quotient derived by dividing (i) the Real Estate Taxes for
such tax year, by (ii) the number of square feet of Rentable Area of the
INTELSAT Headquarters Building that is Non-Tax-Qualified Area for such tax year;
provided, however, that, if the Real Estate Taxes which are imposed upon or
assessed against or with respect to or based on the value of the Land (as
distinguished from the Non-Tax-Qualified Area of the INTELSAT Headquarters
Building) reflect an amount that would be payable if there were no tax-exempt
organizations or other entities occupying space in the INTELSAT Headquarters
Building, then the "Per Square Foot Amount of Real Estate Taxes" for such tax
year shall mean the sum of (i) the quotient derived by dividing (A) the Real
Estate Taxes for such tax year, less all amounts, if any, of such Real Estate
Taxes which are imposed upon or assessed against or with respect to or based on
the value of the Land (as distinguished from the Non-Tax-Qualified Area of the
INTELSAT Headquarters Building), by (B) the number of square feet of Rentable
Area of the INTELSAT Headquarters Building that is Non-Tax-Qualified Area for
such tax year, plus (ii) the quotient derived by dividing (A) the amount, if
any, of the Real Estate Taxes for such tax year which are imposed upon or
assessed against or with respect to or based on the value of the Land (as
distinguished from the Non-Tax-Qualified Area of the INTELSAT Headquarters
Building), by (B) the number of square feet of Rentable Area of the entire
INTELSAT Headquarters Building.
(f) "Tenant's Proportionate Tax Share" for any tax year shall
mean the product of (i) the number of square feet of Rentable Area of the
Premises that is Non-Tax-
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Qualified Area for such tax year, times (ii) the excess, if any, of the Per
Square Foot Amount of Real Estate Taxes for such tax year over the Per Square
Foot Amount of Base Real Estate Taxes.
Section 9.03. During the Term Tenant shall pay to Landlord, as
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additional rent, Tenant's Proportionate Tax Share. In the event that sales tax
or excise tax is imposed by any governmental authority on the rent payable by
Tenant hereunder, such sales tax or excise tax shall be paid by Tenant. Landlord
shall submit to Tenant a copy of the bill for Real Estate Taxes and a statement
of Tenant's Proportionate Tax Share. Tenant shall pay Tenant's Proportionate Tax
Share for the tax year to which such amount applies, in the same number of
installments as the Real Estate Taxes are payable to the taxing authority
payable in said year, at least thirty (30) days prior to the due date for each
such installment.
Section 9.04. If the Commencement Date or the Expiration Date does
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not coincide with the first or last day of a tax year, respectively, then, with
respect to the tax year in which such Commencement Date or Expiration Date
occurs, Tenant's Proportionate Tax Share shall be prorated based upon the number
of days in such tax year during which this lease is in effect. If Landlord
receives any refunds of Real Estate Taxes for a tax year falling wholly or
partly within the Term, Landlord shall promptly recompute Tenant's Proportionate
Tax Share and deliver to Tenant a statement showing such recomputation together
with interest, if any, received by Landlord from the taxing authorities on the
amount of such overpayment. Within ten (10) days after the later of (i) the date
on which Landlord's right to such refund becomes final or (ii) the date on which
Landlord receives such refund, Landlord shall refund to Tenant any overpayment
of Tenant's Proportionate Tax Share for the tax year in question, together with
interest, if any, received by Landlord from the taxing authorities on the amount
of such overpayment, together with interest on such overpayment at the Prime
Rate per annum for any period after Landlord received such tax refund to the
date when Landlord remits such overpayment to Tenant. The fact that Landlord
might become obligated to make a refund to Tenant at some future time shall not
cure any default by Tenant in failing to make timely payments of its liability
for Tenant's Proportionate Tax Share.
Section 9.05. For Purposes hereof, the Rentable Area of the INTELSAT
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Headquarters Building shall be determined in accordance with Exhibit E.
ARTICLE 10
USE AND LEGAL REQUIREMENTS
The Premises shall be used only for the operation of a television broadcast
station and related studio and office space and for no other purpose. If at any
time Tenant shall be prohibited by "Legal Requirements", or by virtue of any
provision of the Ground Lease from (i) using the Premises for the operation of a
television broadcast station and related studio and office space (which
prohibition cannot be remedied by a commercially feasible change in Tenant's
method of operation), or (ii) installing, operating or maintaining the
Communication Systems and there are no commercially feasible alternative systems
performing comparable functions that can be installed by Tenant, Tenant shall
have the right, at is election, by giving written notice of termination to
Landlord, to terminate this lease, in which event the Term of this lease will
end on the date of giving of such notice to Landlord with the same effect as if
such date were the
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Expiration Date elsewhere herein defined. Tenant agrees to use and maintain the
Premises in a clean, careful, safe, lawful, and proper manner. Tenant shall, at
its sole expense (i) comply with all valid laws, orders, ordinances, regulations
applicable to the Premises of Federal, state, county, municipal and other
authorities ("Legal Requirements"), (ii) comply with any direction made pursuant
to law by any public officers requiring abatement of any nuisance, or which
imposes upon Landlord or Tenant any duty or obligation arising from tenant's
occupancy or use of the premises from conditions which have been created by or
at the insistence of Tenant, and (iii) indemnify Landlord and hold Landlord
harmless from any loss, cost, which Landlord may incur or suffer by claim, or
expense reason of Tenant's failure to comply with its obligations under clauses
(i) or (ii) above. If Tenant receives notice of any such direction or of
violation of any such law, order, ordinance, or regulation, it shall promptly
notify Landlord thereof.
ARTICLE 11
OBSERVANCE OF RULES AND REGULATIONS
Tenant and its servants, employees, agents, visitors, and licensees shall
observe faithfully and comply with the Rules and Regulations (herein so called)
attached to this lease as Exhibit F. Landlord shall at all times have the right
to make reasonable changes in and additions to such Rules and Regulations,
provided such changes in existing or new Rules and Regulations do not materially
interfere with the lawful conduct of Tenant's business in the Premises. Any
failure by Landlord to enforce any of the Rules and Regulations now or hereafter
in effect, either against Tenant or any other tenant in the Building, shall not
constitute a waiver of any such Rules and Regulations. Landlord shall not be
liable to Tenant for the failure or refusal by any other tenant, guest, invitee,
visitor, or occupant of the Building to comply with any of the Rules and
Regulations. Anything herein contained to the contrary notwithstanding, in the
event any Rule or Regulation is not enforced in a uniform and non-discriminatory
manner, such Rule or Regulation shall not be enforceable against Tenant.
ARTICLE 12
ALTERATIONS
Section 12.01. Tenant may not, at any time during the Term, without
--------------
Landlord's prior written consent, make any alterations to the Premises which (i)
in Landlord's judgment affect the structure or the safety of the Building, (ii)
in Landlord's judgment affect the Building electrical, HVAC, plumbing or
mechanical systems or the functioning thereto outside the Premises, (iii) in
Landlord's judgment fail to comply with applicable Legal Requirements or (iv)
front upon or are located Within twelve (12) inches from any window (other than
any walls which join any window or exterior wall). If Tenant desires to make any
alterations in or to the Premises, Tenant shall, prior to beginning any such
work, deliver to Landlord all plans or drawings and specifications therefor,
whether or not Landlord's approval is recurred for such alterations. If
Landlord's approval is required pursuant to the first sentence of this Section
12.01, Tenant shall nay to Landlord reasonable costs incurred by Landlord for
third-party consultants to review such plans and specifications. Tenant may
proceed to the construction of the alterations provided that (i) Tenant has
received Landlord's approval thereof, if required pursuant to the first sentence
of this Section 12.01, (ii) the alterations are in strict compliance with the
plans and
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specifications submitted to Landlord and with the provisions of this Article 12;
(iii) Tenant Shall indemnify and hold Landlord harmless against and from any and
all claims, damages, costs and finest arising out of or connected with such
alterations, and (iv) Tenant shall procure at its own expense such governmental
approvals and permits as may be required for such alterations. Landlord shall
exercise reasonable good faith judgment in determining whether to approve the
plans and specifications, it being understood and agreed that if a dispute
should arise as to whether Landlord's disapproval of any plans and
specifications was exercised in Landlord's reasonable good faith judgment,
Landlord shall have no liability because of such disapproval until such time as
(i) a court of competent jurisdiction enters a final judgment not subject to
further appeal that Landlord did not exercise reasonable good faith judgment in
withholding its approval and (ii) after such final determination Landlord
continues to refuse to consent to the applicable plans and specifications. Where
Landlord's approval is required pursuant to the first sentence of this Section
12.01, such approval shall be conclusively deemed to have been granted unless
Landlord gives Tenant written notice specifying in particular its objections to
such plans and specifications within fifteen (15) days after Landlord has
received Tenant's plans or drawings and specifications for any alterations, but
only if at the time Tenant delivers the plans or drawings and specifications to
Landlord, Tenant notifies Landlord in writing that if Landlord fails to respond
within fifteen (15) days, such silence shall be deemed an approval. At Tenant's
expense, Landlord shall join in submitting Tenant's plans for any necessary
governmental approval, if required by applicable law. All alterations shall be
made at Tenant's expense by contractors which have been approved by Landlord
(which approval shall not be unreasonably delayed or withheld). All such
construction, alterations, and maintenance work done by, or for, Tenant shall
(A) be performed in a such manner as to maintain harmonious labor relations, (B)
not alter the exterior appearance of the Building or the common and public areas
thereof, (C) not affect the structure or the safety of the Building, (D) comply
with all building, safety, fire, plumbing, electrical, and other codes and
governmental and insurance requirements, (E) be completed promptly and in a good
and workmanlike manner, and (F) be performed in compliance with Article 13
hereof.
Section 12.02. After the completion of any alterations to the
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Premises, Tenant shall deliver to Landlord either (i) a certificate signed by
Tenant stating that such alterations have been completed in accordance with the
plans and specifications previously delivered to Landlord or (ii) a copy of "as-
built" plans and specifications with respect to such alterations.
Section 12.03. No alterations, leasehold improvements, and other
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physical additions made or installed by or for Tenant in or to the Premises
shall be removed during the Term except, in accordance with Section 20.02.
ARTICLE 13
LIENS
Tenant shall keep the Premises and the Building free from any liens arising
from any work performed, materials furnished, or obligations incurred by or at
the request of Tenant. All persons either contracting with Tenant's, furnishing
or rendering labor and materials to Tenant shall be notified in writing by
Tenant that they must look only to go thing contained in this lease shall be
construed as Landlord's consent to any contractor, subcontractor, laborer, or
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materialman" or the performance of any labor or the furnishing of any materials
for any specific improvement, alteration, or repair of, or to, the Premises or
the Building, nor as giving Tenant any right to contract for, or permit the
performance of, any services or the furnishing of any materials that would
result in any liens against the Premises or the Building. If any lien is filed
against the Premises or Tenant's leasehold interest therein, or if any lien is
filed against the Building which arises out of any purported act or agreement of
Tenant, Tenant shall discharge the same within ten (10) days after its filing by
payment, filing of the bond required by law; or otherwise. If Tenant fails t o
discharge such lien within such period, then, in addition to any other right or
remedy of Landlord, Landlord may, at its election, discharge the lien by paying
the amount claimed to be due, by obtaining the discharge by deposit with a court
or a title company, or by bonding. Tenant shall pay on demand any amount paid
by Landlord for the discharge or satisfaction of any such lien, and all
reasonable attorneys' fees and other costs and expenses of Landlord incurred in
defending any such action or in obtaining the discharge of such lien, together
with all necessary disbursements in connection therewith.
ARTICLE 14
REPAIRS
Section 14.01. Tenant shall keep the Premises and every part thereof
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in good condition and repair at all times during the Term and at Tenant's sole
cost and expense. If Tenant fails to make such repairs promptly, Landlord, at
its option, may make such repairs, and Tenant shall pay Landlord on demand
Landlord's actual costs in making such repairs. Notwithstanding the foregoing,
Tenant shall have no obligation to maintain or repair any portion of the
Building which is not part of the Premises; provided, however, that Tenant shall
reimburse Landlord for any actual costs incurred for maintenance or repair of
any such portion of the Building if such maintenance or repair is necessitated
by the negligent acts or omissions of Tenant. At the end of the Term, Tenant
shall surrender to Landlord the Premises and all alterations, additions and
improvements thereto subject to the provisions of Article 20 hereof. Landlord
has no obligation and has made no promise to alter, remodel, improve, repair,
redecorate, or paint the Premises or any part thereof, except as specifically
set forth in this lease. No representations respecting the condition of the
Premises or the Building have been made by Landlord to Tenant except as
specifically set forth in this lease.
Section 14.02.
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(a) Subject to the other provisions of this lease imposing
obligations in this respect upon Tenant, and subject to the provisions of
Articles 16 and 17 hereof, Landlord shall repair, replace, and maintain (i) the
external and structural parts of the Building, (ii) all common and public areas
of the Building (including the parking garage), and (iii) the HVAC, mechanical,
electrical and plumbing systems of the Building exclusive of systems, if any,
specially installed by or on behalf of any tenant; provided that, the HVAC,
mechanical, electrical and plumbing systems of the Building to be installed by
Landlord under the terms of this lease or under the terms of Exhibit C hereto
shall not be deemed to have been "specially installed by or on behalf of any
tenant" for purposes of this Section 14.02 (other than the supplemental air-
conditioning chiller which Landlord shall initially install for Tenant at
Landlord's cost and expense, which chiller Tenant shall maintain and repair
during the Term but need not replace).
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(b) Nothing contained in this Section 14.02 shall preclude
Landlord from including in Basic Costs (pursuant to Sections 6.02 and 6.03) any
of the costs and expenses referred to herein to the extent the same are within
the definition of Basic Costs.
ARTICLE 15
INSURANCE
Section 15.01. During the Term, Tenant, at its sole expense, shall
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obtain and keep in force the following insurance:
(a) All Risk insurance upon property of every description and
kind owned by Tenant and located in the Building owned by Tenant and located in
the Building or for which Tenant is legally liable or installed by or on behalf
of Tenant, including without limitation, furniture, fittings, installations,
furnishings, movable trade fixtures and personal property, and alterations, in
an amount not less than ninety percent, (90%) of the full replacement cost
thereof. All such insurance policies shall contain a waiver of subrogation in
favor of Landlord. Landlord will not be required to carry insurance of any kind
on any of Tenant's fixtures, equipment or improvements under this lease, and
Landlord shall not be obligated to repair any damage thereto or replace the
same. Tenant shall also maintain All Risk insurance covering all Non-Building
Standard Lease hold Improvements in an amount equal to not less than ninety
percent (90%) of the replacement cost thereof in excess of the replacement cost
of corresponding Building Standard Leasehold Improvement containing a waiver of
subrogation in favor of Landlord. As such term is used herein, "Building
Standard Leasehold Improvements" shall refer to leasehold improvements of the
nature and quality of the leasehold improvements heretofore installed by
Landlord in the portions of the Phase I buildings on the Land.
(b) Comprehensive general liability insurance coverage,
including personal injury, bodily injury, broad form property damage, operations
hazard, owner's protective coverage, contractual liability, and products and
completed operations liability, in limits not less than $5,000,000 inclusive
provided that such $5,000,000 limits may be reduced to the extent that insurance
coverage in such amount becomes unobtainable at commercially reasonable rates or
to the extent that lesser limits are, in the future, customarily maintained by
parties similarly situated and comparable to Tenant engaged in business in
Washington, D.C. All such insurance policies shall name Tenant as named insured
thereunder and shall name Landlord and Landlord's mortgagees (and, if requested
by Landlord, ground or primary lessors) as additional insureds thereunder, all
as their respective interests may appear. Such insurance may be placed as part
of any blanket policy carried by Tenant and/or carried under primary and excess
coverage policies.
(c) Worker's Compensation and Employer's Liability insurance as
required by law.
(d) Any other form or forms of insurance as Tenant, Landlord or
Landlord's mortgagee may reasonably from time to time in form, in amounts and
for insurance risks against which a prudent tenant of comparable size and in
comparable business would protect itself.
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All policies shall be issued by insurers of recognized responsibility.
Tenant will deliver certificates of insurance (substantially in the form of
Exhibit E hereto) to Landlord as soon as practicable after the placing of the
required insurance, but not later than ten (10) days prior to the date Tenant
takes possession of all or any part of the Premises. All policies shall contain
an undertaking by the insurers to notify Landlord and Landlord's mortgagees
(and, if applicable, ground lessors) in writing, by certified or registered
United States mail, return receipt requested, not less than fifteen (15) days
before any material adverse change, reduction in coverage, cancellation, or
other termination thereof.
Section 15.02. During the Term, Landlord shall insure the Building
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Standard Leasehold Improvements (excluding any property Tenant is obligated to,
insure under Section 15.01 hereof) with a reputable insurance company against
damage with All Risk insurance in an amount not less than 90% of the then
replacement cost and Landlord shall also insure the Non-Building Standard
Leasehold Improvements that are of a similar, type, character and nature as
Building Standard Leasehold Improvements with a reputable insurance company with
All Risk Insurance in an amount not less than 90% of the full replacement cost
of those Building Standard Leasehold Improvements of a similar type, character
and nature. (All such insurance policies shall contain waive of subrogation in
favor of Tenant. Landlord shall also maintain comprehensive general liability
insurance in limits not less than the liability insurance limits required to be
maintained by Tenant pursuant to Section 15.01(b) from time to time, which
insurance policies shall waive any right of the insurer to invoke any privilege
or immunity (as an International Organization or sovereign government) of
Landlord, and shall name Tenant as an additional insured thereunder. Landlord
may, but shall not be obligated to, obtain and carry any other form or forms of
insurance as it or Landlord's mortgagees may reasonably determine advisable.
Notwithstanding any contribution by Tenant to the cost of insurance premiums, as
provided herein, Tenant acknowledges that it has no right to receive any
proceeds from any property insurance policies carried by Landlord.
Section 15.03. Tenant will not keep or use in or upon the Premises any
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article which may be prohibited by any insurance policy in force covering the
Building and the leasehold improvements in the Building. If Tenant's occupancy
or business in or on the Premises, whether or not Landlord has consented to the
same, results in any increase in premiums for the insurance carried by Landlord
with respect to the Building, Tenant shall pay any such increase in premiums as
additional Rental within ten (10) days after being billed therefor by Landlord.
In determining whether increased premiums are a result of Tenant's use of the
Premises, a schedule issued by the organization computing the insurance rate on
the Building or the leasehold improvements showing the various components of
such rate shall be conclusive evidence of the several items and charges which
make up such rate. Tenant shall promptly comply with all reasonable requirements
of the insurance authority or any present or future insurer relating to the
Premises. Nothing herein shall, however, be construed to prohibit Tenant from
keeping and using in the Premises any equipment or property reasonably and
customarily used for the operation of a television broadcast station and related
studio and office.
Section 15.04. If any of Landlord's insurance policies shall be
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cancelled or cancellation shall be threatened or the coverage thereunder reduced
or threatened to be reduced in any way because of the use of the Premises or any
part thereof by Tenant or any assignee or subtenant of Tenant or by anyone
Tenant permits on the Premises and if Tenant fails to remedy
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the condition giving rise to such cancellation, threatened cancellation,
reduction of coverage, or threatened reduction of coverage within a reasonable
period of time after notice not to exceed ten (10) days (or such longer period
of time as is required to remedy such condition provided Tenant commences to
correct such condition within such ten- (10) day period and continues diligently
to remedy such condition to completion), Landlord may, at its option, enter upon
the Premises and attempt to remedy such condition, and Tenant shall promptly pay
the cost thereof to Landlord as additional Rental. Landlord shall not be liable
for any damage or injury caused to any property of Tenant or of others located
on the Premises resulting from such entry. If Landlord is unable, or elects not,
to remedy such condition, then Landlord shall have all of the remedies provided
for in this lease in the event of a default by Tenant. Notwithstanding the
foregoing (but subject to Section 15.03), Landlord shall be responsible for
maintaining insurance, if available, which permits Tenant to make reasonable use
of the Premises for the normal operation of a television broadcast station and
related studio and office space without regard to the foregoing provisions of
this Section 15.04, provided, however, that if Landlord is unable to obtain such
insurance and if Landlord elects not to self-insure in accordance with Section
15.06, Landlord shall have the right to terminate this lease by notifying Tenant
of such election in writing in which event, this lease shall be terminated as of
the date specified in such notice, and except for provisions hereof which
expressly survive termination, the parties shall have no further liabilities or
responsibilities under this lease.
Section 15.05. All policies covering real or personal property
--------------
which either party obtains affecting the Premises or the Building shall include
a clause or endorsement denying the insurer any rights of subrogation against
the other party to the extent rights have been waived in writing by the insured
before occurrence of injury or loss. Landlord and Tenant shall not be liable or
responsible for, and each hereby releases the other, the partners, employees,
officers, directors and agents of the other from any and all liability and
responsibility to the other, or any and each hereby releases the other, the
partners, employees, officers, directors and agents of the other from any and
all liability and responsibility to the other, or any person claiming by,
through or under the Landlord or Tenant, by way of subrogation or otherwise for
any damage or loss to their respective property due to hazards covered or which
should be covered by policies of insurance obtained or which should be or have
been obtained pursuant to this lease, to the extent of the injury or loss
covered or which should have been covered thereby, assuming that any deductible
shall be deemed to be insurance coverage.
Section 15.06. So long as (i) International Tele-communications
--------------
Satellite Organization is the Landlord hereunder (and has not suffered a
material and adverse change in its financial condition or strength), or (ii) if
the Landlord hereunder is not International Telecommunications Satellite
Organization but demonstrates to Tenant's reasonable satisfaction that Landlord
has sufficient financial strength to absorb such risk, and with Tenant's prior
consent in writing (such consent not to be unreasonably withheld), then Landlord
may elect to self-insure (and not obtain from an insurance company) all or part
of the property insurance required to be maintained by Landlord under the
provisions of the first, sentence of Section 15.02; provided that, to the extent
that Landlord does self-insure against any risk or hazard, Landlord hereby
releases Tenant and the partners, employees, officers, directors and agents of
Tenant, and agrees to indemnify and save and hold Tenant and its partners,
employees, officers, directors and agents harmless from any loss, cost, expense,
claim or liability whatsoever in connection with any damage or loss to any
property of Landlord due to hazards or risks which would have been covered by
policies of
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insurance which would have been required to be maintained by Landlord under the
provisions of Section 15.02 had it not elected to self-insure against such risk
or hazard.
ARTICLE 16
DAMACE BY FIRE OR OTIHER CASUALTY
Section 16.01. If the Building or the Premises shall be damaged by any
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casualty, Tenant shall immediately notify Landlord of the same and if this lease
shall not have been terminated pursuant to this Article 16, Landlord shall
repair said damage and restore and rebuild the Building and/or the Premises
(including leasehold improvements in the Premises, but excluding the property of
Tenant, and limited to the cost of repairing, restoring or rebuilding Building
Standard Leasehold Improvements in the case of Non-Building Standard Leasehold
Improvements) as soon as reasonably practicable after said damage occurs, and
the Rental payable hereunder shall be reduced or abated in proportion to the
extent that the Premises are rendered unusable for the normal conduct of the
business then conducted on the Premises until such Premises are rendered usable
for the normal conduct of such business.
Section 16.02. If the Premises shall be damaged or destroyed by any
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casualty such that Landlord reasonably estimates that the repair and restoration
of the Premises would require an expenditure of more than twenty-five percent
(25%) of the replacement cost of the Premises immediately prior to such
casualty, and if (i) less than three (3) years remain of the unexpired term of
this lease (as theretofore extended, if applicable) or (ii) Landlord elects to
demolish the Building (or the two (2) Pods of the Building containing the
Premises), then Landlord shall have the right to terminate this lease by written
notice to Tenant given within sixty (60) days after the date of such damage and
upon such notice this lease shall terminate; provided, however, that the
provisions of this lease which are designated to cover matters of termination
and the period thereafter shall survive the termination of this lease.
Section 16.03. If the Building and/or the Premises shall be so damaged
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by casualty to such extent that the premises are rendered unusable for the
normal conduct of Tenant's business then conducted on the Premises, Landlord
shall, as promptly as practicable following such casualty, obtain and deliver to
Tenant a certificate by an independent, qualified engineer or contractor setting
forth the good faith reasonable estimate of such engineer or contractor as to
the period of time required to substantially repair and restore the Building
and/or Premises so as to permit Tenant to resume the normal conduct of its said
business in the Premises. In such event:
(a) If such certificate reflects that such repair and
restoration cannot reasonably he completed within one hundred eighty (180) days
after the occurrence of such casualty, and if at least two (2) years remain of
the Term of this lease (including any extension of such Term as to which Tenant
has theretofore exercised an option so to extend the Term), Tenant may terminate
this lease by giving written notice of termination to Landlord within thirty
(30) days after receipt of such certificate.
(b) If such certificate reflects that such repair and
restoration cannot reasonably be completed within ninety (90) days after
occurrence of such casualty, and if less than two (2) years remain of the Term,
of this lease (including any extension of such Term as to
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which Tenant has theretofore exercised an option so to extend the Term), Tenant
may terminate this lease by giving written notice of termination to Landlord
within thirty (30) days after receipt of such certificate.
(c) If such certificate reflects that such repair and
restoration cannot reasonably be completed within one hundred eighty (180) days
after the occurrence of such casualty, and if at least two (2) years remain of
the Term of this lease (including any extension of such Term as to which Tenant
has theretofore exercised an option so to extend the Term), and if Landlord
elects to demolish the Building (or the two Pods of the Building containing the
Premises), Landlord may terminate this lease by giving written notice of
termination to Tenant within forty-five (45) days after the occurrence of such
casualty.
(d) If such certificate reflects that such repair and
restoration cannot reasonably he completed within ninety (90) days after the
occurrence of such casualty, and if less than two (2) years remain of the Term
of this lease (including any extension of such Term as to which Tenant has
theretofore exercised an option so to extend the Term), Landlord may terminate
this lease by giving written notice of termination to Tenant within forty-five
(45) days after occurrence of such casualty.
If this lease is terminated pursuant to any of the foregoing provisions of
this Section 16.03, the provisions of this lease which are designated to cover
matters of termination and the period thereafter shall survive the termination
of this lease.
Section 16.04. If Landlord is obligated to repair the Premises or
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Building after any casualty pursuant to this Article 16, Landlord shall
diligently commence and continuously prosecute such repair to completion.
Section 16.05. If the Premises, or any substantial portion thereof, is
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substantially destroyed by fire or other cause at any time during the last
twelve (12) months of the Term (as the same may have been extended), either
Landlord or Tenant may terminate this lease upon written notice to the other
given within sixty (60) days after the date of such destruction, provided,
however, that those provisions of this lease which are designated to cover
matters of termination and the period thereafter shall survive the termination
hereof. For purposes of this Section 16.05, the Premises shall be deemed
"substantially destroyed" if at least twenty-five percent (25%) of the Rentable
Area of the Premises is rendered unusable by such fire or other cause.
Section 16.06. No damages, compensation, or claim shall be payable by
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Landlord for inconvenience, loss of business, or annoyance arising from any
repair or restoration of any portion of the Premises, the Leasehold
Improvements, or the Building. Landlord shall use its best efforts to have such
repairs made promptly so as not to unnecessarily interfere with Tenant's
occupancy.
Section 16.07. The provisions of this Article shall be considered an
--------------
express agreement governing any case of damage or destruction of the Building,
the Leasehold Improvements, or the Premises by fire or other casualty.
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Section 16.08. In the event of the termination of this lease pursuant
--------------
to the provisions of Sections 16.02, 16.03 or 16.05, this lease, the Term and
the estate hereby granted shall expire as . of the date of such termination in
the same manner and with the same effect as if it were the date set for the
normal expiration of the Term, and Rental shall be apportioned as of the date of
termination.
ARTICLE 17
CONDEMNATION
Section 17.01. In the event the whole or substantially the whole of
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the Building and/or the Premises are taken or condemned for any public purpose,
this lease shall terminate as of the date of such taking; provided, however,
that those provisions of this lease which are designated to cover matters of
termination and the period thereafter shall survive the termination hereof.
Section 17.02. In the event that more than fifteen percent (15%) of
--------------
the Rentable Area of the Premises shall be taken or condemned for any public or
quasi-public purpose, which taking, in Tenant's reasonable judgment, will
interfere materially with Tenant's normal conduct of Tenant's business in the
Premises, then Tenant shall have the option to terminate this lease, effective
as of the date specified by Tenant in its notice of termination; provided,
however, that those provisions of this lease which are designated to cover
matters of termination and the period thereafter shall survive the termination
hereof.
Section 17.03. In the event that a portion, but less than
--------------
substantially the whole, of the Premises should be taken or condemned for any
public purpose, then this lease shall terminate as of the date of such taking as
to the portion of the Premises so taken, and, unless Tenant exercises its option
to terminate this lease pursuant to Section 17.02, this lease shall remain in
full force and effect as to the remainder of the Premises and Landlord shall
with due diligence restore the remainder of the Premises to an architectural
unit as nearly like its condition as it existed prior to such taking as is
reasonably and practicably feasible. In such event, the Annual Rental, Tenant's
Proportionate Share of Basic Costs Excess and Tenant's Proportionate Tax Share
of Real Estate Taxes attributable to the Premises will be diminished by an
amount representing the part of such amounts properly applicable to the portion
of the Premises so taken. Further, in such event, Tenant's Proportionate Share
shall be recomputed based upon the remaining Rentable Area in the Premises and
in the Building, but the area in the Building thus taken shall continue to be
considered as Rentable Area of the Building.
Section 17.04. In the event of the termination of this lease pursuant,
--------------
to the provisions of Sections 17.01, 17.02 or 17.03, this lease and the Term and
the estate hereby granted shall expire as of the date of such termination in the
same manner and with the same effect as if that were the date set for the normal
expiration of the Term, and Rental shall be apportioned as of the date of
termination. The pro-visions of this Section 17.04 shall apply in the same
manner to any partial termination this lease pursuant to the provisions of this
Article 17.
Section 17.05. If Landlord is obligated to repair or restore the
--------------
Premises or the Building after any taking or condemnation pursuant to this
Article 17, Landlord shall diligently and continuously prosecute such repair or
restoration to completion.
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Section 17.06. Except as otherwise provided in Section 17.07 below,
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Landlord shall be entitled to receive the entire award in any condemnation
proceeding or action for taking of the Building, Land or Premises; provided that
Tenant shall be entitled to seek and recover and retain out of the award in any
such proceeding or action damages and compensation (i) for the value of any
leasehold improvements, additions or alterations installed or constructed in the
Premises or on the Building or Land by Tenant (less the portion, if any, thereof
for which Tenant was reimbursed by Landlord pursuant to this lease) and taken in
such proceeding or action, and (ii) for the value of any property of Tenant
other than the leasehold interest of Tenant taken in such proceeding or action.
Section 17.07. If the temporary use or occupancy of all or any part of
--------------
the Premises shall be condemned or taken for any public or quasi-public use
during the Term, and if more than fifteen percent (15%) of the Rentable Area of
the Premises shall be so taken, which taking, in Tenant's reasonably judgment,
will interfere materially with Tenant's normal conduct of Tenant's business in
the Premises and such temporary taking shall be for a period in excess of one
(1) year or for the entire unexpired portion of the Term (as theretofore
extended, if applicable), then Tenant shall have the option to terminate this
lease, effective as of the date specified by Tenant in its notice of
termination; provided, however, that those provisions of this lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof. If the temporary use or occupancy of a portion
only of the Premises shall be so taken and this lease is not terminated by
Tenant pursuant to the foregoing provisions of this Section 17.07, Landlord
shall with due diligence restore the remainder of the Premises to an
architectural unit as nearly like its condition as it existed prior to such
taking as is reasonably feasible. In the event of any such condemnation or
taking, Tenant shall be entitled to appear, claim, prove and receive the portion
of the award for such taking that represents compensation for use or occupancy
of the Premises during the Term and damages for diminution in value or usability
of the remainder of the Premises during the Term (in case of a partial taking),
and Landlord shall be entitled to appear, claim, prove and receive the portion
of the award for such taking that represents compensation for the restoration of
the Premises and the use or occupancy of the Premises after the end of the Term
and damages for diminution in value or usability of the remainder of the
Premises after the Term (in case of a partial taking); provided that, if Tenant
shall terminate this lease as a consequence of such taking, Tenant shall remit
to Landlord so much of the award to Tenant (up to but not in excess of all
thereof) as shall equal (to the extent possible) the discounted present value
(discounted at the Prime Rate per annum as of the date of Tenant's receipt of
such award) of the Rental which would have accrued as to the portion of the
Premises so taken after such termination and during the period of such taking
(to, but not beyond, the end of the Term, as theretofore extended, if
applicable).
ARTICLE 18
ASSIGNMENT AND SUBLETTING
(a) Except as hereinafter provided, Tenant may not sell,
assign, transfer, or hypothecate this lease or any interest herein or sublet the
Premises or any part thereof without prior written consent of Landlord, except
that Landlord's approval of any proposed sublease shall not be unreasonably
withheld. Landlord hereby consents to any assignment or sublease to any
corporation controlling, assignment or sublease to any corporation controlling,
controlled by,
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or under common control with Tenant, or to any purchaser of all or substantially
all of the assets of Tenants. The parties agree that in the case of a proposed
sublease, it shall be reasonable for Landlord to withhold its approval if
Landlord determines in good faith that the proposed subtenant is nor financially
creditworthy, or is a medical or dental practice or is a user that will attract
a volume, frequency or type of visitor or employee to the Building which is not
consistent with the standards of a high quality office building or that will
impose an excessive demand or use on the facilities or services of the Building
or whose occupancy of the Premises would not be compatible with Landlord's
interests.
(b) If Tenant should desire to either (i) assign this lease or
(ii) sublet the Premises (or any part thereof), and provided that Tenant is not
then in default hereunder, Tenant shall give Landlord written notice at least
ninety (90) but no more than one hundred eighty (180) days in advance of the
date on which Tenant desires to make such assignment or sublease. Landlord shall
then have a period of thirty (30) days following receipt of such notice within
which to notify Tenant in writing that Landlord elects either (i) to permit
Tenant to assign or sublet such space, subject, however, to the subsequent
written approval of the proposed assignee or subtenant by Landlord; or (ii) to
refuse, in Landlord's sole and absolute discretion in the case of an assignment,
or in Landlord's reasonable discretion in the case of a subletting, to consent
to Tenant's assignment or subletting of such space and to continue this lease in
full force and effect as to the entire Premises. If Landlord fails to notify
Tenant in writing of such election within such thirty- (30) day period, Landlord
shall be deemed to have elected option (i) above. In the event that Tenant shall
sublease any portion or portions of the Premises with Landlord's consent (or
deemed consent) pursuant to this subsection 18.01(b), and if any such sublease
or subleases cover any period after the end of the fifth (5th) Lease Year
(herein called "Subject Subleases"), whether one or more, Tenant shall maintain
an account (the "Sublease Account") and shall enter debits and credits in such
Sublease Account and make payments (if any become due) of additional Rental to
Landlord as follows:
(i) The Sublease Account shall be credited with the amount
of all rentals received by Tenant under and pursuant to all Subject Subleases,
including the reasonable value of any specific consideration paid to Tenant for
any such Subject Sublease in addition to "rental" paid thereunder.
(ii) The Sublease Account shall be debited with the amount
of all Rental paid by Tenant under this lease for or attributable to the
Rentable Area covered by each Subject Sublease during the term of such Subject
Sublease (except any additional Rental paid by Tenant to Landlord pursuant to
this subsection 18.01(b)).
(iii) The Sublease Account shall be debited with all
direct costs and expenses incurred by Tenant in connection with entering into,
performing its obligations under and enforcing each such Subject Sublease,
including, without limitation, brokerage fees and commissions, legal fees,
accounting fees, costs and expenses of renovating or altering and maintaining
the portion of the Premises occupied or to be occupied or used by the subtenant
under any such Subject Sublease to comply with the requirements of such Subject
Sublease, costs and expenses of electricity, heating and air-conditioning
provided by Tenant to the subleased areas covered by such Subject Subleases
(determined and allocated on a pro rata per square foot of Rentable Area basis
with reference to the costs and expenses incurred by Tenant
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for electricity, heating and air-conditioning in the entire Premises), and (if
applicable) costs and expenses of janitorial service, cleaning or other services
provided by Tenant to the subleased areas covered by such Subject Subleases,
provided there is no duplication of any such costs or expenses otherwise debited
to such Sublease Account.
(iv) If one or more Subject Subleases are entered into
prior to the end of the fifth (5th) Lease Year, and if the aggregate credits to
the Sublease Account as of the end of the fifth (5th) Lease Year shall exceed
the aggregate debits to such Sublease Account as of such date, the Sublease
Account shall be debited on such date with the amount of such excess (so as to
cause the aggregate debits to equal the aggregate credits as of such date). The
allocation of rental from Subject Subleases entered into prior to the end of the
fifth (5th) Lease Year shall be commercially reasonable.
(v) If at the end of any month commencing after the end of
the fifth (5th) Lease Year the aggregate credits to the Sublease Account shall
exceed the aggregate debits to the Sublease Account as of such date, Tenant
shall, within ten (10) days thereafter, pay to Landlord, as additional Rental
under this lease, an amount equal to fifty percent (50%) of such excess; and
incident to such payment the Sublease Account shall be debited with an amount
equal to one hundred percent (100%) of such excess.
(c) If Tenant notifies Landlord of Tenant's desire to assign
this lease or sublet the Premises, more than once in any twelve (12) month
period, Tenant shall pay to Landlord as additional Rental with the next due
monthly Rental the actual legal fees, if any, for outside counsel, incurred by
Landlord to have such proposed sublease or assignment reviewed and evaluated. No
assignment or subletting by Tenant shall relieve Tenant of Tenant's obligations
under this lease. Any attempted assignment or subletting by Tenant in violation
of the terms and provisions of this Section 18.01 shall be void.
Section 18.02. Landlord may sell, transfer, assign, and convey, all or
--------------
any part of the Building and any and all of its rights under this lease, and in
the event Landlord assigns its rights under this lease, Landlord shall be
released from any further obligations hereunder, and Tenant agrees to look
solely to Landlord's successor in interest for performance of such obligations;
provided that, notwithstanding any such assignment by Landlord of its rights
under this lease, Landlord shall nevertheless be and remain liable and
responsible for performance of all Landlord's covenants and agreements contained
and set forth in Section 25.04 of this lease for and during the entire term of
this lease and any extension of such term herein provided for.
ARTICLE 19
INDEMNIFICATION
Tenant waives all claim against Landlord for damage to any property, or
injury to, or death of any person in, upon or about the Building, the Premises,
or the parking facilities in the Building arising at any time and from any cause
other than (i) by reason of the willful misconduct of Landlord its agents or
employees, or (ii) in the case of injury to or death of any person, by reason of
the negligence of Landlord, its agents or employees; and Tenant shall indemnify
Landlord and shall hold Landlord harmless from any damage to property or injury
to,
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or death of any person arising from the use of the Building, the Premises, or
the parking facilities by Tenant or its agents, employees, representatives,
contractors or invitees, except such as is caused (i) by the willful misconduct
of Landlord, its agents or employees or (ii) in the case of injury to or death
of any person , by reason of the negligence of Landlord or employees. Without
limiting the generality of the foregoing, Landlord shall not be liable for any
injury or damage to persons or property resulting form fire, explosion, falling
plaster, steam, gas, electricity, water, rain, flood, snow, or leaks from any
part of the Premises or from the pipes, appliance, equipment, plumbing works,
roof, or subsurface of any floor or ceiling, or from the street or any other
place, or by dampness or any other cause whatsoever, unless caused (i) by
Landlord's willful misconduct or (ii) in the case of injury to or death of any
person, by reason of the negligence of Landlord, its agents or employees.
Landlord shall not be liable for any such damage caused by other tenants or
persons in the Building or by occupants of adjacent property thereto, or by the
public, or caused by any private, public, or quasi-public construction or other
work, including, but not limited to, any construction modification, or operation
of underground, ground-level or above-ground pedestrian tunnels, bridges,
walkways, or similar items. Tenant's foregoing indemnity obligation shall
include reasonable attorneys' fees, investigation costs, and expenses incurred
by Landlord from the first notice that any claim or demand has been made or may
be made, but only to the extent such fees, costs and expenses are not covered by
Landlord's insurance. The provisions of this Article 19 shall survive the
termination of this lease with respect to any damage, injury, or death occurring
before such termination. If Landlord is made a party to any litigation commenced
by or against Tenant or relating to this lease or to the Premises, and provided
that in any such litigation Landlord is not finally adjudicated to be at fault,
then Tenant shall pay all costs and expenses, including reasonable attorneys'
fees and court costs, incurred by or imposed upon Landlord because of any such
litigation, but only to the extent such fees, costs and expenses are not covered
by Landlords insurance, and the amount of all such costs and expenses, including
reasonable attorneys' fees and court costs, shall be a demand obligation owing
by Tenant to Landlord. Tenant shall have the right, at Tenant's sole cost and
expense, to participate in the defense of any such action or proceeding brought
in connection with any claim against Landlord by a third party and to
participate in the negotiations for the settlement thereof. Tenant may retain
attorneys for such purposes. If Landlord agrees to a settlement or compromise of
a claim with respect to which Tenant has agreed to indemnify Landlord under this
Article 19, which settlement would require Tenant to suffer any loss, damage or
injury, without Tenant's specific prior written consent to and approval of such
settlement or compromise, Tenant shall be released from its indemnity obligation
with respect to such claim.
ARTICLE 20
SURRENDER OF THE PREMISES
Section 20.01. Upon the expiration of the Term or other termination of
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this lease for any cause whatsoever, Tenant shall peacefully vacate the Premises
in as good order and condition as the same were at the beginning of the Term or
may thereafter have been improved by Landlord or Tenant, reasonable use and wear
thereof and damage to the Premises or the leasehold improvements by fire or
other casualty or condemnation only excepted, provided that at Tenant's election
and at Tenant's cost and expense, Tenant may remove any decorative
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improvements (such as chandeliers, built-in cabinets, etc.) installed by Tenant
in the Premises and Tenant shall repair any damage caused by such removal.
Should Tenant continue to hold the Premises after the termination of this lease,
whether the termination occurs by lapse of time or otherwise, such holding over,
unless otherwise agreed to by Landlord in writing, shall constitute and be
construed as a tenancy at will at a daily Rental equal to one-thirtieth (1/30)
of an amount equal to the monthly Fair Market Value Rate (as defined in Article
32) for the first thirty (30) days, and from and after thirty (30) days after
this lease has been terminated, at a daily Rental equal to 1/30th of an amount
equal to two times the monthly Fair Market Value Rate (as defined in Article
32), in each case, times the number of square feet of Rentable Area in the
Premises as of the date of termination and subject to all of the other terms set
forth herein except any right to renew this lease, but the foregoing shall not
constitute a consent by Landlord to such holding over and shall not prevent
Landlord from exercising any of its remedies under this lease or applicable law
by reason of such holding over. Tenant shall be liable to Landlord for all
damage which Landlord suffers because of any holding over by Tenant, and Tenant
shall indemnify Landlord against all claims made by any other tenant or
prospective tenant against Landlord resulting from delay by Landlord in
delivering possession of the Premises to such other tenant or prospective
tenant.
Section 20.02.
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(a) Tenant shall remove, at Tenant's expense, all of its
furniture, furnishings, personal property, and movable trade fixtures by the
Expiration Date, and shall promptly repair all damage done to the Premises or
the Building by such removal. Any items not so removed at the later of the
Expiration Date or the expiration of any period during which Tenant holds over
in the possession of the Premises as described in Section 20.01, shall be deemed
abandoned and shall thereupon become the property of Landlord.
(b) Except as provided in Section 20.02(a) and Section 20.01,
Tenant shall not remove any alteration made by Tenant or any of the leasehold
improvements in the Premises at the expiration of the Term without Landlord's
consent.
ARTICLE 21
ESTOPPEL CERTIFICATES
Tenant agrees to furnish no later than fifteen (15) days after a request
therefor by Landlord, any ground lessor, or the holder of any deed of trust or
mortgage covering the Building, the Land, or any interest of Landlord therein or
any purchaser of Landlord's interest, a certificate signed by Tenant certifying
(to the extent same is true) that this lease is in full force and effect and
unmodified; that the Term has commenced and the full Rental is then accruing
hereunder; that Tenant has accepted possession of the Premises and that any
improvements required by the terms of this lease to be made by Landlord have
been completed to the satisfaction of Tenant; that no Rental under this lease
has been paid more than thirty (30) days in advance of its due date; that the
address for notices to be sent to Tenant is as set forth in this lease (or has
been changed by notice duly given and is as set forth in the certificate); that
Tenant, as of the date of such certificate, has no knowledge of any charge,
lien, or claim of offset under this lease or otherwise against Rentals or other
charges due or to become due hereunder; that
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Tenant has no knowledge of any default by Landlord then existing under this
lease; and such other matters as may be reasonably requested by Landlord or any
such ground lessor, holder of such deed of trust or mortgage or purchaser. If
Tenant is unable to so certify as to one or more of the foregoing items, Tenant
shall specify its reason therefor in writing. Any such certificate may be relied
upon by any prospective purchaser, ground lessor, mortgagee, or any beneficiary
under any deed of trust on the Building or the Land or any part thereof.
Landlord agrees to furnish periodically, when reasonably requested in writing by
Tenant, certificates signed by Landlord containing substantially the same
information as described above.
ARTICLE 22
SUBORDINATION
Section 22.01. Landlord warrants and represents that there is no deed
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of trust or mortgage in existence as of the date hereof covering or burdening
the Building and/or the Land. This lease shall be subject and subordinate to any
future first deeds of trust, first mortgages or other first security instruments
(collectively, "Superior Instruments") which may from time to time during the
Term cover the Building and/or the Land, or any interest of Landlord therein,
and to any advances made on the security thereof, and to any refinancings,
increases, renewals, modifications, consolidations, replacements, and extensions
of any such future Superior Instruments, provided that the holder of any such
Superior Instrument has executed, acknowledged and delivered a non-disturbance
agreement whereby such holder agrees not to diminish or interfere with Tenant's
possession of the Premises nor to disturb Tenant's occupancy of the Premises
except in accordance with Article 23 hereof. Upon execution and delivery of such
non-disturbance agreement, this Section 22.01 shall be self-operative and no
further instrument shall be required to effect such subordination of this lease.
Upon demand, however, Tenant shall execute, acknowledge, and deliver to Landlord
any further instruments and certificates evidencing such subordination as
Landlord or the holder of any Superior Instrument may reasonably request, and
Tenant hereby irrevocably appoints Landlord as Tenant's agent and attorney-in-
fact, for the purpose of executing, acknowledging, and delivering any such
instruments and certificates.
Section 22.02. Notwithstanding the generality or the foregoing
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provisions of Section 22.01 hereof, any holder of a Superior Instrument shall
have the right, unilaterally, at any time, to subordinate fully or partially any
such Superior Instrument to this lease. Upon request, Tenant shall execute an
instrument confirming any such full or partial subordination by any holder of a
Superior Instrument. At any time, before or after the institution of any
proceedings for the foreclosure of any Superior Instrument, or sale of the
Building and/or under any Superior Instrument, or upon the termination of any
ground lease, Tenant shall attorn to such purchaser upon any such sale or the
grantee under any deed in lieu of such foreclosure or to any ground lessor in
the event of a termination of a ground lease, as the case may be, and shall
recognize such ground purchaser, grantee or ground lessor, as the case may be,
as Landlord under this lease. Tenant hereby waives the right, if any, to elect
to terminate this lease or to surrender possession of the Premises in the event
of the judicial or non-judicial foreclosure of any deed of trust, mortgage, or
security agreement (or any transfer in lieu thereof) or termination of a ground
lease, subject to Tenant's right to terminate this lease under any provision of
any other Article
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hereof upon the terms, conditions and contingencies therein provided. The
foregoing agreement of Tenant to attorn shall survive any such foreclosure sale,
trustee's sale, or conveyance in lieu thereof, or termination of a ground lease.
Tenant shall, upon demand at any time, before or after any such foreclosure
sale, trustee's sale, or conveyance in lieu thereof, or termination of a ground
lease, execute, acknowledge, and deliver to Landlord's mortgagee or any
successor thereof or any then owner of the Building or to the ground lessor (as
the case may be), any written instruments and certificates evidencing such
attornment as such mortgagee, successor, owner or ground lessor may reasonably
require, and Tenant hereby irrevocably appoints Landlord's mortgagee or ground
lessor (as the case may be) as Tenant's agent and attorney-in-fact for the
purpose of executing, acknowledging, and delivering any such instruments and
certificates.
Section 22.03. Should any ground lease be terminated, or any deed of
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trust, mortgage, or security instrument be foreclosed, the liability of the
ground lessor, mortgagee, trustee, or purchaser, as the case may be, as
"Landlord" hereunder, shall exist only with respect to the acts or omissions of
such person or entity occurring while it was the owner of the Land and/or
Building. Further, Tenant agrees that any such ground lessor, mortgagee,
trustee, or purchaser shall not be liable for (i) any Rental paid more than
thirty (30) days in advance of its due date (other than the one monthly
installment of Annual Rental paid in advance incident to the execution of this
lease); (ii) any amendment or modification of this lease without the prior
written approval of such ground lessor, mortgagee, trustee, or purchaser (but
only if Tenant had been notified in writing of the existence of the ground
lease, mortgage, deed of trust or sale, as the case may be, prior to the making
of such amendment or modification of this lease); or (iii) any default by or any
claim against any prior Landlord; provided that nothing in this Section is
intended or shall be construed to waive any right of Tenant to terminate this
lease by reason of a default by such prior Landlord in accordance with Section
25.05, or to cure any default by such prior Landlord and deduct the cost thereof
from Rental accruing hereunder in accordance with Section 25.05, either prior to
or after termination of such ground lease or foreclosure of such deed of trust,
mortgage or security instrument.
ARTICLE 23
DEFAULT AND REMEDIES
Section 23.01. The occurrence of any one or more of the following
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events shall constitute an event of default under this lease: (a) if Tenant
shall fail to pay any Rental or other sums payable by Tenant hereunder as and
when such Rental or other sums become due and payable and such failure shall
continue for more than five (5) days after notice; (b) if Tenant shall fail to
perform or observe any covenant or obligation hereunder or any of the Rules and
Regulations and such failure shall continue for more than ten (10) days after
notice; or, if such failure cannot be corrected within such ten- (10) day
period, if Tenant does not commence to correct same within said ten- (10) day
period and thereafter diligently prosecute the correction of same to completion;
(c) if any petition is filed by or against Tenant under any section or chapter
of the present, or any future Federal Bankruptcy Code or under any similar law
or statute of the United States or any state thereof (which, in the case of an
involuntary proceeding, is not permanently discharged, dismissed, stayed, or
vacated, as the case may be, within sixty (60) days of its commencement), or if
any order for relief shall be entered against Tenant or any guarantor of
Tenant's obligations under this lease in proceedings filed under any section or
chapter of the
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present or any future Federal Bankruptcy Code or under any similar law or
statute of the United States or any state thereof; (d) if Tenant becomes
insolvent or makes a transfer in fraud of creditors; (e) if Tenant makes an
assignment for the benefit of creditors; (f) if a receiver, custodian, or
trustee is appointed for Tenant or for any of the assets of Tenant, which
appointment is not vacated within sixty (60) days of the date of such
appointment or (g) if Tenant shall fail to pay to Landlord when due any Rental
becoming payable hereunder (without regard to any grace period otherwise allowed
by this Section 23.01) during any twelve- (12) month period during the Term
after Landlord has given Tenant written notice of failure to pay other
installments or amounts of Rental when due (prior to making of such payment by
Tenant) on at least two (2) prior separate occasions during such twelve- (12)
month period.
Section 23.02. If an event of default occurs, then at any time
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thereafter while Tenant remains in default, Landlord may do any one or more of
the following:
(a) Terminate this lease on three (3) days notice to Tenant, in
which event Tenant shall immediately surrender the Premises to Landlord. If
Tenant fails to do so, Landlord may, without notice and without prejudice to any
other remedy Landlord may have, enter upon and take possession of the Premises
and expel or remove Tenant and its effects without being liable to prosecution
or any claim for damages therefor; and Tenant shall indemnify Landlord for all
loss and damage which Landlord may suffer by reason of such termination, whether
through inability to relet the Premises or otherwise, including any loss of
Rental for the remainder of the Term. In the event of such termination, Landlord
shall exercise reasonable diligence and effort to relet the Premises for the
remainder of the Term.
(b) Enter upon and take possession of the Premises as Tenant's
agent, terminating this lease and without being liable to prosecution or any
claim for damages therefor, and Landlord may relet the Premises as Tenant's
agent and receive the Rental therefor, in which event Tenant shall pay to
Landlord on demand any and all costs of releasing, renovating, repairing, and
altering the Premises (including but not limited to advertising costs,
commissions, finders fees and other similar costs) for a new tenant or tenants
and any deficiency that may arise by reason of such reletting.
(c) Do whatever Tenant is obligated to do under this lease and
enter the Premises without, being liable to prosecution or any claim for damages
therefor to accomplish this purpose. Tenant shall reimburse Landlord immediately
upon demand for any expenses which Landlord incurs in thus effecting compliance
with this lease on Tenant's behalf, and Landlord shall not be liable for any
damages suffered by Tenant from such action, whether caused by the negligence of
Landlord or otherwise.
Section 23.03. No act or thing done by Landlord or its agents during
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the Term shall constitute an acceptance of an attempted surrender of the
Premises, and no agreement to accept a surrender of the Premises shall be valid
unless made in writing and signed by Landlord. No re-entry or taking possession
of the Premises by Landlord shall constitute an election by Landlord to
terminate this lease, unless a written notice of such intention is given to
Tenant. Notwithstanding any such reletting or re-entry or taking possession,
Landlord may at any time thereafter terminate this lease for a previous default.
Landlord's acceptance of Rental following an event of default hereunder shall
not be construed as a waiver of such event of default. No
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waiver by Landlord of any breach of this lease shall constitute a waiver of any
other violation or breach of any of the terms hereof. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon a breach hereof shall
not constitute a waiver of any other breach of the lease.
Section 23.04. No provision of this lease shall be deemed to have been
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waived by Landlord or Tenant unless such waiver is in writing and signed by such
party. Nor shall any custom or practice which may evolve between the parties in
the administration of the terms of this lease be construed to waive or lessen
Landlord's or Tenant's right to insist upon strict performance of the terms of
this lease. The rights granted to Landlord and Tenant in this lease shall be
cumulative of every other right or remedy which Landlord or Tenant may otherwise
have at law or in equity or by statute, and the exercise of one or more rights
or remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
ARTICLE 24
WAIVER BY TENANT
To the extent permitted by applicable law, Tenant waives for itself and all
claiming by, through, and under it, including creditors of all kinds, any right
and privilege which it or any of them may have under any present or future
constitution, statute, or rule of law to redeem the Premises or to have a
continuance of this lease for the Term after termination of Tenant's right of
occupancy by order or judgment of any court or by any legal process or writ,
under the terms of this lease, or after the termination of the Term as herein
provided.
ARTICLE 25
ADDITIONAL COVENANTS AND AGREEMENTS
Section 25.01. The Land is covered by a Lease Agreement dated June 8,
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1982, between The Government of the United States, as "Lessor," and Landlord
herein, as "Lessee," as amended by a First Amendment to Lease Agreement dated
February 22, 1985, between such "Lessor" and "Lessee" (said Lease Agreement as
thus amended being herein called the "Ground Lease"). Landlord warrants and
represents that the Ground Lease is in full force and effect, that no default or
condition or circumstance which by the giving of notice and expiration of time
without cure would constitute a default by the "Lessee" under the terms of the
Ground Lease exists, and that Landlord as "Lessee" under the Ground Lease has
fully performed all obligations, duties and agreements of the "Lessee" which
have accrued or are required to be performed to date under the terms of the
Ground Lease.
Section 25.02. [INTENTIONALLY DELETED)
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Section 25.03. Landlord agrees to endeavor in good faith to obtain,
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and to deliver to Tenant, an executed, acknowledged nondisturbance agreement
from the "Lessor" under the Ground Lease, whereby such "Lessor" agrees not to
diminish or interfere with Tenant's possession of the Premises, for any reason
during the Term, unless and until this lease shall be terminated under the
provisions hereof for default by Tenant, provided, however, that if Landlord
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is unable to obtain such nondisturbance agreement, this lease shall continue in
full force and effect, and the rights and obligations hereunder shall not be
affected.
Section 25.04. If a nondisturbance agreement from the "Lessor" under
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the Ground Lease as described in Section 25.03 is not obtained and furnished to
Tenant then (a) Landlord covenants and agrees that it will at all times during
the Term comply with and perform all obligations, duties and agreements of the
"Lessee" under and in connection with the Ground Lease and will maintain such
Ground Lease in full force and effect throughout the Term hereof, at Landlord's
cost and expense; (b) Landlord agrees to indemnify and save and hold Tenant
harmless from any loss, cost, expense, claim or liability whatsoever (including,
but without limitation, indirect and consequential damages, if any) which may be
suffered or incurred by Tenant as a result of any failure by Landlord to comply
with or perform its covenants and agreements under the provisions of clause (a)
of this Section 25.04; and (c) notwithstanding anything herein contained to the
contrary, Tenant shall have no obligation to attorn to the Ground Lessor in the
event the Ground Lease shall be terminated and the provisions of Section 22.02
of this Lease requiring Tenant to attorn to the Ground Lessor under the Ground
Lease and all references in Section 22.02 and 22.03 to the Ground Lessor and the
Ground Lease shall be deleted therefrom and shall be of no force or effect
whatsoever.
Section 25.05. If at any time or times Landlord shall be in default in
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the performance or observance of any of its covenants, agreements or
undertakings in this lease, and a court of competent jurisdiction has entered a
final judgment or decree not subject to appeal declaring Landlord to have
defaulted in the performance of its covenants, agreements or undertakings
hereunder, and if Landlord shall not cure or remedy such default as specified in
the final judgment or decree within thirty (30) days after the final judgment or
decree has been issued by the court and actually received by Landlord, or, if
such default as specified cannot reasonably be cured and remedied within thirty
(30) days, if Landlord shall not commence in good faith to cure and remedy such
default within thirty (30) days after the final judgment or decree has been
issued by the court and actually received by Landlord and continue with due
diligence until such default is cured and remedied, then, in addition to any
other rights or remedies that may be available to Tenant in law or equity:
(a) Tenant may terminate this lease by giving written notice of
termination to Landlord at any time thereafter and prior to the time when such
default is fully cured and remedied, in which event the Term of this lease will
end on the date specified in Tenant's notice of termination as if such date were
the date originally defined herein as the Expiration Date; or
(b) Tenant may, but shall not be obligated to, take such action
as in Tenant's good faith judgment is reasonably appropriate to cure and remedy
such default by Landlord, and Landlord shall, within ten (10) days after receipt
of demand therefor, pay to Tenant an amount equal to all reasonable costs and
expenses incurred by Tenant in so curing and remedying such default, failing
which Tenant shall be entitled to deduct and withhold the amount of such costs
and expenses, with interest thereon at the Prime Rate per annum from the date of
demand, from the next ensuing installments and payments of Rental becoming due
under this lease and shall not be in default hereunder for so doing. Tenant
shall have no liability for any action or omission taken or omitted in good
faith in connection with curing or remedying any default by Landlord pursuant to
this subsection 25.05(b); and Tenant's action in commencing to effect a
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cure or remedy with respect to a default by Landlord pursuant to this subsection
25.05(b) shall not waive Tenant's continuing right, at its election, to
terminate this lease for such default pursuant to subsection 25.05(a) above at
any time before such default is fully cured and remedied.
Section 25.06. By Executive Order 11966 dated January 19, 1977,
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Landlord has been designated as a public international organization entitled to
enjoy the privileges, exemptions and immunities conferred by the International
Organizations Immunities Act (22 U.S.C. (S) 288). As authorized by 22 U.S.C.
288a(b), and as a material and essential consideration and inducement for Tenant
to enter into this lease, Landlord hereby expressly waives the immunity of
Landlord and its property and assets, wherever located, and by whomever held
(other than the INTELSAT Space Segment [the "Space Segment"] as described in
Article I(i) of that certain Agreement Relating to the International
Telecommunications Satellite Organization ["INTELSAT"] done at Washington, D.C.
August 420, 1971, and entered into force February 12, 1973), from suit and any
form of judicial process conferred Act or which by said International
Organizations Immunities Act or which might otherwise exist under international
law or otherwise, with respect to any claim, (a "Subject Claim") of Tenant or
its successors or assigns arising under or in connection with this lease or in
connection with any dispute hereunder or by virtue of any default by Landlord
under this lease or any failure or refusal by Landlord to perform or observe any
of its covenants, agreements, undertakings or duties hereunder; and in this
regard Landlord expressly agrees that any United States District Court in the
District of Columbia shall have jurisdiction to entertain suits for and hear and
render judgment on and with respect to any Subject Claim, that service upon
Landlord in any such suit may be effected by service upon the Director General
or acting Director General of Landlord (or their successors in office) in a
manner consistent with the Federal Rules of Civil Procedure. If Tenant after
using reasonable efforts is unable to effect service upon the Director General
or acting Director General (or their successors in office) as provided above,
Tenant may notify Landlord of such inability which notice shall contain a copy
of the complaint or other process or material sought to be served, and five (5)
days after such notice has been delivered to Landlord, Tenant may effect service
upon any officer or executive of Landlord or in any other manner provided in the
Federal Rules of Civil Procedure for effecting service upon a Corporation
organized under the laws of a state of the United States of America. Execution
or any other process provided for by law of the Federal Rules of Civil Procedure
may be levied and enforced upon and against any property or assets of Landlord,
wherever located, and by whomever held other than any part of the Space Segment,
for satisfaction of any final judgment against Landlord rendered in any suit on
or with respect to a Subject Claim.
ARTICLE 26
VAN PARKING FACILITY
Tenant shall have the right to have constructed a parking facility to allow
Tenant to park five (5) vans located adjacent to the ramp leading into the
Building parking garage in the area described in Exhibit H as hereinafter
provided. Tenant shall submit to Landlord preliminary plans and specifications
for such facility for Landlord's approval, such approval not to be unreasonably
withheld. If Landlord approves the preliminary plans and specifications, and
provided Tenant receives the approval of any necessary governmental authority,
Landlord shall
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prepare final plans and specifications consistent with such approved preliminary
plans and specifications, and shall construct such additional parking facility
substantially in accordance with such final plans and specifications. Landlord
shall pay that part of the cost of constructing such additional parking facility
equal to the lesser of (i) 50% of such costs or (ii) Twenty-Five Thousand
Dollars ($25,000.00) and Tenant shall pay the remainder of such costs. During
the Term, Tenant shall maintain and repair the additional parking facility at
Tenant's sole cost and expense, provided, however, that Landlord shall be
responsible for all structural repairs which may be required.
ARTICLE 27
ATTORNEYS' FEES AND LEGAL EXPENSES
In any action or proceeding brought by either party against the other under
this lease, the prevailing party shall be entitled to recover from the other
party reasonable attorneys' fees, investigation costs, and other reasonable
legal expenses and court costs incurred by such party in such action or
proceeding.
ARTICLE 28
NOTICES
Section 28.01. Any notice or demand, consent, approval or disapproval,
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or statement (collectively called "Notices") required or permitted to be given
by the terms and provisions of this lease, or by any law or governmental
regulation, shall be in writing (unless otherwise specified herein) and unless
otherwise required by such law or regulation, shall be personally delivered or
sent by United States mail postage prepaid as registered or certified mail,
return receipt requested. Any Notice shall be addressed to Landlord or Tenant,
as applicable, at its address specified in the Basic Lease Information as said
address may be changed from time to time as hereinafter provided. By giving the
other party at least ten (10) days' prior written notice, either party may, by
Notice given as above provided, designate a different address or addresses for
Notices.
Section 28.02. Any Notice shall be deemed given as of the date of
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delivery as indicated by affidavit in case of personal delivery or by the return
receipt in the case of mailing; and in the event of failure to deliver by reason
of changed address of which no Notice was given or refusal to accept delivery,
as of the date of such failure as indicated by affidavit or on the return
receipt or by notice of postal service, as the case may be.
ARTICLE 29
PARKING
Section 29.01. Landlord shall provide or require that any garage
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operator shall offer to Tenant up to the sum of (i) fifty (50) plus (ii) one (1)
for each additional 1,300 square feet of Rentable Area of the Premises above
73,153 square feet, monthly parking contracts to park an automobile ("Parking
Rights") in the Building garage. Parking Rights shall be on a self-park or
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attendant parking basis, as determined by the garage operator (whether Landlord
or a third party).
Section 29.02. The monthly parking rate for Parking Rights shall be
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the prevailing rate charged from time to time by the garage operator for similar
monthly parking contracts. Except as otherwise provided herein, contracts for
the Parking Rights shall be with the garage operator and shall contain the same
terms as are usually contained in contracts with other customers of the garage
operator.
Section 29.03. If Tenant does not contract for the maximum number of
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Parking Rights so allocated to it within ninety (90) days after the Commencement
Date, then Tenant's rights to the unused Parking Rights shall expire. However,
in the event there are Parking Rights available not needed by Landlord or any
tenant in the Building, Tenant shall have the right to contract for such Rights
until such time as Landlord requests that Tenant give up such Rights to permit
their use by Landlord or another tenant of the Building. It is, however,
expressly agreed that if the garage operator is Landlord or Landlord's
Affiliate, the monthly parking rate for Parking Rights shall not exceed the
prevailing monthly parking rates in the general area of the Building for
comparable parking facilities; and the terms of the contracts for the Parking
Rights shall be reasonable and not more onerous from the customer's standpoint
than terms customarily contained in monthly parking contracts of other garage
operators in the area of the Building with respect to comparable parking
facilities.
Section 29.04. If all or any portion of the parking facilities in the
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Building shall be damaged or rendered unusable by fire or other casualty or any
taking pursuant to eminent domain proceeding (or deed in lieu, thereof), and as
a result thereof Landlord or the garage operator is unable to make available to
Tenant the parking provided for herein, then the number of cars which Tenant
shall be entitled to park hereunder shall be proportionately reduced so that the
number of cars which Tenant may park in the parking garage after the casualty or
condemnation in question shall bear the same ratio to the total number of cars
which can be parked in the parking garage at such time as the number of cars
Tenant had the right to park in the parking garage prior cars to such casualty
or condemnation bore to the aggregate number of cars which could be parked
therein at that time.
ARTICLE 30
ROOF ANTENNA AND SATELLITE DISH INSTALLATION
Section 30.01. Tenant shall have the right to install at its sole cost
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and expense microwave and satellite dish systems (the "Communication Systems")
on the roof of the Building and/or the Land, in accordance with the
specifications (the "Communication Systems Specifications") attached hereto as
Exhibit K and at locations shown on Exhibit K, subject to obtaining all
necessary governmental approvals and permits related thereto. In the event that
the Tenant obtains all necessary governmental approvals and permits for the
installation of the Communication Systems, Tenant may then proceed to install
the Communication Systems, at Tenant's expense, in strict compliance with the
specifications previously provided to Landlord and all applicable governmental
requirements. Tenant acknowledges that it has received a copy of the letter from
Landlord to Tenant regarding U.S. Department of State approval of the
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Communication Systems, which is attached hereto as Exhibit I. The parties agree
that Landlord shall not make any use whatsoever of the Communications Systems of
Tenant.
Section 30.02. During the Term, Tenant, at its sole cost and expense
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shall maintain and repair the Communication Systems, and, if necessary, shall
install shielding material to protect Landlord's antennas and other technical
facilities now or hereafter installed by Landlord. The Communication Systems
shall be covered by Tenant's All-Risk insurance in accordance with Section
15.01(a). Tenant hereby agrees to indemnify and hold Landlord harmless from and
against any loss or injury of any kind or nature whatsoever arising out of the
installation or operation of the Communication Systems, and any damage to the
Building or the Land caused by such Communication Systems or as a result of such
Communication Systems or any casualty thereto shall be repaired by Tenant at
Tenant's expense.
Section 30.03. Landlord shall not install or permit the installation
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of any other antenna on the INTELSAT Headquarters Building and/or the Land, or
any building thereon, that would interfere with Tenant's reception or broadcast
capabilities under the Communication System Specifications.
ARTICLE 31
MEMORANDUM OF LEASE
Section 31.01. Landlord shall, at the request of Tenant, execute,
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acknowledge and deliver to Tenant a memorandum of this lease (a "Lease
Memorandum") in recordable form setting forth the date of this lease, the names
of the parties hereto, the Commencement Date and the Expiration Date and
describing the Premises, Tenant's rights to renew this lease and the Land. Said
Lease Memorandum shall not in any circumstances be deemed to modify or to change
any of the provisions of this lease. Tenant may elect, at its sole expense, to
record said Lease Memorandum.
Section 31.02. In event that Landlord executes said Lease Memorandum,
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Tenant shall after the expiration or termination of the Term, at the request of
Landlord, execute, acknowledge and deliver to Landlord a memorandum in
recordable form evidencing the expiration or termination of this lease. Landlord
may elect, at its sole expense, to record said memorandum.
ARTICLE 32
RENEWAL OPTIONS
Section 32.01. Tenant shall have and is hereby granted one (1) option
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to renew or extend the Term for an additional period of five (5) years (the
"Renewal Period"). Subject to the provisions of Section 32.03, the renewal
option shall be exercisable by Tenant by giving written notice of the exercise
of such renewal option to Landlord at least one (1) year prior to the expiration
of the initial Term. In the event that Tenant exercises the option to renew this
lease in accordance with the provisions hereof, then the Term shall be extended
accordingly. Except as otherwise expressly provided herein, the Renewal Period
shall be upon the same terms, covenants and conditions as set forth herein with
respect to the immediately preceding portion of
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the Term. All references in this lease to the Term shall be construed to mean
the initial Term and the Renewal Period, (and if applicable the Contingent,
Renewal Periods as hereinafter defined) unless the context clearly indicates
that another meaning is intended. For purposes of this lease, no distinction is
made between the terms "extend" and "renew," or any variations thereof.
Section 32.02.
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(a) If Tenant notifies Landlord in writing on or before the
date which is thirty (30) days after the date of execution of this lease that
Tenant elects to exercise its renewal option, the Annual Rental during the
Renewal Period shall equal [redacted text] multiplied by the Rentable Area of
the Premises and there shall be no change in the amount of the Basic Costs Base
Amount.
(b) If Tenant notifies Landlord in writing after the date which
is thirty (30) days after the date of execution of this lease but before the
date that is one (1) year prior to the expiration of the initial Term, that
Tenant elects to exercise its renewal option, the Annual Rental for the Premises
payable pursuant to Section 5.01 for each Lease Year during the Renewal Period
shall equal the greater of (i) the sum of (A) [redacted text] multiplied by the
Rentable Area of the Premises plus (B) an amount per square foot of Rentable
Area equal to fifty percent (50%) of the annualized amount of Tenant's
Proportionate Share of Basic Costs Excess for the Fiscal Year ending during the
Lease Year immediately preceding the Renewal Period divided by the number of
square feet of Rentable Area in the Premises during such preceding Lease Year,
or (ii) ninety-five percent (95%) of the Fair Market Value Rate (as defined
below) of the Premises as of the commencement of the Renewal Period multiplied
by the Rentable Area of the Premises, increased during the second and each
succeeding Lease Year of the Renewal Period by the Market Escalation Factor (as
defined below). In the event Annual Rental during the Renewal Period is
determined pursuant to this Section 32.02(b), the Basic Costs Base Amount for
purposes of calculating Basic Costs Excess shall equal the Basic Costs for the
Fiscal Year ending during the Lease Year immediately preceding the Renewal
Period. For purposes of the preceding sentence, and for purposes of all other
determinations of the Fair Market Value Rate pursuant to this lease, the
applicable percentage of the "Fair Market Value Rate" shall be increased each
Lease Year by whatever periodic adjustment or factor ("Market Escalation
Factor"), CPI or otherwise, that would be agreed upon between a landlord and a
tenant entering into a new lease in a comparable building, assuming the same
assumptions set forth in 32.04. The Market Escalation Factor shall be determined
in the same manner and at the same time as the Fair Market Value Rate as
provided in Sections 32.02(b) and 32.04; provided, however, that the Market
Escalation Factor shall not be less than thirty percent (30%) of the CPI
adjustment (or other similar adjustment factor that may be applicable).
(c) If Tenant exercises its renewal option after the date which
is thirty (30) days after the date of execution of this lease, within sixty (60)
days after Landlord has received Tenant's notice of election to extend the Term,
Landlord shall send to Tenant a written notice specifying the Fair Market Value
Rate and Market Escalation Factor as determined by Landlord in accordance with
Section 32.04, provided, however, that in no event shall Landlord be required to
specify its determination of the Fair Market Value Rate and Market Escalation
Factor prior to the date which is one (1) year before the expiration of the
Term. Within fifteen (15) days after receipt of such notice from Landlord,
Tenant shall send Landlord a written notice of Tenant's acceptance or challenge
of Landlord's determination of such Fair Market Value Rate and Market
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Escalation Factor, provided, however, that in the event that Tenant fails to
respond within such fifteen- (15) day period, Tenant shall be deemed to have
accepted Landlord's determination of the Fair Market Value Rate and Market
Escalation Factor. In the event that Tenant challenges Landlord's determination
of the Fair Market Value Rate and Market Escalation Factor and Landlord and
Tenant are not able to agree on such Fair Market Value Rate and Market
Escalation Factor within fifteen (15) days (the "Negotiation Period") after
Tenant notified Landlord of Tenant's initial rejection of Landlord's
determination of such Fair Market Value Rate and Market Escalation Factor, then
Landlord and Tenant shall each, within fifteen (15) days after the expiration of
the Negotiation Period, select an appraiser, each of whom shall be a District of
Columbia-licensed real estate broker or a MAI-certified real estate appraiser
with ten years experience in the District of Columbia office market, who shall
determine the Fair Market Value Rate and Market Escalation Factor in accordance
with Section 32.04. The appraisers shall be instructed to complete the appraisal
procedure and to submit their written determinations to Landlord and Tenant
within thirty (30) days after their meeting. In the event that the determination
of the Fair Market Value Rate or Market Escalation Factor, respectively,
submitted by Landlord's appraiser is less than or equal to one hundred ten
percent (110%) of the determination of the Fair Market Value Rate or Market
Escalation Factor, as applicable, submitted by Tenant's appraiser, said Fair
Market Value Rate or Market Escalation Factor shall be the average of such
determinations. If the determination of the Fair Market Value Rate or Market
Escalation Factor, respectively, submitted by Landlord's appraiser is greater
than one hundred ten percent (110%) of the determination of the Fair Market
Value Rate or Market Escalation Factor, as applicable, submitted by Tenant's
appraiser, the appraisers shall, within ten (20) days, appoint a third appraiser
with similar qualifications to make such determination of Fair Market Value Rate
or Market Escalation Factor (or both, as applicable) in accordance with the
foregoing limitations. In the event that the two appraisers cannot agree as to
the selection of the third appraiser within fifteen (15) days after Landlord and
Tenant are notified of the determination of the appraisers, either party may
request that the President of the Washington Board of Realtors appoint the third
appraiser. The third appraiser shall be instructed to complete the appraisal
procedure and to submit a written determination of the Fair Market Value Rate or
Market Escalation Factor (or both, as applicable) to Landlord and Tenant within
thirty (30) days after such appraiser's appointment. The determination which is
neither the highest nor the lowest of the three determinations of such Fair
Market Value Rate or Market Escalation Factor (or both, as applicable) shall be
binding upon Landlord and Tenant as the Fair Market Value Rate or Market
Escalation Factor (or both, as applicable). Landlord and Tenant shall each bear
the costs of their respective appraisers. The expenses of the third appraiser
shall be borne one-half (1/2) by Landlord and one-half (1/2) by Tenant.
Section 32.03. The renewal option referred to in Section 32.01 above
--------------
(and the renewal options for the Contingent Renewal Periods described below) may
not be exercised by Tenant if, at the time of exercising such option(s), (i)
this lease shall not be in full force and effect or (ii) an event of default (as
defined in Section 23.01) shall have occurred and shall be continuing. If Tenant
shall fail to exercise the renewal option during the time or in the manner
provided in Section 32.01 for the exercise thereof and at a time when Tenant is
not prohibited from exercising such option under the provisions of this Section
32.03, then, and in such event, such renewal option shall be absolutely void and
of no force and effect.
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Section 32.04. For purposes of this lease, the term "Fair Market Value
--------------
Rate" means the fair market rental rate per square foot of Rentable Area of the
Premises that would be agreed upon between a landlord and a tenant entering into
a new lease in a comparable building of comparable age, assuming the following:
(A) the landlord and tenant are typically motivated; (B) the landlord and tenant
are well informed and well advised and each is acting in what it considers its
own best interest; (C) the rental is unaffected by concessions, special
financing amounts and/or terms, or unusual services, fees, costs or credits in
connection with the leasing transaction; (D) the Premises are fit for immediate
occupancy and use "as is" and no work is required to be done by landlord and no
work has been carried out thereon by any prior tenant, its subtenant, or their
predecessors in interest during the term which has diminished the rental value
of the Premises; (E) in the event the Premises have been destroyed or damaged by
fire or other casualty, they have been fully restored; (F) the Premises are to
be let with vacant possession and subject to the provisions of this lease for a
five-year term (taking into account the provisions of this lease, including
without limitation Article 6 and Section 8.01 hereof); and (C) market rents then
being charged for comparable space in other similar office buildings in
comparable locations in Washington, D.C.; and (H) the rental determined as the
fair market rental rate as of the commencement of the term of the subject lease
will be subject to being increased during the second and each succeeding year of
the five- (5) year term of the lease by application of the Market Escalation
Factor described below. Likewise, for purposes of this lease, the term "Market
Escalation Factor" shall mean whatever periodic adjustment or factor (Consumer
Price Index ["CPI"] or otherwise) that would be agreed upon by a landlord and a
tenant entering into a new lease in a comparable building of comparable age,
assuming the same assumptions set forth in clauses (A), (B), (C), (D), (E), (F)
and (G) of the first sentence of this Section; provided, however, that the
Market Escalation Factor shall not be less than thirty percent (30%) of the CPI
adjustment (or other similar adjustment factor that may be applicable).
Section 32.05.
--------------
(a) Provided Tenant has exercise its renewal option and is then
occupying at least seventy-five percent (75%) of the Premises, Landlord shall
notify Tenant on or before the expiration of the twelfth (12th) Lease Year of
the Renewal Period whether Landlord will grant to Tenant three (3) additional
successive options to renew or extend the Term for additional periods of five
(5) years each (the "Contingent Renewal Periods"). In the event Landlord's
notice states that no additional renewal periods will be available, then the
Annual Rental during the last seven and one-half months of the Renewal Period
shall be abated. If Landlord's notice states that Tenant may elect to extend the
Term for the Contingent Renewal Periods, there shall be no such Rental
abatement; and subject to the provisions of Section 32.03, each such renewal
option shall be exercisable by Tenant by giving written notice of the exercise
of such renewal option to Landlord at least one (1) year prior to the expiration
of the Renewal Period in the case of the first such renewal option, and in the
case of the second and third such renewal options, before the expiration of the
immediately preceding Contingent Renewal Period. Except as otherwise expressly
provided herein, each Contingent Renewal Period shall be upon the same terms,
covenants and conditions as set forth herein with respect to the immediately
preceding portion of the Term.
(b) The Annual Rental for the Premises payable pursuant to
Section 5.01 for each Lease Year during the first Contingent Renewal Period
shall be equal to the total of (i) the
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Annual Rental payable by Tenant during the Lease Year immediately preceding such
Contingent Renewal Period divided by the number of square feet of Rentable Area
in the Premises during such preceding Lease Year, multiplied by the number of
square feet of Rentable Area in the Premises during the applicable Lease Year of
the first Contingent Renewal Period, plus (ii) [redacted text] multiplied by the
number of square feet of Rentable Area in the Premises during the applicable
Lease Year of the first Contingent Renewal Period. The Annual Rental for each
Lease Year during the second Contingent Renewal Period shall equal the greater
of (i) the sum of (A) the Annual Rental payable by Tenant during the Lease Year
immediately preceding such second Contingent Renewal Period plus (B) fifty
percent of Tenant's Proportionate Share of Basic Costs Excess payable by Tenant
during the Lease Year immediately preceding such second Contingent Renewal
Period, divided by the number of square feet of Rentable Area in the Premises
during such preceding Lease Year, multiplied by the number of square feet of
Rentable Area in the Premises during the applicable Lease Year of the second
Contingent Renewal Period, or (ii) ninety-five percent (95%) of the Fair Market
Value Rate of the Premises as of the commencement of the second Contingent
Renewal Period multiplied by the Rentable Area of the Premises; increased during
the second and each succeeding Lease Year of the second Contingent Renewal
Period by the Market Escalation Factor. The Annual Rental during the third
Contingent Renewal Period shall equal the greater of (i) the sum of (A) the
Annual Rental Payable by Tenant during the Lease Year immediately preceding such
third Contingent Renewal Period plus (B) fifty percent (50%) of Tenant's
Proportionate Share of Basic Costs Excess payable by Tenant during the Lease
Year immediately preceding such third Contingent Renewal Period, divided by the
number of square feet of Rentable Area in the Premises during such preceding
Lease Year, multiplied by the number of square feet of Rentable Area in the
Premises during the applicable Lease Year of the Third Contingent Renewal
Period, or (ii) ninety-five percent (95%) of the Fair Market Value Rate of the
Premises as of the commencement of the third Contingent Renewal Period
multiplied by the, Rentable Area of the Premises, increased during the second
and each succeeding Lease Year of the third Contingent Renewal Period by the
Market Escalation Factor. The Basic Cost Base Amount for purposes of calculating
Basic Costs Excess for the First Contingent Renewal Period shall be equal to the
Basic Cost Base Amount for the initial Renewal Period. The Basic Costs Base
Amount for purposes of calculating Basic Costs Excess during the second or third
Contingent Renewal Period shall be equal to the Basic Costs for the Fiscal year
ending during the Lease Year immediately preceding such particular Contingent
Renewal Period.
(c) In the case of the second and third Contingent Renewal
Periods, Landlord shall within sixty (60) days after Landlord has received
Tenant's notice of election to extend the Term, send to Tenant a written notice
specifying the Fair Market Value Rate as determined in accordance with Section
32.04, provided, however, that in no event shall Landlord be required to specify
its determination of the Fair Market Value Rate prior to the date which is one
(1) year before the expiration of the first or second Contingent Renewal Period,
as the case may be. Except where the context indicates otherwise, the provisions
of Sections 32.02, 32.03 and 32.04 shall apply equally to this Section 32.05.
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ARTICLE 33
EXPANSION OPTION
Section 33.01. Subject to the terms and conditions hereinafter set
--------------
forth and provided that the lease is in full force and effect and no event of
default shall have occurred which shall be continuing, Tenant shall have the
option to lease additional space in the Building (the "Expansion Space") as
follows. Tenant shall have the option (the "Expansion Option") to lease the
space on level 6 of Pod P described in Exhibit J hereto as hereinafter provided.
The Expansion Option shall be exercisable by Tenant upon notice to Landlord
given within six (6) months after the date of execution of this lease. If Tenant
so exercises its Expansion Option as herein provided, such space shall be added
to and constitute a part of the premises, and except as expressly otherwise
hereinafter provided, subject to all the terms and conditions of this lease. If
Tenant delivers to Landlord the drawings, plans, specifications, and other
detailed information which Tenant is required to submit to Landlord in
accordance with Article 2.02 of Exhibit C, if applicable, containing all
information required by Landlord to construct the Base Building Work for the
Expansion Space, the Commencement Date, Expiration Date and free rent period as
to the Expansion Space shall be the same as those for the initial Premises. If
such drawings, plans, specifications, and other detailed information for the
Expansion Space are not delivered by the respective dates specified in Article
2.02 of Exhibit C, if applicable, (i) the delivery date by Landlord of the
Expansion Space with the Base Building Work substantially completed shall have
no effect upon the determination of the Commencement Date for the initial
Premises; (ii) the Commencement Date and commencement of the seven-month free-
rent period for the Expansion Space shall be the earlier of (A) seven and one-
half (7 1/2) months after the date on which Landlord delivers the Expansion
Space to Tenant with the Base Building Work substantially completed, (B) the
date of Tenant's occupancy of the Expansion Space for the conduct of its normal
business operations, or (C) fifteen (15) days after (1) Tenant Build-out for the
Expansion Space is substantially completed, and (2) the Communication Systems
have been installed on the Building and Land, so as to permit Tenant to occupy
the Expansion Space (and the initial Premises) and conduct its normal business
operations therein, it being stipulated that Tenant agrees, subject to delay by
force majeure as defined in Section 2.01(b), to exercise reasonable diligence to
complete and install such Tenant Build-out and Communication Systems after
Tenant is afforded access to the Land, Building, Premises and Expansion Space
for such purpose; (iii) delays by Tenant as specified in Articles 6 and 7 of
Exhibit C with respect to the Expansion Space shall operate to accelerate
Tenant's obligation to pay rental for the Expansion Space; and (iv) The
Expiration Date for the Expansion Space shall coincide with the Expiration Date
of the initial Premises.
Section 33.02. Landlord shall construct in the Expansion Space the
--------------
Base Building Work described in Exhibit C-1 and Landlord shall have no
obligation to make any other alterations, decorations, additions or improvements
in or to the Expansion Space.
ARTICLE 34
MISCELLANEOUS
Section 34.01. [INTENTIONALLY DELETED]
--------------
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Section 34.02. Landlord recognizes Shannon & Luchs Company (the
--------------
"Broker") and Julien J. Studley Co., Inc. (the "Co-operating Broker") as the
sole brokers procuring this lease. Landlord shall pay the Broker a commission
therefor pursuant to a separate agreement between the Broker and Landlord, and
the Broker shall pay a portion of such commission to the Co-operating Broker.
Except for the Broker and the Co-operating Broker, Landlord and Tenant each
represent and warrant that it has not entered into any agreement with, nor
otherwise had any dealings with, any other broker or agent in connection with
the negotiation or execution of this lease which could form the basis of any
claim by any such broker or agent for a brokerage fee or commission, finder's
fee, or any other compensation of any kind or nature in connection herewith, and
Landlord and Tenant each agree to indemnify and hold the other harmless from any
costs (including, but not limited to, court costs, investigation costs, and
attorneys' fees), expenses, or liability for commissions or other compensation
claimed by any broker or agent with respect to this lease which arise out of any
agreement or dealings, or alleged agreement or dealings, between such party and
any such agent or broker.
Section 34.03. As used herein, "business days" means Monday through
--------------
Friday (except holidays); "normal business hours" means 8:00 a.m. to 6:00 p.m.
on business days; and "holidays" means those holidays other than Veterans Day
designated as national holidays by the government of the United States and the
Friday following Thanksgiving Day.
Section 34.04. Every agreement contained in this lease is, and shall
--------------
be construed as, a separate and independent agreement. If any term of this lease
or the application thereof to any person or circumstances shall be invalid and
unenforceable, the remainder of this lease, or the application of such term to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected.
Section 34.05. There shall be no merger of this lease or of the
--------------
leasehold estate hereby created with the fee estate in the Premises or any part
thereof by reason of the fact that the same person may acquire or hold, directly
or indirectly, this lease or the leasehold estate hereby created or any interest
in this lease or in such leasehold estate as well as the fee estate in the
Premises or any interest in such fee estate. In the event of a voluntary or
other surrender of this lease, or a mutual cancellation hereof, Landlord may, at
its option, terminate all subleases, or treat such surrender or cancellation as
an assignment of such subleases.
Section 34.06. [Intentionally Deleted].
--------------
Section 34.07. Whenever a period of time is herein prescribed for
--------------
action to be taken by Landlord, Landlord shall not be liable or responsible for,
and there shall be excluded from the computation for any such period of time,
any delays due to "force majeure" as such term is defined in Section 2.01(b)
other than Landlord's obligations with respect to insurance as provided in
Article 15 or Landlord's obligation to make timely payment of all amounts
becoming due from Landlord to Tenant hereunder. Likewise, whenever a period of
time is herein prescribed for action to be taken by Tenant, Tenant shall not be
liable or responsible for, and there shall be excluded from the computation for
any such period of time, any delays due to "force majeure" as such term is
defined in Section 2.01(b), other than Tenant's obligations with respect to
insurance as provided in Article 15, Tenant's obligation to timely pay Rental,
and Tenant's obligation to comply with all time requirements specified in
Exhibit C. In addition, no
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force majeure circumstance shall operate to (i) extend the seven and one-half
(7 1/2) month period contained in clause (i) of Section 2.01(a), or (ii) extend
the date April 1, 1989, or the date April 1, 1990, contained in Section 3.01 or
(iii) extend the ten- (10) day period contained in Section 8.04.
Section 34.08. The article headings contained in this lease are for
--------------
convenience only and shall not enlarge or limit the scope or meaning of the
various and several articles hereof. Words of any gender used in this lease
shall include any other gender, and words in the singular number shall be held
to include the plural, unless the context otherwise requires.
Section 34.09. If there be more than one Tenant, the obligations
--------------
hereunder imposed upon Tenant shall be joint and several, and all agreements and
covenants herein contained shall be binding upon the respective heirs, personal
representatives, successors, and, to the extent permitted under this lease,
assigns of the parties hereto.
Section 34.10. Neither Landlord nor Landlord's agents or brokers have
--------------
made any representations or promises with respect to the Premises or the
Building except as herein expressly set forth and all reliance with respect to
any representations or promises is based solely on those contained herein. No
rights, easements, or licenses are acquired by Tenant under this lease by
implication or otherwise except as expressly set forth in this lease.
Section 34.11. This lease sets forth the entire agreement between the
--------------
parties and cancels all prior negotiations, arrangements, brochures, agreements,
and understandings, if any, between Landlord and Tenant regarding the subject
matter of this lease. No amendment or modification of this lease shall be
binding or valid unless expressed in a writing executed by both parties hereto.
Section 34.12. The submission of this lease to Tenant shall not be
--------------
construed as an offer, nor shall Tenant have any rights with respect thereto
unless Landlord executes a copy of this lease and delivers the same to Tenant.
Section 34.13. Each of the persons executing this lease on behalf of
--------------
Tenant represents and warrants that Tenant has complied with all applicable
laws, rules, and governmental regulations relative to its right to do business
in the District of Columbia, that such entity has the full right and authority
to enter into this lease, and that all persons signing on behalf of the Tenant
were authorized to do so by any and all necessary or appropriate corporate or
partnership actions.
Section 34.14. Each of the persons executing this lease on behalf of
--------------
Landlord and/or the general partner of Landlord represents and warrants that
Landlord has complied with all applicable laws, rules and governmental
regulations relative to its right to do business in the District of Columbia,
that such entity has the full right and authority to enter into this lease, and
that all persons signing on behalf of Landlord were authorized to do so by any
and all necessary or appropriate actions.
Section 34.15. If, in connection with obtaining debt or equity financing
--------------
for the Building (including a sale/ leaseback) any lender, investor or ground
lessor shall request reasonable modifications to this lease as a condition to
such financing, Tenant will consent
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<PAGE>
thereto if in Tenant's sole good faith determination such modifications do not
increase the obligations of Tenant hereunder or adversely affect the leasehold
interest hereby created, Tenant's use and enjoyment of the Premises or any other
right of Tenant granted hereunder.
Section 34.16. This lease shall be governed by and construed under the
--------------
laws of the District of Columbia. Any action brought to enforce or interpret
this lease shall be brought in the court of appropriate jurisdiction in the
District of Columbia. Should any provision of this lease require judicial
interpretation, it is agreed that the court interpreting or considering same
shall not apply the presumption that the terms hereof shall be more strictly
construed against a party by reason of the rule or conclusion that a document
should be construed more strictly against the party who itself or though its
agent prepared the same, it being agreed that all parties hereto have
participated in the preparation of this lease and that legal counsel was
consulted by each party hereto before the execution of this lease.
Section 34.17. Tenant shall not, without the prior written consent of
--------------
Landlord, use the name of the Building for any purpose other than as the address
of the business to be conducted by Tenant in the Premises, nor shall Tenant use
the name of the Building as Tenant's business address after Tenant vacates the
Premises, nor shall Tenant do or permit the doing of anything in connection with
Tenant's business or advertising which in the reasonable judgment of Landlord
may reflect unfavorably on Landlord or the Building or confuse or mislead the
public as to any apparent connection or relationship between Landlord, the
Building, and the Tenant.
Section 34.18. Any elimination or shutting off of light, air, or view
--------------
by any structure which may be erected on lands adjacent to the Building and not
located on the Land shall in no way affect this lease or impose any liability on
Landlord.
Section 34.19. The exhibits referred to in the Basic Lease Information
--------------
are by this reference incorporated fully herein. The term "this lease" shall be
considered to include all such exhibits.
Section 34.20. As provided in Section 1.01, during the Term, Landlord
--------------
shall allow Tenant and Tenant's officers, employees and invitees reasonable
access and use of the cafeteria in the INTELSAT Headquarters Building, subject
to any and all reasonable Rules and Regulations pertaining thereto that Landlord
may from time to time adopt.
Section 34.21. An electronic building security system of a similar
--------------
nature and quality as the electronic building security system now operating in
the Phase I building on the Land shall be provided by Landlord at Landlord's
sole cost and expense to limit access to the Building. It is understood and
agreed that Landlord shall not be responsible for the quality of such system, or
for any damage or injury to Tenant, its employees, invitees or others due to any
failure of such system.
Section 34.22. Landlord warrants and represents to Tenant that the
--------------
aggregate amount of floor space of the Premises plus the Expansion Space,
together with the amount of all other floor space in the INTELSAT Headquarters
Building currently leased to persons or entities other than Priority Subtenants
(as such term is defined in the Ground Lease) does not equal or exceed twenty
percent (20%) of the total floor space above grade of the INTELSAT Headquarters
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Building. Landlord understands that Tenant is relying on this representation in
not seeking approval of the "Planning Commission" as to this lease under the
terms of Article 7(l)(g) of the Ground Lease.
Section 34.23. Under the provisions of the Ground Lease, in the event
--------------
of termination thereof, the "Lessor" will be obligated to make payment to the
"Lessee" of amounts equal to the rent theretofore paid by the "Lessee" (reduced
as therein provided) and amounts equal to the value as therein defined (reduced
as therein provided) of Improvements constructed pursuant to the Ground Lease
and certain other costs incurred by the "Lessee" (all such amounts being herein
collectively called "Ground Lessor Payments"), all as more fully set forth in
Article 8.5 of the Ground Lease. Landlord hereby grants a security interest, as
provided in the Uniform Commercial Code, in and to Landlord's rights under the
Ground Lease with respect to the Ground Lessor Payments and in and to all Ground
Lessor Payments which become payable to Landlord under and pursuant to the
Ground Lease, and the proceeds thereof, as security for the payment of all
amounts which may become due and owing from Landlord to Tenant pursuant to
Section 25.04 of this Lease. Landlord agrees that Tenant shall have all rights
of a secured party as provided in the Uniform Commercial Code with respect to
the security interest hereinabove granted and agrees, upon request by Tenant
from time to time, to execute and deliver to Tenant financing statements and
renewal financing statements as may be required to perfect and continue the
perfection of the security interest herein granted to Tenant under the
provisions of the Uniform Commercial Code. Tenant agrees, however, that if a
nondisturbance agreement from the "Lessor" under the Ground Lease as described
in Section 25.03 is obtained and furnished to Tenant, then the provisions of
this Section 34.23 shall cease and terminate and shall be of no further force or
effect and Tenant will, upon request, release the security interest in the
Ground Lessor Payments hereinabove granted to Tenant. Further, Tenant agrees
that (if such security interest is not released as provided for above) and if
Landlord is not then in default in the payment of any amount then due by
Landlord to Tenant under this Lease, Tenant will, upon request, subordinate its
security interest in the Ground Lessor Payments granted hereinabove to a
security interest in the Ground Lessor Payments granted to any lender not
related to Landlord which has been granted a first lien upon Landlord's interest
in the Ground Lease, Land and INTELSAT Headquarters Building to secure a loan (a
"Secured Loan") to Landlord; provided, that and if (a) the total principal
amount of the Secured Loan to which Tenant's security interest is to be
subordinated does not exceed eighty percent (80%) of the then current appraised
fair market value of the INTELSAT Headquarters Building [as determined by the
appraisal referred to in clause (b)] and (b) Landlord furnishes to Tenant a
signed copy of a current appraisal of the INTELSAT Headquarters Building by a
qualified, independent appraiser who shall be an MAI-certified real estate
appraiser with ten years experience in the District of Columbia office building
market reflecting that the appraised fair market value of the INTELSAT
Headquarters Building is then at least one hundred twenty-five percent (125%) of
the total principal amount of such Secured Loan. Tenant may not be required to
subordinate its security interest in the Ground Lessor Payments to security
interests securing more than one Secured Loan at any one time, but if the liens
and security interests securing a Secured Loan to which Tenant's security
interest has been subordinated are released, then Tenant will, subject to the
terms and conditions set out hereinabove, thereafter subordinate its security
interest in the Ground Lessor Payments to a security interest securing a new
Secured Loan. For purposes hereof, if a single lender has made one or more loans
secured by one or more deeds of trust of which at least one deed of trust, is It
a first lien upon Landlord's interest in the Ground Lease, Land and INTELSAT
Headquarters
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Building, all of such deeds of trust securing such lender shall be treated as
constituting a first lien and all of such loans made by such lender shall be
treated as constituting one Secured Loan. In the event that the provisions of
this Section 34.23 have not been terminated pursuant to the provisions hereof,
Landlord may, in addition to and not in limitation of Landlord's rights to
obtain subordination of its security interest in the Ground Lessor Payments,
require Tenant to release its security interest in the Ground Lessor Payments
provided that Landlord deposits with an escrow agent designated by Landlord that
meets with Tenant's reasonable satisfaction, pursuant to an escrow agreement
prepared by Landlord that meets with Tenant's reasonable satisfaction, the sum
of One Million Five Hundred Dollars ($1,500,400) (or an irrevocable letter of
credit in the amount of $1,500,000) to be held by the escrow agent during the
remainder of the term of this Lease as security for the payment by Landlord of
any amounts that may be payable by Landlord to Tenant pursuant to Section 25.04
hereof, but to be returned to Landlord in the event and at such time that a
nondisturbance agreement from the "Lessor" under the Ground Lease as described
in Section 25.03 is obtained and furnished to Tenant. Interest on the escrow
deposit while held in escrow shall be paid to Landlord.
EXECUTED under seal as of the date first written above.
LANDLORD TENANT
International WLJA Inc.
Telecommunications
Satellite Organization
By: /s/ Thomas B. Cookerly
-------------------------------
Name: Thomas B. Cookerly
By: /s/ Richard R. Colino Title: President & General Manager
--------------------------------
Richard R. Colino
Director General Attest:
Attest: By: /s/ Joe L. Allbritton
-------------------------------
[sig] Name: Joe L. Allbritton
- ------------------------------------
Title: Chairman of the Board
[Corporate Seal]
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INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-1
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INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-2
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INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-3
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<PAGE>
INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-4
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<PAGE>
INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-5
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<PAGE>
INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-6
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<PAGE>
INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-7
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<PAGE>
INTEL-L-611
EXHIBIT A
FLOOR PLANS
Page No. A-8
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<PAGE>
EXHIBIT B
---------
LAND
----
Being part of the easternmost lot (508,582.70 square feet) shown on a plat
entitled Plat of Computation on a Tract of Land "Taxed as Square 2055" recorded
-------------------------------------------------------------
in the Office of the Surveyor of the District of Columbia in Survey Book 199 on
Page 81, said lot also being taxed as part of Lot 800 in Square 2055, and being
more particularly described as follows:
Beginning at an iron pipe planted at the northeast corner of the lot on the
edge of Connecticut Avenue; thence with the boundary of the lot on the southwest
side of Connecticut Avenue
<TABLE>
<S> <C>
1. South 24 degrees 26'00" East, 207.14 feet; thence three courses
across the lot
2. South 45 degrees 04'00" West, 190.31 feet; thence
3. South 0 degrees 04'00" West, 297.50 feet; thence
4. South 46 degrees 54'22" East, 174.93 feet to the north side of
Tilden Street, N.W.: thence two courses on
the boundary of the lot on the north side of
Tilden Street
5. 134.02 feet on the arc of a curve to the left with a radius of 1271.60
feet and a chord bearing South 74030'46"
West, 133.96 feet to a point of reversed
curvature; thence
6. 202.39 feet on the arc of a curve to the right with a
radius of 1851.04 feet and a chord bearing
South 74037'33" West, 202.29 feet; thence
two courses across the lot
7. North 0 degrees 04'00" East, 54.03 feet; thence
8. North 89 degrees 56'00" West, 227.00 feet to the South 0 degrees 04" West,
839.65 foot boundary of the lot; thence with
said boundary reversed
9. North 0 degrees 04"00" East, 565.8 feet; thence ten courses across
the lot
10. South 89 degrees 56"00" East, 17.00 feet to a point of curvature;
thence
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
11. 25.50 feet on the arc of a curve to the left with a
radius of 53.27 feet and a chord bearing
North 76 degrees 21"06" East, 25.26 feet to a point
of compound curvature; thence
12. 42.47 feet on the arc of a curve to the left with a
radius of 253.45 feet and a chord bearing
North 54 degrees 52'35" East, 42.34 feet to a point
of compound curvature; thence
13. 32.37 feet on the arc of a curve to the left with a
radius of 253.45 feet and a chord bearing
North 43 degrees 27'25" East, 32.35 feet to a point
of tangency, thence
14. North 39 degrees 47'52" East, 11.70 feet to a point of curvature;
thence
15. 42.14 feet on the arc of a curve to the right with a
radius of 101.85 feet and a chord bearing
North 51 degrees 38'59" East, 41.84 feet to a point
of compound curvature; thence
16. 35.47 feet on the arc of a curve to the right with a
radius of 279.34 feet and a chord bearing
North 67 degrees 08'21" East, 35.44 feet to a point
of reversed curvature; thence
17. 27.96 feet on the arc of a curve to the left with a
radius of 138.52 feet and a chord bearing
North 64 degrees 59'40" East, 27.91 feet to a point
of compound curvature; thence
18. 58.77 feet on the arc of a curve to the left with a
radius of 78.97 feet and a chord bearing
north 37 degrees 53'30" East, 57.42 feet to a point
of compound curvature; thence
19. 50.65 feet on the arc of a curve to the left with a
radius of 175.82 feet and a chord bearing
North 8 degrees 19'08" East, 50.47 feet to the North
89 degrees 56' West, 446.84 foot boundary of the
lot; thence with said boundary reversed
20. South 89 degrees 56'00" East, 232.84 feet to the point of beginning,
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
containing 7.7168 acres of land and as shown
on a plot prepared by Kidde Consultants,
Inc. dated June 6, 1982 and entitled "Plot
Showing Proposed Division Of Intelstat
Headquarters Building Site For Lease
Purposes."
</TABLE>
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<PAGE>
EXHIBIT C
---------
LEASEHOLD IMPROVEMENTS
----------------------
ARTICLE 1
(Includes Base Building Work and Tenant Build-Out)
DEFINITIONS
The terms defined in Article 1 of this Exhibit C, for all purposes of this
Exhibit C, shall have the meanings herein specified, and, in addition to the
terms defined herein, the definitions in the Basic Lease Information and
otherwise in this lease shall also apply to this Exhibit C.
1.01 "Base Building Work" shall mean the improvements in and about the
- ---- Premises as set forth in Exhibit C-1.
1.02 "Building Plans and Specifications" shall mean plans and specifications
- ---- for the Building prepared by John Andrews International Pty. Ltd. or
VVKR Inc. and as modified in accordance with Section 1 of Exhibit C-2.
1.03 "Tenant's Contractor" shall mean such reputable contractor selected by
- ---- Tenant for interior buildout (subject to Landlord's approval which shall
not unreasonably be withheld) to construct and install the Tenant
Build-out in the Premises.
1.04 "Tenant Build-out" means the items which are supplied, installed, and
- ---- finished in the Premises by or on behalf of Tenant, at Tenant's expense,
as provided for hereinbelow. The design of the Tenant Build-out shall
be consistent with sound architectural and construction practices for
similar first-class office buildings in the District of Columbia.
1.05 "Interior Construction Plans" shall mean full, complete, and accurate
- ---- architectural working drawings and specifications for the Tenant
Build-out for the Premises prepared at Tenant's expense by Tenant's
Architects including all architectural dimensioned plans showing wall
layouts, door locations, power and telephone locations and reflected
ceiling plans; and further including, elevations, details,
specifications and schedules according to accepted AIA standards, which
shall be consistent with the Building Plans and Specifications.
1.06 "MEP Plans" shall mean mechanical, electrical and plumbing plans,
- ---- schedules and specifications for the Tenant Build-out for the Premises.
MEP Plans which do not impact the Base Building Systems will be prepared
at Tenant's expense by Tenant's MEP Engineers in accordance and in
compliance with the requirements of applicable building, plumbing, and
electrical codes and the requirements of any authority having
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<PAGE>
jurisdiction over or with respect to such plans, schedules and
specifications, which are complete, accurate, consistent and fully
coordinated with the Building Plans and specifications. All other MEP
Plans will be prepared by the Landlord's Architect after receipt of
Tenant Preliminary Plans. The Tenant shall have an opportunity to
review the Landlord's Architect's plans, which shall be consistent with
the intent of the Tenant Preliminary Plans.
1.07 "Structural Plans" shall mean structural plans, schedules and
- ---- specifications, if any, for the Tenant Build-out for the Premises,
prepared by Landlord's Architect at Landlord's expense after receipt of
Tenant Preliminary Plans and in accordance with the requirements of
Exhibit C-2. The Tenant shall have an opportunity to review the
Landlord's Architect's plans, which shall be consistent with the intent
of the Tenant Preliminary Plans.
1.08 "Tenant's Architect" shall mean Settles Associates Inc. or such other
- ---- reputable person or persons engaged by Tenant and approved by Landlord
(such approval not to be unreasonably withheld) to prepare the Tenant
Interior Construction Plans.
1.09 Tenant's MEP Engineers" shall mean Setty and Associates or such other
- ---- engineers engaged by Tenant and approved by Landlord (such approval not
to be unreasonably withheld) to prepare the MEP Plans, complete with all
calculations which impact existing equipment and structure, for the
Tenant Build-out not affecting Base Building Systems.
1.10 "Tenant's Structural Engineers" shall mean Cagley and Associates or such
- ---- other structural engineers engaged by Tenant and approved by Landlord
(such approval not to be unreasonably withheld) to prepare the Tenant
Preliminary Plans for Tenant requested structural changes.
1.11 "Landlord's Architect" shall be VVKR Inc. in association with MMP and
- ---- The Benham Group or any other reputable architect or engineering firms
engaged by the Landlord.
1.12 "Base Building Systems" shall be defined as any usable building systems
- ---- or components which are external to Tenant space within the core of the
Building and/or common to and/or serve or exist for the benefit of other
tenants or occupants of the Building.
1.13 "Tenant Preliminary Plans" shall mean structural and MEP information in
- ---- sufficient detail to enable the Landlord's Architect to prepare detailed
Building Plans and Specifications. The final version of the Tenant
Preliminary Plans shall be marked "Final Preliminary Plans."
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<PAGE>
1.14 "Plans" shall mean the Interior Construction Plans together with the MEP
- ---- Plans, for which Tenant is responsible and if applicable, the Final
Preliminary Plans.
1.15 "Landlord's Contractor" shall mean the W.P. Lipscomb Company or any
- ---- other reputable Contractor selected by the Landlord.
ARTICLE 2
SUBMISSION OF PLANS
2.01 Upon Tenant's request, Landlord will furnish Tenant, one (1) set of
- ---- Building Plans and Specifications pertaining to Tenant's space to assist
Tenant in preparing the Plans. It is understood and agreed that
Landlord in no way warrants the accuracy of such Building Plans and
Specifications and Landlord shall not have any liability to Tenant, or
anyone claiming through Tenant as a result of such plans. Tenant, shall
perform a field verification to independently determine the
specifications and dimensions of the Premises.
2.02 Tenant, all Tenant's expense, has prepared and delivered to Landlord the
- ---- final version of the Tenant Preliminary Plans impacting the structure,
and shall hereafter upon request promptly provide to Landlord any
underlying detailed information Landlord may reasonably request in order
to evaluate such plans. On or before 15 January 1987, Tenant, at
Tenant's expense, shall prepare and deliver to Landlord the final
version of the remaining Tenant Preliminary Plans, preliminary space
plans and Tenant's interior MEP Plans, and shall thereafter upon request
promptly provide to Landlord any underlying detailed information
Landlord may reasonably request in order to evaluate such plans. The
final version of the Interior Construction Plans shall be delivered to
the Landlord by Tenant, at Tenant's expense, on or before 2 April 1987.
No later than fifteen (15) business days after Landlord's receipt of
each set of plans, Landlord shall notify Tenant in writing as to whether
Landlord approves or disapproves such plans. If Landlord requires any
changes to such plans, Tenant shall, at Tenant's expense, prepare and
deliver to Landlord the required revisions within ten (10) business days
after Landlord's request for such revisions. If the Landlord approves
such plans, the Tenant and Landlord shall be authorized to Proceed with
their respective responsibilities in accordance with such plan's and
this Exhibit C. Final plans referred to herein shall be in marked
"Final Plans."
2.03 Upon completion of Tenant's Work the Tenant shall, upon receipt, furnish
- ---- Landlord with accurate "as built" plans of the Tenant's Work, which
plans shall be incorporated into this Exhibit C by this reference for
all intents and purposes. Construction "as built" applicable to the
Premises and maintained by the Landlord shall be available for perusal
and copy by the Tenant.
-65-
<PAGE>
2.04 All design, construction, and installation of Tenant Build-out shall
- ---- conform to the requirements of applicable building, plumbing and
electrical codes and the requirements of any authority having jurisdiction
over, or with respect to, such work.
ARTICLE 3
LANDLORD'S WORK
Landlord shall, at its sole cost and expense, furnish, install and complete the
Base Building Work as defined in Exhibit C-1 and the Landlord's work as
described in Paragraphs 1A-1H of Exhibit C-2 ("Landlord's Work").
ARTICLE 4
TENANT'S WORK
4.01 All Tenant Build-out other than Landlord's Work ("Tenant's Work") shall
- ---- be at Tenant's sole cost and expense (but subject to payment of Landlord's
Contribution pursuant to Articles 5.01 through 5.03 of Exhibit C) it being
understood and agreed that any Tenant Work which affects the structure of
the Building of the Base Building Systems shall be performed by Landlord,
at Tenant's expense. The Tenant may elect to contract directly with
outside Contractors for the interior Tenant Build-out Work.
4.02 The Tenant's Work shall comply with the requirements set forth in
- ---- Exhibit C-2.
ARTICLE 5
TENANT IMPROVEMENT ALLOWANCE
5.01 In addition to Landlord's contribution described in Article 3 of this
- ---- Exhibit C, Landlord shall pay in accordance with this Article 5 on behalf
of Tenant an amount up to [redacted text] multiplied Rentable Area of the
Premises toward the construction of Tenant's Work and related consulting
fees (hereinafter "Landlord's Contribution"). Landlord's Contribution
shall be paid on behalf of Tenant as set forth below.
5.02 Landlord shall pay the Landlord's Contribution to Tenant periodically as
- ---- written requests for payment (the "Payment Requests") are submitted to
Landlord by Tenant based upon copies of invoices from Tenant's Contractor,
consultants and/or other contractors constructing or supplying Tenant's
Work and material, which Payment Requests shall include a detailed
description of the portion of the Tenant's Work performed during
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<PAGE>
the period to which any such Payment Request relates and proof of payment
of previous invoices submitted to and paid by Landlord. Landlord shall pay
the amount so requested by Tenant to Tenant within fifteen (15) days after
a Payment Request is submitted to Landlord.
5.03 For purposes of this Exhibit C, the Rentable Area of the Premises is
- ---- estimated to be 73,153 square feet. The amount of any payments payable
to Tenant pursuant to this Article 5 shall be adjusted upon the
determination of the Rentable Area of the Premises pursuant to Section
1.02 or Section 6.04 of the lease (it being agreed that if Tenant
exercises its option to lease the Expansion Space under Article 33 of
the lease the Rentable Area of the Expansion Space shall be included in
the Rentable Area of the Premises for purposes of this Article 5.03).
If the payments made to or on behalf of Tenant on the basis of the
estimated Rentable Area of the Premises exceed [redacted text]
multiplied by the actual number of square feet of the Rentable Area of
the Premises, Tenant shall pay Landlord such excess promptly after such
determination. If the payments made to or on behalf of Tenant on the
basis of the estimated Rentable Area of the Premises are less than
$25.00 multiplied by the actual square feet of Rentable Area of the
Premises, Landlord shall pay Tenant such shortfall promptly after such
determination.
5.04 Tenant shall have the right, at its option, to use, in its interior
- ---- design, the equipment and materials purchased by INTELSAT in bulk for
the build out of the interior of Phase II. The equipment and materials
available are as follows:
<TABLE>
<CAPTION>
Quantity Unit
Description Available Price
------------------------------ ------------------ ------------
<C> <S> <C> <C>
1. Metal door frames
Type 1-1 Left Hand 300 Sets
with Glass
Sidelight
Type 1A-1 Right Hand 200 Sets
with Glass
Sidelight
Type 2-2 Left Hand 50 Sets
Single Door
Frame
Type 2A-1 Right Hand 58 Sets
Single Door
Frame
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C> <C>
2. Light Fixtures
Type A Gibson (Adequate Supply)
Paralux Series
18 Cell, (2'X4')
Recessed/Air
Supply 277 Volts
3. Sconce Lights - Cylinder 144 Fixtures
Type Wall Lamp 14" Tall
4. Patrick Carpet (Adequate Supply) per sq. yd.
Title (18"X18")
</TABLE>
The above equipment or materials are available for purchase by the
Tenant from the Landlord at the above stated acquisition unit prices
paid by the Landlord.
5.05 The Landlord will make every reasonable effort to enable the Tenant Work
- ---- to commence as soon as possible. The parties understand that Base
Building Work and Tenant's Work will be conducted concurrently and
accordingly in order to ensure harmony between subcontractors of like
trades the Tenant shall consider using the Landlord's Contractor and his
subcontractors for the Tenant's Work whenever possible. In the event
other contractors/subcontractors are selected by the Tenant, the other
contractors/subcontractors shall conduct their work without interruption
of or disruption to the Landlord's Contractor and its subcontractors'
work.
5.06 The Landlord's procurement staff is available to provide its best
- ---- efforts for use by the Tenant to obtain bids, negotiate contract prices,
award and administer such contracts on behalf of the Tenant. This
service is available to the Tenant at no additional charge or fees over
and above the actual cost of the contracts awarded on behalf of the
Tenant. Decision as to bidders, contract awards and amendments or
changes to contracts will be subject to the participation and approval
of the Tenant. Any and all costs for the services provided in
accordance with the procurement services set forth herein shall be paid
by the Tenant to the Landlord within fifteen (15) days after a request
therefor is submitted to the Tenant.
5.07 At all times prior to the Commencement Date Landlord shall, at its
- ---- expense, provide electricity and to the extent that heating, ventilating
and air-conditioning facilities are installed in the Building, heating,
ventilating and air-conditioning to the Building and Premises as
reasonably required by Tenant and its contractors incident to
performance and completion of Tenant's Work.
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ARTICLE 6
TENANT REQUESTED CHANGES
Tenant shall not deviate from the Plans approved in accordance with Article
2.02 of this Exhibit C without Landlord's prior written approval, which approval
shall be granted by Landlord if and to the extent that Landlord's approval is
required under Section 12.01. All change requests shall be submitted to
Landlord together with preliminary drawings and other information as may be
reasonably necessary to enable Landlord to either approve or disapprove such
changes. Landlord shall thereafter either approve or not approve the
preliminary drawings within fifteen (15) days. In the event Landlord approves
such changes, and provided such changes do not affect the structure of the
Building or the Base Building Systems, Tenant may perform the work, and upon
completion furnish Landlord with "as built" drawings. If the change order
request involves changes to either the structure of the Building or the Base
Building Systems, and if Landlord approves the changes based on the preliminary
drawings, Landlord shall prepare detailed plans and specifications for such
work, at Tenant's sole cost and expense, and Landlord shall thereafter perform
such work at Tenant's sole cost and expense. If any change requested by Tenant
which deviates from the approved Plans delays the date of substantial completion
of the Base Building Work, such delay shall be the sole responsibility of Tenant
and be considered a "Tenant Delay." Implementation of Interior Construction
Plans shall be the responsibility and at the sole expense of the Tenant.
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<PAGE>
ARTICLE 7
COMMENCEMENT OF RENTAL
In the event and to the extent Landlord is delayed in substantially
completing the Base Building Work or the Landlord's Work as a result of
1. Tenant's failure to deliver to Landlord the Plans on or before the
dates specified in Article 2.02 of this Exhibit C, or
2. Tenant requested changes as described in Article 6 after approval of
Plans in accordance with Article 2.02 of this Exhibit C, then
the Tenant's obligation to pay Rental shall be accelerated by the number of
days of such Tenant delay.
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<PAGE>
EXHIBIT C-1
-----------
BASE BUILDING WORK
------------------
The Landlord shall at its sole cost and expense provide a Building Shell
consisting of the following (the "Base Building Work"):
(1) Class exterior walls and core walls taped, spackled and ready for
finish or building standard paint, in such manner as befits a first-
class office building in the District of Columbia.
(2) Unfinished, level and smooth concrete floors installed throughout the
Premises, broom clean, with office floors designed for a per square
foot load of 80 pounds live and 20 pounds dead.
(3) 120/208 volt and 277/480 volt power supplied on each Floor to the
Building core and terminated in branch circuit panel boards.
(4) Men's and ladies' restroom facilities furnished in accordance with the
Building Plans and Specifications and located on each floor on which
the Premises are located.
(5) Heating, Ventilating, and Air Conditioning
(A) High pressure supply air duct work from high pressure variable
air volume air handling located in mechanical rooms, to the
perimeter of the Premises.
(B) Interior areas are conditioned by low pressure supply air duct
work from low pressure constant volume variable temperature air
handling units located in mechanical rooms located outside the
Premises.
(6) Voice evacuation system, smoke detectors, exit lights, fire
sprinklers, fire standpipe valves and pull stations to meet the
District of Columbia Fire Code.
(7) All exterior walls completed with thermal insulation and double
glazing.
(8) All floor openings, and stair openings located in the core installed
with fire rated drywall enclosures and standard fire rated doors.
(9) Water, waste and vent Plumbing risers outside of the core area on each
of the floors.
(10) Lobby level closure doors, one double door per pod.
(11) Landlord will bring HVAC ducts and piping to the perimeter of the
Premises, in accordance with HVAC system provided by the Landlord
which will accommodate the present needs of the Tenant's television
station (WLJA), which
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<PAGE>
in turn will be described in the final MEP Plans to be submitted on or
before 15 January 1987 and shall be reasonably consistent with the
Setty Report 4 August 1986 entitled "Preliminary Analysis of
Mechanical/Electrical Systems for WJLA-TV."
(12) All design, construction and installation of Base Building Work and
Landlord's Work shall conform to the requirements of applicable
building, plumbing and electrical codes and the requirements of any
authority having jurisdiction over, or with respect to, such work.
-72-
<PAGE>
EXHIBIT C-2
-----------
3400 INTERNTIONAL DRIVE
-----------------------
REQUIREMENTS FOR LEASEHOLD IMPROVEMENTS
---------------------------------------
1. The Landlord's Work referred to in Article 3 shall consist of the
following:
A. Depressed slab for computer and equipment rooms in Pod P. Level
1 (to maximum of 12") and Level 2 and 4 (to maximum of 8") .
B. Elimination of the floors in the area on levels 3 and 5 of Pod P
in accordance with the preliminary plans submitted or to the
submitted pursuant to the first sentence of Article 2.02 of this
Exhibit C.
C. Provide personnel access between Phase I and II for use of the
main INTELSAT cafeteria by Tenant's employees and personnel.
D. Re-cut and weld steel beams to increase vertical room area in
Level 2 Pod N for raised ceiling.
E. Provide the framing for opening in floor for newsroom stairway in
Pod N between Level 1 and 2.
F. Provide the framing for opening for the link stairway in Pod P
level 2 through 5, and if the option for added floor is
exercised, through Level 6. In the event the NCPC approval for
the link stairway is not obtained by the Tenant before 31 January
1987, the Atrium stairway will be provided in lieu thereof at the
sole cost and expense of the Tenant, except the Landlord will be
responsible for design, security and fire safety aspects of the
Atrium stairway and will pay to the Tenant a fixed amount of
Twenty-Five Thousand Dollars ($25,000) provided the NCPC approval
of the link stairway is not obtained and the Atrium stairway is
constructed in lieu thereof.
G. Provide the framing for opening for the elevator from Pod P
Level 1 through Level 4.
H. Provide separate metering for Tenant power usage to the maximum
practical extent.
2. Any and all other improvements shall be at the sole cost and expense of
the Tenant. Such improvements which affect or require Building structural
changes or which impact the Base Building Systems are subject to the following:
A. Such Tenant requested improvements to Pod N shall be kept to the
minimum and only made if the present proposed Building structure
and
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<PAGE>
MEP Systems, as set forth in the Building Plans and
Specifications, cannot possibly be used.
B. Such Tenant requested improvements shall be submitted to the
Landlord in writing, complete with adequate preliminary drawings,
(at the earliest practicable date) in order to minimize the
effect on the Building construction schedule. Such Tenant
requested improvements will be submitted by the Landlord to
Landlord's Architect for preparation of the necessary
construction drawings and then the Landlord will issue change
instructions to the Landlord's Contractor to accomplish the
required work.
C. The charges for such other Tenant requested improvements will be
borne solely by the Tenant. These charges will include all
direct costs to the Landlord including the following:
1. Costs of the efforts of the Landlord's Architect and its
consultants.
2. Costs of reproduction of necessary drawings.
3. Costs of labor, materials, overhead, and fees of the
Landlord's Contractor and its subcontractors, including
costs of necessary rescheduling of work.
4. Charles of the Landlord's Consultants for inspection and
acceptance of such Tenant requested improvements.
5. There will be no overhead or fee added by Landlord to the
costs referred to above for the Landlord's work in
connection therewith.
D. Such costs for Tenants requested leasehold improvements will be
paid by the Tenant to the Landlord within fifteen (15) days after
requests for payment for costs theretofore incurred by Landlord
are submitted to the Tenant.
-74-
<PAGE>
EXHIBIT D
---------
DECLARATION AS TO DATE OF DELIVERY AND
ACCEPTANCE OF POSSESSION OF PREMISES
------------------------------------
Attached to and made a part of the lease dated the ____ day of
_______________, 19__, entered into by and between International
Telecommunications Satellite Organization, as Landlord, and
________________________________________________, as Tenant.
Landlord and Tenant do hereby declare and evidence that possession of the
Premises was accepted by Tenant on the _______ day of _______________________,
19__, and the lease is now in full force and effect. For the purpose of this
lease, the Commencement Date is established and declared as the ____________ day
of __________, 19__.
LANDLORD:
ATTEST: International Telecommunications Satellite
Organization
By:
- -------------------------------- -------------------------------------
TENANT:
ATTEST: WJLA Inc.
By: By:
----------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------------
Title: Title:
-------------------------- -----------------------------------
[Corporate Seal]
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<PAGE>
EXHIBIT E
---------
METHOD OF CALCULATING RENTABLE AREA
OF PREMISES AND BUILDING
------------------------
The Rentable Area of the Premises shall be calculated in accordance with
the Washington Board of Realtors Standard Method of Measurement except that the
Rentable Area of the Premises which would otherwise be determined in accordance
with the Washington Board of Realtors Standard Method of Measurement, a copy of
which is attached hereto, shall include two-thirds (2/3rds) of the floor space
to be removed on the third (3rd) and fifth (5th) levels of Pod P. The Rentable
Area of the Building shall be calculated in accordance with the Washington Board
of Realtors Standard Method of Measurement except that two-thirds (2/3rds) of
the floor space to be removed on the third (3rd) and fifth (5th) levels of Pod P
shall also be included in the Rentable Area of the Building. The Rentable Area
of the INTELSAT Headquarters Building shall be calculated in accordance with the
Washington Board of Realtors Standard Method of Measurement except that two
thirds (2/3) of the floor space to be removed on the third (3rd) and fifth (5th)
levels of Pod P shall also be included in the Rentable Area of the INTELSAT
Headquarters Building.
In determining the Rentable Area of the Building and the Rentable Area of
the INTELSAT Headquarters Building, the Rentable Area of each floor of the
Building and the Rentable Area of each floor of the INTELSAT Headquarters
Building shall be calculated for purposes hereof as if each such floor were a
single tenancy floor.
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<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
OPNET Technologies, Inc.
Washington, D.C.
We consent to the use in this Registration Statement of OPNET Technologies, Inc.
on Form S-1 of our report dated July 2, 1999 (except for note 14 paragraphs one
and two as to which the dates are January 20, 2000 and March 13, 2000
respectively), appearing in the Prospectus. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
McLean, Virginia
March 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 12/31/1999 AND AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 3/31/1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 DEC-31-1999
<CASH> 6,414 4,672
<SECURITIES> 0 4,013
<RECEIVABLES> 3,265 3,482
<ALLOWANCES> (185) (71)
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,183 13,328
<PP&E> 3,141 3,369
<DEPRECIATION> (1,407) (1,286)
<TOTAL-ASSETS> 13,205 16,493
<CURRENT-LIABILITIES> 3,377 6,320
<BONDS> 0 0
6,934 6,945
0 0
<COMMON> 11 11
<OTHER-SE> 2,726 3,070
<TOTAL-LIABILITY-AND-EQUITY> 13,205 16,493
<SALES> 12,003 13,451
<TOTAL-REVENUES> 12,003 13,451
<CGS> 1,382 2,523
<TOTAL-COSTS> 1,382 2,523
<OTHER-EXPENSES> 10,890 10,736
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (376)<F1> (273)<F1>
<INCOME-PRETAX> 107 465
<INCOME-TAX> (100) 128
<INCOME-CONTINUING> 207 337
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 207 337
<EPS-BASIC> 0.03 0.05
<EPS-DILUTED> 0.02 0.04
<FN>
<F1>Amount reflects interest and other income for the period.
</FN>
</TABLE>
