<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ANALYTICAL GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 7372 23-2556208
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
-----------------
325 TECHNOLOGY DRIVE
MALVERN, PENNSYLVANIA 19355
(610) 578-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL L. GRAZIANI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ANALYTICAL GRAPHICS, INC.
325 TECHNOLOGY DRIVE
MALVERN, PENNSYLVANIA 19355
(610) 578-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------
COPIES TO:
DAVID J. SORIN, ESQ. BARBARA L. BECKER, ESQ.
ANDREW P. GILBERT, ESQ. JOSEPH A. HERZ, ESQ.
BUCHANAN INGERSOLL PROFESSIONAL CHADBOURNE & PARKE LLP
CORPORATION 30 ROCKEFELLER PLAZA
500 COLLEGE ROAD EAST NEW YORK, NEW YORK 10112
PRINCETON, NEW JERSEY 08540 (212) 408-5100
(609) 987-6800
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement. If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value................ $64,400,000 $18,998.00
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated August 5, 1998
PROSPECTUS
SHARES
LOGO
ANALYTICAL GRAPHICS, INC.
COMMON STOCK
-------------
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby, shares are being offered by Analytical Graphics,
Inc. ("Analytical Graphics" or the "Company") and shares are being offered
by certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "AGIX."
-------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $ , payable by the Company.
(3) Certain Selling Shareholders have granted the Underwriters a 30-day option
to purchase up to additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Selling Shareholders
will be $ , $ and $ , respectively. See "Underwriting."
-------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the
certificates representing shares of Common Stock will be made at the offices of
Lehman Brothers Inc., New York, New York on or about , 1998.
-------------
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST
, 1998
<PAGE>
Inside front cover of Prospectus includes a picture of the earth with several
orbiting satellites. Caption sets forth the Company name and logo with the
statement "Software for the Space Industry" and a subheader which states
"Develop Systems less expensively; Reduce time-to-market; Operate Systems More
Efficiently." Caption at footer states "Teledesic-Internet and Broadband Data
Satellite System."
A gatefold is also included which presents seven images of computer screens
that display certain of the Company's application modules.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS.
FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
STK(R) and Analytical Graphics(R) and the Company's logo are registered
trademarks of Analytical Graphics, Inc. STK Connect(TM), Close Approach
Tool(TM), Chains(TM) and Navigator(TM) are trademarks of Analytical Graphics,
Inc. All other trade names, trademarks or service marks appearing in this
Prospectus are the property of their respective owners and are not the
property of the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
requires otherwise, all references to the "Company" or "Analytical Graphics"
shall mean Analytical Graphics, Inc. and its wholly-owned subsidiaries. Unless
otherwise indicated, all information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option; (ii) has been adjusted to give
effect to a five-for-one stock split of the Common Stock effected on June 12,
1996 and a two and one quarter-for-one stock split of the Common Stock to be
effected on August 6, 1998; and (iii) assumes the conversion of all outstanding
shares of Series A Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), into an aggregate of 2,888,472 shares of Common Stock upon
the consummation of this offering. See "Description of Capital Stock" and
"Underwriting."
THE COMPANY
Analytical Graphics is the leading provider of commercial off-the-shelf
("COTS") software solutions for the space industry. The space industry includes
a growing number of commercial satellite projects for telecommunications, data
communications, navigation and imaging systems as well as government-sponsored
space missions and defense programs. The Company's broad suite of software
products support space systems throughout their life cycle, from concept and
design to launch and on-orbit operation. The Company's base product, Satellite
Tool Kit ("STK"), and related suite of 23 application modules enable space
industry professionals to develop, simulate, track, operate and use satellites
more effectively, resulting in enhanced productivity and functionality of
satellite missions. The Company's customers utilize the Company's software
solutions to perform mission-critical activities and consist of approximately
450 distinct organizations within government agencies, government contractors
and commercial space developers. The government agencies and government
contractors include NASA, the US Air Force, The Boeing Company, Hughes
Electronics Corp., Lockheed Martin Corp. and TRW, Inc., and the commercial
space developers include Globalstar L.P., Iridium, LLC, Orbital Sciences Corp.,
Space Imaging, Inc. and Teledesic, LLC.
The space industry is a large and rapidly growing market with industry
sources estimating revenues to increase from approximately $77 billion in 1996
to approximately $120 billion by the year 2000. The space industry is
experiencing rapid growth due to increasing demand for worldwide
telecommunications and Internet services, deregulation and privatization of the
telecommunications and satellite industries, technological advances and
expanding uses for satellites. Although government funded projects have
dominated the space industry, advancements in space technology coupled with the
sophistication, power and capabilities of modern information systems are
fueling the growth of a commercially driven, consumer-oriented global space
industry. Traditionally, space industry professionals have relied on time-
consuming and expensive customized solutions developed in-house or by third
party contractors to design, launch and operate satellite systems. Time
constraints, cost-efficiency pressures and the increasing number and complexity
of space systems have created a growing demand for COTS software solutions,
which offer higher functionality, greater flexibility and shorter
implementation times at a lower cost. As the leading provider of COTS solutions
for the space industry, the Company is well positioned to capitalize on the
growing need for sophisticated, mission-critical software solutions.
The Company's objective is to be the leading global provider of software
solutions to the space industry and to establish its software as the industry
standard solution for space-related applications. The Company plans to achieve
this objective by increasing market penetration and its customer base,
continuing to develop and offer
3
<PAGE>
technologically advanced solutions, expanding its global presence, providing
customers with comprehensive software solutions and pursuing strategic
partnerships and acquisitions. To rapidly expand the use of its software, the
Company offers its base product, STK, free of charge, while deriving its
revenues from its suite of application modules. The Company believes that the
wide dissemination of its base product will result in a rapid increase in the
licensing and sales of its other application modules. To establish STK and its
related suite of modules as the mission-wide software solution, the Company
uses a focused sales and marketing program directed at a broad range of users
across all space industry segments and conducts aggressive direct sales and
marketing initiatives to further penetrate organizations currently using its
products.
The Company's revenues increased from $2.7 million for the year ending
December 31, 1995 to $12.9 million for the year ending December 31, 1997,
representing a compound annual growth rate of approximately 119%. From August
1, 1997 through June 30, 1998, the number of registered STK seats increased
from approximately 1,300 to 14,400. Of the new registered users of STK,
approximately 350 have licensed one or more of the Company's application
modules.
The Company was incorporated in the Commonwealth of Pennsylvania in January
1989. The Company's principal executive offices are located at 325 Technology
Drive, Malvern, Pennsylvania 19355. Its telephone number is (610) 578-1000.
4
<PAGE>
THE OFFERING
Common Stock offered by the Company... shares
Common Stock offered by the Selling shares (1)
Shareholders..........................
Common Stock to be outstanding after shares (2)(3)
the offering..........................
Use of proceeds....................... For repayment of bank indebtedness,
payment of cumulative dividends
attributable to preferred stock,
expansion of sales and marketing
activities, research and development
activities, working capital and general
corporate purposes, including potential
strategic acquisitions.
Proposed Nasdaq National Market AGIX
Symbol................................
- --------
(1) Includes an aggregate of shares of Common Stock to be issued upon
the exercise by certain of the Selling Shareholders of currently
exercisable stock options and warrants immediately prior to the
consummation of this offering and to be sold by such shareholders in this
offering. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
(2) Includes an aggregate of shares of Common Stock to be issued upon
the exercise by certain securityholders of a portion of the currently
exercisable stock options and warrants immediately prior to the
consummation of this offering (including the shares to be sold by
certain Selling Shareholders as set forth in Note 1 above). The Company
will receive an aggregate of approximately $ in proceeds upon the
exercise of such options and warrants. See "Description of Capital Stock."
(3) Excludes (i) 1,987,441 shares of Common Stock issuable upon the exercise of
outstanding stock options as of June 30, 1998 with a weighted average
exercise price of $1.39 per share, under the Company's 1995 Stock Plan, the
Incentive Stock Option Plan and the Non-Qualified Stock Option Plan, (ii)
500,000 shares of Common Stock reserved for issuance upon the exercise of
options available for grant under the 1998 Stock Plan, and (iii) 40,500
shares of Common Stock issuable upon the exercise of outstanding warrants
with an exercise price of $6.67 per share. See "Risk Factors--Shares
Eligible for Future Sale and Potential Adverse Effect on Market Price,"
"Management--Stock Option Plans," and "Description of Capital Stock--
Warrants."
5
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues........ $1,107 $1,619 $2,736 $6,962 $12,862 $ 6,529 $ 6,506
Gross profit.......... 764 1,311 2,241 5,847 10,998 5,765 5,539
Operating income
(loss)............... (14) 117 (969) 33 (1,368) 514 (2,456)
Net income (loss)..... (12) 38 (926) 25 (1,416) 526 (2,592)
Pro forma net loss per
basic and diluted
common share (1):
Loss per share...... $(0.22) $(0.39)
Weighted average
shares............. 6,849 6,949
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
--------------------------
PRO FORMA AS
AT DECEMBER 31, 1997 ACTUAL ADJUSTED(1)(2)(3)
-------------------- ------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 854 $ 1,113
Working capital (deficien-
cy)......................... (895) (940)
Total assets................. 6,663 7,275
Total debt (including current
portion) (4)................ 586 4,035
Series A preferred stock..... 2,662 2,713
Total stockholders' equity
(deficit)................... (1,889) (4,178)
</TABLE>
- --------
(1) Gives pro forma effect to the automatic conversion of all issued and
outstanding shares of Series A Preferred Stock (as defined) into 2,888,472
shares of Common Stock. See "Description of Capital Stock."
(2) Gives pro forma effect to the issuance of shares of Common Stock upon
the exercise by certain of the Selling Shareholders of a portion of the
presently exercisable options and warrants and the receipt by the Company
of the aggregate exercise price therefor. See "Description of Capital
Stock."
(3) Adjusted to give effect to the sale of shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $
per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company and the
anticipated application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
(4) Excludes $2.3 million borrowed by the Company under the Revolving Credit
Facility (as defined) subsequent to June 30, 1998.
Fourth Quarter Extraordinary Charge
Upon the consummation of this offering, the Company will repay all of the
outstanding amounts under its Term Loan (as defined) and Revolving Credit
Facility. As of July 31, 1998, the Company had $2.3 million and $4.0 million of
outstanding borrowings under the Revolving Credit Facility and Term Loan,
respectively. As a result, the Company will incur an extraordinary, one-time,
non-cash charge of approximately $355,000 expected to be recognized in the
fourth quarter of 1998 for the write-off of associated deferred financing
costs. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations. "
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
HISTORY OF OPERATING LOSSES AND PROJECTED LOSSES
The Company had a net loss of approximately $1.4 million for the year ended
December 31, 1997 and a net loss of approximately $2.6 million for the six
months ended June 30, 1998. Such losses are in part attributable to a
strategic decision made by the Company in August 1997 to provide its base
product, STK, free of charge to expand the market for its suite of software
products. The Company believes that revenue growth, if any, will be achieved
through licenses of the Company's suite of application modules. The Company
anticipates that annual operating losses will continue through at least 1999.
There can be no assurance that the Company will be able to increase revenues
or achieve and sustain profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH MARKET AND PRODUCT ACCEPTANCE
The success of the Company's strategy to increase revenues from licenses of
its suite of application modules is dependent upon increased market acceptance
of commercial off-the-shelf ("COTS") satellite analysis software, in general,
and the Company's base product (STK) and related suite of application modules,
in particular. Historically, the space industry has utilized customized
software solutions, which have been developed either in-house or by third
party contractors. There can be no assurance that the Company's potential
customers will accept or realize the intended benefits of COTS satellite
analysis software. Market acceptance of the Company's products by potential
customers depends upon several factors, including the performance of the
Company's products, the ability of customers to integrate the Company's
applications with existing technologies, and the extent to which users achieve
cost savings and productivity gains from their use of the Company's software.
Furthermore, there can also be no assurance that the Company's customers will
require any of the Company's application modules in addition to the Company's
base product, which the Company provides free of charge. The failure of the
Company's products to achieve increased market acceptance or the failure of
the Company's customers to license one or more of the Company's application
modules would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Marketing."
FLUCTUATIONS OF OPERATING RESULTS; SEASONALITY
The Company's operating results have fluctuated significantly in the past
and may continue to do so in the future from quarter to quarter or on an
annual basis. Such fluctuations are caused by a number of factors over which
the Company has limited or no control. These factors include, but are not
limited to: the size and timing of customer orders; the timing of new product
announcements and introductions by the Company or its competitors; the timing
of governmental or commercial space programs incorporating the Company's
products; the length of the Company's sales cycle; the Company's ability to
develop, introduce and market new products and product enhancements; deferrals
of customer orders in anticipation of new products or product enhancements;
product pricing pressures (including the traditional discounting relating to
licenses of products to US Government entities and government contractors);
the Company's ability to control costs; the hiring of additional personnel;
delay or failure of existing customers to purchase additional products or
renew maintenance agreements; delay or failure of existing strategic partners
to renew agreements, including license agreements, with the Company; market
acceptance of COTS satellite analysis software and the Company's products; and
fluctuating economic conditions.
The Company's software license revenues are difficult to forecast for a
number of reasons. The Company ships its products within a short period after
receiving new orders and typically does not have a large backlog of unfilled
orders. Other than certain agreements which provide for ongoing maintenance
revenues, none of the Company's customers has entered into an agreement
requiring ongoing minimum purchases. Consequently,
7
<PAGE>
revenues in any quarter are substantially dependent on orders received in that
quarter. Furthermore, demand for the Company's products is generally higher
during the fourth quarter, due in part to the capital spending practices of
government entities and government contractors, which accounted, in the
aggregate, for approximately 82% of the Company's total revenues in 1997. Such
customer spending practices typically have also resulted in lower first
quarter revenues as compared to other quarters during the year. Historically,
the Company also has recognized a significant amount of its quarterly revenues
in the last month of each quarter. As a result, the magnitude of quarterly
fluctuations may not become evident until late in, or at the end of, a
particular quarter.
The Company's revenues generally have been, and likely will continue to be,
generated from a relatively small number of sales. Any failure to close
certain sales in a period could have a significant impact upon the Company's
revenues in that period. If the size of individual sales were to increase and
any such sales were not to close in the expected period, the impact on the
Company's business could be exacerbated. Furthermore, delays of large orders
may become more likely if customers take additional time to evaluate larger
purchases.
The Company's expenses are based, in part, upon its expectations regarding
future revenues and are relatively fixed. Therefore, the Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant decline in revenues in any period
would likely result in lower net income for that period. Any of the
fluctuations described above could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
also believes that past operating results and period-to-period comparisons
should not otherwise be relied upon as an indication of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations --Selected Quarterly Results of Operations."
DEPENDENCE ON RAPIDLY EVOLVING SPACE INDUSTRY
The Company's success will largely depend on continued growth in the market
for software solutions for the space industry. Because the space industry is
evolving rapidly, it is difficult to predict the industry's potential size or
future growth rate and the future needs for satellite analysis software and
related services. There can be no assurance that the trends currently driving
the growth of the space industry, such as the significant advancements in
technology, which have led to lower launch and satellite production costs, as
well as the globalization, deregulation and privatization of the space and
telecommunications industries, will continue in a manner favorable to the
Company. Since the Company's customers are concentrated in the space industry,
the Company's future success is dependent upon increased utilization of its
software applications by aerospace companies, other commercial enterprises and
government entities. Further growth in the space industry and demand for the
Company's products may be delayed or prevented by a variety of factors,
including cost, regulatory obstacles or the lack of, or reduction in, consumer
demand for satellite services. See "Business--Industry Background."
RAPID TECHNOLOGICAL CHANGE
The market providing software solutions for the space industry is subject to
rapid technological change, evolving industry standards, changes in end user
requirements and frequent introduction of new products, services and
enhancements that may render existing offerings obsolete or unmarketable. As a
result, the Company's position in this market could erode rapidly due to
unforeseen changes in product features and capabilities of competing products.
The Company's growth and future results of operations will depend in part upon
its ability to respond to these changes by developing, introducing and
marketing new products or enhancements to its existing products in a timely
manner and on a cost effective basis to keep pace with technological
developments, emerging industry standards and customer requirements.
Additionally, the Company's customers may adopt alternative architectures or
technologies that are incompatible with the Company's technologies or
products. There can be no assurance that the Company will be successful in
identifying, developing and marketing new products, product enhancements and
related services to respond to technological change, evolving industry
standards or new market demands. The failure of the Company to
8
<PAGE>
respond to such changes could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background" and "--Research and Development."
GOVERNMENT AND COMMERCIAL CUSTOMER CONCENTRATION
The Company derives a substantial portion of its total revenues from the
sale of software licenses and maintenance to US Government entities and
government contractors. The Company generally provides the US Government and
government contractors with discounts off the Company's commercial list
prices. Sales to US Government entities, excluding government contractors,
represented in the aggregate approximately 25%, 27% and 36% of the Company's
total revenues for the years ended December 31, 1996, 1997 and for the six
months ended June 30, 1998, respectively. The Company's business depends, in
significant part, upon the US Government's continued demand for satellite
analysis software in the areas of defense, civil space and intelligence
operations. As a result, the Company's business, financial condition and
results of operations may be materially affected by changes in US Government
expenditures for space-related programs. Including government contractors,
sales to whom depend, in large part, upon US Government demand, government
sales represented approximately 87%, 82% and 82% of the Company's total
revenues for the years ended December 31, 1996, 1997 and for the six months
ended June 30, 1998, respectively.
In addition to the sales to US Government entities and government
contractors, the Company derived 13%, 18% and 18% of its total revenues from
the sale of software licenses and maintenance to commercial customers for the
years ended December 31, 1996 and 1997 and for the six months ended June 30,
1998, respectively.
Sales to Lockheed Martin Corp., NASA and TRW, Inc. accounted for
approximately 14%, 14% and 10% of total revenues, respectively, in the year
ended December 31, 1996. Sales to Lockheed Martin Corp. and NASA accounted for
approximately 14% and 12% of total revenues in the year ended December 31,
1997. Sales to NASA accounted for approximately 13% of total revenues in the
six months ended June 30, 1998. The Company anticipates that its results of
operations in any given period will continue to depend significantly upon
sales to a small number of customers. As a result of this customer
concentration, the Company's revenues from quarter to quarter and business,
financial condition and results of operations may be subject to substantial
period-to-period fluctuations. In addition, the Company's business, financial
condition and results of operations could be materially adversely affected by
the failure of customer orders to materialize as and when anticipated. Other
than certain agreements which provide for ongoing maintenance revenues, none
of the Company's customers have entered into an agreement requiring ongoing
minimum purchases. Many of the Company's principal customers may also be
competitors of the Company. There can be no assurance that the Company's
principal customers will continue to purchase products from the Company at
current revenue levels, if at all. The loss of one or more major customers
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations " and "Business--Customers."
MANAGEMENT OF GROWTH
The Company's growth has placed significant demands on its management,
administrative and operational resources. From January 1, 1996 through June
30, 1998, the Company's staff increased from 41 to 130 full-time employees.
The Company's ability to manage its growth effectively will require the
Company to continue developing and improving its operational, financial and
other internal systems, as well as its business development capabilities, and
to attract, hire, train, retain, motivate and manage its employees. The
Company must be able to allocate sufficient engineering resources to develop
new products as well as maintain and improve the quality of existing products.
Moreover, the Company's senior management has not previously managed a
business of the Company's size and has no experience managing a public
company. There can be no assurance that the Company will continue to grow or
that the Company will effectively manage its growth. Failure to accomplish any
of the foregoing would have a material adverse effect on the Company's
business,
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financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RISKS OF PRODUCT DEFECTS
Complex software applications such as those developed, licensed and sold by
the Company may contain errors or failures. There can be no assurance that
errors will not be found in the Company's product offerings or, if discovered,
that the Company will be able to successfully correct such errors or failures
in a timely manner, or at all. The occurrence of errors or failures in the
Company's products and applications could result in the loss of or delay in
market acceptance, increased service and warranty costs or payment of
compensatory or other damages. Because the Company's revenues are dependent on
market acceptance of STK and the related suite of application modules, a
significant error in one or more of these software programs could erode
customer confidence and substantially impair the Company's revenue generating
ability. Because of the high costs of satellite production and operation and
the degree to which many companies, governments and individuals depend upon
the services provided by satellite systems, catastrophic failure could cause
substantial damages. The Company's contracts with its customers may not
effectively protect the Company against the liabilities and expenses
associated with software errors or failures. The Company does not maintain
errors and omissions insurance to cover liability associated with its software
development activities and license agreements. Errors or failures also may
result in delays in the recognition of revenues by the Company and divert the
Company's engineering resources during the period required to correct such
defects. Accordingly, errors or failures in the Company's products or
applications could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "--Risks Associated with
Year 2000 Problem" and "Business--Products and Services."
LENGTH OF SALES CYCLE
The Company believes that the period of time between initial customer
contact and the sale of software to such customer is typically six to nine
months but can be as long as 24 months. Purchasers of satellite analysis
software typically conduct extensive and lengthy product evaluations before
purchasing software or engaging application developers. During such
evaluation, the Company may need to make significant investments in its sales
and marketing efforts and is subject to the risk that space missions or
projects will be curtailed or terminated, that customer budgets will be
reduced or that customers will lower the priority they assign to applications
development. Any such occurrence, particularly if significant and
unanticipated by the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Marketing" and "--Sales."
LIMITED PROTECTION OF PROPRIETARY RIGHTS; ENFORCEMENT OF RIGHTS
The Company's success and its ability to compete is dependent, in large
part, upon its proprietary rights. To protect these rights, the Company relies
upon a combination of copyright, trade secret, trademark and patent laws and
generally enters into confidentiality, non-competition and invention
assignment agreements with its employees and consultants and into non-
disclosure agreements with its distributors. The Company also limits access to
and distribution of the source code to its software and other proprietary
information. The Company licenses, rather than sells, its software pursuant to
license agreements contained in its software packages which impose
restrictions on licensees' use of the software. However, preventing
unauthorized use of the Company's products is difficult. Despite the Company's
efforts to safeguard and maintain its proprietary rights in the United States
and abroad, there can be no assurance that the steps taken by the Company will
be adequate to prevent misappropriation of its technology or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. Any such
misappropriation or independent development could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, the laws of certain countries in which the Company's
products are distributed are difficult to enforce or do not protect the
Company's products and intellectual property rights to the same extent as do
the laws of the United States. There can be no assurance that the measures
taken
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by the Company will be adequate to protect its proprietary rights. Litigation
may be necessary to defend and enforce the Company's proprietary rights, which
could result in substantial costs and diversion of management resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations, regardless of the final outcome of such
litigation.
The Company may become subject to claims of infringement or misappropriation
of the intellectual property rights of others. While the Company generally
does not indemnify its customers for infringement of patents, trademarks,
copyrights or other proprietary rights of third parties, there can be no
assurance that the Company will not be liable for damages or expenses
associated with such claimed infringement. In addition, the Company, in its
licenses and software development and distribution agreements with its
resellers, distributors and partners, generally agrees to indemnify such third
parties for any expenses and liabilities resulting from claimed infringements
of patents, trademarks, copyrights or other proprietary rights of third
parties. The amount of the Company's indemnity obligations may be greater than
the Company's revenues received under such agreements. There can be no
assurance that third parties will not assert infringement or misappropriation
claims against the Company, its customers or distributors in the future with
respect to current or future products or services. Any claims or litigation,
with or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty or
licensing arrangements. Such royalty or licensing arrangements, if required,
may not be available on terms acceptable to the Company, if at all. The
inability to enter into satisfactory licensing agreements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, the Company licenses certain technologies and software products
from third party developers, and expects that it will continue to license or
acquire technologies or products to extend its current offerings. Generally,
the Company's agreements with its licensors are non-exclusive and may be
terminated at any time by either party typically upon 60 days prior notice.
There can be no assurance that the Company's licensors will not terminate
their agreements with the Company, develop products that compete with the
Company's products in the future or provide their products and expertise to
the Company's competitors. The Company generally relies upon representations
and warranties of such licensors that they have the right to license such
technology and that their products do not infringe upon the intellectual
property rights of others. There can be no assurance that other third parties
will not assert infringement or misappropriation claims against the Company,
its customers, licensors or distributors in the future with respect to such
licensed products or technologies. Any claims or litigation, with or without
merit, could be time-consuming, costly and cause product shipment delays or
require the Company to enter into additional royalty or licensing arrangements
which may not be available on terms acceptable to the Company, if at all, and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Intellectual Property."
RISKS ASSOCIATED WITH NEW OFFERINGS
As part of its strategy, the Company intends to selectively offer specific
applications development services to meet customer timetables and to further
expand features and functionality provided by its products. The Company
initially expects that it will need to outsource some or all of such
development projects to third party developers. The Company has limited
experience providing such services and there can be no assurance that the
Company will successfully market such services or that the Company or its
third party developers will meet customer expectations. The Company believes
that in order to be competitive, it will need to offer such services pursuant
to fixed price contracts. In addition, there can be no assurance that the
Company or its third party development partners will be able to complete such
projects within the fixed price and required timeframes. The failure to
perform within such fixed price contracts could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Strategy."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
The Company's success depends in part on its ability to attract, hire,
train, retain and motivate qualified engineering, technical and sales
personnel, with appropriate levels of managerial and technical capabilities.
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Because the Company's technology is complex, employees generally must have
substantial expertise to be effective in developing and marketing the
Company's products. The Company may experience difficulty in recruiting a
sufficient number of qualified employees. The Company believes that the pool
of potential applicants with requisite expertise is limited and recruiting
qualified personnel can be an intensely competitive and time-consuming
process. The Company competes for such personnel with software companies and
the in-house development staffs of satellite manufacturers and equipment
vendors, many of which have greater resources than the Company. Such
competition may result in demands for increased compensation from qualified
applicants and result in increased turnover in technical personnel. Such
turnover may also increase the likelihood that the Company's proprietary
rights will be compromised. There can be no assurance that the Company will be
successful in attracting and retaining the technical personnel it requires to
conduct and expand its operations successfully. The Company's business,
financial condition and results of operations could be materially adversely
affected if the Company were unable to attract, hire, train, retain and
motivate qualified technical personnel. See "Business--Strategy" and "--
Employees."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; INDIRECT SALES CHANNELS
Although a small portion of the Company's total revenues has been derived
from customers outside the United States, the Company anticipates that its
international revenues will increase in the future. International revenues
constituted approximately 8% and 13% of the Company's total revenues in 1997
and the six months ended June 30, 1998, respectively. The Company has started
to establish a network of third party business partner resellers to market and
sell its products in Europe and Asia. There can be no assurance that such
resellers will successfully market and sell the Company's products or provide
the effort and support necessary to service international markets effectively.
Furthermore, selling through indirect channels may limit the Company's
information concerning the volume of products sold by the Company's resellers
to end users and impede the Company's contact with such end users. As a
result, the Company's ability to forecast revenues accurately, evaluate end
user satisfaction and recognize emerging end user requirements may be
hindered. Moreover, the Company has limited experience in establishing and
maintaining indirect distribution channels and there is no assurance that it
will do so successfully. Additionally, any failure by the Company's existing
and future distributors to generate significant revenues could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company intends to expand its existing international operations and
enter new international markets, which will demand significant management
attention and financial commitment. The Company's management has limited
experience in international operations, and there can be no assurance that the
Company will successfully expand its international operations. The failure by
the Company to expand its international operations could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Marketing" and "--Sales."
The Company's international operations are subject to risks inherent in the
conduct of international business, including unexpected changes in relative
values of foreign currencies, regulatory requirements, political and economic
conditions, taxes, tariffs or other barriers, difficulties in staffing and
managing international operations, potential exchange and repatriation
controls on foreign earnings, limited intellectual property protection, longer
sales and payment cycles and difficulty in collecting accounts receivable from
resellers or customers. In addition, some of the Company's products are
subject to export controls. There can be no assurance that foreign political
developments and domestic security needs will not result in a significant
reduction in the Company's ability to sell certain of it products and services
in foreign markets. The foregoing risks may adversely affect the Company's
business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend upon its ability to retain its management,
key product and application engineers, and sales and technical sales support
personnel as well as its ability to identify, hire and retain
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additional senior personnel. The loss of one or more key employees could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, if one or more of the Company's key
employees resigns from the Company to join a competitor or to form a competing
company, any resulting loss of existing or potential clients to any such
competitor could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event of the loss of any
key employee, there can be no assurance that the Company would be able to
prevent the unauthorized disclosure or use of its technical knowledge,
practices or procedures by such former employee. Each of the Company's co-
founders, Paul L. Graziani, President and Chief Executive Officer, and Scott
A. Reynolds, Vice President and Chief Software Architect, has entered into a
three-year employment agreement commencing August 1, 1998 with the Company
which contains non-competition, non-disclosure and non-solicitation covenants
that extend for a period of two years following termination of employment. The
Company maintains, and is the beneficiary of, key person life insurance
policies, each in the face amount of $1.0 million on the lives of Mr. Graziani
and Mr. Reynolds. There can be no assurance that the proceeds from such
insurance would be sufficient to compensate the Company in the event of the
death of either Mr. Graziani or Mr. Reynolds. The Company does not maintain
key person life insurance on any of its other employees. Failure to attract
and retain key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Employees" and "Management."
INTENSE COMPETITION
The market providing software solutions for the space industry is intensely
competitive and is characterized by rapidly changing technologies, evolving
industry standards, frequent new product introductions and rapid changes in
customer requirements. The Company competes primarily with in-house
development staffs of satellite manufacturers and equipment vendors, third
party contractors and a small group of other space-oriented software providers
and systems integrators. To maintain and improve its competitive position, the
Company must continue to develop and introduce, on a timely and cost-effective
basis, new products and features that keep pace with the evolving needs of its
customers. The Company believes that the principal competitive factors
affecting the market for the Company's products and suite of application
modules are quality, performance, product features (such as adaptability,
scalability, ability to integrate with other products, functionality and ease
of use), price, customer support and product reputation. There can be no
assurance that the Company will be able to compete effectively based upon such
competitive factors.
Many of the Company's competitors have longer operating histories, greater
name recognition, larger or captive customer bases and significantly greater
financial, technical, sales, customer support, marketing and other resources.
Such competitors may be able to respond more quickly to emerging technologies
and changes in customer requirements. The Company may face increased
competition as other established and emerging companies enter the COTS
software market for the space industry and as new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders and loss of market share, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, current and potential competitors may make strategic
acquisitions, merge or establish cooperative relationships among themselves or
with third parties, thereby increasing their ability to produce and market
products that address the needs of the Company's current or prospective
customers. There can be no assurance that the Company will be able to compete
successfully against current and future competitors. Failure by the Company to
compete successfully would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Competition."
RISKS ASSOCIATED WITH YEAR 2000 PROBLEM
Many currently installed operating systems and software products are coded
to accept only two digit entries in the date code field. These date code
fields need additional digits to distinguish 21st century dates from 20th
century dates. As a result, computer systems and software used by many
companies may need to be upgraded to comply with "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning
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potential effects associated with such compliance. In response to this risk,
the Company has conducted a Year 2000 compliance review of its products and
has determined that STK and all products, other than the Precision Orbit
Determination System, are Year 2000 compliant.
The Company has informed its customers that its products are free from Year
2000 defects. The Company is in the process of informing its customers that
have licensed the Precision Orbit Determination System that such product is
not presently compliant. The Company has been informed by the third party
developer that the Year 2000 compliant code for the Precision Orbit
Determination System should be available by the end of 1998. There can be no
assurance that the Company's products are Year 2000 compliant, that a Year
2000 compliant version of the Precision Orbit Determination System will be
released, or that the Company's products will not be integrated by the Company
or its customers with non-compliant software which may expose the Company to
claims from its customers. While the Company generally disclaims warranties of
its products to the extent provided by law, there can be no assurance that the
Company's disclaimer of warranties will adequately protect the Company in the
event its products are not compliant with Year 2000 requirements. The
foregoing could result in the loss of or delay in market acceptance of the
Company's products and services, increased maintenance and support costs to
the Company or payment by the Company of compensatory or other damages.
Additionally, unanticipated costs incurred by the Company in connection with
the remediation of its customers' products or any disputes with customers
relating to Year 2000 compliance could have a material adverse effect on the
Company's business, financial condition and results of operations.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
While the Company's operations are not directly regulated, the Company's
existing and potential customers are subject to a variety of United States and
foreign government regulations. Such regulations may adversely affect the
satellite and telecommunications industries, limit the number of potential
customers for the Company's products and services or otherwise have a material
adverse effect on the Company's business, financial condition and results of
operations. Recent deregulation of the US telecommunications industry through
legislation such as the Telecommunications Act of 1996 could result in a
number of changes in the satellite and telecommunications industries,
including entry of new competitors or consolidation. If consolidation were to
occur, it could reduce the Company's potential customer base, increase pricing
pressures on the Company, decrease demand for the Company's products, increase
the Company's costs or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS RELATING TO POTENTIAL ACQUISITIONS
An element of the Company's strategy is to make acquisitions that would
complement its existing product offerings or enhance its technological
capabilities or that may otherwise offer growth opportunities. The Company has
no current agreements or negotiations pending with respect to any such
acquisitions. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, any of which could materially adversely affect the Company's business,
financial condition and results of operations or the price of the Company's
Common Stock. Acquisitions entail numerous risks, including difficulties in
the integration of acquired operations, technologies and products, diversion
of management's attention to other business concerns, risks of entering
markets in which the Company has no or limited prior experience and potential
loss of key employees of acquired organizations. The Company's management has
limited experience in integrating acquired organizations. No assurance can be
given as to the ability of the Company to successfully integrate any
businesses, products, technologies or personnel that may be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Use of Proceeds" and "Business--Strategy."
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SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have shares of Common Stock
outstanding, including shares of Common Stock to be issued upon the
exercise by certain of the Selling Shareholders of a portion of the currently
exercisable options and warrants but assuming no exercise of any other
currently outstanding options or warrants. Of these shares, the shares
sold in this offering (plus any additional shares sold upon exercise of the
Underwriters' over-allotment option) will be freely transferable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), unless they are held by "affiliates" of the Company as that term is
used under the Securities Act and the regulations promulgated thereunder.
Shareholders of the Company, holding in the aggregate approximately shares
of Common Stock, have agreed, subject to certain limited exceptions, not to
sell or otherwise dispose of any of the shares held by them as of the date of
this Prospectus for a period of 180 days after the date of this Prospectus
without the prior written consent of Lehman Brothers. Lehman Brothers may
release any of such shares in its sole discretion at any time and without
prior notice. At the end of such 180-day period, approximately shares of
Common Stock will be eligible for immediate resale, subject to compliance with
Rule 144. In addition, approximately shares will be issuable upon exercise
of vested options subject to compliance with Rules 144 and 701 under the
Securities Act. All remaining shares of Common Stock outstanding will become
eligible for sale at various times over a period of less than two years and
could be sold earlier if the holders exercise any available registration
rights. The holders of shares of Common Stock and shares of Common
Stock underlying the remaining outstanding warrants have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public. If such holders, by exercising their
demand or piggyback registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Common Stock. In addition, if the Company
were required to include in a Company-initiated registration shares held by
such holders pursuant to the exercise of their piggyback registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. The Company also may file registration statements on Form S-8 under
the Securities Act as soon as practicable after consummation of this offering
to register all shares of Common Stock issuable or reserved for issuance under
the Company's stock option plans. After the effective date of the Form S-8
registration statements, shares issued upon the exercise of stock options will
be eligible for resale in the public market without restriction, subject to
Rule 144 limitations applicable to affiliates and the 180-day lock-up
agreements referenced above. See "Management--Stock Option Plans,"
"Description of Capital Stock--Registration Rights of Certain Security
Holders," "Shares Eligible for Future Sale" and "Underwriting."
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of this offering, the Company's executive officers,
directors and affiliated entities together will beneficially own approximately
% of the outstanding shares of Common Stock ( % if the Underwriters' over-
allotment option is exercised in full). As a result, these shareholders,
acting together, will be able to control matters requiring approval by the
shareholders of the Company, including the election of directors. Such a
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company, including transactions in which shareholders
might otherwise receive a premium for their shares over then current market
prices. See "Principal and Selling Shareholders."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBILITY OF VOLATILITY OF STOCK
PRICES
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial public
offering price will be determined by negotiations between the Company and the
Underwriters and is not necessarily indicative of the market price at which
the Common Stock of the Company will trade after this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market prices for securities of
technology companies have been highly volatile and the market has experienced
significant price and volume fluctuations that are sometimes unrelated to the
operating performance of particular companies. Announcements of technological
innovations or new products or service
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offerings by the Company or its competitors, developments concerning
proprietary rights, including patents and litigation matters, domestic or
international regulatory developments affecting the satellite, space or
telecommunications industries, general market conditions, any shortfall in
revenues or earnings from expected levels or other failures by the Company to
meet expectations of securities analysts and other factors, may have a
significant impact on the market price of the Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW AND OTHER PROVISIONS
Certain provisions of the Company's Articles of Incorporation, as amended
(the "Articles of Incorporation"), and By-Laws, as amended (the "By-Laws"),
and the Pennsylvania Business Corporation Law of 1988 (the "PBCL") will
effectively make it more difficult for a third party to acquire control of the
Company by means of a tender offer or a proxy contest for the election of
directors or otherwise. For example, the Articles of Incorporation contain
provisions which authorize the Board of Directors to issue, without
shareholder approval, 5,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock or of rights to
purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal, proxy contest, make more difficult the acquisition of a
substantial block of the Common Stock or limit the price that investors might
be willing to pay in the future for shares of the Common Stock. In addition,
the Articles of Incorporation contain provisions pursuant to which (i) the
Company's Board of Directors is classified into three classes, with one class
being elected each year; (ii) the affirmative vote of at least 66 2/3% of the
votes cast by eligible shareholders shall be required to adopt, amend or
repeal any provision of the By-Laws of the Company or approve Fundamental
Changes as defined in the PBCL, including certain mergers, consolidations and
sales of substantially all of the Company's assets, as defined in the PBCL;
(iii) shareholders of the Company may not take any action by written consent;
(iv) special meetings of shareholders may be called only by the President, the
Chairman of the Board or a majority of the Board of Directors and business
transacted at any such meeting shall be limited to matters relating to the
purposes set forth in the notice of such special meeting; (v) the Company
shall not be subject to certain anti-takeover provisions affecting registered
corporations under the PBCL; (vi) the affirmative vote of at least 66 2/3% of
the votes cast by eligible shareholders shall be required to amend the above
provisions; and (vii) the affirmative vote of at least 80% of the votes cast
by eligible shareholders shall be required to amend the provisions of the
Articles of Incorporation with respect to indemnification of Directors or
executive officers or the limitation of liability of Directors.
These provisions may have the effect of lengthening the time required for a
person to acquire control of the Company through a proxy contest for the
election of a majority of the Board of Directors, may discourage bids for the
Common Stock at a premium over the market price and may deter efforts to
obtain control of the Company. See "Description of Capital Stock--Preferred
Stock" and "--Anti-takeover Provisions."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to repay all of its outstanding bank indebtedness
(approximately $6.3 million as of July 31, 1998) and to pay approximately
$185,000 of cumulative dividends on preferred stock from the net proceeds to
the Company of this offering. The Company currently has no specific plans for
use of the remaining estimated net proceeds to the Company from this offering.
The Company anticipates that such proceeds will be used for sales and
marketing activities, research and development activities, general corporate
purposes and working capital. As a consequence, the Company's management will
have the discretion to allocate the net proceeds to uses that shareholders may
not consider desirable, and there can be no assurance that the net proceeds
can or will be invested to yield a significant return. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
their investment from the initial public offering price. Additional dilution
will occur upon exercise of outstanding options and warrants. See "Dilution"
and "Shares Eligible for Future Sale."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be approximately $
assuming an initial public offering price of $ per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Shareholders hereby but will
receive approximately $ from the exercise of options and warrants by
certain Selling Shareholders to purchase an aggregate of shares of Common
Stock upon the consummation of this offering. See "Principal and Selling
Shareholders."
The Company is obligated to use a portion of the net proceeds of this
offering to repay all amounts outstanding (including accrued interest) under
its $4.0 million term loan ("Term Loan") and $2.5 million revolving credit
facility ("Revolving Credit Facility") with PNC Bank, N.A. (the "Bank") and
certain other banks. As of July 31, 1998, the Company had $2.3 million and
$4.0 million of outstanding borrowings under the Revolving Credit Facility and
Term Loan, respectively. The Term Loan and the Revolving Credit Facility are
used by the Company for working capital purposes. The Term Loan bears interest
at the Bank's prime rate plus 3.5% per annum (12.0% as of June 30, 1998) and
the Revolving Credit Facility bears interest at the Bank's prime rate plus
1.0% per annum (9.5% as of June 30, 1998). The Company also intends to use
approximately $185,000 of the net proceeds of this offering to pay cumulative
dividends on preferred stock. See "Description of Capital Stock--Preferred
Stock." The Company expects to use the remainder of the net proceeds from this
offering for sales and marketing activities, research and development
activities, general corporate purposes and working capital. Such proceeds may
be used to acquire businesses, technologies or products that complement the
Company's business, although the Company has no agreements or understandings
with respect to any such transactions. Pending such uses, the Company intends
to invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing instruments. See "Risk Factors--Broad Management Discretion
in Use of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to use approximately $185,000 of the net proceeds
of this offering to pay cumulative dividends on preferred stock. Upon
consummation of this offering, all outstanding shares of Series A Preferred
Stock automatically will be converted into an aggregate of 2,888,472 shares of
Common Stock. The Company intends to retain any earnings to fund future growth
and the operation of its business and, therefore, does not anticipate paying
any cash dividends in the foreseeable future. In addition, the Company's Term
Loan and Revolving Credit Facility with the Bank restricts the Company's
ability to pay cash dividends. Payment of future dividends, if any, will be at
the discretion of the Company's Board of Directors after taking into account
various factors including the Company's earnings, financial condition,
operating results and current and anticipated cash needs, as well as economic
conditions as the Board of Directors may deem relevant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) at
June 30, 1998 and (ii) pro forma to give effect to the automatic conversion of
all issued and outstanding shares of Series A Preferred Stock into 2,888,472
shares of Common Stock, the issuance of shares of Common Stock upon the
exercise by certain of the Selling Shareholders of a portion of their
presently exercisable options and warrants and as adjusted for the sale by the
Company of shares of Common Stock offered hereby assuming an initial
public offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company and the application of the estimated net proceeds therefrom. This
table should be read in conjunction with the Company's Financial Statements
and Notes thereto included elsewhere in this Prospectus. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AT JUNE 30, 1998
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(in thousands,
except share data)
<S> <C> <C>
Long-term debt, less current portion(1)................... $ 3,000 $
------- ----
Redeemable convertible preferred stock:
Series A Preferred Stock, $.01 par value; 256,753 shares
authorized, issued and outstanding, actual; no shares
authorized, issued and outstanding, pro forma as
adjusted............................................... 2,713
------- ----
Shareholders' equity (deficit):
Preferred stock, $.01 par value; no shares authorized,
issued and outstanding, actual; 5,000,000 shares
authorized(2), no shares issued and outstanding, pro
forma as adjusted...................................... --
Common stock, $.01 par value; 5,000,000 shares
authorized, 4,193,949 shares issued and 4,185,511
shares outstanding, actual; 30,000,000 shares
authorized(2), shares issued and shares
outstanding and pro forma as adjusted,
respectively(3)........................................ 42
Additional paid-in capital.............................. 1,650
Deficit................................................. (5,373)
Treasury stock, 8,438 shares of common stock at cost,
actual; and no shares of common stock, pro forma as
adjusted(4)............................................ (32)
Deferred compensation................................... (465)
------- ----
Total shareholders' equity (deficit).................... (4,178)
------- ----
Total capitalization.................................. $ 1,535 $
======= ====
</TABLE>
- --------
(1) Excludes $2.3 million borrowed by the Company under the Revolving Credit
Facility subsequent to June 30, 1998.
(2) Reflects the filing of an Amended and Restated Articles of Incorporation
by the Company upon the effectiveness of this offering to, among other
things, increase the number of authorized shares of Common Stock and
authorize shares of undesignated Preferred Stock.
(3) Excludes (i) 1,987,441 shares of Common Stock issuable upon the exercise
of outstanding stock options as of June 30, 1998 with a weighted average
exercise price of $1.39 per share, under the Company's 1995 Stock Plan,
the Incentive Stock Option Plan and the Non-Qualified Stock Option Plan,
(ii) 500,000 shares of Common Stock reserved for issuance upon the
exercise of options available for grant under the 1998 Stock Plan, and
(iii) 40,500 shares of Common Stock issuable upon the exercise of
outstanding warrants with an exercise price of $6.67 per share. See "Risk
Factors--Shares Eligible for Future Sale and Potential Adverse Effect on
Market Price," "Management--Stock Option Plans," and "Description of
Capital Stock--Warrants."
(4) Upon consummation of this offering, shares held in treasury shall be
reinstated to the status of authorized but unissued shares.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998 was
$(2.4) million, or $ per share of Common Stock. Pro forma net tangible book
value per share is determined by dividing the Company's tangible net worth
(tangible assets less liabilities), by the number of shares of Common Stock
outstanding, after giving effect to, upon the consummation of this offering,
the conversion into Common Stock of all shares of Series A Preferred Stock and
the issuance of shares of Common Stock to be issued upon the exercise by
certain of the Selling Shareholders of a portion of the currently exercisable
options and warrants. After giving effect to the sale of the shares of Common
Stock offered by the Company hereby (at an assumed initial public offering
price of $ per share) and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company, the pro
forma net tangible book value of the Company as of June 30, 1998 would have
been $ per share. This represents an immediate increase in such pro forma
net tangible book value of $ per share to existing holders and immediate
dilution of $ per share to new investors purchasing shares in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share as of June 30,
1998.......................................................... $
Increase per share attributable to this offering...............
----
Pro forma net tangible book value per share after this offering..
----
Dilution per share to new investors.............................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the total number of shares of Common Stock purchased from the Company, the
total consideration paid and the average consideration per share paid by
existing shareholders and by new investors purchasing shares offered by the
Company hereby, at an assumed initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing sharehold-
ers(2)................. % $ % $
New investors...........
-------- ---------- --------- ----------
Total................. 100.0% $ 100.0%
======== ========== ========= ==========
</TABLE>
- --------
(1) Sales by the Selling Shareholders in this offering will reduce the number
of shares held by existing shareholders to , or approximately % of the
total number of shares of Common Stock outstanding after this offering (or
shares and approximately % if the Underwriters' over-allotment option
is exercised in full), and will increase the number of shares held by new
investors to , or approximately % of the total number of shares of
Common Stock outstanding after this offering (or shares and
approximately % if the Underwriters' over-allotment option is exercised
in full). See "Principal and Selling Shareholders."
(2) Includes an aggregate of shares of Common Stock to be issued upon the
exercise by certain security holders of outstanding options and warrants
immediately prior to the consummation of this offering. Excludes (i)
1,987,441 shares of Common Stock issuable upon the exercise of outstanding
stock options as of June 30, 1998 with a weighted average exercise price
of $1.39 per share, under the Company's 1995 Stock Plan, the Incentive
Stock Option Plan and the Non-Qualified Stock Option Plan, (ii) 500,000
shares of Common Stock reserved for issuance upon the exercise of options
available for grant under the 1998 Stock Plan, and (iii) 40,500 shares of
Common Stock issuable upon the exercise of outstanding warrants with an
exercise price of $6.67 per share. See "Risk Factors--Shares Eligible for
Future Sale and Potential Adverse Effect on Market Price," "Management--
Stock Option Plans," and "Description of Capital Stock--Warrants."
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data with respect to the Company's
statement of operations for the years ended 1995, 1996 and 1997 and with
respect to the Company's balance sheets as of December 31, 1996 and 1997 have
been derived from the Company's Financial Statements which have been audited
by PricewaterhouseCoopers LLP, independent accountants, appearing elsewhere in
this Prospectus. The balance sheet data as of December 31, 1995 and the
selected financial data as of, and for the period ended December 31, 1994 has
been derived from audited financial statements not included in this
Prospectus. The selected financial data as of and for the period ended
December 31, 1993 has been derived from unaudited financial statements not
included in this Prospectus. The selected financial data as of June 30, 1997
and 1998, and for the six months ended June 30, 1997 and 1998 have been
derived from the unaudited financial statements of the Company, which are
included elsewhere in this Prospectus. The unaudited financial data includes
all adjustments consisting only of normal, recurring adjustments that the
Company considers necessary for fair presentation of the financial position
and results of operations for these periods. The results of operations for the
six months ended June 30, 1998 are not necessarily indicative of the results
for any future period or for the full year ended December 31, 1998. The
following should be read in conjunction with the Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------
1993 1994 1995(1) 1996 1997(2) 1997 1998
------ ------ ------- ------ ------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.......... $1,022 $1,586 $ 2,333 $5,745 $10,384 $ 5,460 $ 4,813
Maintenance and other...... 85 33 403 1,217 2,478 1,069 1,693
------ ------ ------- ------ ------- ------- --------
Total revenues........... 1,107 1,619 2,736 6,962 12,862 6,529 6,506
Cost of revenues:
Software licenses.......... 192 248 387 836 1,103 449 510
Maintenance and other...... 151 60 108 279 761 315 457
------ ------ ------- ------ ------- ------- --------
Total cost of revenues... 343 308 495 1,115 1,864 764 967
------ ------ ------- ------ ------- ------- --------
Gross profit................ 764 1,311 2,241 5,847 10,998 5,765 5,539
------ ------ ------- ------ ------- ------- --------
Operating expenses:
Marketing and selling...... 237 396 1,603 3,580 8,042 3,256 4,919
Research and development... 245 462 935 1,447 3,214 1,493 2,129
General and administra-
tive...................... 296 336 672 787 1,110 502 947
------ ------ ------- ------ ------- ------- --------
Total operating ex-
penses.................. 778 1,194 3,210 5,814 12,366 5,251 7,995
------ ------ ------- ------ ------- ------- --------
Operating income (loss)...... (14) 117 (969) 33 (1,368) 514 (2,456)
------ ------ ------- ------ ------- ------- --------
Other income (expense)....... 2 (26) 43 (8) (48) 12 (136)
------ ------ ------- ------ ------- ------- --------
Income (loss) before income
taxes....................... (12) 91 (926) 25 (1,416) 526 (2,592)
------ ------ ------- ------ ------- ------- --------
Provision for income taxes... -- 53 -- -- -- -- --
------ ------ ------- ------ ------- ------- --------
Net income (loss)............ $ (12) $ 38 $ (926) $ 25 $(1,416) $ 526 $ (2,592)
====== ====== ======= ====== ======= ======= ========
Net income (loss) applicable
to common shares............ $ (38) $ 29 $ (926) $ 25 $(1,518) $ 475 $ (2,745)
====== ====== ======= ====== ======= ======= ========
Pro forma:(3)
Net income (loss) per basic
common share:
Basic earnings (loss) per
share................... $(0.01) $ 0.01 $ (0.18) $ 0.00 $ (0.22) $ 0.07 $ (0.39)
Weighted average shares--
basic................... 3,206 3,424 5,303 6,723 6,849 6,833 6,949
Net income (loss) per
diluted common share:
Diluted earnings (loss)
per share............... $(0.01) $ 0.01 $ (0.18) $ 0.00 $ (0.22) $ 0.06 $ (0.39)
Weighted average shares--
diluted................. 3,206 4,154 5,303 7,235 6,849 8,042 6,949
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ------ ------ ------- ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................... $ 16 $161 $1,428 $1,115 $ 854 $ 904 $ 1,113
Working capital (defi-
ciency)................. (77) 115 1,201 1,354 (895) 1,576 (940)
Total assets............. 575 896 3,266 5,073 6,663 7,283 7,275
Total long-term debt (in-
cluding current)........ 152 374 17 725 586 691 4,035
Series A preferred
stock................... -- -- 2,560 2,560 2,662 2,611 2,713
Total shareholders' eq-
uity (deficit).......... (88) 88 (551) (418) (1,889) 57 (4,178)
</TABLE>
- --------
(1) In 1995, the Company recorded non-cash compensation expense of $219,000
related to non-qualified stock options granted in connection with the
severance of a senior executive of the Company. See Note 6 to Notes to
Financial Statements.
(2) In 1997, associated with the strategic decision to offer its base product,
STK, free of charge to potential customers, the Company incurred charges
totaling approximately $700,000, consisting of $544,000 of marketing and
selling expenses and $156,000 included in research and development
expenses for the write-off of certain capitalized software development
costs associated with the Company's base product. See Note 1 to Notes to
Financial Statements.
(3) Pro forma to give effect to the automatic conversion of all issued and
outstanding shares of Series A Preferred Stock into 2,888,472 shares of
Common Stock. See "Description of Capital Stock."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus which could cause actual results to
differ materially from those indicated by such forward-looking statements,
including the matters set forth under the caption "Risk Factors."
OVERVIEW
The Company develops, markets and supports industry leading commercial off-
the-shelf ("COTS") software solutions for the space industry. The Company's
base product, Satellite Tool Kit ("STK"), and related suite of 23 application
modules enable space industry professionals to develop, simulate, track,
operate and use satellites more effectively, resulting in enhanced
productivity and functionality of satellite missions. The Company also
provides maintenance, support, training and other services and intends to
offer application development services in the near future. The Company
licenses its products through both direct and indirect channels. Domestically,
the Company markets primarily through its direct sales organization, and
internationally, through resellers.
The Company introduced STK in 1989 and began to derive the majority of its
revenues from commercial distribution of its software in 1992. The Company's
revenues increased from $2.7 million for the year ending December 31, 1995 to
$12.9 million for the year ending December 31, 1997, representing a compound
annual growth rate of approximately 119%. In order to become the leading
global provider of software solutions for the space industry, the Company
seeks to maximize user awareness of its products, increase market and customer
penetration, establish STK as the industry standard and provide new market
opportunities for the Company's suite of software products. From the Company's
inception until mid-1997, the Company sold STK licenses to approximately 1,300
registered users at prices up to $10,000 per license. At that time,
approximately 20% of the Company's revenues were derived from STK licenses and
approximately 80% of its revenues resulted from licenses of one or more of its
application modules.
In an effort to more rapidly expand the use of its software, in August 1997
the Company initiated a comprehensive marketing strategy pursuant to which it
licenses its base product, STK, free of charge to potential customers. The
Company believes that wide dissemination of its base product will result in a
rapid increase in the licensing and sales of its application modules. To
establish STK and its related suite of modules as the mission-wide software
solution, the Company uses a focused sales and marketing program directed at a
broad range of users across all space industry segments and conducts
aggressive direct sales and marketing initiatives to further penetrate
organizations currently using its products. Further, the Company targets new
commercial and governmental space programs to encourage the use of the
Company's software as an integral part of the mission solution from a
program's inception. As a result of the Company's strategy, from August 1,
1997 through June 30, 1998, the number of registered STK seats increased from
approximately 1,300 to 14,400. Of the new registered users of STK,
approximately 350 have licensed one or more of the Company's application
modules. See "Risk Factors--Risks Associated with Market and Product
Acceptance," "Business--Strategy" and "--Marketing."
The Company derives substantially all of its revenues from licensing fees
from its STK-related suite of application modules and fees from related
maintenance and other services. Software license revenues are derived from
perpetual, non-exclusive, one-time licenses of one or more of the Company's
application modules and are recognized at the time the product is delivered to
the customer. Other than certain agreements which provide for ongoing
maintenance revenues, none of the Company's customers have entered into an
agreement requiring ongoing minimum purchases. The Company's maintenance and
other revenues are comprised primarily of fees
22
<PAGE>
derived from annual maintenance agreements with its licensees which may be
purchased at the customer's option. Since January 1, 1996, approximately 85%
of the registered STK seats purchased by the Company's customers were covered
by such agreements. Maintenance fees are recognized as revenue over the
maintenance period, which is typically a 12-month term.
The Company's gross margins are affected, among other things, by the mix of
products sold, mix of software license revenues and maintenance and other
revenues, distribution channels used by the Company and sources of revenue.
Currently, the Company realizes higher gross margins on software licenses than
on maintenance and other services, and generally higher gross margins on
commercial contracts than on government-related contracts due to the
discounted pricing arrangements typically associated with government projects.
The Company realizes lower margins on licenses of software products which
embed or incorporate software licensed by the Company from third party
developers due to license fees and royalty payments. Furthermore, the Company
anticipates realizing higher gross margins on direct sales than through
indirect channels. Gross margins also are impacted positively by increases in
the overall volume of products and services sold.
In connection with the implementation of the Company's marketing strategy,
the Company has substantially increased its operating expenses (excluding
deferred compensation expenses and certain non-recurring charges) in recent
periods. To complement this marketing strategy and continue to build
infrastructure to support its growing business, the Company has increased its
investment in operations, particularly sales and marketing and research and
development expenses. The Company anticipates continuing to increase its
investments in all operating areas.
The Company's research and development projects are evaluated for
technological feasibility in order to determine whether they meet
capitalization requirements. The Company has capitalized certain software
development costs in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." In 1995, 1996, 1997 and the six months ended
June 30, 1998, the Company capitalized $89,000, $424,000, $389,000, and
$120,000 of software development costs, respectively. Amortization of
capitalized software development costs was $69,000, $104,000, $196,000
(excluding a $156,000 charge for the write-off of certain capitalized software
development costs in conjunction with the Company's strategic decision to
provide the Company's base product, STK, free of charge), and $123,000 in
1995, 1996, 1997 and the six months ended June 30, 1998, respectively. The
balance of capitalized software development costs, net of accumulated
amortization was $449,000 at June 30, 1998, which amount will be amortized
over a period of approximately three years.
The Company has recorded deferred compensation expense of approximately
$503,000 for the difference between the exercise price and the deemed fair
market value of certain shares of the Company's Common Stock underlying
options granted during the first six months of 1998. Of the total deferred
compensation expense, approximately $102,000 will be recognized as
compensation expense during the year ended December 31, 1998. The remainder
will be amortized over the ensuing four year period. See Note 8 to Notes to
Financial Statements.
Upon the consummation of this offering, the Company will repay all of the
outstanding amounts, aggregating approximately $6.3 million at July 31, 1998,
under the Term Loan and Revolving Credit Facility. As a result, the Company
will incur an extraordinary, one-time, non-cash charge of approximately
$355,000 expected to be recognized in the fourth quarter of 1998 for the
write-off of associated deferred financing costs.
As of June 30, 1998, the Company had an aggregate of approximately $4.9
million and $4.0 million in Federal and state net operating loss
carryforwards, respectively. The net operating losses will expire beginning in
1999 through 2013 if not previously utilized. In the event the net operating
losses expire or are limited or eliminated, the Company expects to provide for
income taxes at rates that approximate statutory rates for future reporting
periods; provided, however, to the extent an unrecorded asset exists through
the valuation allowance
23
<PAGE>
for net deferred tax assets, the tax provision may be affected by management's
evaluation of the need for a valuation allowance with respect to net deferred
tax assets. See Note 5 to Notes to Financial Statements.
The Company derives a substantial portion of its total revenues from the
sale of products to US Government entities and government contractors. Sales
to US Government entities, taken as a whole and excluding government
contractors, represented approximately 25%, 27% and 36% of the Company's total
revenues for the years ended December 31, 1996 and 1997 and for the six months
ended June 30, 1998, respectively. The Company's business depends, in
significant part, upon the US Government's continued demand for satellite
analysis software in the areas of defense, civil space and intelligence
operations. Including government contractors, sales to whom largely depend
upon US Government demand, government sales represented approximately 87%, 82%
and 82% of the Company's total revenues for the years ended December 31, 1996
and 1997 and for the six months ended June 30, 1998, respectively. In addition
to the sales to US Government entities and government contractors, the Company
derived 13%, 18% and 18% of its total revenues from the license of its
products to commercial customers for the years ended December 31, 1996 and
1997 and for the six months ended June 30, 1998, respectively. See "Risk
Factors--Fluctuations of Operating Results; Seasonality" and "--Government and
Commercial Customer Concentration."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------
1995 1996 1997 1997 1998
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses................. 85.3% 82.5% 80.7% 83.6% 74.0%
Maintenance and other............. 14.7 17.5 19.3 16.4 26.0
------- ------- ------- ----- -----
Total revenues.................. 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ----- -----
Cost of revenues:
Software licenses................. 14.2 12.0 8.6 6.9 7.9
Maintenance and other............. 3.9 4.0 5.9 4.8 7.0
------- ------- ------- ----- -----
Total cost of revenues.......... 18.1 16.0 14.5 11.7 14.9
------- ------- ------- ----- -----
Gross profit........................ 81.9 84.0 85.5 88.3 85.1
------- ------- ------- ----- -----
Operating expenses:
Marketing and selling............. 58.6 51.4 62.5 49.9 75.6
Research and development.......... 34.2 20.8 25.0 22.9 32.7
General and administrative........ 24.5 11.3 8.6 7.6 14.6
------- ------- ------- ----- -----
Total operating expenses........ 117.3 83.5 96.1 80.4 122.9
------- ------- ------- ----- -----
Operating income (loss)............. (35.4) 0.5 (10.6) 7.9 (37.8)
------- ------- ------- ----- -----
Net income (loss)................... (33.8)% 0.4% (11.0)% 8.1% (39.9)%
======= ======= ======= ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues. Total revenues were relatively constant at $6.5 million for the
six months ended June 30, 1998 and 1997. Software license revenues, however,
decreased by 11.9% to $4.8 million in the six months ended June 30, 1998 from
$5.5 million in the six months ended June 30, 1997. The decrease in software
license revenues for the six months ended June 30, 1998 compared to the six
months ended June 30, 1997 reflects
24
<PAGE>
significant growth in sales during the 1997 period. In anticipation of the
August 1997 implementation of the Company's new marketing strategy to offer
its base product free of charge, the Company offered special sales incentives
during the six months ended June 30, 1997. These incentives accelerated sales
that the Company believes would have otherwise occurred later in 1997 or in
early 1998. The decrease in sales for the six months ended June 30, 1998 was
partially offset by an increase in international sales and, to a lesser
extent, the release of the Radar module in the second quarter of 1998 which
expanded the potential user base of many of the Company's other modules.
Maintenance and other revenues increased 58.4% to $1.7 million in the six
months ended June 30, 1998 from $1.1 million in the six months ended June 30,
1997, primarily due to the increase in software licenses during prior periods
for which customers typically purchase maintenance agreements and, to a lesser
extent, a price increase effected July 1997.
Gross profit. The Company's gross profit equals total revenues less cost of
total revenues. Costs of revenues consist of costs of software licenses and
costs of maintenance and support. Costs of software licenses consist primarily
of license fees and royalties paid to third party software developers and the
amortization of capitalized software development costs. Costs of maintenance
and support include primarily the costs of personnel and related benefits and
other operating expenses associated with technical support. The Company's
gross profit decreased by 3.9% to $5.5 million in the six months ended June
30, 1998 from $5.8 million in the six months ended June 30, 1997. Gross profit
margin decreased to 85.1% of total revenues in the six months ended June 30,
1998 from 88.3% in the six months ended June 30, 1997. The decrease in gross
margin was due primarily to lower sales of software licenses which generally
carry higher margins than maintenance.
Marketing and selling expenses. Marketing and selling expenses consist
primarily of salaries, commissions and bonuses paid to marketing and sales
personnel, as well as advertising, promotional and travel expenses. In
implementing its strategy, the Company expects to increase the size of its
marketing and sales force, enhance its marketing and selling efforts and
expand its reseller network. As a result, the Company expects that marketing
and selling expenses will increase in absolute dollars and, at least for the
near term, as a percentage of revenues. Marketing and selling expenses
increased 51.1% to $4.9 million in the six months ended June 30, 1998 from
$3.3 million in the six months ended June 30, 1997 and increased from 49.9% to
75.6% of total revenues. The increase in sales and marketing expenses in
absolute dollars was primarily attributable to increases in personnel,
marketing literature, promotional activities, travel costs, base salary
increases and the expansion of the Company's international sales efforts.
Research and development expenses. Research and development expenses are
comprised primarily of software engineering personnel costs attributable to
software development. Research and development expenses are generally charged
to operations as such costs are incurred. As the Company implements its
strategy, the Company anticipates that its research and development expenses
will increase for the foreseeable future as the Company continues to develop,
expand and enhance its suite of products. Research and development expenses
increased 42.6% to $2.1 million in the six months ended June 30, 1998 from
$1.5 million in the six months ended June 30, 1997, and increased from 22.9%
to 32.7% of total revenues, primarily due to an increase in engineering
personnel.
General and administrative expenses. General and administrative expenses
consist of costs for corporate, financial and accounting, strategic business
development and human resource functions. General and administrative expenses
increased 88.6% to $1.0 million in the six months ended June 30, 1998 from
$502,000 in the six months ended June 30, 1997, and increased from 7.6% to
14.6% of total revenues. The increase was due primarily to the expansion of
strategic business development projects and activities as well as the hiring
of key personnel within the accounting and finance and strategic business
development departments. The Company expects that general and administrative
expenses will increase in absolute dollars in future periods as a result of
the anticipated expansion of the Company's operations and related
infrastructure investments associated with being a public company.
Net income (loss). Net loss for the six months ended June 30, 1998 was $2.6
million, compared to net income of $526,000 for the six months ended June 30,
1997. Net loss per common share-diluted was $0.39
25
<PAGE>
for the six months ended June 30, 1998, compared to net income per common
share-diluted of $0.06 for the six months ended June 30, 1997. The net loss
for the 1998 period was attributable primarily to planned increases in
investments in operations in advance of anticipated increases in revenues.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Total revenues increased 84.8% to $12.9 million in 1997 from $7.0
million in 1996. Software license revenues increased 80.8% to $10.4 million in
1997 from $5.8 million in 1996, primarily due to growth in sales and broader
market acceptance of the Company's products. Such increase was offset, in
part, by the reduction of license revenues derived from the Company's base
product, STK, as a result of the Company's strategic decision in August 1997
to offer STK free of charge. The Company experienced a significant increase in
sales during the second quarter of 1997 as a result of intensified sales and
marketing efforts designed to minimize any adverse impact resulting from the
implementation by the Company of its new marketing strategy. Software license
revenue also increased due to the release of ten new application modules
during 1997. Maintenance and other revenues increased 103.7% to $2.5 million
in 1997 from $1.2 million in 1996. This increase was attributable primarily to
the increase in software licenses for which customers typically purchase
maintenance agreements and, to a lesser extent, a price increase effected July
1997.
Gross profit. The Company's gross profit increased 88.3% to $11.0 million in
1997 from $5.8 million in 1996. Gross profit margin increased slightly to
85.5% of total revenue in 1997 from 84.0% in 1996, primarily due to lower
costs of licensing third party software incorporated in certain of the
Company's application modules which resulted from restructured licensing
arrangements with third party developers.
Marketing and selling expenses. Marketing and selling expenses increased
124.6% to $8.0 million in 1997 from $3.6 million in 1996 and increased as a
percentage of total revenues to 62.5% from 51.4% for such respective periods.
Such increases are primarily attributable to substantial increases in
personnel costs and expenses associated with the enhanced sales and marketing
efforts relating to the implementation of the Company's new marketing strategy
to offer STK free of charge, expansion of the Company's domestic and
international sales infrastructure and investments in a sophisticated customer
information system and enhanced website infrastructure, as well as increased
commissions and other compensation associated with increased revenues.
Research and development expenses. Research and development expenses
increased 122.1% to $3.2 million in 1997 from $1.4 million in 1996 and
increased as a percentage of total revenues to 25.0% from 20.8% for such
respective periods. Such increases in research and development expenses in
absolute dollars and as a percentage of total revenues was due primarily to an
increase in personnel, base salary increases, as well as larger incentive
compensation associated with increased revenues.
General and administrative expenses. General and administrative expenses
increased 41.0% to $1.1 million in 1997 from $787,000 in 1996, but decreased
as a percentage of total revenues to 8.6% from 11.3%. The increase in general
and administrative expenses in absolute dollars was due primarily to the
expansion of the accounting and finance department, the establishment of the
business development department and the hiring of additional key personnel.
Net income (loss). The Company experienced a net loss for 1997 of $1.4
million, compared to net income of $25,000 for 1996. Net loss per common
share-diluted was $0.22 for 1997, compared to net income per common share-
diluted of $0.00 for 1996. The net loss for the 1997 period was attributable
primarily to marketing and selling expenses associated with the Company's
strategic decision in August 1997 to offer its base product, STK, free of
charge and investments made by the Company in its sales and marketing and
administrative infrastructure.
26
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Total revenues increased 154.5% to $7.0 million in 1996 from $2.7
million in 1995. Software license revenues increased 146.3% to $5.8 million in
1996 from $2.3 million in 1995, primarily due to an intensified selling effort
resulting from a substantial expansion of sales and marketing personnel during
the fourth quarter of 1995. Such increase also was attributable to greater
product demand due to the release of new versions of STK and STK/VO and
certain new application module releases. To a lesser extent, the increase in
software license revenues resulted from a price increase of approximately 12%
on all products during the second quarter of 1996. Maintenance and other
revenues increased 202.0% to $1.2 million in 1996 from $403,000 in 1995,
primarily due to increased licensing activity.
Gross profit. The Company's gross profit increased 160.9% to $5.8 million in
1996 from $2.2 million in 1995. Gross profit margin increased from 81.9% of
total revenues in 1995 to 84.0% in 1996, primarily due to larger increases in
revenues than related expenses consisting of personnel costs and license fees
paid by the Company to third parties. The Company previously had substantially
expanded its personnel base during 1995 and, in September 1996, restructured a
third party software license agreement relating to one application module.
Marketing and selling expenses. Marketing and selling expenses increased
123.3% to $3.6 million in 1996 from $1.6 million in 1995, but declined as a
percentage of total revenues to 51.4% from 58.6%. The increase in marketing
and selling expenses in absolute dollars was primarily attributable to
building the Company's sales and marketing infrastructure, including the
significant hiring of additional personnel during the fourth quarter of 1995
and during 1996. Such increase also resulted from higher compensation expenses
attributable to the increase in sales, expanded marketing programs and the
establishment of four field sales offices.
Research and development expenses. Research and development expenses
increased 54.8% to $1.4 million in 1996 from $935,000 in 1995, but decreased
as a percentage of total revenues to 20.8% from 34.2%. The increase in
research and development expenses in absolute dollars was due primarily to an
increase in payroll and payroll-related expenses associated with the
substantial hiring of research and development personnel during 1996.
General and administrative expenses. General and administrative expenses
increased 73.4% to $787,000 in 1996 from $454,000 in 1995, but decreased as a
percentage of total revenues to 11.3% from 24.5%. The increase in general and
administrative expenses in absolute dollars was due primarily to the expansion
of the Company's administrative and finance infrastructure.
Net income (loss). The Company's net income was $25,000 in 1996, compared to
a net loss of $926,000 for 1995. Net income per common share-diluted was $0.00
for 1996, compared to net loss per common share-diluted of $0.18 for 1995. The
net income for 1996 increased as a result of the combined effect of the
factors discussed above.
27
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly financial
information for each of the eight most recent quarters in the period ended
June 30, 1998. This information is derived from unaudited financial statements
of the Company that include, in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of results of operations for such periods, when read in
conjunction with the audited Financial Statements of the Company and Notes
thereto beginning on page F-1 of this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
--------- -------- -------- -------- --------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $1,532 $2,376 $1,242 $4,218 $ 1,859 $3,066 $ 1,416 $3,397
Maintenance and
other................ 347 411 456 613 627 781 871 822
------ ------ ------ ------ ------- ------ ------- ------
Total revenues...... 1,879 2,787 1,698 4,831 2,486 3,847 2,287 4,219
------ ------ ------ ------ ------- ------ ------- ------
Cost of revenues:
Software licenses..... 253 282 155 294 163 491 312 198
Maintenance and
other................ 106 92 145 170 277 169 199 258
------ ------ ------ ------ ------- ------ ------- ------
Total cost of
revenues........... 359 374 300 464 440 660 511 456
------ ------ ------ ------ ------- ------ ------- ------
Gross profit............ 1,520 2,413 1,398 4,367 2,046 3,187 1,776 3,763
------ ------ ------ ------ ------- ------ ------- ------
Operating expenses:
Marketing and
selling.............. 860 1,080 1,331 1,925 2,336 2,450 2,392 2,527
Research and
development.......... 361 448 650 843 697 1,024 898 1,231
General and
administrative....... 159 270 233 269 310 298 351 596
------ ------ ------ ------ ------- ------ ------- ------
Total operating
expenses........... 1,380 1,798 2,214 3,037 3,343 3,772 3,641 4,354
------ ------ ------ ------ ------- ------ ------- ------
Operating income
(loss)................. 140 615 (816) 1,330 (1,297) (585) (1,865) (591)
------ ------ ------ ------ ------- ------ ------- ------
Income (loss) before
taxes.................. 127 608 (818) 1,344 (1,316) (626) (1,896) (696)
------ ------ ------ ------ ------- ------ ------- ------
Net income (loss)....... $ 127 $ 608 $ (818) $1,344 $(1,316) $ (626) $(1,896) $ (696)
====== ====== ====== ====== ======= ====== ======= ======
</TABLE>
28
<PAGE>
The following table sets forth certain financial data expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
--------- -------- -------- -------- --------- -------- -------- --------
(as a percentage of total revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... 81.5% 85.2% 73.2% 87.3% 74.8% 79.7% 61.9% 80.5%
Maintenance and
other................ 18.5 14.8 26.8 12.7 25.2 20.3 38.1 19.5
----- ----- ----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Software licenses..... 13.5 10.1 9.1 6.1 6.6 12.8 13.6 4.7
Maintenance and
other................ 5.6 3.3 8.6 3.5 11.1 4.4 8.7 6.1
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues........... 19.1 13.4 17.7 9.6 17.7 17.2 22.3 10.8
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 80.9 86.6 82.3 90.4 82.3 82.8 77.7 89.2
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Marketing and
selling.............. 45.8 38.8 78.4 39.8 94.0 63.7 104.6 59.9
Research and
development.......... 19.2 16.1 38.3 17.5 28.1 26.6 39.3 29.2
General and
administrative....... 8.5 9.7 13.7 5.6 12.4 7.7 15.3 14.1
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses........... 73.5 64.6 130.4 62.9 134.5 98.0 159.2 103.2
----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. 7.4 22.0 (48.1) 27.5 (52.2) (15.2) (81.5) (14.0)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
taxes.................. 6.8 21.8 (48.2) 27.8 (52.9) (16.3) (82.9) (16.5)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 6.8% 21.8% (48.2)% 27.8% (52.9)% (16.3)% (82.9)% (16.5)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's operating results have fluctuated significantly in the past
and may continue to do so in the future from quarter to quarter or on an
annual basis. Such fluctuations are caused by a number of factors over which
the Company has limited or no control. These factors include, but are not
limited to: the size and timing of customer orders; the timing of new product
announcements and introductions by the Company or its competitors; the timing
of governmental or commercial space programs incorporating the Company's
products; the length of the Company's sales cycle; the Company's ability to
develop, introduce and market new products and product enhancements; deferrals
of customer orders in anticipation of new products or product enhancements;
product pricing pressures (including the traditional discounting relating to
sales of products to US Government entities and government contractors); the
Company's ability to control costs; the hiring of additional personnel; delay
or failure of existing customers to purchase additional products or renew
maintenance agreements; delay or failure of existing strategic partners to
renew agreements, including license agreements, with the Company; market
acceptance of COTS satellite analysis software and the Company's products; and
fluctuating economic conditions.
The Company's software license revenues are difficult to forecast for a
number of reasons. The Company ships its products within a short period after
receiving new orders and typically does not have a large backlog of unfilled
orders. Other than certain agreements which provide for ongoing maintenance
revenues, none of the Company's customers has entered into an agreement
requiring ongoing minimum purchases. Consequently, revenues in any quarter are
substantially dependent on orders received in that quarter. Furthermore,
demand for the Company's products is generally higher during the fourth
quarter, due in part to the capital spending practices of government entities
and government contractors, which accounted, in the aggregate, for
approximately 82% of the Company's total revenues in 1997. Such customer
spending practices typically have also resulted in lower first quarter
revenues as compared to other quarters during the year. Historically, the
Company also has recognized a significant amount of its quarterly revenues in
the last month of each quarter. As a result, the magnitude of quarterly
fluctuations may not become evident until late in, or at the end of, a
particular quarter.
29
<PAGE>
The Company's revenues generally have been, and likely will continue to be,
generated from a relatively small number of sales. Any failure to close
certain sales in a period could have a significant impact upon the Company's
revenues in that period. If the size of individual sales were to increase, and
any such sales were not to close in the expected period, the impact on the
Company's business could be exacerbated. Furthermore, delays of large orders
may become more likely if customers take additional time to evaluate larger
purchases.
The Company's expenses are based, in part, upon its expectations regarding
future revenues and are relatively fixed. Therefore, the Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant decline in revenues in any period
would likely result in lower net income for that period. Any of the
fluctuations described above could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
also believes that past operating results and period-to-period comparisons
should not otherwise be relied upon as an indication of future performance.
See "Risk Factors--Fluctuations in Operating Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1989, the Company has financed its operations
primarily through cash generated by operations, the proceeds from private
placements of its capital stock and borrowings under credit facilities. At
June 30, 1998, the Company's cash and cash equivalents aggregated
approximately $1.1 million. The Company's working capital, excluding
liabilities for deferred revenues from maintenance contracts, was
approximately $2.4 million and $1.0 million at December 31, 1996 and 1997,
respectively, and was approximately $1.1 million at June 30, 1998.
The Company has a Revolving Credit Facility with PNC Bank, N.A. (the "Bank")
pursuant to which it may borrow up to a maximum of $2.5 million. Amounts
outstanding under such facility bear interest at the Bank's prime rate plus
1.0% per annum (9.5% as of June 30, 1998). No borrowings under the Revolving
Credit Facility were outstanding as of June 30, 1998 and, as of the
consummation of this offering, approximately $2.3 million is expected to be
outstanding under the Revolving Credit Facility. The Company also has a $4.0
million Term Loan with the Bank and certain other banks, which bears interest
at the Bank's prime rate plus 3.5% per annum (12.0% as of June 30, 1998). The
Term Loan and Revolving Credit Facility are used for working capital purposes.
The Revolving Credit Facility and Term Loan are collateralized by
substantially all of the assets of the Company and contain, among other
provisions, a covenant which restricts the Company's ability to pay cash
dividends. The Company is obligated to use an aggregate of approximately $6.3
million of the net proceeds of this offering to repay amounts outstanding
under its Term Loan and Revolving Credit Facility. Following the consummation
of this offering, the Company expects to renegotiate the Revolving Credit
Facility to obtain more favorable terms and conditions. There can be no
assurance that it will successfully renegotiate such terms.
The Company expended approximately $522,000, $1.3 million and $419,000 in
capital expenditures for the years ended December 31, 1996 and 1997 and the
six months ended June 30, 1998, respectively. Although the Company anticipates
higher levels of equipment and facilities-related expenditures in the
foreseeable future, such future expenditures are not anticipated to be
significantly higher as a percentage of total revenues as compared to prior
periods.
The Company intends to use approximately $185,000 of the net proceeds of
this offering to pay cumulative dividends on preferred stock. Upon
consummation of the offering contemplated hereby, all outstanding shares of
Series A Preferred Stock automatically shall be converted into 2,888,472
shares of Common Stock.
The Company believes that its existing available cash, credit facilities and
the cash flow expected to be generated from operations, together with the
proceeds of this offering, will be adequate to satisfy its current and planned
operations for at least the next 12 months.
30
<PAGE>
YEAR 2000 COMPLIANCE OF CERTAIN INTERNAL INFORMATION SYSTEMS
Significant uncertainty exists concerning the potential effects associated
with the Year 2000 problem. The Company has been informed by the vendor of its
internal accounting, management and financial reporting applications that such
software is Year 2000 compliant. However, the Company has been informed that
the current version of its customer information software is not Year 2000
compliant, but the Company has received a compliant version and expects to
test and install such software during the third quarter of 1998. Based on the
business risk associated with the Company's internal information systems,
management does not anticipate that the Year 2000 will have a significant
impact on its information systems or result in a significant commitment of
resources to resolve potential problems with its systems associated with this
event. See "Risk Factors--Risks Associated with Year 2000 Problem."
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition," which is
effective for financial statements for both interim and annual periods
beginning after December 15, 1997. The Statement of Position governs the
recognition of revenue by enterprises that license, sell, lease or otherwise
market software, except where software is incidental to the products or
services being offered, as a whole. Application of this Statement of Position
is not expected to have a material effect on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 applies
to all companies and is effective for fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income in a set of financial statements. Comprehensive income is
defined as the change in net assets of a business enterprise during a period
from transactions generated from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. Management believes that the adoption of SFAS No. 130
will not have a material impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 applies to all public companies and is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires that business segment financial information be reported in the
financial statements utilizing the management approach. The management
approach is defined as the manner in which management organizes the segments
within the enterprise for making operating decisions and assessing
performance. Management believes the adoption of SFAS No. 131 will not have a
material impact on the Company's financial statements.
31
<PAGE>
BUSINESS
OVERVIEW
Analytical Graphics is the leading provider of commercial off-the-shelf
("COTS") software solutions for the space industry. The space industry
includes a growing number of commercial satellite projects for
telecommunications, data communications, navigation and imaging systems as
well as government-sponsored space missions and defense programs. The
Company's broad suite of software products support space systems throughout
their life cycle, from concept and design to launch and on-orbit operation.
The Company's base product, Satellite Tool Kit ("STK"), and related suite of
23 application modules enable space industry professionals to develop,
simulate, track, operate and use satellites more effectively, resulting in
enhanced productivity and functionality of satellite missions. The Company's
software performs a wide range of functions, including orbit propagation,
access computation, three dimensional systems simulation and visualization and
system performance monitoring. The Company's customers utilize the Company's
software solutions to perform mission-critical activities and consist of
approximately 450 distinct organizations within government agencies,
government contractors and commercial space developers. The government
agencies and government contractors include NASA, the US Air Force, The Boeing
Company, Hughes Electronics Corp., Lockheed Martin Corp. and TRW, Inc. The
Company also has licensed its software solutions to leading commercial space
developers such as Globalstar L.P., Iridium, LLC, Orbital Sciences Corp.,
Space Imaging, Inc. and Teledesic, LLC.
The Company introduced STK in 1989 and began to derive the majority of its
revenues from commercial distribution of its software in 1992. The Company's
revenues increased from $2.7 million for the year ending December 31, 1995 to
$12.9 million for the year ending December 31, 1997, representing a compound
annual growth rate of approximately 119%. In order to become the leading
global provider of software solutions for the space industry, the Company
seeks to maximize user awareness of its products, increase market and customer
penetration, establish STK as the industry standard and provide new market
opportunities for the Company's suite of software products. To rapidly expand
the use of its software, in August 1997, the Company initiated a comprehensive
marketing strategy pursuant to which it licenses its base product, STK, free
of charge to potential customers. The Company believes that wide dissemination
of its base product will result in a rapid increase in the licensing and sales
of its application modules. To establish STK and its related suite of modules
as the mission-wide software solution, the Company uses a targeted sales and
marketing program directed at a broad range of users across all space industry
segments and conducts aggressive direct sales and marketing initiatives to
further penetrate organizations currently using its products. Further, the
Company targets new commercial and governmental space programs to encourage
the use of the Company's software as an integral part of the mission solution
from a program's inception. As a result of the Company's strategy, from August
1, 1997 through June 30, 1998, the number of registered STK seats increased
from approximately 1,300 to 14,400. Of the new registered users of STK,
approximately 350 have licensed one or more modules in the Company's
applications suite.
INDUSTRY BACKGROUND
Growth and Trends in the Space Industry
The space industry is a large and rapidly growing market with industry
sources estimating revenues to increase from $77 billion in 1996 to
approximately $120 billion by the year 2000. For more than forty years, the
space industry has been the domain of government agencies and large companies
focused on supporting defense, civil space and intelligence operations needs.
Although government funded projects have dominated the space industry,
advancements in space technology coupled with the sophistication, power and
capabilities of modern information systems are fueling the growth of a
commercially driven, consumer-oriented global space industry. The emerging
commercial space industry enables the widespread use of many new applications
such as advanced satellite telecommunications, data communications, global
positioning system ("GPS") services, and imaging systems for agricultural,
maritime, weather forecasting and disaster management uses. These new
applications
32
<PAGE>
are driving the increasing demand for space-related services and capital
equipment such as satellites, spacecraft, launch vehicles and ground
equipment. Virtually all of the anticipated growth of the space industry is
expected to be derived from the commercial space sector. While currently there
are 800 satellites in orbit, more than 1,500 new satellites are expected to be
launched worldwide by 2002, the majority of which will be launched in support
of commercial applications.
There are several trends driving innovation and growth within the space
industry, including:
. Demand for new information services such as international
telecommunications, data communications, video and Internet access;
. Significant advancements in technology, leading to lower satellite
production and launch costs;
. Globalization, deregulation and privatization of the satellite and
telecommunications industries;
. Need for instant telecommunications infrastructure in emerging
markets, resulting in the use of satellite technologies as a cost-
effective alternative to terrestrial wireline systems;
. Development of national space programs in over twenty countries; and
. Continued, but increasingly cost conscious, US Government funding of
space programs.
In response to these dramatic industry trends and increased commercial
demand, the number of satellite developers, operators and users is rapidly
expanding to include not only the growing number of traditional space industry
professionals (including governmental, military, commercial, intelligence,
research and educational user groups), but also a new group of professionals
(including imaging service providers, communications engineers, weather
scientists and users of GPS technology).
The Need for Sophisticated, Mission-Critical Software Solutions
Satellite systems require sophisticated analytical software solutions
throughout a mission life cycle to enable and enhance policy formulation,
concept creation, requirements determination, program development, pre-orbit
testing, launch, on-orbit testing, operations and de-orbit functions. For
example, space industry professionals need to analyze, calculate and
graphically display complex mission-critical data such as a satellite's
optimal configuration and orbital path, the proper launch trajectory, the
periods when the satellite can "see" and communicate with ground stations and
the timing of rocket burns to prevent orbital decay or to de-orbit safely. The
increasing number and complexity of space systems has created a growing demand
for high performance software solutions that are faster, as well as more
accurate, functional and flexible than existing solutions. The Company
believes that this demand is driving rapid spending increases on space
software solutions.
Increased competitive and cost pressures have forced the space industry to
evolve from an industry characterized by space programs with expensive,
sequential, customized production and lengthy program development times
averaging over seven years to space programs with parallel production and
shortened development times averaging approximately three years. In such an
environment, failed, faulty or outdated software solutions or costly
development delays can force the abandonment or postponement of promising
space programs. Therefore, it is imperative that satellite developers and
manufacturers shorten development timetables and minimize the reinvention of
software code that has been custom developed for similar applications.
Competitive and cost pressures, together with the complexity of today's space
systems, also mandate that satellite operators and users reduce operating
costs, maximize efficiency and minimize operating risks by utilizing software
that provides a total, high performance, modular, flexible and scalable
solution.
Limitations of Current Software Solutions
Historically, the space industry has utilized customized software solutions
which have been developed either in-house or by third party contractors. Such
customized solutions are generally expensive, time consuming and
33
<PAGE>
require substantial investment in highly technical personnel with specialized
industry knowledge. Additionally, organizations incur significant ongoing
costs in retaining in-house personnel or third party consultants to
continually maintain and support custom software. These customized solutions
also may fail to provide the desired solution, must be constantly reinvented
and often result in unscalable and inflexible systems. Specifically, many
custom developed systems are unable to adapt to unforeseen variables affecting
a specific mission or program without costly reengineering. Additionally, many
custom developed systems fail to integrate easily with existing information
technology infrastructures.
Over the past several years, COTS software has become widely accepted in
competitive industries in which positive gains in operational efficiency,
productivity growth and cost containment are essential to improved
profitability. In order to maximize operational efficiencies and improve
enterprise-wide decision making capabilities, many industries such as
telecommunications, finance and manufacturing have adopted state-of-the-art,
standardized, interoperable, flexible and scalable COTS solutions as cost
efficient, risk mitigating alternatives to lengthy, expensive customization
programs. Today's space professionals increasingly are seeking to use COTS
software solutions to improve productivity and reduce costs in every phase of
a satellite system's life cycle.
THE ANALYTICAL GRAPHICS SOLUTION
The Company develops, markets and supports the leading COTS software
solutions for the space industry. By enabling accurate, comprehensive and
timely analysis throughout all phases of a satellite's life cycle, the
Company's suite of software products allows satellite systems professionals to
better manage mission-critical operations while raising productivity,
improving accuracy and eliminating the time and cost associated with custom
software development.
Satellite Life Cycle
[INSERT GRAPHIC]
An elliptical graphic appears here which depicts the typical life cycle of a
satellite system. The graphic has nodes which identify each stage of the life
cycle: policy, concept, requirements, developments, test, launch, on-orbit
test, operations and de-orbit.
34
<PAGE>
The Analytical Graphics solution is designed to provide the following
benefits:
. End-to-End Solution. The Company's suite of software products supports
space systems throughout their entire life cycle. Space system
designers, developers, operators and users utilize the Company's
software to critically analyze each phase of a satellite mission,
including policy formulation, concept creation, requirements
determination, development, pre-orbit testing, launch, on-orbit testing,
operations and de-orbit functions.
. High-Performance Analysis. The Company has incorporated the extensive
technical knowledge and space industry experience of its engineering and
development personnel into its product suite. The Company's
technologically advanced products deliver a wide range of high-
performance, comprehensive, multi-dimensional and intuitive analysis
capabilities. STK and the related application modules enhance satellite
productivity and efficiency by combining quicker performance with
improved accuracy to enable more dynamic decision-making. The Company
believes that certain aspects of STK significantly enhance productivity
as compared to many existing custom systems. STK and the related suite
of application modules help reduce space mission timetables while
providing rapid, focused and often real-time solutions.
. Modular, Flexible and Scalable Approach. The Company has extended the
basic functionality of STK with its comprehensive suite of 23
application modules. The application modules offer advanced capabilities
in the areas of astrodynamics, graphics, visibility, operations and
integration. The Company's software has been designed as an Application
Programming Interface ("API") to provide developers with the flexibility
of integrating STK into their existing systems or by using specific STK
functions on a stand-alone basis. Additionally, the STK product suite
has been designed to be scalable to a customer's particular needs,
allowing customers to extend the power of STK's capabilities to all
space programs regardless of size, complexity or number of users.
. Timely, Cost-Effective Alternative. The Company's software allows
customers to realize substantial cost savings and to reduce overall risk
throughout all phases of a satellite's lifecycle. The Company's products
enable customers to increase project efficiency by eliminating time
delays associated with customizing software. In addition, customers
avoid the risks inherent in relying on untested custom developed
solutions, while allowing such customers to focus on their core
competencies and to save the time and money associated with custom
development and maintenance of an internal software development staff.
Customized solutions often require significant costs associated with
attracting, retaining and training in-house personnel or engaging
contractors with the specialized industry knowledge and technical
expertise required to develop, maintain and support such customized
solutions. STK and the related application modules require minimal user
training time and expenses.
. Access to Value-Added Data. The Company's products incorporate and
enhance several third party databases which provide customers with
timely and reliable access to extensive value-added information,
including mission-critical data. For example, certain of the Company's
modules include high resolution maps for the entire globe, precise
three-dimensional earth terrain information and data from North American
Air Defense Command's ("NORAD") Space Surveillance database, including a
detailed catalogue of all earth-orbiting objects larger than ten
centimeters.
. Easily-Integrated Solutions. The Company's suite of products can be
readily integrated with the most popular platforms, architectures,
operating systems and software applications. STK and related modules can
be easily installed and are compatible with PC platforms utilizing
Windows 95 or Windows NT operating systems, and UNIX platforms from Sun
Microsystems, Silicon Graphics, Hewlett Packard, IBM and Digital. As a
result, organizations can protect their investment in existing
technologies by seamlessly integrating STK and the related suite of
products, thereby facilitating maximum operational efficiency.
35
<PAGE>
STRATEGY
The Company's mission is to be the leading global provider of software
solutions to the space industry and to establish its software as the industry
standard solution for space-related applications. The key components of the
Company's strategy are:
. Increase Market Penetration and Customer Base. The Company seeks to
maximize user awareness of its products, increase market and customer
penetration, establish STK as the industry standard and provide new
market opportunities for the Company's suite of software products. To
rapidly expand the use of the Company's software, the Company initiated
a comprehensive marketing strategy in which it provides STK free of
charge to potential customers. The Company believes that wide
dissemination of its base product will result in a rapid increase in the
licensing and sales of its other application modules. To establish STK
and its related suite of modules as the mission-wide software solution,
the Company uses a targeted sales and marketing program directed at a
broad range of users across all space industry segments and conducts
aggressive direct sales and marketing initiatives to further penetrate
organizations currently using its products. Further, the Company targets
new commercial and governmental space programs to include the Company's
software as an integral part of the mission solution from a program's
inception.
. Continue to Develop and Offer Technologically Advanced Solutions. The
Company capitalizes upon its extensive experience in the satellite
software industry by continuing to develop and enhance technologically
advanced, scalable and interoperable modular solutions to expand the
capabilities and features of the Company's suite of products. The
Company's research and development and technical support teams develop
new products and enhancements to respond to its customers' and potential
customers' evolving needs. The Company introduced 11 new products in
1997 and expects to release three new products and two new releases in
1998. By continuing to rapidly develop products to meet its customers'
needs, the Company believes that it will enhance its reputation as the
leading provider of COTS software solutions for the space industry.
. Expand Global Presence. The Company believes that there is a significant
opportunity to derive a greater percentage of revenues from
international sales. This opportunity results from several trends
driving growth within the international space industry including: the
demand for new information services such as international
telecommunications, data communications, video and Internet access; the
globalization, deregulation and privatization of the satellite and
telecommunications industries; the need for instant telecommunications
infrastructure in emerging markets; and the development of national
space programs in over twenty countries. The Company believes that
approximately 40% of its potential customers are internationally-based
organizations. The Company's international sales increased from
approximately 8% of the Company's total revenues in 1997 to
approximately 13% of such revenues in the six months ended June 30,
1998. The Company intends to continue expanding its sales, marketing and
distribution capabilities to increase international sales. The Company
has begun establishing a network of software resellers, currently
consisting of eight international resellers. Through its offices in the
United States and by cultivating relationships with both domestic and
international consultants and resellers, the Company will seek to gain a
substantial share of the global satellite software market.
. Provide Customers with Comprehensive Solutions. The Company intends to
continue to migrate toward meeting the needs of its customers on an
enterprise-wide basis by licensing its products on a server or multi-
seat basis at the organizational level as well as the user level. The
Company believes that its comprehensive marketing strategy will enable
it to sell more software solutions at the enterprise level and to
participate more frequently in customers' space programs earlier in the
conceptualization and planning stages of the program life cycle. In
addition, many of the Company's customers historically have requested
that the Company develop specific features or solutions to meet their
evolving requirements. The Company generally has responded to such
requests by incorporating these features into new releases of its
products. However, given the increase in such requests due to
36
<PAGE>
customers' competitive, cost or time pressures, the Company intends to
selectively offer specific application development services to meet
customer timetables and to further expand features and functionality
provided by its products.
. Pursue Strategic Acquisitions and Alliances. The Company intends to
pursue acquisitions of complementary businesses or technologies and to
continue to establish strategic relationships in order to expand its
product and service offerings, gain access to new markets, add technical
or sales personnel and obtain additional customer relationships. In
furtherance of this strategy, the Company has from time to time licensed
rights to technologies developed by third parties, including portions of
its Navigator and Precision Orbit Determination System application
modules.
. Leverage Technological Expertise to Enter New Markets. The Company
believes that other industries and applications, including aviation, air
traffic control systems and military applications, have a need for
sophisticated mission critical software solutions similar to that of the
space industry. The Company may seek to leverage its existing
technologies and enter into these new markets either directly or through
the establishment of corporate partnering arrangements. The Company
believes that its software code can be modified and that graphical user
interfaces can be readily developed to capitalize on these
opportunities.
PRODUCTS AND SERVICES
PRODUCTS
The Company designs, develops, markets and supports an integrated suite of
COTS software solutions that support space systems throughout their life
cycle, including policy formulation, concept creation, requirements
determination, program development, pre-orbit testing, launch, on-orbit
testing, operations and de-orbit functions. The Company's base product,
Satellite Tool Kit ("STK"), and related suite of 23 application modules
feature a broad range of functions, many of which are mission-critical,
including orbit propagation, access computation, three dimensional systems
simulation and visualization and system performance monitoring. The Company's
core technology is object-oriented, utilizing C and C++ languages as well as
OpenGL 3D graphics standards, is Internet-enabled and is compatible with PC
platforms utilizing Windows 95 or Windows NT operating systems and UNIX
platforms from Sun Microsystems, Silicon Graphics, Hewlett Packard, IBM and
Digital. In addition, the Company's suite of products can be implemented on a
customer's computing system as a stand-alone application or as an embedded,
interoperable solution.
Satellite Tool Kit (STK)
STK is an integrated, flexible software solution that enhances the
analytical capabilities of both technical and non-technical users. STK
provides an extensive range of functions and options that support the:
propagation of a satellite's position in time; evaluation of complex geometric
relationships between orbiting satellites and the earth to determine
visibility "footprints;" determination of periods of time when objects can
"see" or access another object; and computation of a satellite or ground-based
sensor pointing angles. STK presents results in graphical and text formats for
easy interpretation and analysis. STK's graphical display enables rapid and
intuitive analysis of the complex relationships among satellites, launch
vehicles, missiles, aircraft, ships, ground vehicles, ground stations and
targets. The Company believes that certain aspects of STK significantly
enhance productivity compared to many existing custom systems.
Suite of Application Modules
The Company has developed a comprehensive line of add-on application modules
that significantly expand and extend STK's capabilities. The Company's
interoperable software suite allows customers to add modules as their
requirements evolve. Supported by effective training programs and an
experienced technical support team, these fully integrated, upgradable
products provide complete solutions to a wide range of problems.
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<PAGE>
The following describes the Company's suite of modules, identifies the year
each product was first released by the Company, and highlights key features of
each product:
Astrodynamics
The Company's astrodynamics application modules provide robust and highly
accurate capabilities for tracking and simulating motion around the earth,
including satellites and theatre and intercontinental missiles. The typical
users for these products are sophisticated aerospace engineers from many
industry segments who are involved in the analysis and maintenance of
satellites and tracking of missiles.
<TABLE>
<CAPTION>
PRODUCT PRODUCT FEATURES
------- ----------------
<C> <S>
High Precision Orbit . Simulates a wide variety of satellite orbits and
Propagator* predicts orbital coordinates with high precision
1994
Lifetime . Estimates the amount of time a low Earth orbiting
1997 satellite can remain in orbit before atmospheric
drag causes re-entry
Long-term Orbit Predictor . Predicts and plots changes in a satellite's orbit
over months or years
1997 . Supports mission design stages by assisting
prediction of fuel and maintenance requirements
for successful orbital maneuvering over the life
of the mission
Missile Flight Tool* . Analyzes complex geometric relationships involving
1996 missile flight phases, payload deployment and
missile targets by calculating multiple missile
trajectories for automatic display in STK's
visualization environment
</TABLE>
- --------
* All or a portion of such product is licensed by the Company from a third
party. See "--Intellectual Property."
Graphics
The Company's graphics application modules provide two and three dimensional
map displays of static and dynamic satellite positions. By providing detailed
views of the satellite and surrounding geography, users can perform analysis
that would otherwise be unavailable or non-intuitive. Typical applications
include visualization of real-time satellite launches and deployments,
analysis of military/intelligence ground operations, satellite anomaly
resolution, satellite attitude analysis and planning and analysis of spatial
relationships in complex satellite systems. Additionally, the Company and its
customers use the graphics suite for marketing and presenting major space
system proposals. Due to its video-making capability, as well the STK/VO's
playback capability, non-engineers can quickly grasp concepts that would
otherwise be unclear using traditional applications.
<TABLE>
<CAPTION>
PRODUCT PRODUCT FEATURES
------- ----------------
<C> <S>
High Resolution Maps . Provides comprehensive high resolution map data
1997 for the entire globe
STK/VO Earth Imagery* . Produces realistic, technically accurate images of
1997 the Earth's terrain at a resolution of one square
kilometer per pixel for integration with the STK
environment
Visualization Option (VO) . Provides technically accurate, 3-D time-driven
1994 visual displays for substantially improved
analysis and decision making
. Creates realistic animated mission simulations
depicting complex scenarios involving satellites,
orbit trajectories, ground targets and sensors
</TABLE>
- --------
* All or a portion of such product is licensed by the Company from a third
party. See "--Intellectual Property."
38
<PAGE>
Visibility
The Company's visibility application modules allow users to analyze entire
satellite systems for specific performance measures such as frequency
optimization, bandwidth requirements, link performance, probability of
detection and optimum location of ground control centers. This class of
products is catered to commercial users who are designing or analyzing
specific features within a satellite system.
<TABLE>
<CAPTION>
PRODUCT PRODUCT FEATURES
------- ----------------
<C> <S>
Advanced Analysis . Provides a broad array of high fidelity analytical
1997 capabilities including simulation of satellite
attitude and targeting, analysis of sensor
constraints and orientation, and other astrodynamics
features
Chains . Models user-specified networks of satellites and
1994 ground stations to analyze communications links
(including "bent pipe" communications)
Comm . Analyzes quality and geographical coverage of
1996 communications links among satellites and between
satellites and ground stations
Coverage . Provides detailed analysis of the service coverage of
1997 satellites, sensors, and satellite constellations
over a specified geographic region
Geographic Information . Links the STK environment with popular GIS software
System systems to enable integrated analysis of demographic
1997 data and satellite coverage areas
Radar . Provides design and operational assessment features
1998 and graphic displays of ground, air and space-based
radar systems by processing radar parameters, radar
cross-section, object constraints and changing
geometries to determine access
Terrain . Analyzes the impact of terrain on satellite
1997 accessibility from any point on the Earth's surface
utilizing a global 3-D terrain evaluation database
</TABLE>
Operations
The operations application modules determine accurate satellite positions,
perform adjustments to the orbit, determine safe launch windows, schedule
available satellite usage times and priorities, and assess potential satellite
collisions. This class of products is tailored for use by satellite operators
at satellite control centers.
<TABLE>
<CAPTION>
PRODUCT PRODUCT FEATURES
------- ----------------
<C> <S>
Close Approach Tool . Calculates distances between orbiting objects and
1996 warns of minimum closing distance violations that
could result in collision with other orbiting
satellites or debris tracked by NORAD's Space
Surveillance database
Generic Resource Event . Generates optimal usage schedules that maximize the
Activity Scheduler* use and effectiveness of satellites, sensors and
1995 ground resources
STK/GIPSY* . Computes real-time satellite orbits using onboard GPS
receivers
1998 . Based on CalTech--JPL's GIPSY software
Navigator* . Provides a full range of in-flight analysis and
1995 operational maneuver planning capabilities, such as
maintaining satellite positions in the desired
orbital slot and the timing and length of thruster
firings needed to make orbital changes
Precision Orbit . Predicts satellite orbits based on various
Determination System* observation data including angles, range, range rate
1996 and global positioning system data for up to 99
satellites simultaneously
</TABLE>
- --------
* All or a portion of such product is licensed by the Company from a third
party. See "--Intellectual Property."
39
<PAGE>
Integration
The integration application modules provide a seamless method for embedding
STK core technology into end user applications, thereby easing the transition
from legacy software to an STK environment. Additionally, these modules offer
a simple method for integration of real-time processing and distribution of
satellite telemetry data such as position, attitude and key orbital events.
The primary users of this software are developers, sophisticated users and
potential business partners who desire to integrate their custom software
applications with STK.
<TABLE>
<CAPTION>
PRODUCT PRODUCT FEATURES
------- ----------------
<C> <S>
Connect . Communicates with other applications via sockets for
1997 integration into end user environments
DIS . Provides Distributed Interactive Simulation (a standard
1997 simulation protocol) connectivity for large
heterogeneous simulation environments
Programmer's Library . Provides an Application Programming Interface ("API")
1993 for developers and integrators for customization and
seamless code level integration into end user
environments
STK Server . Works with Connect to service requests from clients in
1997 real-time environments without a graphical user
interface
</TABLE>
- --------
* All or a portion of such product is licensed by the Company from a third
party. See "--Intellectual Property."
The Company's products, on a per-license basis, range in price from
approximately $1,500 to approximately $75,000. A typical product sale often
consists of several product licenses and averages from $15,000 to $25,000 per
seat.
STK Professional (STK Pro)
In order to market directly to experienced STK users, the Company offers a
bundled product, STK Pro, which offers additional features that range from
expanded coordinate system inputs and spacecraft attitudes to three-
dimensional terrain elevation data and long-term propagators. STK Pro consists
of six seamlessly integrated modules that dramatically extend STK's basic
functions. These modules include:
. Advanced Analysis Module
. High Precision Orbit Propagator
. Long-term Orbit Predictor
. Lifetime
. Terrain
. High Resolution Maps
Services
The Company believes that a high level of customer support and quality
assurance is critical to achieving long-term customer satisfaction. As of June
30, 1998, the Company had a dedicated technical support team of 21 people
which offered the following services:
Maintenance and Support
. Maintenance. The Company offers annual support and upgrade agreements
for all of its products. Since January 1, 1996, approximately 85% of
registered STK seats purchased by the Company's customers were covered
by such contracts and the Company has typically experienced an annual
renewal rate of approximately 90%. Such support and upgrade contracts
provide automatic free upgrades and updates for all releases offered
throughout the duration of the applicable contract. Maintenance
agreements also cover unlimited phone support from the Company's
Technical Support organization. The Company's support and upgrade
agreements with its customers generally can be terminated by its
customers with no advance notice and without penalty.
40
<PAGE>
. Technical Support. The technical support engineers conduct extensive
customer support and are able to efficiently serve customer needs
through the Company's centralized customer database. The Company
provides on-site, telephone and e-mail support coverage. The Company's
technical support organization is an integral part of the Company's
sales and marketing efforts by targeting existing and potential
customers' specific technical requirements and delivering technical pre-
sales support. In addition, the technical support team plays a
significant role in the product development process by evaluating
customers' product enhancement and feature requests and by selectively
implementing these enhancements and features into its new releases and
products.
. Website and Tutorials. The Company's website includes a comprehensive
library of frequently asked questions and responses to assist its
customers in finding quick answers to common questions. Through the
Company's website, end users can access an extensive knowledge base of
documents and a sophisticated text search engine. The Company's
comprehensive tutorials are available to end users on-line as well as in
printed form. The Company's tutorials cover STK and most of the
Company's suite of application modules.
Training
The Company provides free STK training on a regular basis at each of its
offices and offers two day customized STK training courses which can be held
on-site for a user fee. By offering free STK training, the Company believes it
will further expand opportunities to sell its suite of application modules and
establish STK as the industry standard COTS solution for the space industry by
demonstrating the features and capabilities of its products. The Company has
recently established a fee-based STK certification program to certify those
customers and business partners who have demonstrated significant levels of
proficiency with its products.
CASE STUDIES
The following case studies illustrate some of the challenges faced by some
of the Company's customers and the solutions enabled by the Company's
products:
AsiaSat 3/Hughes Global Services
THE CHALLENGE: AsiaSat 3, a commercial telecommunications satellite, was
launched in December 1997. Due to a premature termination of the launch
vehicle thruster burn, AsiaSat 3 failed to reach geostationary orbit (36,000
km/23,000 miles) over Asia and was stranded in an inoperable orbit, The
spacecraft's insurers declared AsiaSat 3 to be a total loss for its original
purposes and paid the owners damages in the amount $215 million. Hughes Global
Services ("HGS") was engaged by a consortium of insurers to attempt to salvage
the satellite for commercial use.
THE SOLUTION: Using STK and Navigator, an operations application which
allows orbit maneuver planning, HGS engineers determined the thruster firings
necessary to boost the satellite into a higher orbit which would allow the
spacecraft to use the Moon's gravity to reach a flatter, more usable Earth
orbit. The maneuver was performed successfully, and the spacecraft is
presently in a geosynchronous orbit over the Pacific Ocean.
Iridium/Motorola
THE CHALLENGE: Motorola designed and built the Iridium constellation, a 66-
satellite network that is the first digital, wireless communications network
designed to serve hand-held telephones and pagers worldwide. Designing the
Iridium network required engineers to determine the specific geographic region
covered by each satellite, the quality and geographical coverage of
communications links among satellites, the optimal location of a ground
station, the timing for contacting a spacecraft after launch and the routing
of calls throughout the system. The Company believes that developing in-house
solutions to perform these engineering functions could have taken years.
41
<PAGE>
THE SOLUTION: Due to competitive and cost pressures, Motorola selected STK
to perform several functions. STK was used and is being used in many phases of
the Iridium program. In the initial FCC licensing phase, STK was utilized to
perform beam interference analysis. In the design stage, STK enabled coverage
and cross-link analysis. During the implementation phase of the Iridium
project, Motorola used STK to determine the optimal placement of ground
stations and to calculate the first possible contact after launch. In the
operational phase, Iridium leveraged the flexibility of STK by using
STK/Programmer's Library (STK/PL) to create an enhanced version of STK in its
operations center to help determine call routing and beam usage. By using
STK/PL, Iridium was able to develop a custom solution tailored specifically to
its requirements in only a few months.
US Air Force/ANSER
THE CHALLENGE: ANSER, a leading not-for-profit research institution serving
the military and space industries, was engaged by the US Air Force to
participate in its Miniature Sensor Technology Integration ("MSTI") program.
The MSTI project was designed to research the Earth's atmospheric background
clutter by collecting calibration and data images. The MSTI program was time
sensitive and subject to significant mission variables.
THE SOLUTION: After using STK for basic planning of satellite orbits on the
first two MSTI satellite missions, the engineers on the MSTI program
recognized that a common analysis standard was essential in order to meet the
requisite timetable and provide the flexibility required by the third
satellite mission, MSTI-3. The MSTI-3 operations team incorporated the
Company's software into its existing system architecture to perform mission-
critical activities. In addition to the basic functions, such as generating
ephemeris, determining pointing angles and observing in-view start/stop times,
STK was used for end-to-end tasks, from real-time spacecraft analysis to
command generation and off-line processing of mission-critical data. STK also
played a critical role in prioritizing the mission's objectives. By inputting
the orbital parameters into STK, the engineering team was able to determine
the optimal timing of various mission-critical experiments. The ANSER
engineers also took advantage of STK's open architecture to generate
interceptor scenarios into which data from other systems and applications were
integrated. Finally, in order to efficiently communicate all of the details of
the MSTI-3 mission to the US Air Force, ANSER engineers used STK/VO's
animation capability to compile a technically detailed videotape of the entire
mission.
CUSTOMERS
The Company's customers consist of designers, developers, operators and
users of space and satellite systems. These systems include a growing number
of commercial satellite projects for telecommunications, data communications,
navigation and imaging systems, as well as government-sponsored space missions
and defense programs. The Company's customers consist of approximately 450
distinct organizations within government agencies, government contractors and
commercial space developers. The government agencies and government
contractors include NASA, the US Air Force, The Boeing Company, Hughes
Electronics Corp., Lockheed Martin Corp. and TRW, Inc. The Company also has
licensed its software solutions to leading commercial space developers such as
Globalstar L.P., Iridium, LLC, Orbital Sciences Corp., Space Imaging, Inc. and
Teledesic, LLC. In addition, many universities and educational institutions
with space programs, such as the University of Maryland, Johns Hopkins
University-Applied Physics Laboratory, MIT-Lincoln Laboratory and the
University of Texas-Austin have purchased the Company's products.
42
<PAGE>
The following is a partial list of direct and indirect customers which have
purchased at least $100,000 of the Company's products since January 1, 1997:
<TABLE>
<CAPTION>
COMMERCIAL AND
GOVERNMENT CONTRACTORS GOVERNMENT AGENCIES AND DEPARTMENTS
- ---------------------- -----------------------------------
<S> <C>
Aegis Research
Corporation National Aeronautics and Space Administration (NASA)
The Boeing Company National Reconnaissance Office (NRO)
Computer Sciences
Corporation Naval Research Laboratory
GTE Government Systems Phillips Laboratory
Harris Corporation Sandia National Laboratory
Hughes Electronics
Corporation US Air Force
Iridium, LLC
Lockheed Martin
Corporation
The Mitre Corporation
Motorola, Inc.
Nichols Research
Corporation
Northrop Grumman
Corporation
Orbital Sciences
Corporation
Raytheon Corporation
Science Applications
International
Corporation
Spectrum Astro, Inc.
TASC, Inc.
TRW, Inc.
</TABLE>
The Company derives a substantial portion of its total revenues from the
sale of software licenses and maintenance to US Government entities and
government contractors. Sales to US Government entities, taken as a whole and
excluding government contractors, represented approximately 25%, 27% and 36%
of the Company's total revenues for the years ended December 31, 1996, 1997
and for the six months ended June 30, 1998, respectively. The Company's
business depends, in significant part, upon the US Government's continued
demand for satellite analysis software in the areas of defense, civil space
and intelligence operations. As a result, the Company's business, financial
condition and results of operations may be materially affected by changes in
US Government expenditures for space-related programs. Including government
contractors, sales to whom depend, in large part, upon US Government demand,
government sales represented approximately 87%, 82% and 82% of the Company's
total revenues for the years ended December 31, 1996, 1997 and for the six
months ended June 30, 1998, respectively.
In addition to the sales to US Government entities and government
contractors, the Company derived 13%, 18% and 18% of its total revenues from
the license of its products and maintenance to commercial customers for the
years ended December 31, 1996 and 1997 and for the six months ended June 30,
1998, respectively.
Sales to Lockheed Martin Corp., NASA and TRW, Inc. accounted for
approximately 14%, 14% and 10% of total revenues, respectively, in the year
ended December 31, 1996. Sales to Lockheed Martin Corp. and NASA accounted for
approximately 14% and 12% of total revenues in the year ended December 31,
1997. Sales to NASA accounted for approximately 13% of total revenues in the
six months ended June 30, 1998. The Company anticipates that its results of
operations in any given period will continue to depend to a significant extent
upon sales to a small number of customers. As a result of this customer
concentration, the Company's revenues from quarter to quarter and business,
financial condition and results of operations may be subject to substantial
period-to-period fluctuations. See "Risk Factors--Government and Commercial
Customer Concentration" and "--Intense Competition."
43
<PAGE>
MARKETING
Innovative Marketing Strategy
The Company seeks to maximize user awareness of its products, increase
market and customer penetration, establish STK as the industry standard and
provide new market opportunities for the Company's suite of software products.
To rapidly expand the use of the Company's software, the Company initiated a
comprehensive marketing strategy pursuant to which it provides STK free of
charge to potential customers. The Company believes that wide dissemination of
its base product will result in a rapid increase in the licensing and sales of
its application modules. To establish STK and its related suite of modules as
the mission-wide software solution, the Company uses a targeted sales and
marketing program directed at a broad range of users across all space industry
segments and conducts aggressive direct sales and marketing initiatives to
further penetrate organizations currently using its products. Further, the
Company targets new commercial and governmental space programs to include the
Company's software as an integral part of the mission solution from a
program's inception.
Marketing Programs
The Company has implemented marketing initiatives to support the sales and
distribution of its products. These initiatives inform customers of the
capabilities and benefits of STK and the related suite of application modules.
The Company's marketing programs include the distribution of free software,
advertising, seminars and workshops, promotions, direct mail, free training,
newsletters, e-mail communications, participation in industry trade shows and
forums and dissemination of information concerning products through the
Company's website. In addition, customer leads are cultivated, evaluated and
qualified by the marketing team and are distributed to the Company's
integrated sales team to further pursue such opportunities. The Company also
conducts regularly scheduled workshops at industry trade shows located in
cities throughout the world.
Strategic Relationships
Through its Business Partners Program, the Company seeks to expand its
product offerings, develop strategic relationships and penetrate new markets
worldwide. By entering into strategic alliances with innovative companies
whose products complement the STK software suite, the Company is able to
foster the development of mutually beneficial arrangements.
The Company's Product Alliances provide the Company with well-established,
commercial software products in strategic areas that supplement the STK
product offerings and include both specialized technology resellers and system
integrators. The International and Domestic Resellers are provided with
business opportunities and corporate infrastructure to resell STK products
through direct sales or contract sales activities. The Service Provider
Program is designed to certify and register business partners who become STK
experts and to provide training, space analysis and consulting services and
other assistance with various STK-related products. The Developer Program is
designed for companies that are currently developing or plan to develop COTS
software products that will integrate, embed, or be embedded in STK and STK-
related products.
44
<PAGE>
The following tables identifies several of the Company's current
relationships:
<TABLE>
<CAPTION>
PRODUCT INTERNATIONAL AND SERVICE
ALLIANCES DOMESTIC RESELLERS PROVIDERS DEVELOPERS
--------- ------------------ --------- ----------
<S> <C> <C> <C>
CACI Asia Pacific Aerospace CSA Analyticon Limited
Consultants--Australia
ESRI CAM GmbH--Germany SAIC Microcosm
Geosphere China Great Wall Space Applications Princeton Satellite
Project Industry Corporation-- Research
China
Pacific Sierra JohoKobo Co. Ltd.-- Spacecraft Digest TASC, Inc.
Research Japan
SAIC Miru Corporation-- Sygenex
South Korea
Software SAIC--US
Technology
VMSI T.H.A. International Co.
Ltd.--Thailand
Teuchos--France
Western Systems--India
</TABLE>
Educational Partners
The Company provides many universities, colleges, professional development
organizations and non-profit educational groups with the resources necessary
to fully employ STK as a teaching and learning tool. The following
universities participate in the program: Stanford University; Princeton
University; Cornell University; the University of Maryland; University of
California-San Diego; US Air Force Academy; US Naval Academy; Johns Hopkins
University-Applied Physics Laboratory; International Space University; MIT-
Lincoln Laboratory; and the University of Texas-Austin. For example, the US
Air Force Academy's cadets utilize the Company's products to operate and
analyze experimental spacecraft. The Company believes that the Educational
Partners Program is an integral part of establishing STK as the industry
standard as future space industry professionals learn and conduct research
utilizing the Company's software.
SALES
The Company's sales and marketing teams are headquartered in Malvern,
Pennsylvania, and are located in field offices in Long Beach, California;
Santa Clara, California; Colorado Springs, Colorado; and Lanham, Maryland. The
Company's offices are strategically located in each region in the United
States in which there is a high concentration of space-related technology
customers. The Company believes that the vast majority of domestic customers
are located within these regions, allowing the Company efficient and ready
access to its customer base. The Company has also recently established a
reseller network in Europe and Asia and has consulting relationships in
London, England and Kuala Lumpur, Malaysia. The Company intends to continue
expanding its sales, marketing and distribution capabilities in order to
capitalize on the opportunities created by the continuing globalization of the
space industry.
The Company sells its products through both direct and indirect channels.
The Company markets its products in the United States through its direct sales
organization. As of June 30, 1998, the Company's direct field sales force
consisted of 21 full time sales personnel including six system engineers. The
Company also markets its products and services through a non-exclusive
domestic reseller and eight international resellers.
The Company believes that approximately 40% of its potential customers are
internationally-based organizations. Although international sales constituted
approximately 8% and 13% of the Company's total
45
<PAGE>
revenues in 1997 and the six months ended June 30, 1998, respectively, the
Company intends to continue expanding its sales, marketing and distribution
capabilities to increase international sales. The Company believes there is a
significant market for the advanced functionality of its products and intends
to supplement its direct sales force by expanding its distribution network in
selected foreign markets.
The Company employs a highly organized team approach to the sale of its
products. The leads generated by the marketing department are strategically
distributed to the Company's sales teams which systematically pursue such
opportunities. Sales teams consist of account executives, prospectors,
advisors and systems engineers to facilitate potential sales. Management
personnel also serve in a major role in many of the Company's larger space
program sales.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend upon its ability to
continue to enhance its existing product offerings, develop and introduce new
products and adapt to emerging markets and technologies. The Company seeks to
leverage its existing technology to minimize time to market of its products.
As of June 30, 1998, the Company's research and development team consisted of
39 engineers and support personnel. The Company spent approximately $1.0
million, $1.9 million, $3.6 million and $2.2 million on research and
development and capitalized software development in 1995, 1996, 1997 and the
six months ended June 30, 1998, respectively. Of such amounts for such
periods, approximately $935,000, $1.5 million, $3.2 million and $2.1 million,
respectively, were attributable to research and development expense.
The Company employs highly qualified engineers and utilizes its development
capabilities to efficiently manage design processes and shorten product
introduction lead times. Most of the Company's research and development
personnel hold advanced technical degrees. While the Company expects that most
new products will continue to be developed internally, the Company has, in the
past, licensed or purchased the rights to certain of its current products from
other developers, and may continue to do so in the future. The Company's
research and development and technical support teams develop new products and
enhancements to respond to its customers' and potential customers' evolving
needs. The Company introduced 11 new products in 1997 and expects to release
three new products and two new releases in 1998.
In order to provide superior quality assurance, the Company employs five
test engineers on a dedicated basis. The test team is fully integrated into
the product development process and participates in each phase of development
from requirements definition through product release. In addition, the Company
conducts substantial validation and verification testing and nightly automated
regression testing.
The Company is pursuing several product development projects and allocates
its research and development resources in response both to market research and
customer demands for additional features and products. The Company's product
development strategy involves introducing initial versions of its products and
adding features over time. The Company regularly incorporates product feedback
received from customers into its product development process. The Company's
current research and development efforts are principally focused on (i) the
continued enhancement of its core technologies, (ii) the development of new
features and complementary add-on modules to address the increasingly complex
needs of its customers and (iii) the creation of new products to widen its
addressable market.
COMPETITION
The market providing software solutions for the space industry is intensely
competitive and is characterized by rapidly changing technologies, evolving
industry standards, frequent new product introductions and rapid changes in
customer requirements. The Company competes primarily with third party
contractors, in-house development staffs of satellite manufacturers and
equipment vendors and a small group of other space-oriented software providers
and systems integrators. To maintain and improve its competitive position, the
Company must
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<PAGE>
continue to develop and introduce, on a timely and cost-effective basis, new
products and features that keep pace with the evolving needs of its customers.
The Company believes that the principal competitive factors affecting the
market for the Company's products and applications are quality, performance,
product features (such as adaptability, scalability, ability to integrate with
other products, functionality and ease of use), price, customer support and
product reputation. There can be no assurance that the Company will be able to
compete effectively based upon such competitive factors.
Many of the Company's competitors have longer operating histories, greater
name recognition, larger or captive customer bases and significantly greater
financial, technical, sales, customer support, marketing and other resources.
Such competitors may be able to respond more quickly to emerging technologies
and changes in customer requirements. The Company may face increased
competition as other established and emerging companies enter the COTS
software market for the space industry and as new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders and loss of market share, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, current and potential competitors may make strategic
acquisitions, merge or establish cooperative relationships among themselves or
with third parties, thereby increasing their ability to produce and market
products that address the needs of the Company's current or prospective
customers. There can be no assurance that the Company will be able to compete
successfully against current and future competitors. Failure by the Company to
compete successfully would have a material adverse effect on the Company's
business, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company's success and its ability to compete is dependent, in large
part, upon its proprietary rights. To protect these rights, the Company relies
upon a combination of copyright, trade secret, trademark, and patent laws and
generally enters into confidentiality, non-competition and invention
assignment agreements with its employees and consultants, and into non-
disclosure agreements with its distributors. The Company has four pending
patent applications and two registered trademarks, with 12 pending trademark
filings. The Company also has four registered copyrights on certain STK
software code. The Company also limits access to and distribution of the
source code to its software and other proprietary information. The Company
licenses, rather than sells, its software pursuant to license agreements
contained in its software packages which impose restrictions on licensees' use
of the software. However, preventing unauthorized use of the Company's
products is difficult. Despite the Company's efforts to safeguard and maintain
its proprietary rights in the United States and abroad, there can be no
assurance that the steps taken by the Company will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technology. Any such misappropriation or independent
development could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the laws of
certain countries in which the Company's products are distributed are
difficult to enforce or do not protect the Company's products and intellectual
property rights to the same extent as do the laws of the United States. There
can be no assurance that the measures taken by the Company will be adequate to
protect its proprietary rights. Litigation may be necessary to defend and
enforce the Company's proprietary rights, which could result in substantial
costs and diversion of management resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations, regardless of the final outcome of such litigation.
The Company may become subject to claims of infringement or misappropriation
of the intellectual property rights of others. While the Company generally
does not indemnify its customers for infringement of patents, trademarks,
copyrights or other proprietary rights of third parties, there can be no
assurance that the Company will not be liable for damages or expenses
associated with such claimed infringement. In addition, the Company, in its
licenses and software development and distribution agreements with its
resellers, distributors and partners, generally agrees to indemnify such third
parties for any expenses and liabilities resulting from claimed infringements
of patents, trademarks, copyrights or other proprietary rights of third
parties. The amount of the Company's indemnity obligations may be greater than
the Company's revenues received under such agreements.
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<PAGE>
There can be no assurance that third parties will not assert infringement or
misappropriation claims against the Company, its customers or distributors in
the future with respect to current or future products or services. Any claims
or litigation, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require the Company to
enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to the
Company, if at all. The inability to enter into satisfactory licensing
agreements could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, the Company licenses certain technologies and software products
from third party developers, and expects that it will continue to license or
acquire technologies or products to extend its current offerings. For example,
the Company has licensed technologies relating to the Navigator, High
Precision Orbit Propagator, Generic Resource Event Activity Scheduler, Missile
Flight Tool, Precision Orbit Determination System and STK/GIPSY products.
Generally, the Company's agreements with its licensors are non-exclusive and
may be terminated at any time by either party typically upon 60 days prior
notice. There can be no assurance that the Company's licensors will not
terminate their agreements with the Company, develop products that compete
with the Company's products in the future or provide their products and
expertise to the Company's competitors. The Company generally relies upon
representations and warranties of such licensors that they have the right to
license such technology and that their products do not infringe upon the
intellectual property rights of others. There can be no assurance that other
third parties will not assert infringement or misappropriation claims against
the Company, its customers, licensors or distributors in the future with
respect to such licensed products or technologies. Any claims or litigation,
with or without merit, could be time-consuming, costly and cause product
shipment delays or require the Company to enter into additional royalty or
licensing arrangements which may not be available on terms acceptable to the
Company, if at all, and could have a material adverse effect on the Company's
business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1998, the Company had a total of 130 full-time employees, 129
of whom were based in the United States, and 21 part-time employees. Of the
full-time employees, 39 were in product development, 41 were in sales and
sales-related support, 22 were in administration, finance and operations, 21
were in technical support, and seven were in marketing. The Company's future
performance depends in significant part upon the continued service of its
management, key engineers, and sales and technical sales support personnel.
Competition for such personnel is intense and there can be no assurance that
the Company will be successful in attracting or retaining such personnel in
the future. None of the Company's employees are represented by a labor union
or are subject to a collective bargaining agreement. The Company has not
experienced any work stoppages and considers its relations with its employees
to be good.
FACILITIES
The Company's executive offices, sales and marketing, research and
development and primary production operations are located in Malvern,
Pennsylvania where the Company leases approximately 25,000 square feet
pursuant to a lease expiring in 2001. The annual rent and maintenance for the
facility is approximately $500,000. The Company also leases or subleases sales
offices in Long Beach, California; Santa Clara, California; Colorado Springs,
Colorado; and Lanham, Maryland. See Note 4 of Notes to Financial Statements
for information regarding the Company's obligations under such leases.
Management believes that the Company's facilities are generally sufficient
to meet its current management, development, distribution and related
requirements. The Company believes, however, that it will need to lease
additional space in the future in order to meet its anticipated office
requirements.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul L. Graziani................... 41 President, Chief Executive Officer and
Chairman of the Board of Directors
Scott A. Reynolds.................. 40 Vice President, Chief Software
Architect, Secretary and Director
William J. Broderick............... 36 Vice President, Finance and
Administration, Chief Financial Officer
and Treasurer
John K. Kaiser..................... 55 Vice President, Sales and Marketing
Douglas J. Claffey................. 33 Vice President, Product Development
Francesco F. Linsalata............. 34 Vice President, Technical Services
Francis A. DiBello................. 55 Director
Jeffrey K. Harris(1)(2)............ 45 Director
John B. Higginbotham(2)............ 42 Director
George F. Raymond(1)(2)............ 61 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Upon consummation of this offering, the Board of Directors will be divided
into three classes, each of which shall serve a term of three years. Class A
will consist of Messrs. Harris and DiBello, whose terms will expire at the
annual meeting of shareholders in 1999; Class B will consist of Messrs.
Reynolds and Higginbotham, whose terms will expire at the annual meeting of
shareholders in 2000; and Class C will consist of Messrs. Graziani and
Raymond, whose terms will expire at the annual meeting of shareholders in
2001.
All executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.
There are no family relationships among any of the directors, executive
officers and key employees of the Company.
PAUL L. GRAZIANI co-founded the Company in 1989 and currently serves as its
President, Chief Executive Officer and Chairman of the Board of Directors. Mr.
Graziani served as President from inception until October 1990, as Chief
Technical Officer from such date until March 1994 and was reappointed to serve
as President in March 1994. Prior to founding the Company, he was a Systems
Engineer in Research and Development at GE Aerospace.
SCOTT A. REYNOLDS co-founded the Company in 1989 and has served as Vice
President, Chief Software Architect, Secretary and a Director since inception.
Since founding the Company, he has been responsible for the architecture of
the Company's software applications. Prior to founding the Company, Mr.
Reynolds was a Senior Software Engineer at GE Aerospace.
WILLIAM J. BRODERICK joined the Company in July 1996 as Vice President,
Finance and Administration, Chief Financial Officer and Treasurer. Mr.
Broderick served as a consultant to the Company from August 1995 through June
1996 and managed finance, accounting and administrative functions of the
Company. From 1990 until he joined the Company, Mr. Broderick, a Certified
Public Accountant, was a sole practitioner and provided certain management
advisory, finance and accounting services to the Company. Mr. Broderick is a
member of the American and Pennsylvania Institutes of Certified Public
Accountants.
JOHN K. KAISER joined the Company in June 1996 as Vice President, Sales and
Marketing. Mr. Kaiser served as a Sales Consultant to the Company from 1992 to
1996. Mr. Kaiser became a member of the Company's
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<PAGE>
Board of Advisors when it was formed in 1994. Prior to joining the Company,
Mr. Kaiser served as Senior Partner of Safeguard Scientifics, Inc. from 1995
until 1996 and served as Chairman of Kaiser, Feinberg and Associates, a
marketing services consulting firm, from 1989 until 1995.
DOUGLAS J. CLAFFEY joined the Company in February 1991 and currently serves
as Vice President, Product Development. Mr. Claffey previously served as
National Accounts Manager for the Company from February 1991 until January
1995 and as Director of Product Development from January 1995 to January 1996.
Prior to joining the Company, Mr. Claffey was a Systems Engineer with the
Systems Integration Department of GE Aerospace.
FRANCESCO F. LINSALATA joined the Company in September 1991 and currently
serves as Vice President, Technical Services. Mr. Linsalata manages the
Company's technical support services and the Business Partners Program. Mr.
Linsalata previously served as an Aerospace Engineer from September 1991 until
October 1995 and as Director, Business Partners Program from October 1995 to
October 1997. Prior to joining the Company, Mr. Linsalata worked with Stanford
Telecommunications, Inc. from 1986 to 1991.
FRANCIS A. DIBELLO has been a Director of the Company since July 1995. Since
January 1993, Mr. DiBello has been the Vice Chairman of SpaceVest Management
Group, Inc. ("SpaceVest"), an institutional venture capital group with an
investment focus on the space industry. Prior to joining SpaceVest, Mr.
DiBello was a Managing Partner of KPMG Peat Marwick's Commercial Space Group
where he had broad responsibilities in its United States and international
space efforts. Mr. DiBello also participated on various government commissions
for the Army and Navy. Mr. DiBello serves as a Director of the Company as a
designee of SpaceVest Fund, L.P., a principal shareholder of the Company.
JEFFREY K. HARRIS has been a Director of the Company since August 1996.
Since July 1996, Mr. Harris has been the President of Space Imaging, Inc., a
commercial remote sensing company. Prior to joining Space Imaging, Inc., Mr.
Harris was Assistant Secretary for Space with the US Air Force and Director of
the National Reconnaissance Office from May 1994 to March 1996. Mr. Harris
previously served, from 1974 to 1994, as a program manager for the US Central
Intelligence Agency. He is a leading authority on satellite imaging
collection, processing and exploitation.
JOHN B. HIGGINBOTHAM has been a Director of the Company since July 1995. He
is the founder and Chairman of SpaceVest, an institutional venture capital
group with an investment focus on the space industry. Prior to founding
SpaceVest in 1991, Mr. Higginbotham was a co-founder and senior vice president
of International Technology Underwriters, Inc. from 1981 to 1991, and a
product marketing manager for Hewlett Packard from 1979 to 1981. Mr.
Higginbotham also serves as a director of various space industry associations
and advisory groups.
GEORGE F. RAYMOND has been a Director of the Company since November 1995 and
currently serves as the President of Buckland Corporation. From 1972 to 1989,
Mr. Raymond served as the President of Automatic Business Centers, Inc., the
largest privately held payroll processing company in the United States until
its sale to ADP in 1989. Mr. Raymond presently serves on the Board of
Directors of each of BMC Software, Inc., Balance Bar Co., DocuCorp
International and Atlantic Data Services.
The Board of Directors has a Compensation Committee, which approves salaries
and incentive compensation for executive officers of the Company and
administers the Company's stock option plans, and an Audit Committee, which
reviews the results and scope of the audit and other services provided by the
Company's independent accountants.
DIRECTORS' COMPENSATION
The Company does not pay any cash compensation to its Directors. All
Directors are reimbursed for reasonable expenses incurred in attending Board
meetings. The Company has granted to certain of its Directors options to
purchase an aggregate of 90,000 shares of Common Stock at a weighted average
exercise price of $0.46 per share, of which 56,250 were vested at June 30,
1998. The remaining options to purchase 33,750 shares will vest in equal
amounts in each of November 1998, 1999 and 2000. See "Principal and Selling
Shareholders."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for services in all capacities awarded to, earned by or paid to the Company's
chief executive officer and the other four most highly paid executive officers
of the Company whose aggregate compensation exceeded $100,000 during the year
ended December 31, 1997 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
---------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION(1)
------------------------------ -------- ------- ---------------
<S> <C> <C> <C>
Paul L. Graziani
President and Chief Executive Officer........ $157,792 $32,000 $1,260
Scott A. Reynolds
Vice President, Chief Software Architect..... 105,000 5,000 1,223
William J. Broderick
Vice President, Chief Financial Officer...... 102,292 12,500 53
John K. Kaiser
Vice President, Sales and Marketing.......... 105,417 25,000 53
Douglas J. Claffey
Vice President, Product Development.......... 105,583 20,500 53
</TABLE>
- --------
(1) Represents life insurance premiums paid on behalf of the Named Executive.
The Company did not grant stock options to any of the Named Executives
during 1997. The Company has never granted any stock appreciation rights.
The following table sets forth information concerning each exercise of
options during 1997 by each of the Named Executives and the fiscal year end
value of unexercised in-the-money options.
AGGREGATE OPTION EXERCISES IN 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Paul L. Graziani........ -- -- -- / -- -- / --
Scott A. Reynolds....... -- -- -- / -- -- / --
William J. Broderick.... -- --
John K. Kaiser.......... -- --
Douglas J. Claffey...... -- --
</TABLE>
- --------
(1) There was no public market for the Common Stock as of December 31, 1997.
Accordingly, the value of the unexercised in-the-money options have been
calculated on the basis of an assumed initial public offering price of
$ per share, less the exercise price payable for such shares.
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<PAGE>
STOCK OPTION PLANS
1998 Stock Plan
The 1998 Stock Plan was adopted by the Board of Directors on July 27, 1998
and was approved by the shareholders of the Company effective August 6, 1998.
The 1998 Stock Plan shall be effective on the date of the consummation of this
offering and shall terminate ten years from such date, unless terminated
earlier by the Board of Directors. Upon effectiveness of the 1998 Stock Plan,
a total of 500,000 shares shall be reserved for issuance upon the exercise of
options and/or stock purchase rights granted thereunder. Those eligible to
receive stock option grants or stock purchase rights under the 1998 Stock Plan
shall include employees, non-employee directors and consultants. The 1998
Stock Plan shall be administered by the Compensation Committee of the Board of
Directors of the Company, which is comprised solely of outside directors.
Subject to the provisions of the 1998 Stock Plan, the administrator of the
1998 Stock Plan shall have the discretion to determine the optionees and/or
grantees, the type of options to be granted (incentive stock options ("ISOs")
or non-qualified stock options ("NQSOs")), the vesting provisions, the terms
of the grants and other related provisions as are consistent with the 1998
Stock Plan. The exercise price of an ISO may not be less than the fair market
value per share of the Common Stock on the date of grant or, in the case of an
optionee who beneficially owns 10% or more of the voting power of all classes
of capital stock of the Company, not less than 110% of the fair market value
per share on the date of grant. The exercise price of a NQSO may not be less
than 85% of the fair market value per share of the Common Stock on the date of
grant or, in the case of an optionee who beneficially owns 10% or more of the
voting power of all classes of capital stock of the Company, not less than
110% of the fair market value per share on the date of grant. The purchase
price of shares issued pursuant to stock purchase rights may not be less than
50% of the fair market value of such shares as of the offer date of such
rights.
The options terminate not more than ten years from the date of grant,
subject to earlier termination upon or after a fixed period following the
optionee's death, disability or termination of employment with the Company.
The term of any options granted to a holder of more than 10% of the capital
stock may be no longer than five years. The Company anticipates that options
granted under the 1998 Stock Plan will vest over four years from the date of
grant. Options are not assignable or otherwise transferable except by will or
the laws of descent and distribution. In the event of a merger or
consolidation of the Company with or into another corporation or the sale of
all or substantially all of the Company's assets in which the successor
corporation does not assume outstanding options or issue equivalent options,
the Board of Directors of the Company is required to provide accelerated
vesting of outstanding options.
1995 Stock Plan
The 1995 Stock Plan (the "1995 Plan") was adopted by the Board of Directors,
approved by the shareholders and became effective on May 24, 1995. As of June
30, 1998, a total of 1,695,375 shares were reserved for issuance upon the
exercise of options granted under the 1995 Plan, of which options to purchase
1,540,816 shares have been granted and are currently outstanding. Those
eligible to receive stock option grants under the 1995 Plan include employees,
officers, directors and consultants. The 1995 Plan is administered by the
Board of Directors of the Company. Upon effectiveness of the Company's 1998
Stock Plan, no further grants will be made under the 1995 Plan.
Subject to the provisions of the 1995 Plan, the administrator of the 1995
Plan has the discretion to determine the optionees, the type of awards to be
granted (ISOs, NQSOs or stock purchase rights), the vesting provisions, the
terms of the grants and to make such other related determinations as are
consistent with the 1995 Plan. The exercise price of an ISO may not be less
than the fair market value per share of the Common Stock on the date of grant
and the exercise price of an NQSO may not be less than eighty-five percent
(85%) of the fair market value per share of the Common Stock on the date of
grant. In the case of any optionee who owns 10% or more of the total combined
voting power of all classes of stock of the Company, however, the exercise
price of either an ISO or NQSO may not be less than 110% of the fair market
value per share on the date of grant. Fair market value is determined by the
administrator from time to time in good faith; however, the 1995 Plan provides
that
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<PAGE>
upon listing on the Nasdaq National Market, such fair market value shall be
the closing sales price for Common Stock of the Company on the last trading
day prior to the grant date.
ISOs terminate not more than ten years from the date of grant, while NQSOs
terminate as established by the administrator and are generally limited to ten
(10) years. Both ISOs and NQSOs are subject to earlier termination upon or
after a fixed period following the optionee's death, disability or termination
of employment with the Company. The term of ISOs granted to a holder of more
than 10% of the total combined voting power of all classes of stock of the
Company may be no longer than five years. Generally, options under the 1995
Plan vest over four years from the date of grant. Options are not assignable
or otherwise transferable except by will or by the laws of descent and
distribution. In the event of a dissolution or liquidation of the Company,
Optionees shall receive fifteen (15) days notice to exercise vested options
and, to the extent options are not so exercised at the end of such period,
such options will terminate. In the event of a merger in which the Company is
not the surviving corporation, or the sale of all or substantially all of the
Company's assets in which the successor corporation does not assume
outstanding options or issue substantially equivalent options, all outstanding
options accelerate and become exercisable in full for a period of at least
fifteen (15) days.
The Incentive Stock Option Plan
The Company's Incentive Stock Option Plan (the "ISO Plan") was adopted by
the Board of Directors and became effective on October 24, 1990. The ISO Plan
was approved by the shareholders of the Company on October 24, 1990. As of
June 30, 1998, a total of 335,250 shares were reserved for issuance upon the
exercise of options granted under the ISO Plan, of which options to purchase
311,625 shares have been granted and are currently outstanding. Those eligible
to receive stock option grants under the ISO Plan include officers and key
employees of the Company. The ISO Plan is administered by the Board of
Directors of the Company. No further grants shall be made under the ISO Plan.
Subject to the provisions of the ISO Plan, the administrator of such plan
has the discretion to determine the optionees, who shall consist solely of the
officers and key employees of the Company. The administrator may grant only
incentive stock options under the ISO Plan, and shall determine the vesting
provisions and such other related provisions of an award as are consistent
with the ISO Plan. The exercise price of an option granted under the ISO Plan
may not be less than the fair market value per share of the Common Stock on
the date of grant.
Awards under the ISO Plan generally terminate not more than ten years from
the date of grant and are subject to earlier termination upon termination of
the optionee's employment with the Company or after notice of termination of
the optionee's employment or, with respect to options exercisable on the date
of an employee's death, after a fixed period following his or her death.
Generally, options under the ISO Plan vest over a four-year period from the
date of grant. Options are not assignable or otherwise transferable except by
will or by the laws of descent and distribution. In the case of a merger,
consolidation, dissolution or liquidation of the Company, options outstanding
under the ISO Plan may, at the discretion of the Board of Directors, become
fully exercisable. The ISO Plan shall terminate ten years from the date on
which it was approved by the Company's Board of Directors, unless sooner
terminated in accordance with its terms.
The Non-Qualified Stock Option Plan
The Company's Non-Qualified Stock Option Plan (the "Non-Qualified Plan") was
adopted by the Board of Directors and became effective on September 1, 1994.
The Non-Qualified Plan was approved by the shareholders of the Company on
September 1, 1994. As of June 30, 1998, a total of 500,625 shares were
reserved for issuance upon the exercise of options granted under the Non-
Qualified Plan, of which options to purchase 135,000 shares have been granted
and are currently outstanding. Those eligible to receive stock option grants
under the Non-Qualified Plan include key employees, consultants and advisors
to the Company. The Non-Qualified Plan is administered by the Board of
Directors of the Company. No further grants shall be made under the Non-
Qualified Plan.
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<PAGE>
Subject to the provisions of the Non-Qualified Plan, the Board of Directors
acting upon the recommendation of the administrator has the power to select
optionees, to determine the number of shares underlying each option and to
include such other conditions to a grant as are consistent with the Non-
Qualified Plan. The exercise price of an option grant under the Non-Qualified
Plan shall be determined by the administrator on the date of grant.
Awards under the Non-Qualified Plan terminate not more than ten years from
the date of grant and are subject to earlier termination on the optionee's
death or termination of employment with the Company. Generally, options under
the Non-Qualified Plan vest over three years from the date of grant. Options
are not assignable or otherwise transferable except by will or by the laws of
descent and distribution. In the event of a merger or consolidation of the
Company in which the Company is not the surviving corporation, or the sale of
all of substantially all of the Company's assets, all options outstanding
under the Non-Qualified Plan shall become fully exercisable prior to the
consummation of such transaction. The Non-Qualified Plan shall terminate ten
years from the date on which it was approved by the Company's Board of
Directors, unless sooner terminated in accordance with its terms. Termination
of the Non-Qualified Plan does not alter or impair any options previously
granted. With certain limited exceptions, all shares issued upon the exercise
of awards granted under the Non-Qualified Plan are subject to, upon
termination of an optionee's employment with the Company, the Company's right
of repurchase at a price to be agreed upon by the Company and the optionee at
the time of such repurchase or shall be determined by formula, as set forth in
the Non-Qualified Plan, in the event a repurchase price cannot be agreed upon.
Such right of repurchase will terminate upon the consummation of the Offering.
EMPLOYMENT AGREEMENTS, INDEMNIFICATION AGREEMENTS, NON-COMPETITION, NON-
DISCLOSURE AND INVENTION ASSIGNMENT AGREEMENTS
Paul L. Graziani, the Company's President and Chief Executive Officer and
Scott A. Reynolds, the Company's Vice President and Chief Software Architect,
have entered into three-year employment agreements with the Company commencing
August 1, 1998. Under the terms of their respective agreements, each of Mr.
Graziani and Mr. Reynolds are entitled to an annual base salary of $176,000
and $110,000, respectively, bonuses, the amounts and payments of which are
within the discretion of the Compensation Committee of the Board of Directors,
incentive compensation under the Company's stock option plans and benefits.
These agreements require each individual to maintain the confidentiality of
Company information and assign inventions to the Company. Each of such
officers has agreed that during the term of his respective agreement and
thereafter for a period of up to two years, he will not compete with the
Company in any state or territory of the United States or other country where
the Company does business by engaging in any capacity in a business which is
competitive with the business of the Company. Each of the foregoing employment
agreements also provides that, for a period of two years following the
termination of employment, each such individual shall not solicit the
Company's customers or employees. Both of such employment agreements provide
that the Company or the employee may terminate the agreements upon no less
than 60 days prior written notice.
In addition, the Company entered into a severance agreement with John K.
Kaiser dated May 29, 1996, which provides that if his employment is terminated
for any reason other than for cause, as defined in such agreement, the Company
will continue to pay Mr. Kaiser's base salary and benefits for a minimum of
four and one-half months plus one week for every full year of service after
the first year of employment.
The Company has entered into indemnification agreements with each of its
executive officers and directors pursuant to which the Company has agreed to
indemnify such party to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
director, officer, employee, agent or fiduciary of the Company.
In addition to the foregoing agreements, the Company has executed agreements
with each of its employees, whereby each employee agrees to maintain the
confidentiality of Company information and to assign inventions to the
Company.
54
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the compensation of executive officers of the Company was
determined by the Board of Directors. The Compensation Committee was
established by the Board of Directors on July 27, 1998. The Compensation
Committee currently consists of Messrs. Harris and Raymond. There are no
Compensation Committee Interlocks.
KEY PERSON INSURANCE
The Company maintains and is the beneficiary of life insurance policies on
the lives of Paul L. Graziani and Scott A. Reynolds. The face amount of each
such policy is $1.0 million. The Company does not maintain key person life
insurance on any of its other key personnel.
55
<PAGE>
CERTAIN TRANSACTIONS
In June 1995, the Company issued and sold 256,753 shares of Series A
Preferred Stock. As a result of this transaction, holders of the Series A
Preferred Stock are entitled to nominate two directors and elect one director
to the Board of Directors of the Company. Messrs. DiBello and Higginbotham, of
SpaceVest Fund, L.P. ("SpaceVest Fund"), currently serve as such nominees.
Such rights terminate upon the automatic conversion of the Series A Preferred
Stock upon the consummation of this offering contemplated hereby. Although the
contractual right to director nominations will terminate upon the consummation
of this offering, SpaceVest Fund's nominees will continue to serve on the
Board of Directors of the Company, at least for the balance of their terms.
Pursuant to the terms of certain registration rights agreements, the Company
has granted certain piggy-back registration rights to the Paul Graziani
Associates Limited Partnership, the Scott Reynolds Associates Limited
Partnership and SpaceVest Fund. Paul L. Graziani, the Company's President and
Chief Executive Officer, is a general partner of Paul Graziani Associates
Limited Partnership and Scott A. Reynolds, the Company's Vice President, Chief
Software Architect, is a general partner of Scott Reynolds Associates Limited
Partnership. See "Description of Capital Stock--Registration Rights of Certain
Security Holders."
The Board of Directors of the Company has adopted a policy requiring that
any future transactions between the Company and its officers, directors,
principal shareholders and their affiliates be on terms no less favorable to
the Company than could be obtained from unrelated third parties and that any
such transactions be approved by a majority of the disinterested members of
the Company's Board of Directors.
56
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each
person (or group of affiliated persons) who is known to the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
of the Company's directors and Named Executives, (iii) the Selling
Shareholders and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK NUMBER COMMON STOCK
BENEFICIALLY OWNED OF BENEFICIALLY OWNED
PRIOR TO OFFERING(2) SHARES OF AFTER OFFERING(2)
-------------------- COMMON STOCK -----------------------
NAME OF BENEFICIAL BEING
OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT(3)
------------------ --------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS, NAMED
EXECUTIVES AND FIVE
PERCENT SHAREHOLDERS:
Paul L. Graziani(4)..... 1,496,156
Scott A. Reynolds(5).... 1,420,137
SpaceVest Fund,
L.P.(6)................ 2,820,972
William J. Broder-
ick(7)................. 138,364
John K. Kaiser(8)....... 275,625
Douglas J. Claffey(9)... 226,687
Francis A. DiBello(6)... 2,820,972
Jeffrey K. Harris(10)... 11,250
John B. Higginbot-
ham(6)................. 2,820,972
George F. Raymond(11)... 45,000
All Directors and Execu-
tive Officers as a
group (10 per-
sons)(12).............. 6,515,331
OTHER SELLING SHAREHOLD-
ERS:
PNC Bank, N.A.(13)...... 81,000
Transamerica Business
Credit Corpora-
tion(14)............... 45,000
Ben Franklin--Progress
Capital Fund,
L.P.(15)............... 22,500
Jay J. Buck(16)......... 180,000
Francesco F.
Linsalata(17).......... 81,140
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise specified, the address of all persons who are executive
officers or Directors of the Company is in care of the Company, 325
Technology Drive, Malvern, Pennsylvania 19355.
(2) The number of shares beneficially owned by each shareholder is determined
under rules promulgated by the Securities and Exchange Commission (the
"Commission"), and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual or entity has
sole or shared voting power or investment power and also any shares which
the individual or entity has a right to acquire within 60 days after June
30, 1998 through the exercise of any stock option, warrant or other
right. The inclusion herein of such shares, however, does not constitute
an admission that the named shareholder is a direct or indirect
beneficial owner of such shares. Unless otherwise indicated, each person
or entity named in the table has sole voting power and investment power
(or shares such power with his or her spouse) with respect to all shares
of capital stock listed as owned by such person or entity.
(3) Applicable percentage of ownership is based on 7,073,983 shares of Common
Stock outstanding on June 30, 1998, including 2,888,472 shares issuable
upon conversion of the Series A Preferred Stock, plus an aggregate of
shares of Common Stock to be issued upon the exercise by certain of the
Selling
57
<PAGE>
Shareholders of currently exercisable stock options and warrants
immediately prior to the consummation of this offering, and shares of
Common Stock outstanding after the completion of this offering. Common
Stock issuable upon the exercise of options and warrants is deemed to be
outstanding beneficially owned by the person holding such options or
warrants for the purpose of computing of percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage of ownership of any other person.
(4) Includes 1,490,531 shares of Common Stock held by the Paul Graziani
Associates Limited Partnership of which Mr. Graziani is a general partner
and 5,625 shares of Common Stock held as custodian for a minor child.
(5) Represents shares of Common Stock held by the Scott Reynolds Associates
Limited Partnership of which Mr. Reynolds is a general partner.
(6) Represents 2,820,972 shares of Common Stock issuable upon the automatic
conversion of the Series A Preferred Stock upon the consummation of this
offering. The address of SpaceVest Fund is 11911 Freedom Drive, Suite
500, Reston, Virginia 20190. Messrs. Higginbotham and DiBello are general
partners of SpaceVest Fund. The general partners of SpaceVest Fund
exercise sole voting and investment power. Each general partner disclaims
beneficial ownership of the shares held by SpaceVest Fund except to the
extent of their respective pecuniary interest therein.
(7) Includes 123,750 shares underlying exercisable options to purchase shares
of Common Stock.
(8) Includes 180,000 shares underlying exercisable options to purchase shares
of Common Stock.
(9) Includes 217,237 shares of Common Stock underlying exercisable options to
purchase to shares of Common Stock and includes 450 shares of Common
Stock and 450 shares underlying exercisable options to purchase shares of
Common Stock held of record by Cynthia Claffey, Mr. Claffey's wife and an
employee of the Company.
(10) Represents 11,250 shares underlying exercisable options to purchase
shares of Common Stock.
(11) Represents 45,000 shares underlying exercisable options to purchase
shares of Common Stock.
(12) See Notes 4 through 11. Includes 81,140 shares beneficially owned by an
executive officer not named above. See Note 17.
(13) Represents 81,000 shares of Common Stock issuable upon the exercise of
warrants to purchase Common Stock.
(14) Represents 45,000 shares of Common Stock issuable upon the exercise of
warrants to purchase Common Stock.
(15) Represents 22,500 shares of Common Stock issuable upon the exercise of
warrants to purchase Common Stock.
(16) Includes 67,500 shares of Common Stock issuable upon the automatic
conversion of the Series A Preferred Stock upon the consummation of this
offering.
(17) Represents 81,140 shares underlying exercisable options to purchase
shares of Common Stock.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the Company's authorized capital
stock will consist of 30,000,000 shares of Common Stock, $.01 par value (the
"Common Stock"), and 5,000,000 shares of undesignated Preferred Stock, $.01
par value (the "Preferred Stock").
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Articles of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement. The following summary is qualified in its entirety by
reference thereto.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the shareholders of the Company.
Holders of shares of Common Stock will be entitled to receive dividends,
subject to the senior rights of preferred shareholders, if any, when, as and
if declared by the Board of Directors (see "Dividend Policy") and, subject to
the senior rights of holders of Preferred Stock, if any, to share ratably in
the assets of the Company legally available for distribution to its
shareholders in the event of the liquidation, dissolution or winding-up of the
Company. Holders of Common Stock have no preemptive, subscription, redemption
or conversion rights. All of the issued and outstanding shares of Common Stock
are, and all shares of Common Stock to be sold in this offering will be, duly
authorized, validly issued, fully paid and nonassessable.
At June 30, 1998, there were (i) 4,185,511 shares of Common Stock issued and
outstanding, (ii) 99 shareholders of record and (iii) outstanding options and
warrants to purchase an aggregate of 2,135,941 shares of Common Stock. See
"Management--Stock Options Plans" and "--Warrants." Upon consummation of this
offering, options and warrants to purchase an aggregate of shares of
Common Stock shall be exercised by certain holders thereof.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. The holders of Preferred
Stock would normally be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding-up of the Company before any
payment is made to the holders of the Common Stock. Upon consummation of this
offering, there will be no shares of Preferred Stock outstanding and the
Company does not presently intend to issue any series of Preferred Stock.
These provisions may have the effect of lengthening the time required for a
person to acquire control of the Company through a proxy contest for the
election of a majority of the Board of Directors, may discourage bids for the
Common Stock at a premium over the market price and may deter efforts to
obtain control of the Company. See "Risk Factors--Control by Existing
Shareholders; Anti-takeover Effect of Certain Charter By-Law and Other
Provisions."
At June 30, 1998, there were 256,753 shares of Series A Preferred Stock
issued and outstanding. Upon consummation of this offering, all outstanding
shares of Series A Preferred Stock will automatically convert into an
aggregate of 2,888,472 shares of Common Stock. The Series A Preferred Stock
shall be canceled, retired and eliminated upon the automatic conversion of
outstanding shares of the Series A Preferred Stock as described above. There
are no other classes of Preferred Stock designated and no other shares of
Preferred Stock outstanding.
59
<PAGE>
WARRANTS
In May 1998, in connection with the Term Loan and the Revolving Credit
Facility, the Company issued Warrants to purchase shares of Common Stock to
certain banks. These Warrants entitle holders to purchase shares of Common
Stock at $6.67 per share, up to a maximum of 148,500 shares of Common Stock,
of which an aggregate of shares are anticipated to be offered and sold by
certain Selling Shareholders hereby. The Warrants may be exercised until April
30, 2003. The holders of the shares of Common Stock issuable or issued upon
the exercise of the Warrants are entitled to certain piggy-back registration
rights. See "--Registration Rights of Certain Security Holders."
REGISTRATION RIGHTS OF CERTAIN SECURITY HOLDERS
Holders of Series A Preferred Stock
In June 1995, SpaceVest Fund and Jay J. Buck ("Buck") purchased an aggregate
of 256,753 shares of Series A Preferred Stock from the Company. The shares of
Series A Preferred Stock automatically convert into 2,888,472 shares of Common
Stock (the "Registrable Securities") immediately prior to the consummation of
this offering.
The Company has granted a demand registration right to SpaceVest Fund
allowing it or its assignee beginning twelve months after the date the
Commission declares the registration statement relating to this offering
effective, to require that the Company register its Registrable Securities (on
no more than one occasion) at the Company's expense (excluding underwriters'
discounts and commissions) under the Securities Act. The Company is not
required to register any shares unless the Registrable Securities requested to
be registered are at least 25% of all Registrable Securities then outstanding
or have an aggregate offering price of at least $1.0 million. The Company has
the right to defer filing such registration statement for a period of not more
than 180 days under certain circumstances.
In addition, if, at any time, the Company proposes to register any of its
securities under the Securities Act for sale to the public, SpaceVest Fund and
Buck shall have unlimited piggyback registration rights, subject to certain
underwriting and other restrictions set forth in the investor rights agreement
with the SpaceVest Fund. The Company also has agreed to indemnify SpaceVest
Fund, Buck and each underwriter in any such offering against certain
liabilities, including liabilities under the Securities Act. Except with
respect to their shares of Common Stock registered and offered hereby,
SpaceVest Fund and Buck have waived their registration rights with respect to
this offering.
Holders of the Warrants
The Company also has granted certain registration rights to the holders of
the Warrants (the "Warrant Holders"). If at any time the Company determines to
register shares of its Common Stock under the Securities Act for sale to the
public, except securities to be issued solely in connection with any
acquisition of any entity or business, shares issuable solely upon issuance of
stock options, shares issuable to any employee benefit plans or shares to be
registered on any registration form that does not permit secondary sales, the
Warrant Holders have unlimited piggyback registration rights. Such
registration rights are subordinate to the registration rights of SpaceVest
Fund and Buck.
Principal Shareholders
Pursuant to the terms of a registration rights agreement, the Company has
granted certain piggy-back registration rights to the Paul Graziani Associates
Limited Partnership and the Scott Reynolds Associates Limited Partnership. If
at any time the Company determines to register shares of its Common Stock
under the Securities Act for sale to the public, excluding registrations
relating to any employee benefit plan or corporate reorganization, such
shareholders have unlimited piggyback registration rights. Such registration
rights are subordinate to the registration rights of SpaceVest Fund, Buck and
the Warrant Holders.
60
<PAGE>
LIMITATION OF LIABILITY OF DIRECTORS AND EXECUTIVE OFFICERS
The Articles of Incorporation of the Company limit the liability of
directors and executive officers of the Company. Specifically, directors and
executive officers of the Company will not be personally liable for money
damages for breach of a duty as a director or an executive officer, except for
liability (i) for any breach of the director's or executive officers duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not in
good faith or which involve a knowing violation of the law, (iii) as to
directors only, under Section 1553 of the PBCL, which relates to unlawful
declarations of dividends or other distributions of assets to shareholders or
the unlawful purchase of shares of the corporation, or (iv) for any
transaction from which the director or officer derived an improper personal
benefit. The Company has also entered into indemnification agreements with
each of its executive officers and directors. See "Management--Employment
Agreements, Indemnification Agreements, Non-Competition, Non-Disclosure and
Invention Assignment Agreements."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles, By-Laws and the PBCL operate
with respect to extraordinary corporate transactions, such as mergers,
reorganizations, tender offers, sales or transfers of substantially all of the
Company's assets or the liquidation of the Company, and could have the effect
of delaying or making more difficult a change in control of the Company in
certain circumstances.
The PBCL
The Company is governed by a set of interrelated provisions of the PBCL
which are designed to support the validity of actions taken by the Board of
Directors in response to takeover bids, including specifically the Board's
authority to "accept, reject or take no action" with respect to a takeover
bid, and permitting the unfavorable disparate treatment of a takeover bidder.
Another provision of the PBCL gives the directors broad discretion in
considering the best interests of the corporation in evaluating an acquisition
proposal, including a provision which permits the Board, in taking any action,
to consider various corporate interests, including those of employees,
suppliers, clients and communities in which the corporation is located, the
short and long-term interests of the corporation, and the resources, intent
and conduct of any person seeking to acquire control of the corporation. These
provisions may have the effect of making more difficult and thereby
discouraging attempts to acquire control of the Company in a transaction that
the Board determines not to be in the best interests of the Company.
The Company has elected to opt-out of certain anti-takeover provisions of
the PBCL, including: (i) provisions pursuant to which any holder of voting
shares of a registered corporation who objects to a "control transaction"
(generally defined as the acquisition by a person or group (the "controlling
person or group") that would entitle the holders thereof to cast at least 20%
of the votes that all shareholders would be entitled to cast in an election of
the directors of the corporation) is entitled to make a written demand on the
controlling person or group for payment of the fair value of the voting shares
of the corporation held by the shareholder; (ii) provisions which prohibit
certain business combinations (as defined in the PBCL) involving a corporation
that has voting shares registered under the Securities and Exchange Act of
1934, as amended, and an "interested shareholder" (generally defined to
include a person who beneficially owns shares representing at least 20% of the
votes that all shareholders would be entitled to cast in an election of
directors of the corporation) unless certain conditions are satisfied or an
exemption is applicable; (iii) provisions concerning "control-share
acquisitions" in which the voting rights of certain shareholders of the
corporation (specifically, a shareholder who acquires 20%, 33 1/3% or 50% or
more of the voting power of the corporation) are conditioned upon the consent
of a majority vote at a meeting of the independent shareholders of the
corporation after disclosure by such shareholder of certain information, and
with respect to which such shareholder is effectively deprived of voting
rights if such consent is not obtained; and (iv) provisions pursuant to which
any profit realized by a "controlling person or group," generally defined as a
20% beneficial owner, from the disposition of equity securities within twenty-
four months prior to, and eighteen months succeeding, the acquisition of such
control is recoverable by the corporation. Given the ownership structure of
the Company after this offering, the Company's
61
<PAGE>
Board of Directors believed that there was a risk that one or more of these
provisions could be inadvertently triggered by the normal activities of the
Company and its principal shareholders and that, therefore, it was in the best
interests of the Company to opt-out of these provisions.
Charter Provisions
The Company's Articles of Incorporation authorize the Board of Directors to
issue, without shareholder approval, 5,000,000 shares of Preferred Stock with
voting, conversion and other rights and preferences that could adversely
affect the voting power or other rights of the holders of Common Stock. The
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. In addition, the
possible issuance of Preferred Stock could discourage a proxy contest, make
more difficult the acquisition of a substantial block of the Common Stock or
limit the price that investors might be willing to pay in the future for
shares of the Common Stock.
In addition, the Company's Articles of Incorporation contain provisions
pursuant to which (i) the Company's Board of Directors is classified into
three classes, with one class being elected each year; (ii) the affirmative
vote of at least 66 2/3% of the votes cast by eligible shareholders shall be
required to adopt, amend or repeal any provision of the By-Laws of the Company
or approve Fundamental Changes (as defined in the PBCL); (iii) shareholders of
the Company may not take any action by written consent; (iv) special meetings
of shareholders may be called only by the President, the Chairman of the Board
or a majority of the Board of Directors and business transacted at any such
meeting shall be limited to matters relating to the purposes set forth in the
notice of such special meeting; (v) the Company shall not be subject to
certain anti-takeover provisions affecting registered corporations under the
PBCL; (vi) the affirmative vote of at least 66 2/3% of the votes cast by
eligible shareholders shall be required to amend the above provisions; and
(vii) the affirmative vote of at least 80% of the votes cast by eligible
shareholders shall be required to amend the provisions of the Articles of
Incorporation with respect to indemnification of Directors or executive
officers or the limitation of liability of Directors.
These provisions may have the effect of lengthening the time required for a
person to acquire control of the Company through a proxy contest for the
election of a majority of the Board of Directors, may discourage bids for the
Common Stock at a premium over the market price and may deter efforts to
obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
NEW SUBSIDIARIES
In August 1998, the Company intends to establish two wholly-owned
subsidiaries, AGIX, Inc., to be incorporated in Pennsylvania, and XIGA
Corporation, to be incorporated in Delaware. The Company expects to transfer
substantially all of its operating assets and liabilities to its Pennsylvania
subsidiary and certain of its intangible assets to its Delaware subsidiary.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of Common
Stock outstanding. Of these shares, the shares sold in this offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable by persons other than "affiliates" of the
Company without restriction or further registration under the Securities Act.
The remaining shares of Common Stock outstanding are "restricted
securities" (the "Restricted Shares") within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
an exemption afforded by Rule 144.
Current shareholders holding in the aggregate shares of Common Stock
have entered into "lock-up" agreements with a Representative of the
Underwriters, providing that, subject to certain exceptions, they will not
offer, sell or otherwise dispose of any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent
of Lehman Brothers, acting as a Representative of the Underwriters. Lehman
Brothers may release any of such shares in its sole discretion at any time and
without prior notice. Following the expiration of the "lock-up" period,
approximately of the Restricted Shares will be eligible for immediate
resale in the public market pursuant to Rule 144, subject to certain
limitations described below. All remaining shares of Restricted Shares will
become eligible for sale at various times over a period of less than two years
and could be sold earlier if the holders exercise any available registration
rights. The holders of shares of Common Stock and shares of Common
Stock underlying the remaining outstanding warrants have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public. See "Description of Capital Stock--
Registration Rights of Certain Security Holders."
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
Restricted Shares for at least one year but less than two years is entitled to
sell, commencing 90 days after the date of this Prospectus, within any three-
month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (an aggregate of
shares will be outstanding immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 also are subject to certain manner-
of-sale provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not an "affiliate" of
the Company at any time during the three months preceding a sale, and who has
beneficially owned Restricted Shares for at least two years, is entitled to
sell such shares under Rule 144 without regard to the limitations described
above.
As of the date of this Prospectus, there were outstanding options to
purchase an aggregate of shares of Common Stock. Giving effect to vesting
provisions limiting the exercisability of all of the outstanding options and
the "lock-up" period applicable to certain optionholders, a de minimis number
of these shares will become available for sale in the public market pursuant
to Rules 144 and 701 under the Securities Act (relating to the sale of shares
issuable under certain compensatory stock plans) 90 days after completion of
this offering. However, an additional shares will become exercisable and
available for resale at the expiration of the "lock-up" period. Additionally,
there were outstanding warrants to purchase an aggregate of shares of
Common Stock giving effect to exercisability of the "lock-up" period
applicable to the Warrant Holders, an aggregate of shares will be
available for resale at the expiration of the "lock-up" period pursuant to
Rule 144 or applicable registration rights. The Company may also file
registration statements on Form S-8 under the Securities Act as soon as
practicable after consummation of this offering to register all shares of
Common Stock issuable or reserved for issuance under the Company's stock
option plans.
Since there has been no public market for shares of the Common Stock prior
to this offering, the Company is unable to predict the effect that sales made
pursuant to Rules 144 or 701 under the Securities Act, or otherwise, may have
on the prevailing market price of the shares of the Common Stock. Sales of a
substantial amount of the Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices. See "Risk
Factors--Shares Eligible for Future Sale and Potential Adverse Effect on
Market Price."
63
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions in, the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement (the "Registration Statement") of which this Prospectus forms a
part, the underwriters named below (the "Underwriters"), for whom Lehman
Brothers Inc., NationsBanc Montgomery Securities LLC and Hambrecht & Quist LLC
are acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Selling Shareholders the respective number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
------------ ------------
<S> <C>
Lehman Brothers Inc. .............................................
NationsBanc Montgomery Securities LLC ............................
Hambrecht & Quist LLC ............................................
----
Total...........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, then all the shares of
Common Stock agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement, must be so purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters proposed to offer the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain selected dealers (who may
include the Underwriters) at such public offering price less a selling
concession not in excess of $ per share. The Underwriters may allow, and
the selected dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After this offering, the offering price and
other selling terms may be changed by the Underwriters.
Certain of the Selling Shareholders have granted to the Underwriters an
option to purchase up to an aggregate of additional shares of Common
Stock, exercisable solely to cover over-allotments, if any, at the public
offering price less the underwriting discounts and commissions shown on the
cover page of this Prospectus. Such option may be exercised at any time until
30 days after the date of the Underwriting Agreement. To the extent that such
option is exercised, each Underwriter will be committed, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding table and the Selling Shareholders will be obligated, pursuant to
such over-allotment option, to sell such shares of Common Stock to the
Underwriters.
The Company has agreed that, without the prior consent of Lehman Brothers
Inc., it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for any such
shares of Common Stock, for a period of 180 days from the date of this
Prospectus. All of the executive officers and directors of the Company and
certain other shareholders of the Company have agreed pursuant to lock-up
agreements that, without the prior written consent of Lehman Brothers Inc.,
they will not, subject to certain limited exceptions, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for any such shares
for the period ending 180 days after the date of this Prospectus. See "Shares
Eligible for Future Sale."
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the Representatives. Among the factors to be
64
<PAGE>
considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance and capital structure, estimates of the business
potential and earnings prospects of the Company, an overall assessment of the
Company, and assessment of the Company's management and the consideration of
the above factors in relation to market valuation of companies in related
businesses.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "AGIX."
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute, under certain circumstances, to payments
that the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to
these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with this offering (i.e., they sell more shares than are set forth
on the cover page of this Prospectus), the Representatives may reduce that
short position by purchasing Common Stock in the open market. The
Representatives also may elect to reduce any short position by exercising all
or part of the over-allotment option described herein. The Underwriters have
informed the Company that they do not intend to confirm sales to discretionary
accounts that exceed 5% of the total number of shares of Common Stock offered
by them.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither the Company, the Selling Shareholders nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the
Common Stock. In addition, neither the Company nor any of the Underwriters
makes any representation that the Representatives will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such offer is made.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover hereof.
The Representatives have informed the Company that they do not intend to
confirm the sales of shares of Common Stock offered hereby to any accounts
over which they exercise discretionary authority.
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock offered hereby for sale to certain officers, directors,
employees, business associates and related parties of the Company at the
initial public offering price set forth on the cover page of this Prospectus.
Such 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 to the extent such persons
purchase such reserved shares.
65
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Buchanan Ingersoll
Professional Corporation, Princeton, New Jersey. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Chadbourne & Parke LLP, New York, New York.
EXPERTS
The balance sheets as of December 31, 1996 and 1997 and the statements of
operations, changes in redeemable convertible preferred stock and
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1997 included in this Prospectus have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus, which forms a part
of the Registration Statement, does not contain all the information set forth
in the Registration Statement and the exhibits and schedules filed therewith.
For further information with respect to the Company and the shares of Common
Stock offered hereby, reference is made to the Registration Statement and to
such exhibits and schedules filed therewith. Statements contained herein as to
the content of any contract or other document are not necessarily complete
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, and each such
statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto may be
inspected without charge at the principal office of the Commission at the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such documents may be obtained from the Public Reference
Section of the Commission, at prescribed rates. This material also may be
accessed electronically by means of the Commission's website on the Internet
at http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements certified by its independent accountants and
make available quarterly reports containing unaudited financial information
for the first three quarters of each year.
66
<PAGE>
ANALYTICAL GRAPHICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unau-
dited) and pro forma June 30, 1998 (unaudited).......................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 and 1998 (unaudited).... F-4
Statements of Changes in Redeemable Convertible Preferred Stock and
Shareholders' Equity (Deficit) for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1998 (unaudited) and
pro forma June 30, 1998 (unaudited)..................................... F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 and 1998 (unaudited).... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Analytical Graphics, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in redeemable convertible preferred stock and
shareholders' equity (deficit) and cash flows present fairly, in all material
respects, the financial position of Analytical Graphics, Inc. at December 31,
1996 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 19, 1998, except for Note 8 for which the date is July 27, 1998
F-2
<PAGE>
ANALYTICAL GRAPHICS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY
---------------- JUNE 30, JUNE 30,
1996 1997 1998 1998
------- ------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,115 $ 854 $ 1,113 $ 960
Accounts receivable less
allowance of $0, $20, and $20,
respectively.................... 2,532 3,567 3,422
Other............................ 81 183 225
------- ------- -------
Total current assets............ $ 3,728 $ 4,604 $ 4,760
------- ------- -------
Property and equipment:
Computer and office equipment.... 1,409 2,388 2,755
Furniture and fixtures........... 160 280 332
------- ------- -------
1,569 2,668 3,087
Accumulated depreciation........ 663 1,124 1,524
------- ------- -------
Net property and equipment...... 906 1,544 1,563
------- ------- -------
Capitalized software costs......... 729 671 791
Accumulated amortization........ 313 219 342
------- ------- -------
Net capitalized software costs.. 416 452 449
------- ------- -------
Other assets....................... 23 63 503
------- ------- -------
Total assets.................... $ 5,073 $ 6,663 $ 7,275
======= ======= =======
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Line of credit................... $ -- $ 880 $ --
Current portion of long-term
obligations..................... 208 235 1,035
Accounts payable................. 703 1,433 1,156
Accrued expenses................. 66 269 427
Accrued compensation............. 356 754 991
Deferred revenue................. 1,041 1,928 2,091
------- ------- -------
Total current liabilities....... 2,374 5,499 5,700
------- ------- -------
Long-term liabilities:
Long-term debt, net of current
maturities...................... 517 351 3,000
Other liabilities................ 40 40 40
------- ------- -------
Total long-term liabilities..... 557 391 3,040
------- ------- -------
Total liabilities............... 2,931 5,890 8,740
------- ------- -------
Commitments and contingencies
Redeemable convertible preferred
stock:
Series A preferred stock, $.01
par value, 256,753 shares
authorized, issued and
outstanding; cumulative accrued
dividends of $0, $102 and $153,
respectively; no shares issued
or outstanding on a pro forma
basis........................... 2,560 2,662 2,713 $ --
------- ------- ------- -------
Shareholders' equity (deficit):
Common stock, $.01 par value,
5,000,000 shares authorized,
3,946,264, 4,019,277 and
4,193,949 issued, respectively;
3,944,576, 4,017,589 and
4,185,511 outstanding,
respectively; 7,082,421 issued
and 7,073,983 outstanding on a
pro forma basis................. 39 40 42 71
Additional paid-in capital....... 935 854 1,650 4,181
Deficit.......................... (1,365) (2,781) (5,373) (5,373)
Treasury stock, at cost (1,688,
1,688, 8,438 and 8,438 shares on
a pro forma basis,
respectively)................... (2) (2) (32) (32)
Deferred compensation............ (25) -- (465) (465)
------- ------- ------- -------
Total shareholders' equity
(deficit)...................... (418) (1,889) (4,178) $(1,618)
------- ------- ------- =======
Total liabilities, redeemable
convertible preferred stock and
shareholders'
equity (deficit)............... $ 5,073 $ 6,663 $ 7,275
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
ANALYTICAL GRAPHICS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------- -----------------------
1995 1996 1997 1997 1998
------ ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.......... $2,333 $5,745 $10,384 $5,460 $ 4,813
Maintenance and other...... 403 1,217 2,478 1,069 1,693
------ ------ ------- ------ -------
Total revenue............ 2,736 6,962 12,862 6,529 6,506
Cost of revenues:
Software licenses.......... 387 836 1,103 449 510
Maintenance and other...... 108 279 761 315 457
------ ------ ------- ------ -------
Total cost of revenues... 495 1,115 1,864 764 967
------ ------ ------- ------ -------
Gross profit................. 2,241 5,847 10,998 5,765 5,539
------ ------ ------- ------ -------
Operating expenses:
Marketing and selling...... 1,603 3,580 8,042 3,256 4,919
Research and development... 935 1,447 3,214 1,493 2,129
General and
administrative............ 454 787 1,110 502 947
Severance.................. 218 -- -- -- --
------ ------ ------- ------ -------
Total operating
expenses................ 3,210 5,814 12,366 5,251 7,995
------ ------ ------- ------ -------
Income (loss) from
operations.............. (969) 33 (1,368) 514 (2,456)
------ ------ ------- ------ -------
Other income (expense):
Interest income............ 59 38 50 21 22
Interest expense........... (20) (46) (95) (34) (169)
Other income............... 4 -- (3) 25 11
------ ------ ------- ------ -------
43 (8) (48) 12 (136)
------ ------ ------- ------ -------
Net income (loss)............ (926) 25 (1,416) 526 (2,592)
Less: Accrued preferred stock
dividends................... -- -- 102 51 153
------ ------ ------- ------ -------
Net income (loss) applicable
to common shares............ $ (926) $ 25 $(1,518) $ 475 $(2,745)
====== ====== ======= ====== =======
Pro forma net income (loss)
per basic common share:
Basic earnings (loss) per
share..................... $(0.18) $ 0.00 $ (0.22) $ 0.07 $ (0.39)
====== ====== ======= ====== =======
Weighted average shares-
basic..................... 5,303 6,723 6,849 6,833 6,949
====== ====== ======= ====== =======
Pro forma net income (loss)
per diluted common share:
Diluted earnings (loss) per
share..................... $(0.18) $ 0.00 $ (0.22) $ 0.06 $ (0.39)
====== ====== ======= ====== =======
Weighted average shares-
diluted................... 5,303 7,235 6,849 8,042 6,949
====== ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ANALYTICAL GRAPHICS, INC.
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK TREASURY STOCK TOTAL
------------------ --------------- ADDITIONAL -------------- SHAREHOLDERS'
NUMBER OF NUMBER OF PAR PAID-IN NUMBER OF DEFERRED EQUITY
SHARES AMOUNT SHARES VALUE CAPITAL DEFICIT SHARES COST COMPENSATION (DEFICIT)
--------- ------- --------- ----- ---------- ------- --------- ---- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................ -- -- 3,561,570 $35 $ 591 $ (464) -- -- $ (74) $ 88
Sale of common
stock.............. -- -- 113,906 1 99 -- -- -- -- 100
Sale of preferred
stock, net of $57
in issuance costs.. 256,753 $ 2,560 -- -- (57) -- -- -- -- (57)
Issuance of stock
options............ -- -- -- -- 219 -- -- -- -- 219
Vested portion of
stock options...... -- -- -- -- -- -- -- -- 24 24
Loss................ -- -- -- -- -- (926) -- -- -- (926)
-------- ------- --------- --- ------ ------- ------ ---- ----- -------
Balance, December 31,
1995................ 256,753 2,560 3,675,476 36 852 (1,390) -- -- (50) (552)
Sale of common stock
on exercise of
stock options...... -- -- 180,788 2 3 -- -- -- -- 5
Sale of common
stock.............. -- -- 90,000 1 80 -- -- -- -- 81
Vested portion of
stock options...... -- -- -- -- -- -- -- -- 25 25
Purchase of treasury
stock.............. -- -- -- -- -- -- (1,688) $ (2) -- (2)
Net income.......... -- -- -- -- -- 25 -- -- -- 25
-------- ------- --------- --- ------ ------- ------ ---- ----- -------
Balance, December 31,
1996................ 256,753 2,560 3,946,264 39 935 (1,365) (1,688) (2) (25) (418)
Sale of common
stock.............. -- -- 73,013 1 21 -- -- -- -- 22
Vested portion of
stock options...... -- -- -- -- -- -- -- -- 25 25
Accrued dividends on
Series A preferred
stock.............. -- 102 -- -- (102) -- -- -- -- (102)
Loss................ -- -- -- -- -- (1,416) -- -- -- (1,416)
-------- ------- --------- --- ------ ------- ------ ---- ----- -------
Balance, December 31,
1997................ 256,753 2,662 4,019,277 40 854 (2,781) (1,688) (2) -- (1,889)
Sale of common
stock.............. -- -- 174,672 2 40 -- -- -- -- 42
Issuance of stock
options............ -- -- -- -- 503 -- -- -- (503) --
Vested portion of
stock options...... -- -- -- -- -- -- -- -- 38 38
Purchase of treasury
stock.............. -- -- -- -- -- -- (6,750) (30) -- (30)
Issuance of
warrants........... -- -- -- -- 304 -- -- -- -- 304
Accrued dividends on
Series A preferred
stock.............. -- 51 -- -- (51) -- -- -- -- (51)
Loss................ -- -- -- -- -- (2,592) -- -- -- (2,592)
-------- ------- --------- --- ------ ------- ------ ---- ----- -------
Balance, June 30,
1998 (unaudited).... 256,753 2,713 4,193,949 42 1,650 (5,373) (8,438) (32) (465) (4,178)
Pro forma conversion
of Series A
preferred stock.... (256,753) (2,713) 2,888,472 29 2,531 -- -- -- -- 2,560
-------- ------- --------- --- ------ ------- ------ ---- ----- -------
Pro forma balance at
June 30, 1998 (unau-
dited).............. -- $ -- 7,082,421 $71 $4,181 $(5,373) (8,438) $(32) $(465) $(1,618)
======== ======= ========= === ====== ======= ====== ==== ===== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ANALYTICAL GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ----------------
1995 1996 1997 1997 1998
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ (926) $ 25 $(1,416) $ 526 $(2,592)
Adjustments to reconcile net
income (loss) to net cash (used
in) provided by operating
activities:
Amortization..................... 69 104 202 94 155
Depreciation..................... 137 364 630 276 400
Provision for doubtful accounts.. -- -- 20 -- --
Noncash compensation expense..... 243 25 25 -- 38
(Gain) loss on disposals of
assets.......................... (2) -- 171 (23) --
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in accounts
receivable...................... (537) (1,590) (1,055) (2,054) 145
(Increase) in other current
assets.......................... (37) (40) (103) (128) (41)
(Increase) decrease in other
assets.......................... 2 (12) 25 51 (1)
Increase (decrease) in accounts
payable......................... 318 276 730 245 (277)
Increase (decrease) in accrued
expenses........................ (4) 12 203 24 158
Increase in accrued
compensation.................... 200 70 398 526 237
Increase in deferred revenue..... 299 608 887 522 163
(Decrease) in other liabilities.. (7) -- -- -- --
------ ------- ------- ------- -------
Net cash (used in) provided by
operating activities............ (245) (158) 717 59 (1,615)
------ ------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment........................ (647) (522) (1,345) (585) (419)
Proceeds from sale of equipment... 2 -- 62 58 --
Capitalized software costs........ (89) (424) (389) (40) (120)
------ ------- ------- ------- -------
Net cash used in investing
activities...................... (734) (946) (1,672) (567) (539)
------ ------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
common stock..................... 101 85 22 -- 42
Net proceeds from issuance of
preferred stock.................. 2,503 -- -- -- --
Proceeds from long-term
financing........................ -- 800 -- -- 4,000
Net borrowings (payments) on bank
line of credit................... -- -- 880 400 (880)
Principal payments on long-term
debt............................. (358) (92) (208) (103) (551)
Payments for financing costs...... -- -- -- -- (168)
Purchase of treasury stock........ -- (2) -- -- (30)
------ ------- ------- ------- -------
Net cash provided by financing
activities...................... 2,246 791 694 297 2,413
------ ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents............. 1,267 (313) (261) (211) 259
CASH AND CASH EQUIVALENTS:
Beginning of year or period....... 161 1,428 1,115 1,115 854
------ ------- ------- ------- -------
End of year or period............. $1,428 $ 1,115 $ 854 $ 904 $ 1,113
====== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash payments for:
Interest......................... $ 32 $ 41 $ 91 $ 39 $ 159
====== ======= ======= ======= =======
Income taxes..................... $ 9 $ -- $ -- $ -- $ --
====== ======= ======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Issuance of warrants.............. $ -- $ -- $ -- $ -- $ 304
====== ======= ======= ======= =======
Note payable in connection with
purchase of other assets......... $ -- $ -- $ 70 $ 70 $ --
====== ======= ======= ======= =======
Issuance of stock options......... $ -- $ -- $ -- $ -- $ 503
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business:
Analytical Graphics, Inc. (the "Company") is the leading provider of
commercial off-the-shelf ("COTS") software solutions for the space industry.
The space industry includes a growing number of commercial satellite projects
for telecommunications, data communications, navigation and imaging systems as
well as government-sponsored space missions and defense programs. The
Company's suite of software products supports space systems throughout their
life cycle, from concept and design to launch and on-orbit operation. The
Company's customer base is located throughout the world.
In August 1997, in an effort to rapidly expand the use of its software, the
Company initiated a comprehensive marketing strategy pursuant to which it
licenses its base product, STK, free of charge to potential customers. As a
result, of this strategy, the Company incurred charges totaling approximately
$700,000, consisting of $544,000 of marketing and selling expenses and
$156,000 included in research and development expenses for the write-off of
certain capitalized software development costs associated with the Company's
base product.
Cash and Cash Equivalents:
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents.
Revenue Recognition:
The Company recognizes revenue from the sale of software licenses at the
time of delivery of the software. The Company recognizes revenue on a
percentage-of-completion basis where software has been delivered and material
obligations exist under the sale or licensing agreement. Maintenance revenues
from software support fees are recognized ratably over the contract period.
Concentration of Credit Risk:
The Company sells primarily to aerospace contractors and the US Government.
The financial instruments which potentially subject the Company to a
concentration of credit risk are cash and accounts receivable. To reduce
credit risk, the Company performs a credit evaluation of its customers'
financial information. However, the Company does not require collateral on its
accounts receivable. Cash and cash equivalents are maintained primarily in two
financial institutions and at times exceed federally insured limits.
Property and Equipment:
Property and equipment are recorded at cost and are depreciated for
financial reporting purposes using the straight-line method over their
estimated useful lives as follows: computers and office equipment--3 years;
furniture and fixtures--3 to 5 years. Depreciation expense was approximately
$137,000, $364,000, and $630,000 for the years ended December 31, 1995, 1996
and 1997, respectively. Leasehold improvements and equipment under capital
lease are amortized over the shorter of their estimated useful lives or lease
term. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is reflected in the statement of operations for the period. Repairs
and maintenance are charged to expense as incurred.
Capitalized Software Costs:
The Company capitalizes all costs for computer software production after
technological feasibility of the specific software product has been
established. All costs incurred to establish technological feasibility of a
F-7
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
computer software product are expensed as they are incurred. Costs incurred
for a product enhancement (updated version of a software product) are
capitalized once technological feasibility of the enhancement has been
established.
Capitalized software production costs are amortized on a product-by-product
basis. Amortization begins when the product is available for general release
to customers. The Company amortizes capitalized software production costs over
the estimated life of the software products. Amortization of capitalized
software costs was approximately $69,000, $104,000 and $196,000 for the years
ended December 31, 1995, 1996 and 1997, respectively. The Company also
performs a net realizability evaluation of its software products. In 1997, the
Company recorded a $156,000 charge as a result of the evaluation. No such
charges were recorded in 1995 or 1996.
Income Taxes:
The Company utilizes the asset and liability approach for income taxes which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amount and the tax bases of other assets and liabilities, using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Advertising:
The Company expenses advertising costs when incurred. Advertising expense
was approximately $76,000, $176,000 and $259,000 for the years ended December
31, 1995, 1996 and 1997, respectively.
Estimates Utilized in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments:
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and long-term debt. The book
value of cash and cash equivalents, trade receivables and trade payables is
considered to be representative of their fair value because of their short
maturities. The carrying amount of long-term debt outstanding at December 31,
1996 and 1997 approximated fair value as the interest rates were variable and
set to market.
Unaudited Pro forma Presentation:
Under the terms of the Company's agreement with the holders of the Series A
preferred stock (the "preferred stock") (see Note 6), all of such preferred
stock will be converted automatically into shares of Common Stock upon the
closing of an initial public offering as defined in the preferred stock
agreement. The unaudited pro forma stockholders' equity as of June 30, 1998
reflects the conversion of such preferred stock into 2,888,472 shares of as if
the conversion had occurred on June 30, 1998.
Recently Issued Accounting Standards:
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share", which simplifies
the requirements for computing earnings per share and requires presentation of
two amounts, basic and diluted earnings per share.
F-8
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pro forma basic earnings per share has been calculated as net earnings
divided by pro forma weighted-average common shares outstanding, while diluted
earnings per share has been computed as net earnings divided by pro forma
weighted-average common and common equivalent shares outstanding (including
pro forma common shares). The following table provides a reconciliation of pro
forma weighted-average common shares outstanding to pro forma weighted-average
common and common equivalent shares outstanding. Pro forma weighted average
common shares outstanding are used because the historical weighted average
common shares outstanding do not include the impact of the mandatory
conversion of the outstanding shares of preferred stock upon the completion of
the initial public offering of its common stock.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------------- -------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pro forma common shares
outstanding.................. 5,302,994 6,723,397 6,849,293 6,833,048 6,948,620
Pro forma common equivalent
shares outstanding...........
Warrants.................... -- -- -- -- --
Options..................... -- 511,638 -- 1,208,905 --
--------- --------- --------- --------- ---------
Pro forma total common and
common equivalent
shares................... 5,302,994 7,235,035 6,849,293 8,041,953 6,948,620
========= ========= ========= ========= =========
</TABLE>
Historical net earnings per share has been computed as described above but
does not give effect to the conversion of the preferred stock that will
automatically convert upon completion of the Company's initial public offering
of its common stock.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER FOR THE SIX MONTHS
31, ENDED JUNE 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Historical common shares
outstanding.............. 3,649,047 3,834,925 3,960,822 3,944,576 4,060,149
Historical common
equivalent shares
outstanding..............
Warrants................ -- -- -- -- --
Options................. -- 511,638 -- 1,208,905 --
Convertible preferred
stock.................. -- 2,888,472 -- 2,888,472 --
--------- --------- --------- --------- ---------
Historical total
common and common
equivalent shares.... 3,649,047 7,235,035 3,960,822 8,041,953 4,060,149
========= ========= ========= ========= =========
Historical earnings
per share - basic.... $ (.25) $ .01 $ (.38) $ .12 $ (.67)
========= ========= ========= ========= =========
Historical earnings
per share - diluted.. $ (.25) $ .00 $ (.38) $ .06 $ (.67)
========= ========= ========= ========= =========
</TABLE>
Shares outstanding are computed using the weighted-average number of common
and common equivalent shares outstanding for each period.
Statement of Position 97-2, "Software Revenue Recognition", was issued in
October 1997, and is effective for all transactions the Company enters into
subsequent to December 31, 1997. The Company does not believe the adoption of
this standard will have a material effect on its financial position and
results of operations.
Interim Financial Information:
The accompanying interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally
F-9
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
2. LINE OF CREDIT:
The Company had a demand line of credit agreement with a bank as of December
31, 1997, which permitted borrowings up to $2,000,000. Interest was charged on
the outstanding balance at the lender's prime rate (8.5% at December 31, 1997)
plus three quarters of one percent and was payable monthly.
The line of credit and the note payable (see Note 3) were collateralized by
substantially all the assets of the Company. The credit agreements contained,
among other provisions, defined covenants for maintaining certain financial
ratios.
As of December 31, 1996 and 1997, $0 and $880,000 were outstanding under the
line of credit, respectively. Interest expense for the line of credit amounted
to approximately $1,000, $9,000 and $38,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
In May 1998, the Company refinanced the line of credit with a new credit
facility (see Note 3).
3. LONG-TERM DEBT:
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, bearing interest at 9.25% due in
monthly installments of $16,666 through 2000............. $ 717 $ 516
Capital lease obligations and other....................... 8 70
------- -------
725 586
Less current maturities................................... 208 235
------- -------
$ 517 $ 351
======= =======
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1997 for the next
five years are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998.......................................................... $235
1999.......................................................... 235
2000.......................................................... 116
2001.......................................................... --
2002.......................................................... --
----
Total....................................................... $586
====
</TABLE>
In May 1998, the Company terminated its existing bank line of credit and
note payable and entered into a credit agreement with a bank consisting of
$4.0 million term loan and $2.5 million revolving credit facility. Principal
under the term loan is payable in monthly installments of $166,667 from
January 1999 through January 2001. Interest is charged at the lender's prime
rate plus 3.5% and is payable monthly. The term loan agreement also includes
148,500 warrants to acquire shares of the common stock of the Company at $6.67
per share, expiring in April 2003. The warrants were valued at $304,000 and
will be amortized over the life of the loan. The Company incurred costs of
approximately $123,000 related to the issuance of the loan that are
capitalized and amortized to interest expense over the life of the loan.
F-10
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the revolving credit facility, the Company may borrow up to $2.5
million based on its outstanding accounts receivable. Interest is charged on
the outstanding balance at the lender's prime rate plus 1.0% and is payable
monthly. A commitment fee of .375% is charged on the unused portion of the
facility and is payable monthly.
Both the term loan and the revolving credit facility are collateralized by
substantially all the assets of the Company. The credit agreement also
contains certain covenants which, among other provisions, restricts the
Company's ability to pay cash dividends and requires the Company to meet
certain financial ratios. Upon the closing of an initial public offering, the
Company is required to use the net proceeds to repay the term loan and amounts
outstanding under the revolving credit facility.
4. OPERATING LEASES:
The Company rents certain office facilities and equipment under operating
leases which expire over various terms through 2002.
The following is a schedule of future minimum rental payments required under
all operating leases:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
<S> <C>
1998........................................................ $ 713
1999........................................................ 693
2000........................................................ 651
2001........................................................ 189
2002........................................................ 48
------
$2,294
======
</TABLE>
Rent expense was approximately $117,000, $239,000, and $362,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
5. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996, and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable (receivable):
Federal............................................... -- -- --
State................................................. -- -- --
----- ---- -----
-- -- --
----- ---- -----
Deferred:
Federal............................................... $(256) $ 22 $(492)
State................................................. (102) 49 (40)
----- ---- -----
(358) 71 (532)
----- ---- -----
Increase (decrease) in valuation allowance.............. 358 (71) 532
----- ---- -----
Provision (benefit) for income taxes.................... $ -- $-- $ --
===== ==== =====
</TABLE>
F-11
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforwards....................... $ 358 $ 447 $ 954
Allowance for doubtful accounts........................ -- -- 8
Capitalized software costs............................. 75 21 3
Stock options ......................................... 122 66 77
Nondeductible accruals................................. -- -- 43
Property and equipment................................. 10 -- --
----- ----- ------
Gross deferred tax assets............................ 565 534 1,085
----- ----- ------
Property and equipment................................. -- (40) (59)
----- ----- ------
Gross deferred tax liabilities....................... -- (40) (59)
----- ----- ------
Valuation allowance.................................... (565) (494) (1,026)
----- ----- ------
Net deferred tax assets (liabilities)................ $ -- $ -- $ --
===== ===== ======
</TABLE>
A reconciliation of the US Federal income tax (benefit) rate to the
effective tax (benefit) rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
US federal income tax rate............................ (34.0)% 15.0% (34.0)%
State income taxes, net............................... (7.3) 9.1 (7.1)
Other nondeductible items............................. 3.1 8.4 0.3
Increase (decrease) in valuation allowance............ 38.2 (32.5) 40.8
----- ----- -----
Effective income tax (benefit) rate................... -- -- --
===== ===== =====
</TABLE>
At December 31, 1997, for Federal tax purposes, the Company has available
tax net operating loss carryforwards of approximately $2,466,000 expiring
through 2012. The Company also has state net operating loss carryforwards of
approximately $1,622,000 expiring through 2000. A portion or all of the net
operating loss carryforwards which can be utilized in any year may be limited
by changes in ownership of the Company, pursuant to Section 382 of the
Internal Revenue Code and similar statutes.
At December 31, 1997, the Company has established a valuation allowance
against its net deferred tax assets due to the uncertainty surrounding the
realization of such assets pursuant to SFAS No. 109. Management evaluates on a
quarterly basis the recoverability of the deferred tax assets and the level of
this valuation allowance. At such time as it is determined that it is more
likely than not that the deferred tax assets are realizable, the valuation
will be reduced.
6. SHAREHOLDERS' EQUITY:
Common Stock:
On June 12, 1996, the Board of Directors approved a five-for-one stock
split. See Note 8 for information relating to a subsequent stock split.
F-12
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock:
In June 1995, the Company issued 256,753 shares of preferred stock, $.01 par
value, for $9.97 per share. Each share of preferred stock is convertible, at
the option of the holder, into one share of common stock. However, as a result
of certain conversion price adjustments provided for in the preferred stock
agreement, each share of preferred stock as of December 31, 1997 is
convertible into five shares of common stock. Each share of preferred stock is
entitled to voting rights equivalent to the number of shares of common stock
into which each share can be converted. See Note 8 for information relating to
a subsequent stock split. Conversion is automatic upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, which results in a minimum price
per share as described in the preferred stock agreement. Conversion is also
automatic upon the approval of at least a majority of the outstanding holders
of the preferred stock.
In the event of liquidation, dissolution or winding-up of the Company, the
holders of preferred stock are entitled to be paid before any payment is made
to the holders of common stock. The liquidation value for each share of
preferred stock is the original purchase price plus all accrued and unpaid
dividends.
Effective January 1, 1997, the preferred stock has a 4% cumulative preferred
dividend. Such dividends accrue and are cumulative whether or not they are
earned or declared by the Company. If cumulative dividends have not been
declared or paid, the deficiency will first be fully paid before any dividend
can be declared or paid on any other class of the Company's common stock.
As of December 31, 1997, $92,900 of dividends related to two prior classes
of preferred stock previously converted to common stock are in arrears.
Stock Option Plans:
As of December 31, 1997, the Company had three stock option plans, the 1995
Stock Plan, the Incentive Stock Option (ISO) Plan and the Non-Qualified Stock
Option (NQSO) Plan, for directors, officers and employees. The plans have a
total of 2,531,250 shares of common stock appropriated for the granting of
options. Option prices are typically equal to the fair market value per share
of the Company's common stock on the date the option is granted. The options
must be exercised within a seven or ten year period from the date of the
grant. See Note 8 for information relating to the 1998 Stock Plan.
Under the 1995 Stock Plan and NQSO Plan, the Company has made grants at
below the then current fair market value. The excess of the exercise price
over fair market value at the grant date is amortized as compensation expense
over the vesting period. The amount of compensation expense associated with
the granting of below market options under these plans for the years ended
December 31, 1995, 1996, and 1997 and the six months ended June 30, 1998 was
approximately $243,000, $25,000, $25,000 and $38,000, respectively.
In March 1995, the Company canceled 1,223,528 of incentive stock options
with an option price of $0.32 per share and issued 320,625 fully vested non-
qualified stock options with an option price of $0.03 per share in connection
with a severance package for a senior executive. Compensation expense of
approximately $219,000 was recorded in the year ended December 31, 1995 in
connection with the granting of the non-qualified stock options.
F-13
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information on issued and outstanding common stock options is as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK NON-QUALIFIED
OPTIONS STOCK OPTIONS
--------------------- --------------------
WTD. AVG. WTD. AVG.
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares under option, January 1,
1995.............................. 1,558,778 $ .44 180,000 $ .03
Options cancelled.................. (1,223,528) .32 -- --
Options granted.................... 330,750 .71 365,625 .12
---------- --------
Shares under option, December 31,
1995.............................. 666,000 .82 545,625 .09
Options exercised.................. -- -- (180,787) .03
Options cancelled.................. (139,500) .71 -- --
Options granted.................... 953,213 .89 45,000 .89
---------- --------
Shares under option, December 31,
1996.............................. 1,479,713 .88 409,838 .20
Options exercised.................. (28,013) .73 (45,000) .03
Options cancelled.................. (20,250) .85 -- --
Options granted.................... 225,844 2.24 12,375 2.99
---------- --------
Shares under option, December 31,
1997.............................. 1,657,294 1.06 377,213 .31
========== ========
Shares under exercisable option at:
December 31, 1995................ 108,000 473,625
December 31, 1996................ 243,844 328,838
December 31, 1997................ 588,854 331,088
</TABLE>
The following is a summary of stock options by range of exercise price as of
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVG.
REMAINING
RANGE OF WEIGHTED CONTRACTUAL WEIGHTED
EXERCISE OPTIONS AVG. EXER. LIFE OPTIONS AVG. EXER.
PRICE OUTSTANDING PRICE (IN YEARS) EXERCISABLE PRICE
---------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Incentive Stock Options: $.71-.89 1,316,700 $ .84 5.3 468,479 $ .80
1.33-1.78 263,419 1.58 5.8 120,375 1.36
3.11 77,175 3.11 6.7 -- --
--------- -------
1,657,294 1.06 5.5 588,854 .91
========= =======
Non-Qualified Stock Op-
tions: $.03 274,838 $ .03 3.9 274,838 $ .03
.71-1.78 91,125 .81 5.0 56,250 .75
3.11 11,250 3.11 6.6 -- --
--------- -------
377,213 .31 4.3 331,088 .15
========= =======
</TABLE>
F-14
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In accordance with the provisions of SFAS No. 123, the Company applies APB
Opinion 25 and related interpretations in accounting for its stock option
plans and, accordingly, does not recognize compensation cost based on the fair
value of the options granted at grant date. If the Company had elected to
recognize compensation cost based on the fair value of the options awarded at
grant date in accordance with the provisions of SFAS No. 123, net income for
1995, 1996 and 1997 would have been reduced to the unaudited pro forma amounts
indicated in the following table:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) applicable to
common shares--as reported..... $ (926) $ 25 $ (1,518)
Net income (loss) applicable to
common shares--pro forma....... (933) (33) (1,705)
Earnings per share--as report-
ed............................. (0.18) 0.00 (0.22)
Earnings per share--pro forma... (0.18) 0.00 (0.25)
</TABLE>
The pro forma amounts shown above were calculated using the Black-Scholes
option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Expected dividend
yield.................. 0% 0% 0%
Risk free interest
rate................... US Treasury Strip US Treasury Strip US Treasury Strip
Expected stock price
volatility............. 61.9% 61.9% 62.6%
Expected life of
options................ 4 years 4 years 5 years
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1995, 1996 and 1997 was $0.37, $0.47 and $1.32, respectively.
Employee Incentive Restricted Stock Plan:
The Company has an Employee Incentive Restricted Stock Plan for certain
officers, key executives and employees. The Plan provides for the award of
restricted shares of common stock. Any shares issued under this Plan are
subject to a three year vesting requirement. The total number of shares
allocated to the Plan cannot exceed, in the aggregate, 562,500 shares of
common stock. For the years ended December 31, 1995, 1996, and 1997, no shares
were issued under this Plan. As of December 31, 1995, 1996, and 1997, 10,913
shares were issued and outstanding under this Plan.
Employee Stock Purchase Plan:
The Company has an Employee Stock Purchase Plan for certain officers, key
executives and employees. The Plan provides for the purchase of restricted
shares of common stock. The total number of shares allocated to the Plan
cannot exceed, in the aggregate, 562,500 shares of common stock. For the years
ended December 31, 1995, 1996, and 1997, 0, 214,538 and 0 shares,
respectively, were purchased under this Plan.
F-15
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. MAJOR CUSTOMERS:
The Company's major customers include various departments and agencies of
the US Government and government contractors. Gross sales, in thousands, which
includes both earned and deferred revenue, to these customers and the
respective percentage of total gross sales are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
US Government Agencies:
Customer 1...................... $ 103 3.3% $1,040 13.7% $ 1,621 11.7%
Other........................... 410 13.4% 817 10.8% 2,077 15.0%
------ ----- ------ ----- ------- -----
513 16.7% 1,857 24.5% 3,698 26.7%
Customer 2........................ 576 18.8% 1,077 14.2% 1,944 14.1%
Customer 3........................ 221 7.2% 732 9.7% 632 4.6%
All other customers............... 1,759 57.3% 3,902 54.6% 7,560 54.6%
------ ----- ------ ----- ------- -----
Totals........................ $3,069 100.0% $7,568 100.0% $13,834 100.0%
====== ===== ====== ===== ======= =====
</TABLE>
Trade receivables from these customers are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996 1997
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
US Government Agencies:
Customer 1.............................................. $ 64 $ 36 $ 678
Other................................................... 78 47 329
---- ------ ------
142 83 1,007
Customer 2................................................ 466 491 302
Customer 3................................................ 168 363 518
All other customers....................................... 166 1,595 1,740
---- ------ ------
Totals................................................ $942 $2,532 $3,567
==== ====== ======
</TABLE>
Due to the nature and continuing development of the Company business, major
customers may vary from year to year.
8. SUBSEQUENT EVENTS:
1998 Stock Split and Amendment to Articles of Incorporation:
In July 1998, the Company approved a two and one quarter-for-one stock split
and the increase of the number of authorized shares to 30,000,000 shares of
common stock. All per share and related amounts have been adjusted to reflect
the increase in the number of authorized shares and the stock split for all
periods presented. The number of authorized and undesignated shares of
preferred stock will be increased to 5,000,000 shares, effective immediately
prior to the consummation of its initial public offering of common stock and
the conversion of outstanding Series A Preferred Stock.
Initial Public Offering:
The Company and certain existing shareholders intend to sell common stock to
the public through an initial public offering.
F-16
<PAGE>
ANALYTICAL GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Option Plan:
In July 1998, the Board of Directors of the Company adopted the 1998 Stock
Plan, which provides for the granting of incentive and non-qualified stock
options to purchase up to 500,000 shares of common stock of the Company.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 32
Management............................................................... 49
Certain Transactions..................................................... 56
Principal and Selling Shareholders....................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Available Information.................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
-------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
LOGO
ANALYTICAL GRAPHICS, INC.
COMMON STOCK
-------------------
PROSPECTUS
, 1998
-------------------
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized estimate of fees and expenses
payable by the registrant in connection with the offering described in this
registration statement, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee.......................................... $18,998.00
NASD filing fee............................................... 6,940.00
Nasdaq/NNM listing fee........................................ *
Counsel fees and expenses..................................... *
Accounting fees and expenses.................................. *
Blue sky fees and expenses.................................... *
Printing expenses............................................. *
Transfer agent and registrar fees............................. *
Miscellaneous................................................. *
----------
Total....................................................... $ *
==========
</TABLE>
- --------
* To be completed by amendment.
All of the above expenses will be paid by the registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law
("PBCL") provides in general that a business corporation shall have the power
to 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 proceeding, whether
civil, criminal, administrative or investigative (including actions by or in
the right of the corporation), by reason of the fact that he or she is or was
a director, officer, employee or agent of or serving at the request of the
corporation as a representative of another domestic or foreign corporation or
other enterprise, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
or her in connection with the action 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
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. To the extent that the person has been successful on the merits or
otherwise in defense of any claim, issue or matter, he or she shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith. Subchapter D of
Chapter 17 also provides that the indemnification permitted thereby shall
continue as to a person who has ceased to be a representative of the
corporation, shall inure to the benefit of the heirs and personal
representative of that person and is not exclusive of any other rights to
which a person seeking indemnification may be entitled.
Article 9 of the Company's Amended and Restated Articles of Incorporation
provides that the Company shall indemnify and hold harmless to the full extent
not prohibited by law, as the same exists or may be hereinafter amended,
interpreted or implemented (but, in the case of any amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than the Company is permitted to provide prior to such
amendment), each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in (as a witness or otherwise) any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative and whether or not by or in the
right of the Company or otherwise (hereinafter, a "proceeding"), by reason of
the fact that he or she, or a person of whom he or she is the heir, executor
or administrator, is or was a director or executive officer of the Company, or
where the basis of such proceeding is any alleged action or failure to take
any action by such person while acting in an official capacity as a director
or executive officer of the Company, against all expenses, liability and loss,
II-1
<PAGE>
including but not limited to attorney's fees, judgments, fines, excise taxes
or penalties and amounts paid or to be paid in settlement (whether with or
without court approval), actually and reasonably incurred or paid by such
person in connection therewith. However, the Company shall only indemnify a
director or executive officer seeking indemnification in connection with a
proceeding initiated by such director or executive officer if such proceeding
was authorized by the Board of Directors of the Company. The right to
indemnification is a contract right and includes the right to be paid by the
Company the expenses incurred in defending any such proceeding (or part
thereof) or in enforcing his or her rights to indemnification in advance of
the final disposition thereof promptly after receipt by the Company of a
request therefor stating in reasonable detail the expenses incurred; provided,
however, that to the extent required by law, the payment of such expenses
incurred by a director or executive officer of the Company in advance of the
final disposition of a proceeding shall be made only upon receipt of an
undertaking, by or on behalf of such person, to repay all amounts so advanced
if and to the extent it shall ultimately be determined by a court that he or
she is not entitled to be indemnified by the Company. The right to
indemnification and advancement of expenses provided herein shall continue as
to a person who has ceased to be a director or executive officer of the
Company, and shall inure to the benefit of the heirs, executors and
administrators of such person; provided, however, that the facts and
circumstances upon which said indemnifiable claim arose occurred during such
person's tenure as a director or executive officer of the Company. If a claim
for indemnification is not paid in full by the Company within thirty (30) days
after a written claim therefor has been received by the Company, the claimant
may, at any time thereafter, bring suit against the Company to recover the
unpaid amount of the claim and, if successful in whole or in part on the
merits or otherwise in establishing his or her right to indemnification or to
the advancement of expenses, the claimant shall also be entitled to be paid
the expense of prosecuting such claim.
Article 9 of the Company's Amended and Restated Articles of Incorporation
also provides that the indemnification permitted or required thereby is not
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
shareholders, vote of directors or otherwise, both as to actions in his or her
official capacity and as to actions in any other capacity while holding that
office, the Company having the express authority to enter into such agreements
or arrangements as the Board of Directors deems appropriate for the
indemnification of and advancement of expenses to present or future directors
and officers as well as employees, representatives or agents of the Company in
connection with their status with or services to or on behalf of the Company
or any other corporation, partnership, joint venture, trust or other
enterprise, including any employee benefit plan, for which such person is
serving at the request of the Company.
Article 9 of the Company's Amended and Restated Articles of Incorporation
further provides that a director of the Company shall not be personally liable
for monetary damages for any action taken, or any failure to take any action,
unless, as set forth in Subchapter B of Chapter 17 of the PBCL, the director
has breached or failed to perform the duties of his or her office and such
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. This limitation on the personal liability of directors of the
Company does not apply to: (i) the responsibility or liability of a director
pursuant to any criminal statute; or (ii) the liability of a director for the
payment of taxes pursuant to local, state or federal law.
Certain Selling Shareholders have agreed to indemnify each of the Company's
directors and officers and each person, if any, who controls the Company
(within the meaning of the Exchange Act) against certain liabilities,
including liabilities under the securities laws, that they may incur in
connection with the offering contemplated by this Registration Statement and
any offering effected pursuant to their registration rights.
The registrant has executed indemnification agreements with each of its
officers and Directors pursuant to which the registrant has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
director, officer, employee, agent or fiduciary of the Company.
The registrant intends to obtain liability insurance for the benefit of its
directors and officers which will provide coverage for losses of directors and
officers for liabilities arising out of claims against such persons
II-2
<PAGE>
acting as directors or officers of the registrant (or any subsidiary thereof)
due to any breach of duty, neglect, error, misstatement, misleading statement,
omission or act done by such directors and officers, except as prohibited by
law or otherwise excluded from such insurance policy.
At present, there is no pending litigation or proceeding involving a
Director or officer of the registrant as to which indemnification is being
sought nor is the registrant aware of any threatened litigation that may
result in claims for indemnification by any Director or officer.
Reference is made to Section 10 of the Underwriting Agreement, the proposed
form of which is filed as Exhibit One, in which the Underwriters agree to
indemnify the directors and officers of the registrant and certain other
persons, against civil liabilities, including certain liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 31, 1995, the Registrant has issued unregistered securities in
the transactions described below. Securities issued in such transactions were
offered and sold in reliance upon the exemption from registration under
Section 4(2) of the Act, relating to sales by an issuer not involving any
public offering, or under Rule 701 under the Act as transactions made pursuant
to a written compensatory plan or pursuant to a written contract relating to
compensation. The sales of securities were made without the use of an
underwriter and the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Act. All recipients had adequate access to information
about the Registrant.
(i) Since July 31, 1995, the Registrant has issued an aggregate of
428,456 shares of Common Stock due to the exercise of options at a weighted
average exercise price of $0.16 per share.
(ii) Since July 31, 1995, the Registrant has issued an aggregate of
124,538 shares of Common Stock pursuant to the Employee Stock Purchase
Plan.
(iii) Since July 31, 1995, the Registrant has granted stock options to
purchase an aggregate of 1,600,706 shares of its Common Stock under the
1995 Stock Plan at a weighted average exercise price of $1.72 per share.
(iv) On August 28, 1996, the Registrant sold an aggregate of 90,000
shares of Common Stock to an executive officer at a purchase price of $0.89
per share.
(v) In May 1998, the Registrant issued warrants to purchase an aggregate
of 148,500 shares of its Common Stock pursuant to a warrant agreement at a
weighted average exercise price of $6.67 per share.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
4.1 Warrant Agreements by and between the Company and PNC Bank,
Transamerica Business Credit Corporation and Ben Franklin--
Progress Capital Fund, L.P. dated May 1, 1998 and related Form
of Warrant.
4.2 Investor Rights Agreement dated June 5, 1995 by and between
the Company and SpaceVest Fund, L.P.
4.3 Investor Rights Agreement dated June 5, 1995 by and between
the Company and Jay J. Buck.
4.4 Registration Rights Agreement dated August 1, 1998 by and
between the Company and the Paul Graziani Associates Limited
Partnership and the Scott Reynolds Associates Limited
Partnership.
5+ Opinion of Buchanan Ingersoll Professional Corporation as to
validity of Common Stock.
10.1 Employment Agreement dated August 1, 1998 by and between the
Company and Paul L. Graziani.
10.2 Employment Agreement dated August 1, 1998 by and between the
Company and Scott A. Reynolds.
10.3 Form of Indemnification Agreement by and between the Company
and each executive officer and director.
10.4 Lease between Liberty Property Limited Partnership and Premier
Solutions Ltd. dated May 23, 1995 and related assignment dated
August 26, 1997 and consent to assignment dated August 28,
1997.
10.5 Incentive Stock Option Plan, as amended.
10.6 Non-Qualified Stock Option Plan, as amended.
10.7 1995 Stock Plan, as amended.
10.8 1998 Stock Plan.
10.9 Loan Agreement dated May 1, 1998 between the Company and PNC
Bank, N.A. as lender and agent for certain other banks
(excluding certain exhibits thereto)*.
21 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2+ Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5 to the
Registration Statement).
24 Powers of Attorney of certain officers and directors of the
Company (contained on the signature page of this Registration
Statement).
27 Financial Data Schedule.
</TABLE>
- --------
+ To be filed by amendment.
* The schedules or exhibits to this document are not being filed herewith
because the Company believes that the information contained therein should
not be considered material to an investment decision in the Company or such
information is otherwise adequately disclosed in this Registration
Statement on Form S-1. The Registrant agrees to furnish supplementally a
copy of any such schedule or exhibit to the Commission upon request.
II-4
<PAGE>
(b) Financial Statement Schedules
All financial statement schedules are omitted because the information is not
required, or is otherwise included in the consolidated financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(2) 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.
(3) For the 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.
(4) At the closing specified in the underwriting agreement, registrant
shall provide the Underwriters certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF MALVERN,
COMMONWEALTH OF PENNSYLVANIA, ON AUGUST 5, 1998.
Analytical Graphics, Inc.
/s/ Paul L. Graziani
By: _________________________________
PAUL L. GRAZIANI,PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints Paul L. Graziani and William J.
Broderick, and each of them, his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and a related registration statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and in each
case, to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
II-6
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Paul L. Graziani President and Chief August 5, 1998
- ------------------------------------- Executive Officer
PAUL L. GRAZIANI and Chairman of the
Board of Directors
(Principal
Executive Officer)
/s/ William J. Broderick Vice President, August 5, 1998
- ------------------------------------- Chief Financial
WILLIAM J. BRODERICK Officer and
Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Scott A. Reynolds Vice President, August 5, 1998
- ------------------------------------- Chief Software
SCOTT A. REYNOLDS Architect,
Secretary and
Director
/s/ Francis A. DiBello Director August 5, 1998
- -------------------------------------
FRANCIS A. DIBELLO
/s/ Jeffrey K. Harris Director August 5, 1998
- -------------------------------------
JEFFREY K. HARRIS
/s/ John B. Higginbotham Director August 5, 1998
- -------------------------------------
JOHN B. HIGGINBOTHAM
/s/ George F. Raymond Director August 5, 1998
- -------------------------------------
GEORGE F. RAYMOND
II-7
<PAGE>
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
----------- -------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
4.1 Warrant Agreements by and between the Company and PNC Bank,
Transamerica Business Credit Corporation and Ben Franklin--
Progress Capital Fund, L.P. dated May 1, 1998 and related Form
of Warrant.
4.2 Investor Rights Agreement dated June 5, 1995 by and between
the Company and SpaceVest Fund, L.P.
4.3 Investor Rights Agreement dated June 5, 1995 by and between
the Company and Jay J. Buck.
4.4 Registration Rights Agreement dated August 1, 1998 by and
between the Company and the Paul Graziani Associates Limited
Partnership and the Scott Reynolds Associates Limited
Partnership.
5+ Opinion of Buchanan Ingersoll Professional Corporation as to
validity of Common Stock.
10.1 Employment Agreement dated August 1, 1998 by and between the
Company and Paul L. Graziani.
10.2 Employment Agreement dated August 1, 1998 by and between the
Company and Scott A. Reynolds.
10.3 Form of Indemnification Agreement by and between the Company
and each executive officer and director.
10.4 Lease between Liberty Property Limited Partnership and Premier
Solutions Ltd. dated May 23, 1995 and related assignment dated
August 26, 1997 and consent to assignment dated August 28,
1997.
10.5 Incentive Stock Option Plan, as amended.
10.6 Non-Qualified Stock Option Plan, as amended.
10.7 1995 Stock Plan, as amended.
10.8 1998 Stock Plan.
10.9 Loan Agreement dated May 1, 1998 between the Company and PNC
Bank, N.A. as lender and agent for certain other banks
(excluding certain exhibits thereto)*.
21 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2+ Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5 to the
Registration Statement).
24 Powers of Attorney of certain officers and directors of the
Company (contained on the signature page of this Registration
Statement).
27 Financial Data Schedule.
</TABLE>
- --------
+ To be filed by amendment.
* The schedules or exhibits to this document are not being filed herewith
because the Company believes that the information contained therein should
not be considered material to an investment decision in the Company or such
information is otherwise adequately disclosed in this Registration
Statement on Form S-1. The Registrant agrees to furnish supplementally a
copy of any such schedule or exhibit to the Commission upon request.
<PAGE>
EXHIBIT 1
_________ SHARES
ANALYTICAL GRAPHICS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
__________ ______, 1998
LEHMAN BROTHERS INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST LLC,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Analytical Graphics, Inc., a Pennsylvania corporation (the "Company"),
and certain stockholders of the Company named in Schedule 2 hereto (the "Selling
Stockholders"), propose to sell an aggregate of _________ shares (the "Firm
Stock") of the Company's common stock, par value $0.01 per share (the "Common
Stock"). Of the __________ shares of the Firm Stock, ________ are being sold by
the Company and _________ by the Selling Stockholders. In addition, the Company
and certain Selling Stockholders propose to grant to the Underwriters named in
Schedule 1 hereto (the "Underwriters") an option to purchase up to an additional
_______ shares of the Common Stock on the terms and for the purposes set forth
in Section 3 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock." This is to confirm
the agreement concerning the purchase of the Stock from the Company and the
Selling Stockholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 and amendments thereto with
respect to the Stock have (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933, as
amended (the "Securities Act") and the rules
<PAGE>
and regulations (the "Rules and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder, (ii) been
filed with the Commission under the Securities Act and (iii) become
effective under the Securities Act. Copies of such registration statement
and the amendments thereto have been delivered by the Company to you as the
representatives (the "Representatives") of the Underwriters. As used in
this Agreement, "Effective Time" means the date and the time as of which
such registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective Date"
means the date of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments thereof,
before it became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended at
the Effective Time, including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations in accordance with Section 6(a) hereof and deemed to be a
part of the registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus"
means such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the requirements
of the Securities Act and the Rules and Regulations and do not and will
not, as of the applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
(c) The Company and each of its subsidiaries (as defined in Section
17) have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification, and have all power and authority
necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged; [and except for [______] none of the
subsidiaries of the Company is a "significant subsidiary," as such term is
defined in Rule 405 of the Rules and Regulations].
2
<PAGE>
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims.
(e) The shares of the Stock to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the Prospectus; and the
issuance of the Stock is not subject to preemptive or other similar rights.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby [and
by the charter amendment, stock dividend and corporate reorganization]
described in the Prospectus under the caption "________________" (such
actions are herein collectively called the "Recapitalization") will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of the
Company or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties or
assets; and except for the registration of the Stock under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and applicable state securities laws
in connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby
and the Recapitalization. The Recapitalization has been duly authorized
and approved by the Company and the Company's stockholders to the extent
required by law.
(h) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the
3
<PAGE>
Company owned or to be owned by such person or the right (other than rights
which have been waived or satisfied) to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding
the date of the Prospectus, including any sales pursuant to Rule 144A, or
under Regulations D or S of, the Securities Act other than shares issued
pursuant to employee benefit plans, qualified stock option plans or other
employee compensation plans or pursuant to outstanding options, rights or
warrants outstanding prior to the commencement of such six-month period.
(j) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
such date, there has not been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The selected and summary financial and
statistical data and information included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis substantially consistent with the financial statements presented
therein.
(l) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company, whose report appears in the Prospectus
and who have delivered the initial letter referred to in Section 9(h)
hereof, are independent public accountants as required by the Securities
Act and the Rules and Regulations and were independent accountants as
required by the Securities Act and the Rules and Regulations during the
periods covered by the financial statements on which they reported
contained in the Prospectus.
(m) [The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property
4
<PAGE>
by the Company and its subsidiaries; and] all real property and buildings
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries.
(n) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries.
(o) The Company and each of its subsidiaries own or possess adequate
rights to use all patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of their respective
businesses and have no reason to believe that the conduct of their
respective businesses will conflict with, and have not received any notice
of any claim of conflict with, any such rights of others.
(p) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries (herein, a "Material Adverse Effect"); and to
the best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(q) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(r) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which is required
to be described in the Prospectus which is not so described.
(s) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which might be expected to
have a Material Adverse Effect.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has
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not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(u) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might have) a Material
Adverse Effect.
(v) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(x) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter or by-laws, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which it
is a party or by which it is bound or to which any of its properties or
assets is subject or (iii) in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental authorization
or permit necessary to the ownership of its property or to the conduct of
its business.
(y) Neither the Company, nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, has used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or
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indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision
of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
(z) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any of its
subsidiaries has knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(aa) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act
of 1940 and the rules and regulations of the Commission thereunder.
2. Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder severally represents, warrants and agrees
that:
(a) The Selling Stockholder has, and immediately prior to the
Delivery Date (as defined in Section 5 hereof) the Selling Stockholder will
have good and valid title to the shares of Stock to be sold by the Selling
Stockholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares and
payment therefor pursuant hereto, good and valid title to such shares, free
and clear of all liens, encumbrances, equities or claims, will pass to the
several Underwriters.
(b) The Selling Stockholder has placed in custody under a custody
agreement and a
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power of attorney (the "Custody Agreement" and "Power of Attorney" and,
together with all other similar agreements executed by the other Selling
Stockholders, the "Custody Agreements and Powers of Attorney") with
[Buchanan Ingersoll Professional Corporation], as custodian (the
"Custodian"), for delivery under this Agreement, certificates in negotiable
form (with signature guaranteed by a commercial bank or trust company
having an office or correspondent in the United States or a member firm of
the New York or American Stock Exchanges) representing the shares of Stock
to be sold by the Selling Stockholder hereunder, and the Selling
Stockholder has duly and irrevocably executed and delivered the Power of
Attorney appointing the Custodian and one or more other persons, as
attorneys-in-fact, with full power of substitution, and with full authority
(exercisable by any one or more of them) to execute and deliver this
Agreement and to take such other action as may be necessary or desirable to
carry out the provisions hereof on behalf of the Selling Stockholder.
(c) The Selling Stockholder has full right, power and authority to
enter into this Agreement and the Custody Agreement and Power of Attorney;
the execution, delivery and performance of this Agreement and the Custody
Agreement and Power of Attorney by the Selling Stockholder and the
consummation by the Selling Stockholder of the transactions contemplated
hereby and thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Selling Stockholder, if applicable, is
a party or by which the Selling Stockholder is bound or to which any of the
property or assets of the Selling Stockholder is subject, nor will such
actions result in any violation of [the provisions of the charter or by-
laws of the Selling Stockholder][the articles of partnership of the Selling
Stockholder] or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling Stockholder; and,
except for the registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or qualifications as may
be required under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
the Custody Agreement and Power of Attorney by the Selling Stockholder and
the consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby.
(d) To the knowledge of such Selling Stockholder, the Registration
Statement and the Prospectus and any further amendments or supplements to
the Registration Statement or the Prospectus will, when they become
effective or are filed with the Commission, as the case may be, do not and
will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
8
<PAGE>
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(e) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 1 hereof
are not materially true and correct, is familiar with the Registration
Statement and the Prospectus (as amended or supplemented) and has no
knowledge of any material fact, condition or information not disclosed in
the Registration Statement, as of the effective date, or the Prospectus (or
any amendment or supplement thereto), as of the applicable filing date,
which has adversely affected or may adversely affect the business of the
Company and is not prompted to sell shares of Common Stock by any
information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
(f) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _______ shares of the
Firm Stock and each Selling Stockholder hereby agrees to sell the number of
shares of the Firm Stock set opposite the name of such Selling Stockholder in
Schedule 2 hereto, severally and not jointly, to the several Underwriters and
each of the Underwriters, severally and not jointly, agrees to purchase the
number of shares of the Firm Stock set opposite that Underwriter's name in
Schedule 1 hereto. Each Underwriter shall be obligated to purchase from the
Company, and from each Selling Stockholder, that number of shares of the Firm
Stock which represents the same proportion of the number of shares of the Firm
Stock to be sold by the Company, and by each Selling Stockholder, as the number
of shares of the Firm Stock set forth opposite the name of such Underwriter in
Schedule 1 represents of the total number of shares of the Firm Stock to be
purchased by all of the Underwriters pursuant to this Agreement. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company and [certain of the] Selling Stockholders
grant to the Underwriters an option to purchase up to _______ shares of Option
Stock. Such option is granted for the purpose of covering over-allotments in
the sale of Firm Stock and is exercisable as provided in Section 5 hereof.
Shares of Option Stock shall be purchased severally for the account of the
Underwriters in proportion to the number of shares of Firm Stock set opposite
the names of such Underwriters in Schedule 1 and Schedule 2 hereto. The
respective purchase obligations of each Underwriter with respect to the Option
Stock shall be adjusted by the Representatives so that no Underwriter shall be
obligated to purchase Option Stock other than in 100 share amounts. The price
of both the Firm Stock and any Option Stock shall be $_____ per share.
The Company and the Selling Stockholders shall not be obligated to
deliver any of
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<PAGE>
the Stock to be delivered on any Delivery Date (as hereinafter defined), as the
case may be, except upon payment for all the Stock to be purchased on such
Delivery Date as provided herein.
4. Offering of stock by the Underwriters. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the prospectus.
[It is understood that _____ shares of the Firm Stock will initially
be reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. to employees
and persons having business relationships with the Company and its subsidiaries
who have heretofore delivered to the Representatives offers to purchase shares
of Firm Stock in form satisfactory to the Representatives, and that any
allocation of such Firm Stock among such persons will be made in accordance with
timely directions received by the Representatives from the Company; provided,
that under no circumstances will the Representatives or any Underwriter be
liable to the Company or to any such person for any action taken or omitted in
good faith in connection with such offering to employees and persons having
business relationships with the Company and its subsidiaries. It is further
understood that any shares of such Firm Stock which are not purchased by such
persons will be offered by the Underwriters to the public upon the terms and
conditions set forth in the Prospectus.]
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Chadbourne & Parke LLP, 30
Rockefeller Plaza, New York, New York 10112, at 10:00 A.M., New York City time,
on the fourth full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to as
the "First Delivery Date." On the First Delivery Date, the Company and the
Selling Stockholders shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company and the Selling
Stockholders of the purchase price by wire transfer in immediately available
funds to a bank account designated by the Company and a bank account designated
by the Selling Stockholders. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company and the Selling
Stockholders shall make the certificates representing the Firm Stock available
for inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
The option granted in Section 3 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company and the Selling Stockholders by the
Representatives. Such notice shall set forth the aggregate number of shares of
Option Stock as to which the option is being exercised, the names in which the
shares of Option Stock are to be registered, the denominations in which the
shares of
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<PAGE>
Option Stock are to be issued and the date and time, as determined by the
Representatives, when the shares of Option Stock are to be delivered; provided,
however, that this date and time shall not be earlier than the First Delivery
Date nor earlier than the second business day after the date on which the option
shall have been exercised nor later than the fifth business day after the date
on which the option shall have been exercised. The date and time the shares of
Option Stock are delivered are sometimes referred to as a "Second Delivery Date"
and the First Delivery Date and any Second Delivery Date are sometimes each
referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Representatives, the Company and the Selling Stockholders) at 10:00 A.M., New
York City time, on such Second Delivery Date. On such Second Delivery Date, the
Company and the Selling Stockholders shall deliver or cause to be delivered the
certificates representing the Option Stock to the Representatives for the
account of each Underwriter against payment to or upon the order of the Company
and the Selling Stockholders of the purchase price by wire transfer in
immediately available funds. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder. Upon delivery, the Option Stock
shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company and the Selling Stockholders shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to such Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act; to make no further amendment or any supplement to
the Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
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(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement) and (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus; and, if the delivery
of a prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Stock or any other securities
relating thereto and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply with the
Securities Act, to notify the Representatives and, upon their request, to
file such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Representatives,
be required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and obtain
the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date (but in no event
later than 15 months after the Effective Date), to make generally available
to the Company's security holders and to deliver to the Representatives an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Securities Act and the Rules
and Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder;
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<PAGE>
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Stock;
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock (other than the Stock and shares
issued pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans existing on the date hereof or pursuant
to currently outstanding options, warrants or rights), or sell or grant
options, rights or warrants with respect to any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other than
the grant of options pursuant to option plans existing on the date hereof),
or (2) enter into any swap or other derivatives transaction that transfers
to another, in whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case without the
prior written consent of Lehman Brothers Inc.; and to cause each officer
and director of the Company to furnish to the Representatives, prior to the
First Delivery Date, a letter or letters, in form and substance
satisfactory to counsel for the Underwriters, pursuant to which each such
person shall agree not to, directly or indirectly, (1) offer for sale,
sell, pledge or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of
Common Stock or securities convertible into or exchangeable for Common
Stock or (2) enter into any swap or other derivatives transaction that
transfers to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, in each
case for a period of 180 days from the date of the Prospectus, without the
prior written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of the
Stock on the Nasdaq National Market and to use its best efforts to effect
such quotation, subject only to official notice of issuance, prior to the
First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term
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under the Investment Company Act of 1940 and the rules and regulations of
the Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each Selling
Stockholder agrees:
(a) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly,(1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock (other than the Stock) or (2) enter
into any swap or other derivatives transaction that transfers to another,
in whole or in part, any of the economic benefits or risks of ownership of
such shares of Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or
other securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc.
(b) That the Stock to be sold by the Selling Stockholder hereunder,
which is represented by the certificates held in custody for the Selling
Stockholder, is subject to the interest of the Underwriters and the other
Selling Stockholders thereunder, that the arrangements made by the Selling
Stockholder for such custody are to that extent irrevocable, and that the
obligations of the Selling Stockholder hereunder shall not be terminated by
any act of the Selling Stockholder, by operation of law, by the death or
incapacity of any individual Selling Stockholder or, in the case of a
trust, by the death or incapacity of any executor or trustee or the
termination of such trust, or the occurrence of any other event.
(c) To deliver to the Representatives prior to the First Delivery
Date a properly completed and executed United States Treasury Department
Form W-8 (if the Selling Stockholder is a non-United States person or Form
W-9 (if the Selling Stockholder is a United States person.)
8. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of producing and distributing this Agreement and
any other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the costs of delivering and distributing the Custody
Agreements and the Powers of Attorney; (f) the filing fees incident to securing
any required review by the National Association of Securities Dealers, Inc. of
the terms of sale of the Stock; (g) any applicable listing or other fees;
including, without limitation, the fees for quotation of the Common Stock on the
Nasdaq National Market; (h) the fees and expenses (not in excess, in
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<PAGE>
the aggregate, of $[2,500]) of qualifying the Stock under the securities laws of
the several jurisdictions as provided in Section 6(h) and of preparing, printing
and distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); (i) all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, incident
to the offer and sale of shares of the Stock by the Underwriters to employees
and persons having business relationships with the Company and its subsidiaries,
as described in Section 4; and (j) all other costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholders under
this Agreement; provided that, except as provided in this Section 8 and in
Section 13 the Underwriters shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Stock which
they may sell and the expenses of advertising any offering of the Stock made by
the Underwriters, and the Selling Stockholders shall pay the fees and expenses
of their counsel, the Custodian (and any other attorney-in-fact), and any
transfer taxes payable in connection with their respective sales of Stock to the
Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholders contained herein, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 6(a); no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or threatened
by the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Chadbourne & Parke LLP,
counsel for the Underwriters, is material or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings, including, without limitation, the
authorization and approval of the Recapitalization by the Company and the
Company's stockholders, and other legal matters incident to the
authorization, form and validity of this Agreement, the Custody Agreements
and the Powers of Attorney, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the Underwriters, and the Company and the
Selling Stockholders shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass upon
such matters.
(d) Buchanan Ingersoll Professional Corporation shall have furnished
to the
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Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification and have all power and authority necessary
to own or hold their respective properties and conduct the businesses
in which they are engaged;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and (except
for directors' qualifying shares) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(iii) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of,
any shares of the Stock pursuant to the Company's charter or by-laws
or to the best of such counsel's knowledge, any agreement or other
instrument to which the Company is a party or by which it may be
bound;
(iv) [The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property owned by them, in
each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company
and its subsidiaries; and] all real property and buildings held under
lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property or assets of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, might have a material adverse
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effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion,
the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations specified in
such opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of
the Securities Act and the Rules and Regulations;
(viii) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Rules and
Regulations;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company;
(x) The Recapitalization has been duly authorized and approved
by the Company and the Company's stockholders to the extent required
by law;
(xi) The issue and sale of the shares of Stock being delivered
on such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions contemplated hereby and by the Recapitalization will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Company or any of its subsidiaries or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets; and, except for the
registration of the Stock under the Securities Act and such
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consents, approvals, authorizations, registrations or qualifications
as may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution of
the Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby and the Recapitilization; and
(xii) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have
been waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or the
right (other than rights which have been waived or satisfied) to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the Commonwealth of Pennsylvania and the General
Corporation Law of the State of Delaware. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such counsel
has acted as counsel to the Company from time to time (although the Company
is also represented by other outside counsel with respect to intellectual
property and other matters), has acted as counsel to the Company in
connection with previous financing transactions and has acted as counsel to
the Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The foregoing
opinion and statement may be qualified by a statement to the effect that
such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or express any view as to the financial
statements and schedules and other financial data contained therein.
(e) Buchanan Ingersoll Professional Corporation shall have furnished
to the Representatives its written opinion, as special counsel to the
Selling Stockholders, addressed to the Underwriters and dated the Delivery
Date, in form and substance reasonably satisfactory to the Representatives,
to the effect that:
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(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement and the Custody Agreement and
Power of Attorney; the execution, delivery and performance of this
Agreement and the Custody Agreement and Power of Attorney by each
Selling Stockholder and the consummation by each Selling Stockholder
of the transactions contemplated hereby and thereby will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which any Selling Stockholder
is a party or by which any Selling Stockholder is bound or to which
any of the property or assets of any Selling Stockholder is subject,
nor will such actions result in any violation of the charter or by-
laws of any Selling Stockholder, the articles of partnership of any
Selling Stockholder or any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over any Selling Stockholder or the property or
assets of any Selling Stockholder; and, except for the registration of
the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters. To the best of such counsel's knowledge, no consent,
approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or the Custody
Agreement and Power of Attorney by any Selling Stockholder and the
consummation by any Selling Stockholder of the transactions
contemplated hereby and thereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder;
(iii) A Custody Agreement and Power of Attorney has been duly
authorized, executed and delivered by each Selling Stockholder and
constitute valid and binding agreements of each Selling Stockholder,
enforceable in accordance with their respective terms;
(iv) Immediately prior to the First Delivery Date, each
Selling Stockholder had good and valid title to the shares of Stock to
be sold by such Selling Stockholder under this Agreement, free and
clear of all liens, encumbrances, equities or claims, and full right,
power and authority to sell, assign, transfer and deliver such shares
to be sold by such Selling Stockholder hereunder; and
(v) Good and valid title to the shares of Stock to be sold by
each Selling Stockholder under this Agreement, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each
of the several Underwriters.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the
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Commonwealth of Pennsylvania and the General Corporation Law of the State
of Delaware and (ii) in rendering the opinion in Section 9(e)(iv) above,
rely upon a certificate of each Selling Stockholder in respect of matters
of fact as to ownership of and liens, encumbrances, equities or claims on
the shares of Stock sold by such Selling Stockholder, provided that such
counsel shall furnish copies thereof to the Representatives and state that
it believes that both the Underwriters and it are justified in relying upon
such certificate. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated the Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as counsel
to each Selling Stockholder in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have come
to the attention of such counsel which lead it to believe that the
Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact relating to any Selling Stockholder or omitted
to state such a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or that the Prospectus
contains any untrue statement of a material fact relating to any Selling
Stockholder or omits to state such a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The foregoing
opinion and statement may be qualified by a statement to the effect that
such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or express any view as to the financial
statements and schedules and other financial data contained therein.
(f) Roberts & Brownell, LLC shall have furnished to the
Representatives its written opinion, as special counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) To the best of such counsel's knowledge, the Company has
clear title to the pending patent applications described in Exhibit A
to such opinion. To the best of such counsel's knowledge, there are
no agreements, collaboration or other transactions between any
business entity, university, government agency, institute or research
group and the Company which adversely affect the Company's right to or
title in the pending patent applications described on Exhibit A to
such opinion;
(ii) Assignments from the inventors to the Company have been
filed with United States Patent and Trademark Office for each of the
pending patent applications described on Exhibit A to such opinion;
(iii) The pending patent applications described on Exhibit A to
such opinion were properly prepared and filed;
(iv) All of the pending patent applications described on
Exhibit A to such opinion are being diligently pursued by the Company;
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<PAGE>
(v) To the best of such counsel's knowledge, no activities of
the Company or others prior to the filing dates of any of the pending
patent applications described on Exhibit A to such opinion would
constitute a bar or otherwise adversely affect the patentability of
the subject matter of any of the pending patent applications described
on Exhibit A to such opinion. All prior art and other information
which is material to the examination of each of the pending patent
applications which is known to us has been or will be disclosed to the
United States Patent and Trademark Office. It is such counsel's
opinion, based on the prior art of which such counsel has knowledge,
that the United States Patent and Trademark Office can reasonably be
expected to allow the pending patent applications described on Exhibit
A to such opinion;
(vi) The Company and each of its subsidiaries owns or possesses
adequate rights to use all patents, patent applications, trademarks,
service marks, trade names, trademark registrations, copyrights and
licenses necessary for the conduct of their respective businesses and
such counsel is not aware of any pending or threatened action, suit,
proceeding, or claim by others with respect to such rights or that the
Company is infringing any patents, patent rights or rights thereto of
others;
(vii) To the best of such counsel's knowledge, the conduct of
the Company's business as contemplated by the Prospectus included as
part of the Registration Statement does not and will not conflict with
patents, patent rights, copyrights or licenses of others;
(viii) To the best of such counsel's knowledge, the Company has
not granted any person any license or other rights to use in any
manner any of the pending patent applications described on Exhibit A
to such opinion; and
(ix) To the extent they constitute a summary of legal matters,
documents or proceedings referred to therein, the statements in the
Prospectus under the captions "Risk Factors--Limited Protection of
Proprietary Rights; Enforcement of Rights" and "Business--Products and
Services" and "--Intellectual Property" are accurate in all material
respects and fairly summarize in all material respects all matters
referred to therein, and none of the statements contained in the
aforementioned portions of the Prospectus contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein, or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
(g) The Representatives shall have received from Chadbourne & Parke
LLP, counsel for the Underwriters, such opinion or opinions, dated such
Delivery Date, with respect to the Registration Statement and the
Prospectus and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to
pass
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upon such matters.
(h) At the time of execution of this Agreement, the Representatives
shall have received from Price Waterhouse Coopers LLP a letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(i) With respect to the letter of PricewaterhouseCoopers LLP
referred to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial letter"),
the Company shall have furnished to the Representatives a letter (the
"bring-down letter") of such accountants, addressed to the Underwriters and
dated such Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of the bring-down letter),
the conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set forth
in the initial letter.
(j) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein; and
the conditions set forth in Sections 9(a) and 9(m) have been
fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective Date,
the Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
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<PAGE>
(k) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on the Delivery Date a certificate, dated
the Delivery Date, signed by, or on behalf of, the Selling Stockholder (or
the Custodian or one or more attorneys-in-fact) stating that the
representations, warranties and agreements of the Selling Stockholder
contained herein are true and correct as of the Delivery Date and that the
Selling Stockholder has complied with all agreements contained herein to be
performed by the Selling Stockholder at or prior to the Delivery Date.
(m) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or
(ii) since such date there shall not have been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus, the effect of which,
in any such case described in clause (i) or (ii), is, in the judgment of
the Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(n) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(o) The Nasdaq National Market shall have approved the Stock for
inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
(p) You shall have been furnished with such additional documents and
certificates
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as you or counsel for the Underwriters may reasonably request related to
this Agreement and the transactions contemplated hereby.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter,
its officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Stock), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto, (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein which
information consists solely of the information specified in Section 10(f). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) The Selling Stockholders, severally in proportion to the number
of shares of Stock to be sold by each of them hereunder, shall indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the
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meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, Registration Statement
or the Prospectus, or in any amendment or supplement thereto, any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each Underwriter, its officers and employees and
each such controlling person for any legal or other expenses reasonably incurred
by that Underwriter, its officers and employees or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Selling Stockholders shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any such amendment or supplement
in reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or on behalf
of any Underwriter specifically for inclusion therein which information consists
solely of the information specified in Section 10(f). Notwithstanding the
foregoing sentence, the aggregate liability of any Selling Stockholder pursuant
to the provisions of this paragraph shall be limited to an amount equal to the
aggregate purchase price, less underwriting discounts and commissions, received
by such Selling Stockholder from the sale of such Selling Stockholder's Stock
hereunder. The foregoing indemnity agreement is in addition to any liability
which the Selling Stockholders may otherwise have to any Underwriter or any
officer, employee or controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its directors,
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director,
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officer or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred. The foregoing indemnity agreement is in addition to
any liability which any Underwriter may otherwise have to the Company or any
such director, officer, employee or controlling person.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company or any Selling Stockholder under this Section 10 if, in the
reasonable judgment of the Representatives, it is advisable for the
Representatives and those Underwriters, officers, employees and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company or the
Selling Stockholders. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld), but if settled with the consent of the indemnifying
party or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10(a), 10(b) or 10(c) in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
26
<PAGE>
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations; provided that no Selling Stockholders shall be
required to contribute in excess of the amount of the purchase price for the
sale of Stock of such Selling Stockholders less underwriting discounts and
commissions. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other with respect to
such offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement (before
deducting expenses) received by the Company and the Selling Stockholders, on the
one hand, and the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the offering
of the shares of the Stock under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, the Selling Stockholders or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 10(e) were
to be determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section shall be deemed to include, for purposes of this Section 10(e), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10(e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 10(e) are several in proportion to their respective
underwriting obligations and not joint.
(f) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page of and the concession and reallowance
figures appearing under the caption "Underwriting" in, the Prospectus
27
<PAGE>
are correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
11. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining non-
defaulting Underwriter shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 3. If the foregoing maximums are exceeded, the
remaining non-defaulting Underwriters, or those other underwriters satisfactory
to the Representatives who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among them, all
the Stock to be purchased on such Delivery Date. If the remaining Underwriters
or other underwriters satisfactory to the Representatives do not elect to
purchase the shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase on such Delivery Date, this Agreement (or, with respect to
the Second Delivery Date, the obligation of the Underwriters to purchase, and of
the Company and the Selling Stockholders to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders, except that the Company will continue to be
liable for the payment of expenses to the extent set forth in Sections 8 and 13.
As used in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Stockholders for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Stock of a defaulting or withdrawing Underwriter, either the Representatives
or the Company may postpone the Delivery Date for up to seven full business days
in order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
and the Selling Stockholders prior to delivery of and payment for the Firm Stock
if, prior to that time, any of the events described in Section 9(m) or 9(n),
shall have occurred or if the Underwriters shall decline to
28
<PAGE>
purchase the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the Company or
any Selling Stockholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder(s) to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Stockholder(s)
is not fulfilled, the Company and the Selling Stockholder(s) will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company
and the Selling Stockholder(s) shall pay the full amount thereof to the
Representative(s). If this Agreement is terminated pursuant to Section 12 by
reason of the default of one or more Underwriters, neither the Company nor any
Selling Stockholder shall be obligated to reimburse any defaulting Underwriter
on account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant to Section
11(d), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Mr. Paul L. Graziani (Fax: (610) 578-
1001);
(c) if to any Selling Stockholders, shall be delivered or sent by
mail, telex or facsimile transmission to such Selling Stockholder at the
address set forth on Schedule 2 hereto;
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and the
Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Stockholders and their respective personal representatives and
successors. This Agreement and the terms and provisions
29
<PAGE>
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company and the
Selling Stockholders contained in this Agreement shall also be deemed to be for
the benefit of the person or persons, if any, who control any Underwriter within
the meaning of Section 15 of the Securities Act and (B) the indemnity agreement
of the Underwriters contained in Section 10(c) of this Agreement shall be deemed
to be for the benefit of directors of the Company, officers of the Company who
have signed the Registration Statement and any person controlling the Company
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 15, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations, warranties
and agreements of the Company, the Selling Stockholders and the Underwriters
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Stock and shall remain in full force and effect, regardless of any investigation
made by or on behalf of any of them or any person controlling any of them.
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules
and Regulations.
18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
30
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Selling Stockholders and the Underwriters, please indicate your acceptance
in the space provided for that purpose below.
Very truly yours,
ANALYTICAL GRAPHICS, INC.
By:______________________________________
Name:
Title:
The Selling Stockholders named in Schedule 2 to
this Agreement
By:______________________________________
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST LLC
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
BY: LEHMAN BROTHERS INC.
By: _____________________________________
Authorized Representative
31
<PAGE>
SCHEDULE 1
Underwriters Number of Number of
- ------------
Firm Shares Option Shares
-------------- ---------------
Lehman Brothers Inc.....................
NationsBanc Montgomery Securities LLC...
Hambrecht & Quist LLC...................
Total
================== ====================
32
<PAGE>
SCHEDULE 2
Number of Number of
Name and address of Selling Stockholder Firm Shares Option Shares
- --------------------------------------- ------------- ---------------
Total
=================== ==================
33
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ANALYTICAL GRAPHICS, INC.
The undersigned, Analytical Graphics, Inc., a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania (the "Corporation"),
does hereby certify as follows:
I. The name of the Corporation is Analytical Graphics, Inc. The address
of the Corporation's registered office in the Commonwealth of Pennsylvania is
325 Technology Drive, Malvern, Pennsylvania 19355.
II. The Corporation was incorporated under the provisions of the Business
Corporation Law of 1988 on January 18, 1989.
III. Pursuant to Sections 1911 and 1915 of the Business Corporation Law of
1988, these Amended and Restated Articles of Incorporation restate, integrate,
and amend in their entirety the provisions of the Corporation's Articles of
Incorporation. These Restated and Amended Articles of Incorporation supersede
the Articles of Incorporation of the Corporation and any amendments thereto
filed prior to the date hereof in their entirety.
IV. This amendment shall be effective [ ], 1998.
V. These Amended and Restated Articles of Incorporation were approved by
the shareholders pursuant to Section 1914 of the PBCL.
VI. The text of the Articles of Incorporation is hereby restated and
amended to read as follows:
ARTICLE 1
1.01. Name. The name of the Corporation is Analytical Graphics, Inc.
----
ARTICLE 2
2.01. Registered Office. The address of the Corporation's registered
-----------------
office in the Commonwealth of Pennsylvania is 325 Technology Drive, Malvern,
Pennsylvania 19355. The county in which the registered office of the Corporation
shall be deemed for venue and official publication purposes is Chester County,
Pennsylvania.
ARTICLE 3
3.01. Purpose and Powers. The Corporation was incorporated under and is
------------------
subject to the provisions of the Business Corporation Law of 1988, as amended
(hereinafter, the "PBCL"). The corporation shall have unlimited power to engage
in and do any lawful act concerning any and all lawful business for which
corporations may be incorporated under the PBCL.
ARTICLE 4
<PAGE>
4.01. Term of Existence. The term for which the Corporation shall exist
-----------------
is perpetual.
ARTICLE 5
5.01. Authorized Shares. The capital stock which the Corporation shall
-----------------
have the authority to issue shall be as follows:
(1) 30,000,000 shares of Common Stock, par value $0.01 per share
("Common Stock"); and
------------
(2) 5,000,000 shares of Preferred Stock, par value $0.01 per share
("Preferred Stock").
---------------
5.02. Common Stock. The holders of Common Stock shall have one vote per
------------
share. Shares of Common Stock issued or to be issued shall be alike in every
particular. The Common Stock shall be subject to the prior rights of holders of
any class or series of Preferred Stock outstanding, according to the
preferences, if any, of such class or series as determined by the Board of
Directors of the Corporation pursuant to this Article 5.
5.03. Cumulative Voting. No holder of Common Stock of the Corporation
-----------------
shall have the right to cumulate the votes to which such shares are entitled in
the election of Directors of the Corporation.
5.04. Preferred Stock. The Board of Directors of the Corporation shall
---------------
have the full authority permitted by law to divide the authorized and unissued
Preferred Stock of the Corporation into classes or series, or both, and to
determine for any such class or series its voting rights (which may be full,
limited, multiple or fractional or no voting rights) and such designations,
preferences, qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights as may be desired. Such
divisions and determinations may be accomplished by amendments to this Article
5, which amendments shall be made by action of the Board of Directors which
shall have the full authority permitted by law to make such divisions and
determinations. The preferred shares of any class or series established by such
an amendment by the Board of Directors shall be issued for the consideration
that the Board of Directors may fix.
5.05. Uncertificated Shares. The Corporation may utilize uncertificated
---------------------
shares of Common Stock and Preferred Stock to represent stock interests of its
shareholders. Notwithstanding any By-Law to the contrary, the rights and
obligations of the holders of uncertificated shares of the same class and series
shall be identical.
ARTICLE 6
6.01. Classification of the Board of Directors. The Directors elected by
----------------------------------------
the holders of voting stock shall be classified in respect to the time for which
they shall severally serve on the Board of Directors by dividing them into three
staggered classes which shall be as nearly equal in number as possible. Each
member of each class shall serve for three-year terms. At each annual meeting
of the shareholders, the shareholders shall elect Directors of the class which
term then expires, to serve until the third succeeding annual meeting. Except
as otherwise provided in these Articles, each Director shall serve for the term
for which elected and until his or her successor shall be elected and shall
qualify.
-2-
<PAGE>
ARTICLE 7
7.01. Nominations of Director Candidates. Nominations for the election of
----------------------------------
Directors may be made only by the Board of Directors or by any record holder of
stock entitled to vote in the election of the Directors; provided, however, that
a nomination may be made by a shareholder only if written notice of such
nomination has been received by the Secretary of the Corporation not later than
120 days in advance of the meeting at which the election is to be held; provided
further, however, that in the event that less than 130 days notice or prior
public disclosure of the date of the annual meeting is given by the Corporation,
notice from the shareholder to be timely must be received not later than the
tenth day following the date on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs.
Each such notice shall set forth: (a) the name and address of the shareholder
who intends to make the nomination, and of the person or persons to be
nominated; (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated by the Board of Directors; and (e)
the consent of each nominee to serve as a Director of the Corporation if so
elected. If the Corporation receives notice from a shareholder pursuant to this
Article 7.01 and such notice, in the judgment of the Board of Directors, fails
to comply with the requirements set forth in this Article 7.01 in any respect,
then the Corporation shall notify the shareholder of the deficiencies with such
notice within ten days of the Corporation's receipt of such notice. Commencing
on the day of receipt of the deficiency notification from the Corporation, the
shareholder shall have ten days to cure all deficiencies and provide the
Corporation with notice which conforms to the requirements of this Article 7.01.
A shareholder shall be entitled to re-submit a notice as provided in this
Article 7.01 only once for each annual meeting of the shareholders. Only
candidates who have been nominated in accordance with this Article 7.01 shall be
eligible for election by the shareholders as Directors of the Corporation.
7.02. Special Meetings of Shareholders. Special meetings of shareholders
--------------------------------
may be called at any time only by the President, the Chairman of the Board of
Directors of the Corporation (if any) or a majority of the Board of Directors of
the Corporation. Business transacted at any special meeting of shareholders
shall be limited to the purpose or purposes set forth in the notice of such
special meeting.
7.03. Business to be Transacted at Shareholders Meetings. At any annual
--------------------------------------------------
meeting or special meeting of shareholders, only such business as is properly
brought before the meeting in accordance with this Article 7.03 may be
transacted. To be properly brought before any meeting, any proposed business
must (i) be specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
be brought before the meeting by or at the direction of the Board of Directors,
or (iii) if brought before the meeting by a shareholder, then (x) the
shareholder must have been a shareholder of record on the record date for the
determination of shareholders entitled to vote at the annual meeting, and (y)
only if written notice of such proposed business has been received by the
Secretary of the Corporation not later than 120 days in advance of the meeting
at which the business is proposed to be transacted;
-3-
<PAGE>
provided, however, that in the event that less than 130 days notice or prior
public disclosure of the date of the annual meeting is given by the Corporation,
notice from the shareholder to be timely must be received not later than the
tenth day following the date on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs.
There will be no opportunity to cure any deficiencies within any notice given
pursuant to this Article 7.03.
7.04. Vote Required for Fundamental Changes. In addition to any vote
-------------------------------------
required by law, the affirmative vote of holders of at least 66 2/3% of the
votes cast by shareholders eligible to vote thereon, voting together as a single
class, shall be necessary to approve any action for which shareholder approval
is required under Subchapters B, C, D, E and F of Chapter 19 (Fundamental
Changes) of the PBCL (the "Fundamental Change"), and any successor provisions
thereto; provided, however, that the additional affirmative vote required by
this Article 7.04 shall not apply to any Fundamental Change if such Fundamental
Change is approved, recommended and submitted to the shareholders for their
consideration by the unanimous vote of the Directors of the Corporation then
serving.
7.05. Action by Written Consent. Upon the consummation of an initial
-------------------------
public offering of the Corporation's Common Stock under the Securities Act of
1933, as amended, shareholders of the Corporation may not take any action by
written consent in lieu of a meeting.
ARTICLE 8
8.01. Inapplicability of Certain Statutory Provisions. Notwithstanding
-----------------------------------------------
any law or By-Law of the Corporation to the contrary, the provisions of
Subchapters E, F, G and H of Chapter 25 (Registered Corporations) of the PBCL
and any successors thereto, shall not be applicable to the Corporation.
ARTICLE 9
9.01. Personal Liability of Directors. A Director of the Corporation
--------------------------------
shall not be personally liable for monetary damages for any action taken, or any
failure to take any action, unless the Director has breached or failed to
perform the duties of his or her office under Subchapter B of Chapter 17 of the
PBCL and such breach of failure to perform constitutes self-dealing, willful
misconduct or recklessness; provided, however, that the foregoing provision
shall not eliminate or limit (i) the responsibility or liability of such
Director pursuant to any criminal statute, or (ii) the liability of a Director
for the payment of taxes pursuant to local, state or federal law. Any repeal,
modification or adoption of any provision inconsistent with this Article 9.01
shall be prospective only, and neither the repeal or modification of this
provision nor the adoption of any provision inconsistent with this provision
shall adversely affect any limitation on the personal liability of a Director of
the Corporation existing at the time of such repeal or modification or the
adoption of such inconsistent provision.
9.02. Mandatory Indemnification of Directors and Executive Officers.
-------------------------------------------------------------
(a) The Corporation shall indemnify and hold harmless to the full
extent not prohibited by law, as the same exists or may hereinafter be amended,
interpreted or implemented (but, in the case of any amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than the Corporation is permitted to provide prior to
such amendment), each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in (as a witness or otherwise) any
threatened, pending or
-4-
<PAGE>
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative and whether or not by or in the right of the Corporation or
otherwise (hereinafter, a "proceeding"), by reason of the fact that he or she,
or a person of whom he or she is the heir, executor or administrator, is or was
a Director or executive officer of the Corporation or is or was serving at the
request of the Corporation as a Director, officer or trustee of another
corporation or of a partnership, joint venture, trust or other enterprise
(including without limitation service with respect to employee benefit plans),
or where the basis of such proceeding is any alleged action or failure to take
any action by such person while acting in an official capacity as a Director or
executive officer of the Corporation, or in any other capacity on behalf of the
Corporation while such person is or was serving as a Director or executive
officer of the Corporation, against all expenses, liability and loss, including
but not limited to attorneys' fees, judgments, fines, excise taxes or penalties
and amounts paid or to be paid in settlement (whether with or without court
approval), actually and reasonably incurred or paid by such person in connection
therewith.
(b) Notwithstanding the foregoing, except as provided in Article
9.03 below, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
(c) Subject to the limitation set forth above concerning
proceedings initiated by the person seeking indemnification, the right to
indemnification conferred in this Article 9.02 shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding (or part thereof) or in enforcing his or her
rights under this Article 9.02 in advance of the final disposition thereof
promptly after receipt by the Corporation of a request therefor stating in
reasonable detail the expenses incurred; provided, however, that to the extent
required by law, the payment of such expenses incurred by a Director or
executive officer of the Corporation in advance of the final disposition of a
proceeding shall be made only upon receipt of an undertaking, by or on behalf of
such person, to repay all amounts so advanced if and to the extent it shall
ultimately be determined by a court that he or she is not entitled to be
indemnified by the Corporation under this Article 9.02 or otherwise.
(d) The right to indemnification and advancement of expenses
provided herein shall continue as to a person who has ceased to be a Director or
executive officer of the Corporation or to serve in any of the other capacities
described herein, and shall inure to the benefit of the heirs, executors and
administrators of such person.
9.03. Payment of Indemnification. If a claim for indemnification under
--------------------------
Article 9.02 hereof is not paid in full by the Corporation within thirty (30)
days after a written claim therefor has been received by the Corporation, the
claimant may, at any time thereafter, bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part on
the merits or otherwise in establishing his or her right to indemnification or
to the advancement of expenses, the claimant shall be entitled to be paid also
the expense of prosecuting such claim.
9.04. Non-Exclusivity of Rights. The right to indemnification and the
-------------------------
payment of expenses incurred in defending a proceeding in advance of a final
disposition conferred in Article 9.02 and the right to payment of expenses
conferred in Article 9.03 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses hereunder may be
entitled under any By-Law, agreement, vote of shareholders, vote of Directors or
otherwise, both as to actions in his or her official capacity and as to actions
in any other capacity while holding that office, the Corporation having the
express authority to enter into such agreements or
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<PAGE>
arrangements as the Board of Directors deems appropriate for the indemnification
of and advancement of expenses to present or future Directors and officers as
well as employees, representatives or agents of the Corporation in connection
with their status with or services to or on behalf of the Corporation or any
other corporation, partnership, joint venture, trust or other enterprise,
including any employee benefit plan, for which such person is serving at the
request of the Corporation.
9.05. Funding. The Corporation may create a fund of any nature, which may,
-------
but need not be, under the control of a trustee, or otherwise secure or insure
in any manner its indemnification obligations, including its obligation to
advance expenses, whether arising under or pursuant to this Article 9 or
otherwise.
9.06. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who is or was a Director or officer or representative of
the Corporation, or is or was serving at the request of the Corporation as a
representative of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of his or her
status as such, whether or not the Corporation has the power to indemnify such
person against such liability under the laws of Pennsylvania or any other state.
9.07. Modification or Repeal. Neither the modification, amendment,
----------------------
alteration or repeal of this Article 9 or any of its provisions nor the adoption
of any provision inconsistent with this Article 9 or any of its provisions shall
adversely affect the rights of any person to indemnification and advancement of
expenses existing at the time of such modification, amendment, alteration or
repeal or the adoption of such inconsistent provision.
ARTICLE 10
10.01. Amendments to By-Laws. The Board of Directors may adopt, amend or
---------------------
repeal the By-Laws with respect to those matters which under the PBCL are not
reserved exclusively to the shareholders. No By-Law may be adopted, amended or
repealed by the shareholders unless, in addition to any other vote required by
law, these Articles of Incorporation or otherwise, such action is affirmatively
approved by at least sixty six and two-thirds percent (66 2/3%) of the votes
cast by shareholders eligible to vote thereon, voting together as a single
class; provided, however, that the additional affirmative vote required by this
Article shall not apply to any shareholder adoption, amendment or repeal of any
By-Law provision if such action is approved, recommended and submitted to the
shareholders for their consideration by the unanimous vote of the Directors of
the Corporation then serving.
ARTICLE 11
11.01. Amendments to the Articles of Incorporation. Articles 6, 7 and 8
-------------------------------------------
hereof may not be adopted, amended or repealed by the shareholders unless, in
addition to any other vote required by law, these Articles of Incorporation or
otherwise, such action is affirmatively approved by at least sixty six and two-
thirds percent (66 2/3%) of the votes cast by shareholders eligible to vote
thereon, voting together as a single class. In addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
these Articles of Incorporation or otherwise, the affirmative vote of at least
eighty percent (80%) of the votes cast by shareholders eligible to vote thereon,
voting as a single class, shall be required to adopt, amend or repeal any
provision of
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<PAGE>
Article 9 of the Articles of Incorporation of the Corporation relating to
personal liability of Directors and indemnification of the Directors and
executive officers.
11.02. Reservation of Right to Amend Articles. The Corporation reserves
--------------------------------------
the right to amend, alter change or repeal any provision contained in these
Articles in the manner now or hereafter prescribed by law and these Articles,
and all rights conferred upon shareholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the undersigned, being the President of the Corporation
hereinabove named, does hereby execute these Restated and Amended Articles of
Incorporation this ______ day of September, 1998.
By: /s/ PAUL L. GRAZIANI
-----------------------------
Paul L. Graziani, President
and Chief Executive Officer
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
ANALYTICAL GRAPHICS, INC.
Adopted by the Board of Directors: July 27, 1998
Approved by the Shareholders effective: August 6, 1998
Effective Date: [ ], 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
1. SHAREHOLDERS...................................................... 1
1.1 Annual Meeting.................................................... 1
1.2 Special Meetings.................................................. 1
1.3 Place of Meetings................................................. 1
1.4 Notice of Meetings................................................ 1
1.5 Quorum............................................................ 2
1.6 Adjournments...................................................... 2
1.7 Action by Shareholders; Written Consent of Shareholders........... 2
1.8 Voting Rights of Shareholders..................................... 3
1.9 Proxies........................................................... 3
1.10 Voting List....................................................... 3
1.11 Determination of Shareholders of Record........................... 4
1.12 Certification by Nominee.......................................... 4
1.13 Presiding Officer................................................. 4
1.14 Voting by Fiduciaries and Pledgees................................ 4
1.15 Voting by Joint Holders of Shares................................. 4
1.16 Voting by Corporations............................................ 5
1.17 Election of Directors............................................. 5
1.18 Judges of Election................................................ 5
2. BOARD OF DIRECTORS................................................ 6
2.1 General........................................................... 6
2.2 Number, Qualifications, Term of Office............................ 6
2.3 Vacancies......................................................... 6
2.4 Removal and Resignation........................................... 7
2.5 Regular Meetings.................................................. 7
2.6 Special Meetings.................................................. 8
2.7 Notice of Meetings................................................ 8
2.8 Quorum of and Action by Directors................................. 8
2.9 Interested Directors or Officers; Quorum.......................... 8
2.10 Compensation...................................................... 9
2.11 Presumption of Assent............................................. 9
2.12 Presiding Officer................................................. 9
3. COMMITTEES OF THE BOARD........................................... 9
3.1 Committees of the Board........................................... 9
3.2 Committee Rules................................................... 10
4. OFFICERS.......................................................... 10
4.1 Officers and Qualifications....................................... 10
4.2 Election, Term, and Vacancies..................................... 10
4.3 Removal; Resignation; Bond........................................ 10
4.4 Chairman of the Board............................................. 11
4.5 President......................................................... 11
4.6 Chief Executive Officer........................................... 11
4.7 Vice Presidents................................................... 11
4.8 Secretary......................................................... 11
4.9 Assistant Secretary............................................... 12
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
4.10 Chief Financial Officer and Treasurer............................... 12
4.11 Other Management Officers........................................... 12
5. SHARE CERTIFICATES AND TRANSFERS.................................... 12
5.1 Certificates........................................................ 12
5.2 Transfer of Shares.................................................. 13
5.3 Registrar, Transfer Agent, Authenticating Trustee................... 13
5.4 Lost, Destroyed or Stolen Certificates.............................. 13
6. MANNER OF GIVING NOTICE, WAIVER OF NOTICE, ACTION WITHOUT MEETING,
MEETINGS BY CONFERENCE TELEPHONE AND MODIFICATION OF PROPOSALS............. 14
6.1 Manner of Giving Notice............................................. 14
6.2 Waiver of Notice.................................................... 14
6.3 Board Action by Unanimous Written Consent........................... 14
6.4 Meetings by Means of Conference Telephone........................... 14
6.5 Modification of Proposals........................................... 15
7. CERTAIN SHAREHOLDER RIGHTS.......................................... 15
7.1 Inspection of Corporate Records..................................... 15
8. GENERAL PROVISIONS.................................................. 15
8.1 Registered Office................................................... 15
8.2 Other Offices....................................................... 15
8.3 Corporate Seal...................................................... 15
8.4 Fiscal Year......................................................... 16
</TABLE>
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AMENDED AND RESTATED BY-LAWS
ANALYTICAL GRAPHICS, INC.
1. SHAREHOLDERS
1.1 ANNUAL MEETING.
An annual meeting of the shareholders shall be held in each calendar
year, on such date as may be fixed by the Board of Directors, for the purpose of
electing Directors and for the transaction of such other business as may
properly come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday in the state where the meeting is to be held, such meeting
shall be held on the next succeeding business day.
1.2 SPECIAL MEETINGS.
Special meetings of the shareholders may be called at any time only by
the President, Chairman of the Board of Directors or the majority of the Board
of Directors. Upon written request of any person who has duly called a special
meeting, the Secretary shall fix the time of the meeting which shall be held not
more than sixty (60) days after the receipt of the request. If the Secretary
neglects or refuses to fix the time of the meeting, the person or persons
calling the meeting may do so.
1.3 PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the registered
office of the Corporation or at such other place, within or without the
Commonwealth of Pennsylvania, as may be designated by the Board of Directors
from time to time.
1.4 NOTICE OF MEETINGS.
Except as provided in Section 1.6 of these By-Laws, written notice of
every meeting of the shareholders shall be given by, or at the direction of, the
Secretary or other person authorized by the President or, if he or she neglects
or refuses to do so, may be given by the person or persons calling the meeting,
to each shareholder of record entitled to vote at the meeting, at least ten (10)
days prior to the day named for the meeting, unless a greater period of notice
is required by statute in the particular case. The notice of meeting shall
specify the place, day and hour of the meeting and, in the case of a special
meeting, the general nature of the business to be transacted, and, if
applicable, the notice shall state that the purpose, or one of the purposes, of
the meeting is to consider the adoption, amendment or repeal of the By-Laws in
which case the notice shall include, or be accompanied by, a copy of the
proposed amendment or a summary of the changes to be effected thereby.
<PAGE>
1.5 QUORUM.
A shareholders meeting duly called shall not be organized for the
transaction of business unless a quorum is present. The presence in person or by
proxy of shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
meeting shall constitute a quorum for the purposes of consideration and action
on such matter. The shareholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. If a meeting cannot be
organized because a quorum has not attended, those present may adjourn the
meeting to such time and place as they may determine. Those shareholders
entitled to vote who attend a meeting called for the election of Directors that
has previously been adjourned for lack of a quorum, although less than a quorum
as fixed herein, shall nevertheless constitute a quorum for the purpose of
electing Directors. In other cases, those shareholders entitled to vote who
attend a meeting of shareholders that has been previously adjourned for one or
more periods aggregating at least fifteen (15) days because of absence of a
quorum, although less than a quorum as fixed herein, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting, provided that the notice of the meeting states that those
shareholders who attend such adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter set forth in the notice.
1.6 ADJOURNMENTS.
Adjournment or adjournments of any annual or special meeting of
shareholders, including one at which Directors are to be elected, shall be taken
for such period or periods as the presiding officer of the meeting or the
shareholders present in person or by proxy and entitled to vote shall direct.
When a meeting of shareholders is adjourned, it shall not be necessary to give
any notice of the adjourned meeting or of the business to be transacted at the
adjourned meeting other than by announcement at the meeting at which the
adjournment is taken, unless the Board of Directors fixes a new record date for
the adjourned meeting or unless notice of the business to be transacted was
required by the Pennsylvania Business Corporation Law of 1988, as it may be
amended (the "PBCL"), to be set forth in the original notice of the meeting and
such notice had not been previously given. Subject to quorum requirements, at
any such adjourned meeting any business may be transacted which might have been
transacted at the meeting as originally noticed.
1.7 ACTION BY SHAREHOLDERS; WRITTEN CONSENT OF SHAREHOLDERS.
(a) Whenever any corporate action is to be taken by vote of the
shareholders, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon, and if
any shareholders are entitled to vote thereon as a class, upon receiving the
affirmative vote of a majority of the votes cast by the shareholders entitled to
vote as a class thereon, except where a different vote is required by law or the
Articles of Incorporation or these By-Laws.
(b) Shareholders of the Corporation may not take action by written
consent in lieu of a meeting.
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<PAGE>
1.8 VOTING RIGHTS OF SHAREHOLDERS.
Unless otherwise provided in the Articles every shareholder shall be
entitled to one vote for every share outstanding in such shareholder's name on
the books of the Corporation.
1.9 PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such shareholder by proxy. The
presence of, or vote or other action at a meeting of shareholders, or the
expression of consent or dissent to corporate action in writing, by a proxy of a
shareholder shall constitute the presence of, or vote or action by, or written
consent or dissent of the shareholder. Every proxy shall be executed in writing
by the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the Secretary of the Corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a writing executed by a
shareholder or attorney-in-fact shall be treated as properly executed if it sets
forth a confidential and unique identification number or other mark furnished by
the Corporation to the shareholder for purposes of a particular meeting or
transaction. Notwithstanding any other agreement or any provision in the proxy
to the contrary, a proxy shall be revocable at will unless coupled with an
interest, but the revocation of a proxy shall not be effective until written
notice of the revocation has been given to the Secretary of the Corporation. An
unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the Secretary of the Corporation. Where two or more
proxies of a shareholder are present, the Corporation shall, unless otherwise
expressly provided in the proxy, accept as the vote of all shares represented
thereby the vote cast by a majority of them and, if a majority of the proxies
cannot agree whether the shares represented shall be voted or upon the manner of
voting the shares, the voting of the shares shall be divided equally among those
persons.
1.10 VOTING LIST.
The officer or agent having charge of the transfer books for shares
of the Corporation shall make a complete list of the shareholders entitled to
vote at any meeting of shareholders, arranged in alphabetical order, with the
address of and the number of shares held by each. The list shall be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting for the
purposes thereof except that, if the Corporation has 5,000 or more shareholders,
in lieu of the making of the list the Corporation may make the information
available at the meeting by any other means. Failure to comply with the
requirements of this By-Law shall not affect the validity of any action taken at
a meeting prior to a demand at the meeting by any shareholder entitled to vote
thereat to examine the list.
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<PAGE>
1.11 DETERMINATION OF SHAREHOLDERS OF RECORD.
The Board of Directors may fix a time prior to the date of any
meeting of shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall be not more than ninety (90)
days prior to the date of the meeting of shareholders. In such case, only
shareholders of record on the date so fixed shall be entitled to notice of, or
to vote at, such meeting, notwithstanding any transfer of shares on the books of
the Corporation after the record date so fixed. The Board of Directors may
similarly fix a record date for the determination of shareholders of record for
payment of dividends or for any other purpose. When a determination of
shareholders of record has been made as provided in this By-Law for purposes of
a meeting, the determination shall apply to any adjournment thereof unless the
Board fixes a new record date for the adjourned meeting.
1.12 CERTIFICATION BY NOMINEE.
The Board of Directors may from time to time adopt a procedure
whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the Corporation of a certification complying with said procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in said certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
1.13 PRESIDING OFFICER.
All meetings of the shareholders shall be called to order and
presided over by the Chairman of the Board, if any, or, if there is no Chairman
or in the Chairman's absence, by the President, or, in the absence of the
President, by an officer or Director of the Corporation appointed by the
President, or, if none of those persons is present, by a Chairman of the meeting
elected by the shareholders.
1.14 VOTING BY FIDUCIARIES AND PLEDGEES.
Shares of this Corporation standing in the name of a trustee or other
fiduciary and shares held by an assignee for the benefit of creditors or by a
receiver may be voted either in person or by proxy by the trustee, fiduciary,
assignee or receiver. A shareholder whose shares are pledged shall be entitled
to vote the shares, in person or by proxy, until the shares have been
transferred into the name of the pledgee or a nominee of the pledgee.
1.15 VOTING BY JOINT HOLDERS OF SHARES.
Where shares of the Corporation are held jointly or as tenants in
common by two or more persons, as fiduciaries or otherwise: (a) if only one or
more of such persons is present in person or by proxy, all of the shares
standing in the names of such persons shall be deemed to be represented for the
purpose of determining a quorum and the Corporation shall accept as the vote
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<PAGE>
of all such shares the vote cast by such person or a majority of such persons
who are present; and (b) if the persons present are equally divided upon whether
the shares held by them shall be voted or upon the manner of voting the shares,
the voting of such shares shall be divided equally among the persons present
without prejudice to the rights of the joint owners or the beneficial owners
thereof among themselves. Notwithstanding the foregoing, if there has been filed
with the Secretary of the Corporation a copy, certified by an attorney-at-law to
be correct, of the relevant portions of the agreement under which such shares
are held or the instrument by which the trust or estate was created or the order
of court appointing them or of an order of court directing the voting of such
shares, the persons specified as having such voting power in the latest document
so filed, and only those persons, shall be entitled to vote such shares but only
in accordance therewith.
1.16 VOTING BY CORPORATIONS.
Any other domestic or foreign corporation for profit or not-for-
profit that is a shareholder of this Corporation may vote by any of its officers
or agents, or by proxy appointed by any such officer or agent, unless some other
person, by resolution of its Board of Directors or pursuant to a provision of
its charter or bylaws, a copy of which resolution or provision certified to be
correct by one of its officers has been filed with the Secretary of this
Corporation, is appointed its general or special proxy, in which case such
person shall be entitled to vote the shares. Shares of this Corporation owned,
directly or indirectly, by this Corporation and controlled, directly or
indirectly, by the Board of Directors of this Corporation, as such, shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares for voting purposes at any given time.
1.17 ELECTION OF DIRECTORS.
Only candidates for Director who have been duly nominated in
accordance with the Articles shall be eligible for election. In election of
Directors, voting need not be by ballot, unless required by vote of the
shareholders before the voting for election of Directors begins. The duly
nominated candidates receiving the highest number of votes from each class or
group of classes, if any, entitled to elect Directors separately up to the
number of Directors to be elected by the class or group of classes shall be
elected. If at any meeting of shareholders, Directors of more than one class are
to be elected, each class of Directors shall be elected in a separate election.
1.18 JUDGES OF ELECTION.
In advance of any meeting of shareholders, the Board of Directors may
appoint judges of election, who need not be shareholders, to act at such meeting
or any adjournment thereof. If judges of election are not so appointed, the
presiding officer of any such meeting may, and on the request of any shareholder
or of any shareholder's proxy shall, make such appointment at the meeting. The
number of judges shall be one or three. No person who is a candidate for office
to be filled at the meeting shall act as a judge. In case any person appointed
as a judge fails to appear or fails or refuses to act, the vacancy may be filled
by appointment made by the Board of Directors in advance of the convening of the
meeting or at the meeting by
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<PAGE>
the presiding officer thereof. The judge or judges of election shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies, shall receive votes or ballots, shall hear and
determine all challenges and questions in any way arising in connection with the
right to vote, shall count and tabulate all votes and determine the result and
shall do such acts as may be proper to conduct the election or vote with
fairness to all shareholders. The judge or judges of election shall perform
their duties impartially, in good faith, to the best of their ability, and as
expeditiously as is practical. If there are three judges of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all. On request of the presiding officer of
the meeting, or of any shareholder or proxy of any shareholder, the judge or
judges shall make a report in writing of any challenge or question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated therein.
2. BOARD OF DIRECTORS
2.1 GENERAL.
All powers vested by law in the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
2.2 NUMBER, QUALIFICATIONS, TERM OF OFFICE.
The Board of Directors of the Corporation shall consist of at least
three (3) and not more than nine (9) Directors, the exact number to be set from
time to time by resolution of the Board of Directors of the Corporation. Each
Director shall be a natural person of full age but need not be a resident of
Pennsylvania or a shareholder of the Corporation. Each Director shall hold
office until the expiration of the term for which he or she was selected and
until said Director's successor has been selected and qualified or until said
Director's earlier death, resignation or removal. No reclassification of the
Board of Directors or decrease in its size or the size of any class thereof
shall have the effect of shortening the term of any incumbent Director.
2.3 VACANCIES.
Vacancies in the Board of Directors, including vacancies resulting
from an increase in the number of Directors, may be filled by a majority vote of
the remaining members of the Board though less than a quorum, or by a sole
remaining Director and each person so selected shall hold office until the next
selection of the class for which such Director has been chosen and until his or
her earlier death, resignation or removal. When one or more Directors resign
from the Board effective at a future date, the Directors then in office,
including those who have so resigned, shall have power by the applicable vote to
fill the vacancies, the vote thereon to take effect when the resignations become
effective.
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2.4 REMOVAL AND RESIGNATION.
(A) REMOVAL BY ACTION OF SHAREHOLDERS. The entire Board of Directors
or any individual Director may be removed from office only for cause (as defined
herein) by the vote of shareholders entitled to elect Directors. In case the
Board or any one or more Directors are so removed, new Directors may be elected
at the same meeting.
For purposes of this Section 2.4, "cause" shall mean any one of the
following: (i) a judicial declaration that a Director is of unsound mind; (ii) a
Director is convicted of an offense punishable by imprisonment for a term of
more than one year; (iii) a Director breaches or fails to perform the statutory
duties of said Director's office and the breach or failure constitutes self-
dealing, willful misconduct or recklessness; or (iv) within 60 days after notice
of his or her election, a Director does not accept such office either in writing
or by attending a meeting of the Board of Directors and fulfilling such other
requirements of qualification as these By-Laws or the Articles of Incorporation
may provide.
Notwithstanding the above, the Board of Directors may be removed at
any time with or without cause by the unanimous vote of shareholders entitled to
vote thereon.
(B) AMENDMENT OR REPEAL. The repeal of the provisions of the By-Laws
prohibiting or the addition of a provision to the By-Laws permitting the removal
by the shareholders of the Board without assigning any cause shall not be
applicable to any incumbent Director during the balance of the term for which
said Director was selected.
(C) REMOVAL BY ACTION OF THE DIRECTORS. The Board of Directors may
declare vacant the office of a Director if said Director: (i) has been
judicially declared of unsound mind; (ii) has been convicted of an offense
punishable by imprisonment for a term of more than one year; or (iii) repeated
unexcused absences from meetings of the Board of Directors, willful or reckless
breach of duty as a Director, or any fine or other censure from the Securities
and Exchange Commission, state securities commission or securities exchange; or
(iv) if within sixty (60) days after notice of his or her election, said
Director does not accept such office either in writing or by attending a meeting
of the Board of Directors and fulfilling such other requirements of
qualification as these By-Laws or the Articles may provide.
(D) RESIGNATION. Any Director may resign at any time from his or her
position as a Director of the Corporation upon written notice to the
Corporation. The resignation shall be effective upon receipt thereof by the
Corporation or at such subsequent time as may be specified in the notice of
resignation.
2.5 REGULAR MEETINGS.
The Board of Directors shall hold an annual meeting for the election
of officers and the transaction of other proper business either as soon as
practical after, and at the same place as, the annual meeting of shareholders or
at such other day, hour and place as may be fixed by the Board. The Board of
Directors may designate by resolution the time and place, within or without the
Commonwealth of Pennsylvania, of other regular meetings.
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2.6 SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President or any two (2) Directors. The person or
persons calling the special meeting may fix the day, hour and place, within or
without the Commonwealth of Pennsylvania, of the meeting.
2.7 NOTICE OF MEETINGS.
No further notice of any annual or regular meeting of the Board of
Directors need be given other than transmitting to the Directors a copy of the
resolution fixing the times and places thereof. Written notice, or oral notice
with written confirmation no later than the date of the meeting, of each special
meeting of the Board of Directors, specifying the place, day and hour of the
meeting, shall be given to each Director at least 48 hours before the time set
for the meeting. When a meeting of Directors is adjourned, notice need not be
given of the adjourned meeting other than by announcement at the meeting at
which the adjournment is made. Notwithstanding the above notice requirements, if
any meeting of Directors cannot be organized because a quorum is not present, a
majority of the Directors present may adjourn the meeting to such time and place
as they may determine, subject to the By-Laws of the Corporation. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board need be specified in the notice of the meeting.
2.8 QUORUM OF AND ACTION BY DIRECTORS.
A majority of the Directors in office shall constitute a quorum for
the transaction of business, and the acts of a majority of Directors present and
voting at a meeting at which a quorum is present shall be the acts of the Board
of Directors except where a different vote is required by law or the Articles or
these By-Laws. Every Director shall be entitled to one vote.
2.9 INTERESTED DIRECTORS OR OFFICERS; QUORUM.
A contract or transaction between the Corporation and one or more of
its Directors or officers, or between the Corporation and any other domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise in which one or more of this Corporation's Directors
or officers are Directors or officers or have a financial or other interest,
shall not be void or voidable solely for that reason, or solely because the
common or interested Director or officer is present at or participates in the
meeting of the Board that authorizes the contract or transaction, or solely
because the common or interested Director's or officer's vote is counted for
such purpose, if: (1) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors and the Board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors even though the
disinterested Directors are less than a quorum; or (2) the material facts as to
the Director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of those shareholders; or (3) the contract or transaction is fair as to
this Corporation as of the time it is authorized, approved or
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<PAGE>
ratified by the Board of Directors or the shareholders. Common or interested
Directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors which authorizes such a contract or transaction specified
in this Section 2.9.
2.10 COMPENSATION.
By resolution of the Board of Directors, each Director may be paid
his or her reasonable expenses, if any, of attendance at each meeting of the
Board of Directors or committee thereof, and may be paid a stated salary as
Director or a fixed sum for attendance at each meeting of the Board of Directors
or committee thereof or both. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor and a Director may be a salaried officer or employee of the
Corporation.
2.11 PRESUMPTION OF ASSENT.
A Director of the Corporation who is present at a meeting of the
Board of Directors, or of a committee of the Board, at which action on any
corporate matter is taken on which the Director is generally competent to act,
shall be presumed to have assented to the action taken unless his or her dissent
is entered in the minutes of the meeting or unless such Director files his or
her written dissent to the action with the Secretary of the meeting before the
adjournment thereof or transmits the dissent in writing to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of the action. Nothing
in this section shall bar a Director from asserting that minutes of a meeting
incorrectly omitted said Director's dissent if, promptly upon receipt of a copy
of such minutes, said Director notified the Secretary, in writing, of the
asserted omission or inaccuracy.
2.12 PRESIDING OFFICER.
All meetings of the Board of Directors shall be called to order and
presided over by the Chairman of the Board of Directors, if any, or, if there is
no Chairman or in the Chairman's absence, by the President or, in the absence of
the Chairman and President, by a Director appointed by the Chairman, or, if none
of those persons is present, by a Chairman of the meeting elected at such
meeting by the Board of Directors.
3. COMMITTEES OF THE BOARD
3.1 COMMITTEES OF THE BOARD.
The Board of Directors may, by resolution adopted by a majority of
the Directors in office, establish one or more committees, each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee or for
purposes of any written action of the committee. A committee, to the extent
provided in the resolution of the Board of Directors creating it, shall have and
may
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exercise all of the powers and authority of the Board of Directors except as
limited by statute. Each committee of the Board shall serve at the pleasure of
the Board.
3.2 COMMITTEE RULES.
In the absence of a resolution of the Board to the contrary, a
majority of the members of such committee shall be necessary to constitute a
quorum for the transaction of business.
4. OFFICERS
4.1 OFFICERS AND QUALIFICATIONS.
The Corporation shall have a President, a Secretary, and a Treasurer,
each of whom shall be elected or appointed by the Board of Directors. The Board
may also elect or provide for the appointment of a Chairman of the Board of
Directors, a Chief Executive Officer, a Chief Financial Officer, one or more
vice presidents, a controller, and such other officers and assistant officers as
the Board deems necessary or advisable. All officers must be natural persons of
full age. Any two or more offices may be held by the same person. The Treasurer
shall also be the Chief Financial Officer. It shall not be necessary for
officers to be Directors except that the Chairman of the Board must be a
Director. Officers of the Corporation, as between themselves and the
Corporation, shall have such authority and perform such duties in the management
of the Corporation as is provided by or pursuant to resolutions or orders of the
Board of Directors.
4.2 ELECTION, TERM, AND VACANCIES.
The officers and assistant officers of the Corporation shall be
elected by the Board of Directors at the annual meeting of the Board or from
time to time as the Board shall determine. Each officer shall hold office for
one (1) year and until his or her successor has been duly elected and qualified
or until said officer's earlier death, resignation or removal. A vacancy in any
office occurring in any manner may be filled by the Board of Directors and, if
the office is one for which these By-Laws prescribe a term, shall be filled for
the unexpired portion of the term.
4.3 REMOVAL; RESIGNATION; BOND.
(A) REMOVAL. Any officer or agent of the Corporation may be removed
by the Board of Directors with or without cause, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
(B) RESIGNATION. Any officer may resign at any time upon written
notice to the Corporation. The resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as may be specified in the
notice of resignation.
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(C) BOND. The Corporation may secure the fidelity of any or all of
its officers, agents or employees by bond or otherwise.
4.4 CHAIRMAN OF THE BOARD.
The Chairman of the Board of Directors, if any, shall preside at all
meetings of the shareholders and of the Board of Directors at which he or she is
present, and shall have such authority and perform such duties as the Board of
Directors may from time to time designate.
4.5 PRESIDENT.
The President shall, in the absence of the Chairman of the Board, if
any, preside at all meetings of the shareholders and of the Board of Directors
at which he or she is present, and shall have such authority and perform such
duties as the Board of Directors may from time to time designate.
4.6 CHIEF EXECUTIVE OFFICER.
The Chairman of the Board, the President or an Executive Vice
President, as the Board determines, shall be the Chief Executive Officer of the
Corporation. In the absence of any designation to the contrary by the Board, the
President shall be the Chief Executive Officer. Subject to the control of the
Board of Directors and, within the scope of their authority, any committees
thereof, the Chief Executive Officer shall (a) have general and active
management of all the business, property and affairs of the Corporation, (b) see
that all orders and resolutions of the Board of Directors and the committees
thereof are carried into effect, (c) appoint and remove subordinate officers and
agents, other than those appointed or elected by the Board of Directors, as the
business of the Corporation may require, (d) have custody of the corporate seal,
or entrust the same to the Secretary, (e) act as the duly authorized
representative of the Board in all matters, except where the Board has formally
designated some other person or group to act, and (f) in general perform all the
usual duties incident to the office of Chief Executive Officer and such other
duties as may be assigned to such person by the Board of Directors. The Chief
Executive Officer shall report as directed to the Chairman, if not the same
person, between Board meetings and to the Board on matters relating to the
Corporation.
4.7 VICE PRESIDENTS.
Each Vice President, if any, shall perform such duties as may be
assigned to him or her by the Board of Directors or the Chief Executive Officer.
4.8 SECRETARY.
The Secretary shall (a) keep or cause to be kept the minutes of all
meetings of the shareholders, the Board of Directors, and any committees of the
Board of Directors in one or more books kept for that purpose, (b) have custody
of the corporate records, stock books and stock ledgers of the Corporation, (c)
keep or cause to be kept a register of the address of each shareholder, which
address has been furnished to the Secretary by such shareholder, (d) see that
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all notices are duly given in accordance with law, the Articles, and these By-
Laws, and (e) in general perform all the usual duties incident to the office of
Secretary and such other duties as may be assigned to him or her by the Board of
Directors or the Chief Executive Officer. The Secretary may delegate any of his
or her duties to any management officer or to any duly elected or appointed
Assistant Secretary and may delegate custody of the Corporation's stock books,
stock ledgers, shareholder lists and the like to a duly appointed stock transfer
agent and/or registrar or, in the case of records regarding debt instruments, to
an indenture or bond trustee, registrar or similar entity.
4.9 ASSISTANT SECRETARY.
The Assistant Secretary, if any, or Assistant Secretaries if more
than one, shall perform the duties of the Secretary in his or her absence and
shall perform such other duties as the Board of Directors, the chief executive
officer or the Secretary may from time to time designate.
4.10 CHIEF FINANCIAL OFFICER AND TREASURER.
The Chief Financial Officer and Treasurer shall have general
supervision of the fiscal affairs of the Corporation. The Chief Financial
Officer and Treasurer shall, with the assistance of the Chief Executive Officer
and managerial staff of the Corporation: (a) see that a full and accurate
accounting of all financial transactions is made; (b) invest and reinvest the
capital funds of the Corporation in such manner as may be directed by the Board,
unless such function shall have been delegated to a nominee or agent; (c)
deposit or cause to be deposited in the name and to the credit of the
Corporation, in such depositories as the Board of Directors shall designate, all
monies and other valuable effects of the Corporation not otherwise employed; (d)
prepare such financial reports as may be requested from time to time by the
Board; (e) cooperate in the conduct of the annual audit of the Corporation's
financial records by certified public accountants duly appointed by the Board;
and (f) in general perform all the usual duties incident to the offices of Chief
Financial Officer and Treasurer and such other duties as may be assigned to him
or her by the Board of Directors or the President.
4.11 OTHER MANAGEMENT OFFICERS.
The Chief Executive Officer may, subject to ratification by the Board,
select and appoint such other management officers as the President deems
advisable, who shall have such authority and perform such duties as may from
time to time be prescribed by the Board or assigned by the President.
5. SHARE CERTIFICATES AND TRANSFERS
5.1 CERTIFICATES.
Share certificates shall be in such form as shall be approved by the
Board of Directors and shall state: (i) that the Corporation is incorporated
under the laws of the Commonwealth of Pennsylvania, (ii) the name of the person
to whom issued, and (iii) the
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number and class of shares and the designation of the series, if any, which the
share certificate represents.
In the event that the Corporation is authorized to issue shares of
more than one class or series, each share certificate shall also state, on the
face or back of the certificate, that the Corporation will furnish to any
shareholder upon request and without charge a full or summary statement of the
designations, voting rights, preferences, limitations and special rights of the
shares of each class or series authorized to be issued so far as they have been
fixed and determined and the authority of the Board of Directors to fix and
determine the designations, voting rights, preferences, limitations and special
rights of the classes and series of shares of the Corporation.
5.2 TRANSFER OF SHARES.
Transfer of shares of the Corporation shall be made only on the stock
transfer records of the Corporation (which may be kept in written or computer
form). Transfers shall be made by the Corporation or its duly authorized agent
as required by law. Except as otherwise set forth in Section 1.12 above
(Certification by Nominee), the Corporation shall be entitled to treat the
person in whose name shares stand on the books of the Corporation as the owner
thereof for all purposes.
5.3 REGISTRAR, TRANSFER AGENT, AUTHENTICATING TRUSTEE.
The Corporation may, but need not, designate another organization to
act as authenticating trustee, transfer agent, registrar or other agent for the
Corporation in the registration of transfers of its securities, the issuance of
new securities or the cancellation of surrendered securities, and to perform
such other functions as agent for the Corporation as the Corporation may deem
appropriate.
5.4 LOST, DESTROYED OR STOLEN CERTIFICATES.
If the registered owner of a share certificate claims that the
security has been lost, destroyed or wrongfully taken, another may be issued in
lieu thereof in such manner and upon such terms as the Board of Directors may
authorize and shall be issued in place of the original security, in accordance
with 13 Pa. C.S. (S) 8405(2), if the owner: (a) so requests before the
Corporation has notice that the security has been acquired by a bona fide
purchaser; (b) files with the Corporation a sufficient indemnity bond in such
amount as the Corporation may determine; and (c) satisfies any other reasonable
requirements imposed by the Corporation.
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6. MANNER OF GIVING NOTICE,
WAIVER OF NOTICE, ACTION WITHOUT MEETING,
MEETINGS BY CONFERENCE TELEPHONE AND
MODIFICATION OF PROPOSALS
6.1 MANNER OF GIVING NOTICE.
Whenever written notice is required to be given to any person under
the provisions of the PBCL or by the Articles or these By-Laws, it may be given
to the person either personally or by sending a copy thereof by first class or
express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answerback received) or courier service, charges
prepaid, or by facsimile transmission, to the shareholder's address (or to the
shareholder's telex, TWX, or facsimile number) appearing on the books of the
Corporation or, in the case of Directors, supplied by the Director to the
Corporation for the purpose of notice. Notice sent by mail, by telegraph or by
courier service shall be deemed to have been given when deposited in the United
States mail or with a telegraph office or courier service for delivery except
that, in the case of Directors, notice sent by regular mail shall be deemed to
have been given forty-eight (48) hours after being deposited in the United
States mail or, in the case of telex, TWX or facsimile, when dispatched.
6.2 WAIVER OF NOTICE.
Whenever any written notice is required to be given by statute or the
Articles or these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of the notice. Neither the business to
be transacted at, nor the purpose of, a meeting need be specified in the waiver
of notice of such meeting. Attendance of a person, either in person or by proxy,
at any meeting shall constitute a waiver of notice of the meeting, except where
the person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
was not lawfully called or convened.
6.3 BOARD ACTION BY UNANIMOUS WRITTEN CONSENT.
Any action required or permitted to be taken at a meeting of the
Directors or of any committee of Directors may be taken without a meeting if,
prior or subsequent to the action, a consent or consents thereto in writing
setting forth the action so taken is signed by all of the Directors in office,
or by all of the members of such committee in office, as the case may be, and is
filed with the Secretary of the Corporation.
6.4 MEETINGS BY MEANS OF CONFERENCE TELEPHONE.
One or more persons may participate in a meeting of the Directors, or
of any committee of Directors, but not a meeting of the shareholders, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person at the meeting.
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6.5 MODIFICATION OF PROPOSALS.
Whenever the language of a proposed resolution is included in a
written notice of a meeting required to be given by statute or by the Articles
or By-Laws, the meeting considering the resolution may without further notice
adopt it with such clarifying or other amendments as do not enlarge its original
purpose.
7. CERTAIN SHAREHOLDER RIGHTS
7.1 INSPECTION OF CORPORATE RECORDS.
Every shareholder shall, upon written verified demand stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business for any proper purpose, the share register,
books and records of account, and records of the proceedings of the
incorporators, shareholders and Directors and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to the
interest of the person as a shareholder. In every instance where an attorney or
other agent is the person who seeks the right of inspection, the demand shall be
accompanied by a verified power of attorney or other writing that authorizes the
attorney or other agent to so act on behalf of the shareholder. The demand shall
be directed to the Corporation at its registered office in Pennsylvania or at
its principal place of business wherever situated.
8. GENERAL PROVISIONS
8.1 REGISTERED OFFICE.
The registered office of the Corporation, required by law to be
maintained in the Commonwealth of Pennsylvania, shall be 325 Technology Drive,
Malvern, Pennsylvania 19355. The principal place of business of the Corporation
may be, but need not be, the same as the registered office. The address of the
registered office may be changed from time to time by the Board of Directors.
8.2 OTHER OFFICES.
The Corporation may have additional offices and places of business in
such places, within or without the Commonwealth of Pennsylvania, as the Board of
Directors may designate or as the business of the Corporation may require.
8.3 CORPORATE SEAL.
The Corporation may have a corporate seal which shall have inscribed
thereon the name of the Corporation, the year of organization, and the words
"Corporate Seal - Pennsylvania" or such inscription as the Board of Directors
may determine. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed, or in any manner reproduced.
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8.4 FISCAL YEAR.
The fiscal year of the Corporation shall end on the 31st day of
December in each year.
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EXHIBIT 4.1
EXECUTION COPY
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WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "AGREEMENT") is executed this 1st day of
May, 1998 by ANALYTICAL GRAPHICS, INC., a Pennsylvania corporation (the
"Company"), in favor of PNC BANK, N.A. ("PNC BANK"), and TRANSAMERICA BUSINESS
CREDIT CORPORATION (collectively the "BANKS") and PNC BANK in its capacity as
agent for the Banks (the "AGENT").
Pursuant to that certain Loan Agreement of even date herewith among
the Company, the Agent, and the Banks (the "LOAN AGREEMENT"), the Banks have
agreed to make a Term Loan to the Company, such Term Loan to consist of an
initial tranche of $3,000,000 (the "FIRST TRANCHE") and a second tranche of
$1,000,000 (the "SECOND TRANCHE"). In consideration of the extension of credit
to the Company under the First Tranche, the Company has agreed to issue to the
Banks (referred to herein as the "BANK HOLDERS"), warrants (each a "WARRANT") to
purchase up to Forty Thousand (40,000) shares in the aggregate (the "EXERCISE
QUANTITY"), subject to the adjustments herein provided, of the common stock of
the Company, par value $.01 per share (the "COMMON STOCK").
Capitalized terms used but not defined herein shall the meanings
ascribed to them in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the Company and the Bank Holders agree as follows:
1. GRANT OF WARRANT. In consideration for the extension of credit by
----------------
the Banks to the Company under the Term Loan, the Company hereby grants to the
Bank Holders a Warrant to purchase up to that number of shares which constitute
the Exercise Quantity of the Common Stock on the date of such purchase. The
Bank Holders and any subsequent registered holders of the Warrants have the
rights and obligations provided for in the form of warrant and in this
Agreement.
Upon the Funding of the First Tranche, the Company shall deliver to
the Bank Holders Warrants exercisable into an aggregate of 40,000 shares of
Common Stock at the Exercise Price. Additional Warrants exercisable into an
aggregate of 13,500 shares of Common Stock shall be issued upon the funding of
the Second Tranche according to the terms of the Loan Agreement. All Warrants
granted to the Bank Holders pursuant to this Agreement shall be allocated among
such Bank Holders according to Schedule I attached hereto.
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2. WARRANT CERTIFICATE.
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(a) Form of Warrant Certificate. The Warrant shall be evidenced by a
---------------------------
certificate ("WARRANT CERTIFICATE"), which Warrant Certificate (and the form of
election to purchase Common Stock and of assignment to be attached thereto)
shall be substantially the
<PAGE>
same as Exhibit A hereto and may have such marks of identification or
---------
designations and such legends, summaries, or endorsements printed thereon as the
Company may deem appropriate and which are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrant may from time to time be listed. The
Warrant Certificate shall entitle the holder thereof to purchase such number of
shares of Common Stock as shall be set forth therein at the Exercise Price (as
set forth herein) at such time or times as the holder may elect in its sole
discretion, but the number of such shares of Common Stock and the Exercise Price
shall be subject to adjustment as provided herein. The Warrants shall also
provide for a net issuance option allowing each holder thereof to surrender such
Warrant and receive in exchange therefor shares of Common Stock having a fair
market value equal to the product of (i) the number of shares of Common Stock
into which such Warrant is then exercisable multiplied by (ii) the difference of
(A) fair market value of each share of Common Stock on the date of surrender
less (B) the per share exercise price of such Warrant on the date of surrender.
(b) Countersignature and Registration.
---------------------------------
(i) The Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the
Secretary or Assistant Secretary of the Company, either manually or by
facsimile signature.
(ii) The Company will keep or cause to be kept, at its principal
office, books for the registration and transfer of the Warrant Certificate
issued hereunder.
(c) Transfer, Split-Up, Combination and Exchange of Warrant
-------------------------------------------------------
Certificates. At any time prior to the close of business on the Final
- ------------
Expiration Date (as defined hereinafter), the Warrant Certificate may be
transferred, split up, combined or exchanged for another Warrant Certificate or
Warrant Certificates, entitling the registered holder to purchase a like number
of shares of Common Stock as the Warrant Certificate or Warrant Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Warrant Certificate or
Warrant Certificates shall make such request in writing delivered to the
Company, and shall surrender the Warrant Certificate or Warrant Certificates to
be transferred, split up, combined or exchanged at the principal office of the
Company. Thereupon the Company shall deliver to the person entitled thereto a
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested.
(d) Subsequent Issue of Warrant Certificates. Subsequent to their
----------------------------------------
original issuance, no Warrant Certificates shall be issued except (a) Warrant
Certificates issued upon any transfer, combination, split up or exchange of
Warrants pursuant to Section 2.3 hereof, (b) Warrant Certificates issued in
replacement of mutilated, destroyed, lost or stolen Warrant Certificates, and
(c) Warrant Certificates issued pursuant to Section 2.5 hereof upon the partial
exercise of any Warrant Certificate to evidence the unexercised portion of such
Warrant
2
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Certificate.
3. EXERCISE OF WARRANTS; EXERCISE PRICE; EXPIRATION DATE OF WARRANTS.
-----------------------------------------------------------------
(a) The registered holder of any Warrant Certificate may exercise
the Warrants evidenced thereby (except as otherwise provided herein)
in whole or in part upon surrender of the Warrant Certificate, with
the form of election to purchase on the reverse side thereof duly
executed, to the Company at its principal office, together with
payment of the Exercise Price for each share of Common Stock as to
which the Warrants are exercised, at or prior to the close of business
on April 30, 2003 (the "FINAL EXPIRATION DATE").
(b) The exercise price for each share of Common Stock pursuant to
the exercise of a Warrant shall initially be $15.00 per share of
Common Stock issuable upon exercise of the Warrant (the "EXERCISE
PRICE"), shall be subject to adjustment from time to time as provided
in Section 6 hereof and shall be payable in accordance with paragraph
(c) below.
(c) Upon receipt of a Warrant Certificate representing
exercisable Warrants, with the form of election to purchase duly
executed, accompanied by payment of the Exercise Price for the shares
to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Warrant Certificate in
accordance with Section 5 hereof in cash, or by certified check or
cashier's check payable to the order of the Company, the Company shall
thereupon promptly (i) requisition from any transfer agent of the
Common Stock certificates for the number of shares of Common Stock to
be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with
Section 7 hereof, (iii) after receipt of such certificates, cause the
same to be delivered to or upon the order of the registered holder of
such Warrant Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt,
deliver such cash to or upon the order of the registered holder of
such Warrant Certificate.
(d) In case the registered holder of any Warrant Certificate
shall exercise less than all the Warrants evidenced thereby, a new
Warrant Certificate evidencing Warrants equivalent to the Warrants
remaining unexercised shall be issued by the Company to the registered
holder of such Warrant Certificate or to its duly authorized assigns,
subject to the provisions of Section 7 hereof.
4. CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES. All Warrant
----------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall when surrendered to the Company be canceled by it,
and no Warrant Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement.
5. RESERVATION AND AVAILABILITY OF COMMON STOCK.
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<PAGE>
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares
of Common Stock or any shares of Common Stock held in its treasury,
that number of shares of Common Stock that will from time to time be
sufficient to permit the exercise in full of all outstanding Warrants.
(b) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock
delivered upon the exercise of Warrants shall, at the time of delivery
of the certificates for such shares of Common Stock (subject to
payment of the Exercise Price), be duly authorized, validly issued,
fully paid and nonassessable shares.
(c) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of
the Warrant Certificates or of any shares of Common Stock upon the
exercise of Warrants.
6. NO DILUTION OR IMPAIRMENT.
-------------------------
(a) Calculation of Exercise Quantity. The Company acknowledges
--------------------------------
that the initial Exercise Quantity was calculated based upon an intention that
the full exercise of the Warrant would result in the Bank Holders obtaining
shares of Common Stock constituting a percentage of the Company's Common Stock,
options, warrants (including the Warrant), convertible securities, securities
and other rights (in each case whether now existing or hereafter issued or
arising) to acquire from the Company shares of Common Stock ("COMMON STOCK
EQUIVALENTS") outstanding as of the date of exercise of the Warrant (based on
4,078,560 shares of Common Stock currently issued or reserved for issuance upon
conversion of outstanding Common Stock Equivalents as of the date hereof). It is
the intent of the parties hereto that after giving effect to the exercise in
full of the Warrant, the Bank Holders' ownership of the Common Stock and Common
Stock Equivalents will be on a fully diluted basis, which may be reduced as a
consequence of (i) an issuance by the Company of up to 100,000 shares of Common
Stock or Common Stock Equivalents in respect of an employee stock option plan
adopted by the Company's Board of Directors or (ii) an issuance of shares in
connection with the Company's initial public offering, or any subsequent
issuances.
(b) Adjustment of Purchase Price and Number of Shares.
-------------------------------------------------
The Exercise Quantity and the Exercise Price shall be subject to
adjustment from time to time upon the occurrence of certain events as follows:
(i) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation, or in case of any sale of all or substantially all
of the assets of the Company, or in case of a share exchange in which 80% or
more of the outstanding capital stock of the Company is exchanged for capital
stock of another
4
<PAGE>
corporation, any of which transactions shall be referred to hereinafter as a
"Corporate Transaction," the Holder shall have the right to receive the type and
amount of shares of stock and other securities and property to which such Holder
would have been entitled if it had received Common Stock by exercise of this
Warrant immediately prior to such Corporate Transaction, and the Exercise Price
shall be adjusted accordingly.
(ii) Subdivision or Combination of Shares. If the Company at
------------------------------------
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Exercise Price shall be proportionately decreased
in the case of a subdivision or increased in the case of a combination.
(iii) Stock Dividends. If the Company at any time while this
---------------
Warrant is outstanding and unexpired shall pay a dividend of Common Stock with
respect to Common Stock payable in, or make any other distribution with respect
to Common Stock, then the Exercise Price shall be adjusted, from and after the
date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(iv) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Exercise Price, the number of shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of shares purchasable immediately prior to such adjustment of the
Exercise Price by a fraction, the numerator of which shall be the Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.
(v) No Impairment. The Company will not, by amendment of any
-------------
of its organizational documents or through reorganization, consolidation,
merger, dissolution, issue or sale of securities, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrant or impair the ability of the Bank
Holders to realize the full intended economic value thereof, but will at all
times in good faith assist in the carrying out of all such terms, and of the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Bank Holders against dilution or other impairment.
7. FRACTIONAL SHARES.
-----------------
(a) The Company shall not be required to issue fractions of shares of
Common Stock upon exercise of the Warrants or to distribute certificates which
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, the Company shall pay to the registered holders of Warrant
Certificates at the time such Warrants are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of one
share of Common Stock.
5
<PAGE>
(b) For purposes of this Section 7, the current market value of a
share of Common Stock shall be the closing price per share of Common Stock on
the date of determination. The closing price for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or such other system then in use, or, if on any such date the Common Stock is
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Common
Stock selected by the Board of Directors. If the Common Stock is not publicly
held or so listed or traded, the current market value shall mean the fair value
per share as determined in good faith by an independent appraiser selected by
the Agent at the expense of the Company, whose determination shall be
conclusive.
8. "PIGGYBACK" REGISTRATION. If at any time the Company determines
-----------------------
to register under the Securities Act of 1933, as amended (including pursuant to
a demand of any security holder of the Company exercising registration rights),
any of its Common Stock (except securities to be issued solely in connection
with any acquisition of any entity or business, shares issuable solely upon
exercise of stock options, shares issuable solely pursuant to employee benefit
plans or shares to be registered on any registration form that does not permit
secondary sales), it must give each Bank, written notice of such determination
at least thirty (30) days prior to each such filing. If, within fifteen (15)
days after receipt of such notice, any Bank Holder so requests in writing, the
Company must include in such registration statement (to the extent permitted by
applicable regulation) all or any part of such Bank Holders' warrants and the
shares of Common Stock (or other securities representing Common Stock)
purchasable or purchased from time to time under such Bank Holders' warrants
(collectively, "REGISTRABLE SECURITIES") that such Bank Holder requests to be
registered; provided, however, that the Bank Holders' registration rights shall
-------- -------
be subordinate in their entirety to the registration rights of the holders of
the Series A Preferred Stock of the Company and the Bank Holders shall only be
able to include such securities in any registration to the extent that the
inclusion thereof will not reduce the amount of Registrable Securities (as
defined in that certain Investor Rights Agreement dated June 5, 1995 between the
Company and SpaceVest Fund, L.P.) of the holders of the Series A Preferred
Stock. Any Registrable Securities which are included in any underwritten
offering under this Section 8 will be sold upon such terms as the managing
underwriters reasonably request. If such managing underwriter determines that a
cutback in the number of shares to be registered is necessary, such cut back
shall be effected on a pro rata basis among the shareholders of the Company
requesting registration and the Bank. If any Bank Holder disapproves of the
terms of such underwriting, such Bank Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter.
6
<PAGE>
9. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by
----------------------------
accepting the same, consents and agrees with the Company and with every other
holder of a Warrant that:
(a) the Warrant Certificates are transferable only on the
registry books of the Company if surrendered at its principal offices,
duly endorsed or accompanied by a proper instrument of transfer; and
(b) the Company may deem and treat the person in whose name the
Warrant Certificate is registered as the absolute owner thereof and of
the Warrants evidenced thereby (notwithstanding any notations of
ownership or writing on the Warrant Certificates made by anyone other
than the Company) for all purposes whatsoever, and the Company shall
not be affected by any notice to the contrary.
10. WARRANT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No holder,
---------------------------------------------------
as such, of any Warrant Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the shares of Common Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Warrants represented thereby, nor shall anything contained
herein or in any Warrant Certificate be construed to confer upon the holder of
any Warrant Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting stockholders, or to receive dividends or subscription rights, or
otherwise, until the Warrant or Warrants evidenced by such Warrant Certificate
shall have been exercised in accordance with the provisions hereof.
11. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any of the
------------------------------------
provisions of this Agreement or of the Warrants to the contrary, the Company
may, at its option, issue new Warrant Certificates evidencing Warrants in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Exercise Price and the number or kind or class of shares or other
securities or property purchasable under the Warrant.
12. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall be
----------------------
binding upon the Company and the Bank Holders and their respective successors
and assigns.
13. GOVERNING LAW: CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
------------------------------------------------------------
THIS AGREEMENT AND ALL RELATED INSTRUMENTS AND AGREEMENTS SHALL BE DEEMED TO BE
CONTRACTS MADE IN THE COMMONWEALTH OF PENNSYLVANIA, AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
(WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BANK HOLDERS AND THE COMPANY AGREE
THAT THE STATE AND FEDERAL COURTS OF PENNSYLVANIA LOCATED IN ALLEGHENEY COUNTY,
PENNSYLVANIA SHALL HAVE NON-EXCLUSIVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION HEREWITH. THE COMPANY HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A
TRIAL BY JURY OF ANY DISPUTE
7
<PAGE>
(WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR
RELATING TO THIS AGREEMENT OR ANY RELATED MATTERS, AND AGREE THAT ANY SUCH
DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
8
<PAGE>
WITNESS the due execution of this Warrant Agreement as of the date first
above written.
ATTEST: ANALYTICAL GRAPHICS, INC.
By:/s/ RICHARD SPINOGATTI By:/s/ WILLIAM J. BRODERICK
---------------------- ----------------------------(SEAL)
Print Name: RICHARD SPINOGATTI Print Name: WILLIAM J. BRODERICK
------------------- ----------------------
Title: CONTROLLER -- AGI Title: CFO
-------------------- ---------------
PNC BANK, NATIONAL ASSOCIATION, both
individually and as Agent
By:/s/ GREGORY M. COTE
--------------------(SEAL)
Print Name: GREGORY M. COTE
-----------------
Title: VP
--------------
TRANSAMERICA BUSINESS
CREDIT CORPORATION
By:/s/ DON SCHNIDER
-----------------(SEAL)
Print Name: DON SCHNIDER
--------------
Title: SVP
----------------
9
<PAGE>
SCHEDULE I
ALLOCATION OF WARRANTS
----------------------
Upon Funding of First Tranche
- -----------------------------
<TABLE>
<CAPTION>
SHARES AS OF
BANK % OF TOTAL WARRANTS CLOSING DATE
- ---- ------------------- ------------
<S> <C> <C>
PNC Bank, National Association 50% 20,000
Transamerica Business Credit Corporation 50% 20,000
Total: 100% 40,000
</TABLE>
10
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND SUCH SHARES MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS.
______________________________
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF ARE SUBJECT TO
THE TERMS AND PROVISIONS OF THAT WARRANT AGREEMENT DATED AS OF MAY 1, 1998 AMONG
ANALYTICAL GRAPHICS, INC. (THE "COMPANY") AND PNC BANK, NATIONAL ASSOCIATION, AS
AGENT, AND THE BANKS PARTY THERETO (THE "BANKS") (AS THE SAME MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, EXTENDED OR RESTATED FROM TIME TO TIME, THE
"WARRANT AGREEMENT"). AMONG OTHER THINGS, THE WARRANT AGREEMENT CONTAINS
PROVISIONS FOR PUTS, RESTRICTIONS ON TRANSFER AND REGISTRATION RIGHTS. A COPY OF
THE WARRANT AGREEMENT IS AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY.
COMMON STOCK PURCHASE WARRANT
MAY [ ], 1998
Capitalized terms used and not otherwise defined in this Warrant shall
have the meanings respectively assigned to them in the Warrant Agreement
referred to in the legend above and in that certain Loan Agreement dated as of
May 1, 1998 among the Company, the Agent and the Banks, as the same has been or
may be supplemented, modified, amended, renewed or restated from time to time
(the "LOAN AGREEMENT"). The Company certifies and agrees that PNC Bank,
National Association and its successors and assigns are entitled to purchase
from the Company an Exercise Quantity initially equal to [ ] shares of
the Company's Common Stock, par value $.01 per share (the "COMMON STOCK"), all
upon the terms and provisions and subject to adjustment as provided in the
Warrant Agreement and this Common Stock Purchase Warrant (the "WARRANT"). The
exercise price per share of Common Stock for which this Warrant is exercisable
shall be $[ ] per share, as adjusted from time to time pursuant to the
terms of this Warrant and the Warrant Agreement (the "EXERCISE PRICE").
________________________
1. Exercise of Warrant.
--------------------
1.1 This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof in whole, or in part from time to time
(but not for fractional
11
<PAGE>
shares), by presentation and surrender of this Warrant to the Company,
together with the Exercise Form, in the form attached hereto as
Exhibit A-1 (the "EXERCISE FORM"), duly completed and executed and
----------- -------------
payment in the aggregate amount equal to the Exercise Price multiplied
by the number of shares of Common Stock being purchased. At the option
of Holder, payment of the Exercise Price may be made either by (i)
check payable to the order of the Company, (ii) surrender of
certificates then held representing, or deduction from the number of
shares issuable upon exercise of this Warrant, that number of shares
which has an aggregate fair market value on the date of exercise equal
to the aggregate Exercise Price for all shares to be purchased
pursuant to this Warrant or (iii) by any combination of the foregoing
methods. Upon the Company's receipt of this Warrant, the completed and
signed Exercise Form and the requisite payment, the Company shall
issue and deliver (or cause to be delivered) to the exercising Holder
stock certificates aggregating the number of shares of Common Stock
purchased. In the event of a partial exercise of this Warrant, the
Company shall issue and deliver to the Holder a new Warrant at the
same time such stock certificates are delivered, which new Warrant
shall entitle the Holder to purchase the balance of the Exercise
Quantity not purchased in that partial exercise and shall otherwise be
upon the same terms and provisions as this Warrant.
1.2 In the event the Holder of this Warrant desires that any or all of the
stock certificates to be issued upon the exercise hereof be registered
in a name or names other than that of the Holder of this Warrant, the
Holder must so request in writing at the time of exercise, and pay to
the Company funds sufficient to pay all stock transfer taxes (if any)
payable in connection with the transfer and delivery of such stock
certificates.
1.3 Upon the due exercise by the Holder of this Warrant, whether in whole
or in part, that Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to
have become the Holder of record of the shares of Common Stock for
which this Warrant has been so exercised, effective immediately prior
to the close of business on the date this Warrant, the completed and
signed Exercise Form and the requisite payment are duly delivered to
the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
------------------------------
3.1 Whether in connection with the exercise, exchange, registration of
transfer, replacement or put of this Warrant, surrender of this
Warrant shall be made to the Company during normal business hours on a
Business Day (unless the Company otherwise permits) at the executive
offices of the Company located at 325 Technology Drive, Malvern,
Pennsylvania 19355, or to such other office or duly authorized
representative of the Company as from time to time may be designated
by the Company by written notice given to the Holder of this Warrant.
12
<PAGE>
3.2 The Company shall pay all costs and expenses incurred in connection
with the exercise, registering, exchange, transfer, replacement or put
of this Warrant, including the costs of preparation, execution and
delivery of warrants and stock certificates, and shall pay all taxes
(other than any taxes measured by the income of any Person other than
the Company) and other charges imposed by law payable in connection
with the transfer or replacement of this Warrant.
4. Warrant Register, Exchange, Transfer, Loss.
------------------------------------------
4.1 The Company at all times shall maintain at its chief executive offices
an open register for the Warrant, in which the Company shall record
the name and address of each Holder to whom a Warrant has been issued
or transferred, the number of shares of Common Stock or other
securities purchasable thereunder and the corresponding purchase
prices.
4.2 This Warrant may be exchanged for two or more warrants entitling the
Holder hereof to purchase the same aggregate Exercise Quantity at the
same Exercise Price per share and otherwise having the same terms and
provisions as this Warrant. The Holder may request such an exchange by
surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and
allocation of the Exercise Quantity purchasable under the existing
Warrant.
4.3 Subject to the provisions of Section 9 of the Warrant Agreement, this
Warrant may be transferred, in whole or in part, by the Holder or any
duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant,
together with an Assignment Form, in the form of Exhibit A-2 (the
-----------
"ASSIGNMENT FORM"), duly completed and executed. Within five (5)
Business Days after the Company's receipt of this Warrant and the
Assignment Form so completed and executed, the Company will issue and
deliver to the transferee a new Warrant representing the portion of
the Exercise Quantity transferred at the same Exercise Price per share
and otherwise having the same terms and provisions as this Warrant,
which the Company will register in the new Holder's name.
4.4 In the event of the loss, theft or destruction of this Warrant, the
Company shall execute and deliver an identical new Warrant to the
Holder in substitution therefor upon the Company's receipt of (i)
evidence reasonably satisfactory to the Company of such event (with
the affidavit of an institutional Holder being sufficient evidence),
and (ii) if requested by the Company, an indemnity agreement from any
institutional Holder or an indemnity bond from anyone else reasonably
satisfactory in form and amount to the Company.
5. Rights and Obligations of the Company and the Warrant Holder. The Company
------------------------------------------------------------
and the
13
<PAGE>
Holders of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall
not entitle its Holder to any rights of a stockholder in the Company (other
than as provided in Section 2.3 of this Warrant).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
ANALYTICAL GRAPHICS, INC.
By__________________________________
Its_________________________________
Attest:
______________________________
Secretary
14
<PAGE>
Exhibit A-1
-----------
COMMON STOCK WARRANT
--------------------
EXERCISE FORM
-------------
Analytical Graphics, Inc.
Attention: President
_______________________________
_______________________________
The undersigned Holder of the attached Warrant hereby irrevocably
elects to exercise the within Warrant to the extent of _____ shares of Common
Stock, $.01 par value per share, of the Company, and
(i) encloses a check (payable to the order of the Company) in the
amount of $ __________ in payment of the purchase price thereof; and/or
(ii) hereby authorizes the deduction of ______shares in payment of the
Exercise Price.
Instructions For Registering The Securities
On The Stock Transfer Books Of The Company
Name of Transferee: __________________________________________
State of Organization (if applicable):______________________________
Federal Tax Identification or
Social Security Number:______________________________________
Address: ___________________________________________________
<PAGE>
If this exercise of the Warrant is not an exercise in full, then the
undersigned Holder hereby requests that a new Warrant of like tenor (exercisable
for the balance of the shares of Common Stock underlying this Warrant) be issued
and delivered to the undersigned Holder at the address on the warrant register
of the Company.
Dated:_______________________ _____________________________________________
(Name of Registered Holder - Please Print)
By___________________________________________
(Signature of Registered Holder or
of Duly Authorized Signatory)
Title________________________________________
-16-
<PAGE>
Exhibit A-2
-----------
COMMON STOCK WARRANT
--------------------
ASSIGNMENT FORM
---------------
For Value Received, the undersigned Holder of the attached Warrant
hereby sells, assigns and transfers to the transferee whose name and address are
set forth below all of the rights of the undersigned under the within Warrant
(to the extent of the portion of the within Warrant being transferred hereby,
which portion is ___________________).
Name of Transferee: __________________________________________
State of Organization (if applicable):_________________________
Federal Tax Identification or
Social Security Number:_______________________________________
Address:_______________________________________________________
If this transfer is not a transfer of the Warrant in full, then the
undersigned hereby requests that, as provided in the within Warrant, a new
warrant of like tenor respecting the balance of the Exercise Quantity not being
transferred pursuant hereto be issued in the name of and delivered to, the
undersigned. The undersigned does hereby irrevocably constitute and appoint
__________________________________ attorney to register the foregoing transfer
on the books of the Company maintained for that purpose, with full power of
substitution in the premises.
Dated:_______________________ _____________________________________________
(Name of Registered Holder - Please Print)
By___________________________________________
(Signature of Registered Holder or
of Duly Authorized Signatory)
Title________________________________________
-17-
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "AGREEMENT") is executed this 1st day of May,
1998 by ANALYTICAL GRAPHICS, INC., a Pennsylvania corporation (the "COMPANY"),
in favor of PNC BANK, NATIONAL ASSOCIATION ("PNC").
Pursuant to that certain Loan Agreement of even date herewith among the
Company, PNC, in its capacity as agent, and the Banks party thereto (the "LOAN
AGREEMENT"), the Banks have agreed to make a Term Loan to the Company, such Term
Loan to consist of an initial tranche of $3,000,000 (the "FIRST TRANCHE") and a
second tranche of $1,000,000 (the "SECOND TRANCHE"). In consideration of the
services provided to the Company by PNC as Agent with respect to the Term Loan,
the Company has agreed to issue to PNC (sometimes referred to herein, together
with the Banks as the "BANK HOLDERS"), warrants (each a "WARRANT") to purchase
up to Twelve Thousand Five Hundred (12,500) shares in the aggregate (the
"EXERCISE QUANTITY"), subject to the adjustments herein provided, of the common
stock of the Company, par value $.01 per share (the "COMMON STOCK").
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the Company and PNC agree as follows:
1. GRANT OF WARRANT. In consideration for services provided by PNC with
----------------
respect to the Term Loan, the Company hereby grants to PNC a Warrant to purchase
up to that number of shares which constitute the Exercise Quantity of the Common
Stock on the date of such purchase. The Agent and any subsequent registered
holders of the Warrants have the rights and obligations provided for in the form
of warrant and in this Agreement. Upon the Funding of the First Tranche, the
Company shall deliver to PNC Warrants exercisable into an aggregate of 12,500
shares of Common Stock at the Exercise Price.
2. WARRANT CERTIFICATE.
-------------------
(a) Form of Warrant Certificate. The Warrant shall be evidenced by a
---------------------------
certificate ("WARRANT CERTIFICATE"), which Warrant Certificate (and the form of
election to purchase Common Stock and of assignment to be attached thereto)
shall be substantially the same as Exhibit A hereto and may have such marks of
---------
identification or designations and such legends, summaries, or endorsements
printed thereon as the Company may deem appropriate and which are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrant may from time to time be listed. The Warrant Certificate shall entitle
the holder thereof to purchase such number of shares of Common Stock as shall be
set forth therein at the Exercise Price (as set forth herein) at such time
<PAGE>
or times as the holder may elect in its sole discretion, but the number of such
shares of Common Stock and the Exercise Price shall be subject to adjustment as
provided herein. The Warrants shall also provide for a net issuance option
allowing each holder thereof to surrender such Warrant and receive in exchange
therefor shares of Common Stock having a fair market value equal to the product
of (i) the number of shares of Common Stock into which such Warrant is then
exercisable multiplied by (ii) the difference of (A) fair market value of each
share of Common Stock on the date of surrender less (B) the per share exercise
price of such Warrant on the date of surrender.
(b) Countersignature and Registration.
---------------------------------
(i) The Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the
Secretary or Assistant Secretary of the Company, either manually or by
facsimile signature.
(ii) The Company will keep or cause to be kept, at its principal
office, books for the registration and transfer of the Warrant Certificate
issued hereunder.
(c) Transfer, Split-Up, Combination and Exchange of Warrant
-------------------------------------------------------
Certificates. At any time prior to the close of business on the Final
- ------------
Expiration Date (as defined hereinafter), the Warrant Certificate may be
transferred, split up, combined or exchanged for another Warrant Certificate or
Warrant Certificates, entitling the registered holder to purchase a like number
of shares of Common Stock as the Warrant Certificate or Warrant Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Warrant Certificate or
Warrant Certificates shall make such request in writing delivered to the
Company, and shall surrender the Warrant Certificate or Warrant Certificates to
be transferred, split up, combined or exchanged at the principal office of the
Company. Thereupon the Company shall deliver to the person entitled thereto a
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested.
(d) Subsequent Issue of Warrant Certificates. Subsequent to their
----------------------------------------
original issuance, no Warrant Certificates shall be issued except (a) Warrant
Certificates issued upon any transfer, combination, split up or exchange of
Warrants pursuant to Section 2.3 hereof, (b) Warrant Certificates issued in
replacement of mutilated, destroyed, lost or stolen Warrant Certificates, and
(c) Warrant Certificates issued pursuant to Section 2.5 hereof upon the partial
exercise of any Warrant Certificate to evidence the unexercised portion of such
Warrant Certificate.
3. Exercise of Warrants; Exercise Price; Expiration Date of Warrants.
-----------------------------------------------------------------
(a) The registered holder of any Warrant Certificate may exercise the
Warrants evidenced thereby (except as otherwise provided herein) in whole
or in part upon surrender of the Warrant Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the
Company at its principal office, together with
-2-
<PAGE>
payment of the Exercise Price for each share of Common Stock as to which
the Warrants are exercised, at or prior to the close of business on April
30, 2003 (the "FINAL EXPIRATION DATE").
(b) The exercise price for each share of Common Stock pursuant to the
exercise of a Warrant shall initially be $15.00 per share of Common Stock
issuable upon exercise of the Warrant (the "EXERCISE PRICE"), shall be
subject to adjustment from time to time as provided in Section 6 hereof and
shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Warrant Certificate representing exercisable
Warrants, with the form of election to purchase duly executed, accompanied
by payment of the Exercise Price for the shares to be purchased and an
amount equal to any applicable transfer tax required to be paid by the
holder of such Warrant Certificate in accordance with Section 5 hereof in
cash, or by certified check or cashier's check payable to the order of the
Company, the Company shall thereupon promptly (i) requisition from any
transfer agent of the Common Stock certificates for the number of shares of
Common Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 7 hereof, (iii)
after receipt of such certificates, cause the same to be delivered to or
upon the order of the registered holder of such Warrant Certificate,
registered in such name or names as may be designated by such holder and
(iv) when appropriate, after receipt, deliver such cash to or upon the
order of the registered holder of such Warrant Certificate.
(d) In case the registered holder of any Warrant Certificate shall
exercise less than all the Warrants evidenced thereby, a new Warrant
Certificate evidencing Warrants equivalent to the Warrants remaining
unexercised shall be issued by the Company to the registered holder of such
Warrant Certificate or to its duly authorized assigns, subject to the
provisions of Section 7 hereof.
4. CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES. All Warrant
----------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall when surrendered to the Company be canceled by it,
and no Warrant Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement.
5. RESERVATION AND AVAILABILITY OF COMMON STOCK.
--------------------------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Common Stock or any shares of Common Stock held in its treasury, that
number of shares of Common Stock that will from time to time be sufficient
to permit the exercise in full of all outstanding Warrants.
(b) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock
delivered upon the exercise of Warrants shall, at the time of delivery of
the certificates for such shares of Common
-3-
<PAGE>
Stock (subject to payment of the Exercise Price), be duly authorized,
validly issued, fully paid and nonassessable shares.
(c) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Warrant
Certificates or of any shares of Common Stock upon the exercise of
Warrants.
6. NO DILUTION OR IMPAIRMENT
-------------------------
(a) Calculation of Exercise Quantity. The Company acknowledges that
--------------------------------
the initial Exercise Quantity was calculated based upon an intention that the
full exercise of the Warrant would result in the Bank Holders obtaining shares
of Common Stock constituting a percentage of the Company's Common Stock,
options, warrants (including the Warrant), convertible securities, securities
and other rights (in each case whether now existing or hereafter issued or
arising) to acquire from the Company shares of Common Stock ("COMMON STOCK
EQUIVALENTS") outstanding as of the date of exercise of the Warrant (based on
4,078,560 shares of Common Stock currently issued or reserved for issuance upon
conversion of outstanding Common Stock Equivalents as of the date hereof). It
is the intent of the parties hereto that after giving effect to the exercise in
full of the Warrant, the Bank Holders' ownership of the Common Stock and Common
Stock Equivalents will be a fully diluted basis, which may be reduced as a
consequence of (i) an issuance by the Company of up to 100,000 shares of Common
Stock or Common Stock Equivalents in respect of an employee stock option plan
adopted by the Company's Board of Directors or (ii) an issuance of shares in
connection with the Company's initial public offering or any subsequent
issuances.
(b) Adjustment of Purchase Price and Number of Shares.
-------------------------------------------------
The Exercise Quantity and the Exercise Price shall be subject to adjustment
from time to time upon the occurrence of certain events as follows:
(i) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation, or in case of any sale of all or substantially all
of the assets of the Company, or in case of a share exchange in which 80% or
more of the outstanding capital stock of the Company is exchanged for capital
stock of another corporation, any of which transactions shall be referred to
hereinafter as a "Corporate Transaction," the Holder shall have the right to
receive the type and amount of shares of stock and other securities and property
to which such Holder would have been entitled if it had received Common Stock by
exercise of this Warrant immediately prior to such Corporate Transaction, and
the Exercise Price shall be adjusted accordingly.
(ii) Subdivision or Combination of Shares. If the Company at any
------------------------------------
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its
-4-
<PAGE>
Common Stock, the Exercise Price shall be proportionately decreased in the case
of a subdivision or increased in the case of a combination.
(iii) Stock Dividends. If the Company at any time while this
---------------
Warrant is outstanding and unexpired shall pay a dividend of Common Stock with
respect to Common Stock payable in, or make any other distribution with respect
to Common Stock, then the Exercise Price shall be adjusted, from and after the
date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(iv) Adjustment of Number of Shares. Upon each adjustment in
------------------------------
the Exercise Price, the number of shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment of the Exercise Price by a fraction, the numerator of which shall be
the Exercise Price immediately prior to such adjustment and the denominator of
which shall be the Exercise Price immediately thereafter.
(v) No Impairment. The Company will not, by amendment of any
-------------
of its organizational documents or through reorganization, consolidation,
merger, dissolution, issue or sale of securities, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrant or impair the ability of PNC to
realize the full intended economic value thereof, but will at all times in good
faith assist in the carrying out of all such terms, and of the taking of all
such action as may be necessary or appropriate in order to protect the rights of
PNC against dilution or other impairment.
7. FRACTIONAL SHARES
-----------------
(a) The Company shall not be required to issue fractions of shares of
Common Stock upon exercise of the Warrants or to distribute certificates which
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, the Company shall pay to the registered holders of Warrant
Certificates at the time such Warrants are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of one
share of Common Stock.
(b) For purposes of this Section 7, the current market value of a
share of Common Stock shall be the closing price per share of Common Stock on
the date of determination. The closing price for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported
-5-
<PAGE>
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors. If the Common Stock is not publicly held or
so listed or traded, the current market value shall mean the fair value per
share as determined in good faith by an independent appraiser selected by PNC at
the expense of the Company, whose determination shall be conclusive.
8. "PIGGYBACK" REGISTRATION. If at any time the Company determines to
-----------------------
register under the Securities Act of 1933, as amended (including pursuant to a
demand of any security holder of the Company exercising registration rights),
any of its Common Stock (except securities to be issued solely in connection
with any acquisition of any entity or business, shares issuable solely upon
exercise of stock options, shares issuable solely pursuant to employee benefit
plans or shares to be registered on any registration form that does not permit
secondary sales), it must give to PNC, written notice of such determination at
least thirty (30) days prior to each such filing. If, within fifteen (15) days
after receipt of such notice, PNC so requests in writing, the Company must
include in such registration statement (to the extent permitted by applicable
regulation) all or any part of PNC's warrants and the shares of Common Stock (or
other securities representing Common Stock) purchasable or purchased from time
to time under such PNC's warrants (collectively, "REGISTRABLE SECURITIES") that
PNC requests to be registered; provided, however, that PNC's registration rights
-------- -------
shall be subordinate in their entirety to the registration rights of the holders
of the Series A Preferred Stock of the Company and PNC shall only be able to
include such securities in any registration to the extent that the inclusion
thereof will not reduce the amount of Registrable Securities (as defined in that
certain Investor Rights Agreement dated June 5, 1995 between the Company and
SpaceVest Fund, L.P.) of the holders of the Series A Preferred Stock. Any
Registrable Securities which are included in any underwritten offering under
this Section 8 will be sold upon such terms as the managing underwriters
reasonably request. If such managing underwriter determines that a cutback in
the number of shares to be registered is necessary, such cut back shall be
effected on a pro rata basis among the shareholders of the Company requesting
registration and PNC. If PNC disapproves of the terms of such underwriting, PNC
may elect to withdraw therefrom by written notice to the Company and the
underwriter.
9. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by accepting
----------------------------
the same, consents and agrees with the Company and with every other holder of a
Warrant that:
(a) the Warrant Certificates are transferable only on the registry
books of the Company if surrendered at its principal offices, duly endorsed
or accompanied by a proper instrument of transfer; and
-6-
<PAGE>
(b) the Company may deem and treat the person in whose name the
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company)
for all purposes whatsoever, and the Company shall not be affected by any
notice to the contrary.
10. WARRANT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No holder, as
---------------------------------------------------
such, of any Warrant Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the shares of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise of
the Warrants represented thereby, nor shall anything contained herein or in any
Warrant Certificate be construed to confer upon the holder of any Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders, or to receive dividends or subscription rights, or otherwise,
until the Warrant or Warrants evidenced by such Warrant Certificate shall have
been exercised in accordance with the provisions hereof.
11. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any of the
------------------------------------
provisions of this Agreement or of the Warrants to the contrary, the Company
may, at its option, issue new Warrant Certificates evidencing Warrants in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Exercise Price and the number or kind or class of shares or other
securities or property purchasable under the Warrant.
12. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall be binding
----------------------
upon the Company and PNC and their respective successors and assigns.
13. GOVERNING LAW: CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS
------------------------------------------------------------
AGREEMENT AND ALL RELATED INSTRUMENTS AND AGREEMENTS SHALL BE DEEMED TO BE
CONTRACTS MADE IN THE COMMONWEALTH OF PENNSYLVANIA, AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
(WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, PNC AND THE COMPANY AGREE THAT THE
STATE AND FEDERAL COURTS OF PENNSYLVANIA LOCATED IN ALLEGHENEY COUNTY,
PENNSYLVANIA SHALL HAVE NON-EXCLUSIVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION HEREWITH. THE COMPANY HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A
TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR
OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY RELATED MATTERS,
AND AGREE THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A
JURY.
-7-
<PAGE>
WITNESS the due execution of this Warrant Agreement as of the date first
above written.
ATTEST: ANALYTICAL GRAPHICS, INC.
By:/s/ RICHARD SPINOGATTI By:/s/ WILLIAM J. BRODERICK
------------------------ --------------------------
Print Name: RICHARD SPINOGATTI Print Name: WILLIAM J. BRODERICK
-------------------- ----------------------
Title: CONTROLLER - AGI Title: CFO
------------------------ ------------------
PNC BANK,
NATIONAL ASSOCIATION,
By:/s/ GREGORY M. COTE
---------------------
Print Name: GREGORY M. COTE
------------------
Title: VP
--------------------
-8-
<PAGE>
EXHIBIT 4.2
INVESTOR RIGHTS AGREEMENT
-------------------------
This INVESTOR RIGHTS AGREEMENT (this "Agreement) is made and entered into
---------
as of the 5th day of June, 1995 by and between ANALYTICAL GRAPHICS, INC., a
Pennsylvania corporation (the "Company), and SPACEVEST FUND, L.P., a Delaware
limited partnership (the "Investor).
R E C I T A L S
- - - - - - - -
A. The Investor has agreed to purchase from the Company, and the Company
has agreed to sell to the Investor, shares of the Company's Series A Preferred
Stock (Series A Stock) on the terms and conditions set forth in that certain
------- -----
Series A Preferred Stock Purchase Agreement, of even date herewith by and
between the Company and the Investor (the "Series A Agreement).
------------------
B. The Series A Agreement provides that the Investor shall be granted
certain information and registration rights and rights of first refusal, all as
more fully set forth herein.
1. INFORMATION RIGHTS.
------------------
1.1 FINANCIAL INFORMATION. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as the Investor holds
shares of Series A Stock issued under the Series A Agreement or shares of Common
Stock of the Company (Common Stock) issued upon the conversion of such shares of
------------
Series A Stock (Conversion Stock) the Company will:
----------------
(A) ANNUAL REPORTS. Furnish to the Investor, as soon as
--------------
practicable and in any event within seventy-five (75) days after the end of each
fiscal year of the Company, a consolidated Balance Sheet as of the end of such
fiscal year, a consolidated Statement of Income and a consolidated Statement of
Cash Flows of the Company and its subsidiaries for such year, setting forth in
each case in comparative form the figures from the Company's previous fiscal
year (if any), all prepared in accordance with generally accepted accounting
principles and practices and audited by nationally recognized independent
certified public accountants. The Company hereby covenants and agrees to deliver
to the Investor all audited financial statements required by this Section
l.l(a), for the Company's 1994 fiscal year, on or before September 1, 1995;
(B) QUARTERLY REPORTS. Furnish to the Investor as soon as
-----------------
practicable, and in any case within forty five (45) days after the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements, including an unaudited Balance
Sheet, and an unaudited Statement of Income and an unaudited Statement of Cash
Flows, together with a comparison to the Company's operating plan and budget and
statements of the Chief Financial Officer of the Company explaining any
significant differences in the statements from the Company's operating plan and
budget for the period and
<PAGE>
stating that such statements fairly present the consolidated financial position
and consolidated financial results of the Company for the fiscal quarter
covered;
(C) ANNUAL BUDGET. Furnish to the Investor as soon as
-------------
practicable and in any event no later than thirty (30) days after the close of
each fiscal year of the Company, an annual operating plan and budget, prepared
on a monthly basis, for the next immediate fiscal year. The Company shall also
furnish to the Investor, within a reasonable time of its preparation, amendments
to the annual budget, if any.
1.2 INSPECTION RIGHTS. The Company shall permit the Investor, at the
-----------------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor. The Investor agrees to hold all information received from such
inspections in confidence, and not to use or disclose any of such information to
any third party, except to the extent such information may be made publicly
available by the Company.
1.3 TERMINATION OF CERTAIN RIGHTS. The Company's obligations under
-------------------------------
Sections 1.1 and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the U.S. Securities Act of 1933, as amended (the
"Securities Act").
2. REGISTRATION RIGHTS.
-------------------
2.1 DEFINITIONS. For purposes of this Section 2:
-----------
(A) REGISTRATION. The terms "register, registered, and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(B) REGISTRABLE SECURITIES. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all shares of Conversion Stock that are now owned or may hereafter be
acquired by the Investor or any of the Investor's permitted successors and
assigns; and (2) any shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, all such shares of Common Stock described in
clause (1) of this subsection (b); excluding in all cases, however, any
----------
Registrable Securities sold by a person in a transaction in which rights under
this Section 2 are not assigned in accordance with this Agreement or any
Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act.
C) REGISTRABLE SECURITIES THEN OUTSTANDING. The number of
---------------------------------------
shares of "Registrable Securities then outstanding" shall mean the number of
---------------------------------------
shares of Common Stock which are Registrable Securities and (1) are then issued
and outstanding or (2) are then issuable
<PAGE>
pursuant to the exercise or conversion of then outstanding and then exercisable
options, warrants or convertible securities.
(D) SEC. The term "SEC" or "Commission" means the U.S. Securities
--- --- ----------
and Exchange Commission.
2.2 DEMAND REGISTRATION.
-------------------
(A) REQUEST BY THE INVESTOR. If the Company shall receive at any
-----------------------
time after the date twelve (12) months after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Investor that the Company file a
registration statement under the Securities Act covering the registration of
Registrable Securities pursuant to this Section 2.2, then the Company shall
effect, as soon as practicable, the registration under the Securities Act of all
Registrable Securities which the Investor requests to be registered and included
in such registration by written notice given by the Investor to the Company,
subject only to the limitations of this Section 2.2; provided that the
---------
Registrable Securities requested by the Investor to be registered pursuant to
such request must either (i) be at least twenty-five percent (25 %) of all
Registrable Secunties then outstanding or (ii) have an anticipated aggregate
public offering price (before any underwriting discounts and commissions) of not
less than $1,000,000.00.
(B) UNDERWRITING. If the Investor intends to distribute the
------------
Registrable Securities covered by its request by means of an underwriting, then
the Investor shall so advise the Company as a part of its request made pursuant
to this Section 2.2. In such event, the Investor shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise the Investor, and
the number of Registrable Securities that may be included in the underwriting
shall be reduced as required by the underwriter(s); provided, however, that the
-------- -------
number of shares of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all other securities of the Company
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(C) MAXIMUM NUMBER OF DEMAND REGISTRATIONS. The Company is
--------------------------------------
obligated to effect only one (1) such registration pursuant to this Section 2.2.
(D) DEFERRAL. Notwithstanding the foregoing, if the Company
--------
shall furnish to the Investor a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for a period of not more
than 180 days
-2-
<PAGE>
after receipt of the request of the Investor; provided, however, that the
-------- -------
Company may not utilize this right more than once in any twelve (12) month
period.
(E) EXPENSES. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of counsel for the Investor (but excluding underwriters' discounts
and commissions), shall be borne by the Company. The Investor shall bear its
proportionate share (based on the total number of shares sold in such
registration) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such offering. Notwithstanding the
foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2.2 if the registration
request is subsequently withdrawn at the request of the Investor; provided,
--------
further, however, that if at the time of such withdrawal, the Investor has
- ----------------
learned of a material adverse change in the condition, business, or prospects of
the Company not known to the Investor at the time of its request for such
registration and has withdrawn its request for registration with reasonable
promptness after learning of such material adverse change, then the Investor
shall not be required to pay any of such expenses and shall retain its rights
pursuant to this Section 2.2.
2.3 PIGGYBACK REGISTRATIONS.
-----------------------
(A) REGISTRATION RIGHTS. The Company shall notify the Investor
-------------------
in writing at least thirty (30) days prior to filing any registration statement
under the Securities Act for purposes of effecting a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any registration under Section 2.2
- ----------
of this Agreement or to any employee benefit plan or a corporate reorganization)
and will afford the Investor an opportunity to include in such registration
statement all or any part of the Registrable Securities then held by the
Investor. If the Investor desires to include in any such registration statement
all or any part of the Registrable Securities held by the Investor, it shall,
within twenty (20) days after receipt of the above-described notice from the
Company, so notify the Company in writing, and in such notice shall inform the
Company of the number of Registrable Securities the Investor wishes to include
in such registration statement. If the Investor decides not to include all of
its Registrable Securities in any registration statement thereafter filed by the
Company, the Investor shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
B) UNDERWRITING. If a registration statement under which the
------------
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Investor in writing. In such event, the
right of the Investor to have its Registrable Securities included in a
registration pursuant to this Section 2.3 shall be conditioned upon the
Investor's participation in such underwriting and the inclusion of the
Investor's
-3-
<PAGE>
Registrable Securities in the underwriting to the extent provided herein. In
connection with such underwritten offering, the Investor shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting. Notwithstanding any other provision
of this Agreement, if the managing underwriter or underwriters determine(s) in
good faith that marketing factors require a limitation of the number of shares
to be underwritten, then the managing underwriter(s) may exclude shares
(including Registrable Securities) from the registration and the underwriting,
and the number of shares that may be included in the registration and the
underwriting shall be allocated, first, to the Company in full, and second, to
----- ------
the Investor; provided however, that the right of the underwriters to exclude
----------------
shares (including Registrable Securities) from the registration and underwriting
as described above shall be restricted so that: (i) the number of Registrable
Securities included in any such registration is not reduced below twenty-five
percent (25%) of the shares included in the registration, except for a
registration relating to the Company's initial public offering from which all
Registrable Securities may be excluded; and (ii) all shares that are not
Registrable Securities and are held by persons who are employees or directors of
the Company (or any subsidiary of the Company) shall first be excluded from such
registration and underwriting before any Registrable Securities are so excluded.
If the Investor disapproves of the terms of any such underwriting, the Investor
may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration.
(C) EXPENSES. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and blue
sky registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of counsel for the Investor, shall be borne by the Company. The Investor shall
bear its proportionate share (based on the total number of shares sold in such
registration) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such registration.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(A) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Investor, keep such registration statement effective for up to ninety (90) days.
(B) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
-4-
<PAGE>
(C) Furnish to the Investor such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Investor that are included in such registration.
(D) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Investor,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(E) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.
(F) Notify the Investor at any time when a prospectus relating
to such registration statement is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(G) Furnish, at the request of the Investor, on the date that
its Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to the Investor,
addressed to the underwriters, if any, and to the Investor, and (ii) a comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to the Investor, addressed to the underwriters, if
any, and to the Investor requesting registration of Registrable Securities.
2.5 FURNISH INFORMATION. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2 or 2.3
that the Investor shall furnish to the Company such information regarding the
Investor, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of its Registrable Securities.
2.6 DELAY OF REGISTRATION. The Investor shall not have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
-5-
<PAGE>
2.7 INDEMNIFICATION. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2 or 2.3:
(A) BY THE COMPANY. To the extent permitted by law, the Company
--------------
shall indemnify and hold harmless the Investor and its partners, any underwriter
(as defined in the Securities Act) for the Investor and each person, if any, who
controls the Investor or underwriter within the meaning of the Securities Act or
the Securities Exchange Act of 1934, as amended, (the "1934 Act") (collectively,
---------
"Investor Indemnities), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"):
---------
(I) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto;
(II) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or
(III) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any federal or state securities law in connection
with the offering covered by such registration statement;
and the Company will reimburse each of the Investor Indemnities for any legal or
other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this subsection
- -------- -------
2.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any Investor
Indemnities, including without limitation, any information furnished by the
Investor to the Company pursuant to Section 2.5 hereof.
(B) BY THE INVESTOR. To the extent permitted by law, the
---------------
Investor will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the registration statement, and each
person, if any, who controls the Company within the
-6-
<PAGE>
meaning of the Securities Act or the 1934 Act (collectively, "Company
Indemnities), against any losses, claims, damages or liabilities ( one or
several) to which the Company or any such Company Indemnittee may become subject
under the Securities Act, the 1934 Act or other federal or state law, but only,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by the Investor, and known by
the Investor to be furnished, expressly for use in connection with such
registration, including without limitation any information furnished by the
Investor to the Company pursuant to Section 2.5 hereof; and the Investor will
reimburse any legal or other expenses reasonably incurred by the Company or any
such Company Indemnittee as incurred in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 2.7(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Investor which
consent shall not be unreasonably withheld; and provided further, that the total
----------------
amounts payable in indemnity by the Investor under this Section 2.7(b) in
respect of any Violation shall not exceed the net proceeds received by the
Investor in the registered offering out of which such Violation arises.
(C) NOTICE. Promptly after receipt by an indemnified party under
------
this Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.7, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.7.
(D) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing
-------------------------------------
indemnity agreements of the Company and the Investor are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
- -----------
person if a copy of the Final Prospectus was furnished to the
-7-
<PAGE>
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(E) SURVIVAL. The obligations of the Company and the Investor
--------
under this Section 2.7 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.8 RULE 144 REPORTING. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(A) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(B) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(C) So long as the Investor owns any Registrable Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the 1934 Act (at any time after it has
become subject to the reporting requirements of the 1934 Act), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company as the Investor may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Investor to sell
any such securities without registration (at any time after the Company has
become subject to the reporting requirements of the 1934 Act).
2.9 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Investor enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Investor which is included, or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 2.2(a), or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 2.2.
-8-
<PAGE>
3. ASSIGNMENT AND AMENDMENT.
------------------------
3.1 ASSIGNMENT. Notwithstanding anything herein to the contrary:
----------
(A) INFORMATION RIGHTS. The rights of the Investor under Section
------------------
1.1 or 1.2 hereof may be assigned only to a party who acquires from the Investor
(or the Investor's permitted assigns) at least 75,000 shares of Series A Stock
or an equivalent number (on an as converted basis) of shares of Registrable
Securities issued upon conversion thereof.
(B) REGISTRATION RIGHTS. The registration rights of the Investor
-------------------
under Section 2 hereof may be assigned only to a party who acquires at least
125,000 shares of Series A Stock or an equivalent number (on an as-converted
basis) of Registrable Securities issued upon conversion thereof; provided,
---------
however that no party may be assigned any of the foregoing rights unless the
- --------
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
-----------------
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 3.
3.2 AMENDMENT OF RIGHTS. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor.
3.3 NOTICES. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the Investor at:
One Fountain Square
11911 Freedom Square
Suite 580
Reston, Virginia 22090
Attention: General Counsel
with a copy to:
Joseph W. Conroy, Esquire
Hunton & Williams
3050 Chain Bridge Road
Suite 600
Fairfax, Virginia 22030
-9-
<PAGE>
or, in the case of the Company, at:
660 American Avenue
King of Prussia, Pennsylvania 19406
Attention: Paul L. Graziani
with a copy to:
David J. Sorin, Esquire
Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, New Jersey 08540
or at such other address as any party or the Company may designate by giving ten
(10) days advance written notice to all other parties.
3.4 ENTIRE AGREEMENT. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
3.5 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the Commonwealth of
Pennsylvania as applied to agreements among Pennsylvania residents entered into
and to be performed entirely within Pennsylvania excluding that body of law
relating to conflict of laws and choice of law.
3.6 SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
3.7 THIRD PARTIES. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
3.8 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 3.1,
----------------------
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
-10-
<PAGE>
3.9 CAPTIONS. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
3.10 COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
3.11 COSTS AND ATTORNEYS' FEES. In the event that any action, suit
-------------------------
or other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
3.12 ADJUSTMENTS FOR STOCK SPLITS. ETC. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
3.13 AGGREGATION OF STOCK. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY: THE INVESTOR:
- ----------- ------------
ANALYTICAL GRAPHICS, INC., SPACEVEST FUND, L.P.,
a Pennsylvania corporation a Delaware limited partnership
By: /s/ PAUL L. GRAZIANI By: /s/ FRANK A. DIBELLO
-------------------- --------------------
Title: PRESIDENT & CEO Title: GENERAL PARTNER
-------------------- --------------------
-12-
<PAGE>
EXHIBIT 4.3
INVESTOR RIGHTS AGREEMENT
-------------------------
This INVESTOR RIGHTS AGREEMENT (this "Agreement") is made and entered into
---------
as of the 5th day of June, 1995 by and between ANALYTICAL GRAPHICS, INC., a
Pennsylvania corporation (the "Company"), and JAY J. BUCK, (the "Investor").
R E C I T A L S
- - - - - - - -
A. The Investor has agreed to purchase from the Company, and the Company
has agreed to sell to the Investor, shares of the Company's Series A Preferred
Stock ("Series A Stock") on the terms and conditions set forth in that certain
------ -----
Series A Preferred Stock Purchase Agreement, of even date herewith by and
between the Company and the Investor (the "Series A Agreement").
------------------
B. The Series A Agreement provides that the Investor shall be granted
certain information and registration rights, all as more fully set forth herein.
1. INFORMATION RIGHTS.
------------------
1.1 FINANCIAL INFORMATION. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as the Investor holds
shares of Series A Stock issued under the Series A Agreement or shares of Common
Stock of the Company ("Common Stock") issued upon the conversion of such shares
of Series A Stock ("Conversion Stock") the Company will:
(A) ANNUAL REPORTS. Furnish to the Investor, as soon as
--------------
practicable and in any event within seventy-five (75) days after the end of
each fiscal year of the Company, a consolidated Balance Sheet as of the end
of such fiscal year, a consolidated Statement of Income and a consolidated
Statement of Cash Flows of the Company and its subsidiaries for such year,
setting forth in each case in comparative form the figures from the
Company's previous fiscal year (if any), all prepared in accordance with
generally accepted accounting principles and practices and audited by
nationally recognized independent certified public accountants. The Company
hereby covenants and agrees to deliver to the Investor all audited
financial statements required by this Section 1. 1 (a), for the Company's
1994 fiscal year, on or before September 1, 1995; and
(B) QUARTERLY REPORTS. Furnish to the Investor as soon as
-----------------
practicable, and in any case within forty five (45) days after the end of
each fiscal quarter of the Company (except the last quarter of the
Company's fiscal year), quarterly unaudited financial statements, including
an unaudited Balance Sheet, and an unaudited Statement of Income and an
unaudited Statement of Cash Flows, together with a comparison to the
Company's operating plan and budget and statements of the Chief Financial
Officer of the Company explaining any significant differences in the
statements from the Company's operating plan and budget for the period and
stating that such statements fairly present the consolidated financial
position and consolidated financial results of the Company for the fiscal
quarter covered.
<PAGE>
1.2 INSPECTION RIGHTS. The Company shall permit the Investor, at the
-----------------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor. The Investor agrees to hold all information received from such
inspections in confidence, and not to use or disclose any of such information to
any third party, except to the extent such information may be made publicly
available by the Company.
1.3 TERMINATION OF CERTAIN RIGHTS. The Company's obligations under
-----------------------------
Sections l.l and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the U.S. Securities Act of 1933, as amended (the
"Securities Act").
2. REGISTRATION RIGHTS.
-------------------
2.1 DEFINITIONS. For purposes of this Section 2:
-----------
(A) REGISTRATION. The terms "register," "registered," and
------------
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement
(B) REGISTRABLE SECURITIES. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all shares of Conversion Stock that are now owned or may
hereafter be acquired by the Investor or any of the Investor's permitted
successors and assigns; and (2) any shares of Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all
such shares of Common Stock described in clause (1) of this subsection (b);
excluding in all cases, however, any Registrable Securities sold by a
---------
person in a transaction in which rights under this Section 2 are not
assigned in accordance with this Agreement or any Registrable Securities
sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act.
(C) REGISTRABLE SECURITIES THEN OUTSTANDING. The number of
---------------------------------------
shares of "Registrable Securities then outstanding" shall mean the number
---------------------------------------
of shares of Common Stock which are Registrable Securities and (1) are then
issued and outstanding or (2) are then issuable pursuant to the exercise or
conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(D) SEC. The term "SEC" or "Commission" means the U.S.
---
Securities and Exchange Commission.
2.2 PIGGYBACK REGISTRATIONS.
-----------------------
(A) REGISTRATION RIGHTS. The Company shall notify the Investor
-------------------
in writing at least thirty (30) days prior to filing any registration
statement under the Securities Act for purposes of effecting a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of
2
<PAGE>
securities of the Company, but excluding registration statements relating
---------
to any employee benefit plan or a corporate reorganization) and will afford
the Investor an opportunity to include in such registration statement all
or any part of the Registrable Securities then held by the Investor. If the
Investor desires to include in any such registration statement all or any
part of the Registrable Securities held by the Investor, it shall, within
twenty (20) days after receipt of the above-described notice from the
Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities the Investor wishes to
include in such registration statement. If the Investor decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, the Investor shall nevertheless continue
to have the right to include any Registrable Securities in any subsequent
registration statement or registration statements as may be filed by the
Company with respect to offerings of its securities all upon the terms and
conditions set forth herein.
(B) UNDERWRITING. If a registration statement under which the
------------
Company gives notice under this Section 2.2 is for an underwritten
offering, then the Company shall so advise the Investor in writing. In such
event, the right of the Investor to have its Registrable Securities
included in a registration pursuant to this Section 2.2 shall be
conditioned upon the Investor's participation in such underwriting and the
inclusion of the Investor's Registrable Securities in the underwriting to
the extent provided herein. In connection with such underwritten offering,
the Investor shall enter into an underwriting agreement in customary form
with the managing underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Agreement, if the
managing underwriter or underwriters determine(s) in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares
(including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the
registration and the underwriting shall be allocated, first, to the Company
-----
in full, and second, to the Investor; provided however, that the right of
------ -------- -------
the underwriters to exclude shares (including Registrable Securities) from
the registration and underwriting as described above shall be restricted so
that: (i) the number of Registrable Securities included in any such
registration is not reduced below twenty-five percent (25 %) of the shares
included in the registration, except for a registration relating to the
Company's initial public offering from which all Registrable Securities may
be excluded; and (ii) all shares that are not Registrable Securities and
are held by persons who are employees or directors of the Company (or any
subsidiary of the Company) shall first be excluded from such registration
and underwriting before any Registrable Securities are so excluded. If the
Investor disapproves of the terms of any such underwriting, the Investor
may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the
effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.
(C) EXPENSES. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.2 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all
federal and "blue sky" registration and
3
<PAGE>
qualification fees, printers' and accounting fees, fees and disbursements
of counsel for the Company and reasonable fees and disbursements of counsel
for the Investor shall be borne by the Company. The Investor shall bear its
proportionate share (based on the total number of shares sold in such
registration) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such registration.
2.3 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(A) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of
the Investor, keep such registration statement effective for up to ninety
(90) days.
(B) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(C) Furnish to the Investor such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the
Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by the Investor that are included in such
registration.
(D) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Investor, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(E) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.
(F) Notify the Investor at any time when a prospectus relating
to such registration statement is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(G) Furnish, at the request of the Investor, on the date that
its Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such securities
are not being sold through
4
<PAGE>
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion, dated as of such date,
of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to the
Investor, addressed to the underwriters, if any, and to the Investor, and
(ii) a "comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory
to the Investor, addressed to the underwriters, if any, and to the Investor
requesting registration of Registrable Securities.
2.4 FURNISH INFORMATION. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Section 2.2 that the
Investor shall furnish to the Company such information regarding the Investor,
the Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to timely effect the registration of its
Registrable Securities.
2.5 DELAY OF REGISTRATION. The Investor shall not have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.6 INDEMNIFICATION. In the event any Registrable Securities are
---------------
included in a registration statement under Section 2.2:
(A) BY THE COMPANY. To the extent permitted by law, the Company
--------------
shall indemnify and hold harmless the Investor and its partners, any
underwriter (as defined in the Securities Act) for the Investor and each
person, if any, who controls the Investor or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended,
(the "1934 Act") (collectively, "Investor Indemnitees"), against any
losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the Securities Act, the 1934 Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities
law or any rule
5
<PAGE>
or regulation promulgated under the Securities Act, the 1934 Act
or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse each of the Investor Indemnitees for any
legal or other expenses reasonably incurred by them, as incurred, in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement
-------- -------
contained in this subsection 2.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any Investor
Indemnitees, including without limitation, any information furnished by the
Investor to the Company pursuant to Section 2.4 hereof..
(B) BY THE INVESTOR. To the extent permitted by law, the
---------------
Investor will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement,
and each person, if any, who controls the Company within the meaning of the
Securities Act or the 1934 Act (collectively, "Company Indemnitees"),
against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such Company Indemnitee may become subject under
the Securities Act, the 1934 Act or other federal or state law, but only,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Investor, and known by the Investor to be furnished, expressly for use in
connection with such registration, including without limitation any
information furnished by the Investor to the Company pursuant to Section
2.4 hereof; and the Investor will reimburse any legal or other expenses
reasonably incurred by the Company or any such Company Indemnitee as
incurred in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
-------- -------
agreement contained in this subsection 2.6(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Investor which
consent shall not be unreasonably withheld; and provided further, that the
-------- -------
total amounts payable in indemnity by the Investor under this Section
2.6(b) in respect of any Violation shall not exceed the net proceeds
received by the Investor in the registered offering out of which such
Violation arises.
(C) NOTICE. Promptly after receipt by an indemnified party under
------
this Section 2.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.6, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
6
<PAGE>
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain
-------- -------
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
conflict of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.6, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 2.6.
(D) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing
-------------------------------------
indemnity agreements of the Company and the Investor are subject to the
condition that, insofar as they relate to any Violation made in a
preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question
becomes effective or the amended prospectus filed with the SEC pursuant to
SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall
----------------
not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
(E) SURVIVAL. The obligations of the Company and the Investor
--------
under this Section 2.6 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.7 RULE 144 REPORTING. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(A) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to
the general public;
(B) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to
such reporting requirements); and
(C) So long as the Investor owns any Registrable Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the 1934
Act
7
<PAGE>
(at any time after it has become subject to the reporting requirements of
the 1934 Act), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as the
Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Investor to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
3. ASSIGNMENT AND AMENDMENT.
------------------------
3.1 ASSIGNMENT. Notwithstanding anything herein to the contrary:
----------
(A) INFORMATION RIGHTS. The rights of the Investor under Section
------------------
1.1 or 1.2 hereof may be assigned only to a party who acquires from the
Investor (or the Investor's permitted assigns) all 6,000 shares of Series A
Stock or an equivalent number (on an as-converted basis) of shares of
Registrable Securities issued upon conversion thereof.
(B) REGISTRATION RIGHTS. The registration rights of the Investor
-------------------
under Section 2 hereof may be assigned only to a party who acquires all
6,000 shares of Series A Stock or an equivalent number (on an as-converted
basis) of Registrable Securities issued upon conversion thereof; provided,
--------
however that no party may be assigned any of the foregoing rights unless
-------
the Company is given written notice by the assigning party at the time of
such assignment stating the name and address of the assignee and
identifying the securities of the Company as to which the rights in
question are being assigned; and provided further that any such assignee
-------- -------
shall receive such assigned rights subject to all the terms and conditions
of this Agreement, including without limitation the provisions of this
Section 3.
3.2 AMENDMENT OF RIGHTS. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor.
3.3 NOTICES. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the Investor at:
7 Rockwood Lane Spur
Greenwich, Connecticut 06830
or, in the case of the Company, at:
660 American Avenue
King of Prussia, Pennsylvania 19406
Attention: Paul L. Graziani
8
<PAGE>
with a copy to:
David J. Sorin, Esquire
Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, New Jersey 08540
or at such other address as any party or the Company may designate by giving ten
(10) days advance written notice to all other parties.
3.4 ENTIRE AGREEMENT. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
3.5 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the Commonwealth of
Pennsylvania as applied to agreements among Pennsylvania residents entered into
and to be performed entirely within Pennsylvania excluding that body of law
relating to conflict of laws and choice of law.
3.6 SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
3.7 THIRD PARTIES. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
3.8 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 3.1,
----------------------
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
3.9 CAPTIONS. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
3.10 COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
3.11 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
--------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
9
<PAGE>
3.12 ADJUSTMENTS FOR STOCK SPLITS, ETC. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend
3.13 AGGREGATION OF STOCK. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: THE INVESTOR:
- ----------- ------------
ANALYTICAL GRAPHICS, INC.,
a Pennsylvania corporation
By: /s/ Paul L. Graziani By: /s/ Jay J. Buck
--------------------- ---------------
Jay J. Buck
Title: President & CEO
---------------
10
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of the 1st day of August, 1998 by and among ANALYTICAL GRAPHICS, INC., a
Pennsylvania corporation (the "Company"), and each of the PAUL GRAZIANI
ASSOCIATES LIMITED PARTNERSHIP and the SCOTT REYNOLDS ASSOCIATES LIMITED
PARTNERSHIP (each, a "Shareholder" and collectively, the "Shareholders").
R E C I T A L S
---------------
WHEREAS, the Company and each of Paul L. Graziani ("Graziani") and Scott A.
Reynolds ("Reynolds") have entered into employment agreements with the Company
on the date hereof in order to, among other things, provide for the terms of
their continued employment by the Company; and
WHEREAS, (i) each of Graziani and Reynolds were co-founders of the Company,
(ii) each of them subsequently transferred all shares of Common Stock of the
Company, $.01 par value per share (the "Common Stock"), held by them to the
Shareholder which bears his name, and (iii) each of the Shareholders has been
limited by the underwriters in the amount of shares of Common Stock that they
are permitted to sell pursuant to the Company's Registration Statement on Form
S-1 to be filed in connection with the proposed initial public offering (the
"IPO") of the Company's Common Stock;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. REGISTRATION RIGHTS.
-------------------
1.1 DEFINITIONS. For purposes of this Section 1:
-----------
(A) REGISTRATION. The terms "register," "registered," and
------------
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration or ordering of effectiveness of such
registration statement.
(B) REGISTRABLE SECURITIES. The term "Registrable Securities"
----------------------
means: (1) all shares of the Company's Common Stock that are now owned by each
Shareholder and (2) any shares of Common Stock issued in respect of the shares
described in clause (1) of this Subsection (b) upon any stock split, stock
dividend, recapitalization or other similar event; excluding in either case,
---------
however, any Registrable Securities sold to the public in the IPO, or otherwise,
or sold pursuant to Rule 144 promulgated under the Securities Act, or otherwise
transferred.
<PAGE>
(C) COMMISSION. The term "Commission" means the United States
----------
Securities and Exchange Commission.
1.2 PIGGYBACK REGISTRATIONS.
-----------------------
(A) REGISTRATION RIGHTS. Commencing twelve (12) months after the
-------------------
effective date of the Company's initial public offering of its securities
pursuant to a registration filed under the Securities Act, if the Company should
decide to file a registration statement under the Securities Act for purposes of
effecting a public offering of its securities, the Company shall notify each of
the Shareholders in writing at least thirty (30) days prior to filing any such
registration statement (including, but not limited to, registration statements
relating to secondary offerings of securities of the Company, but excluding
---------
registration statements relating to any employee benefit plan or corporate
reorganization) and will afford the Shareholders an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by each of the Shareholders. If the Shareholders desire to include in any
such registration statement all or any part of the Registrable Securities held
by the Shareholders, they shall, within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and
in such notice shall inform the Company of the number of Registrable Securities
each Shareholder wishes to include in such registration statement. If the
Shareholders decide not to include all of their Registrable Securities in any
registration statement thereafter filed by the Company, the Shareholders shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(B) UNDERWRITING. If the registration statement for which the
------------
Company gives notice under this Section 1.2 is for an underwritten offering,
then the Company shall so advise the Shareholders in writing. In such event,
the right of the Shareholders to have their Registrable Securities included in a
registration pursuant to this Section 1.2 shall be conditioned upon the
Shareholders' participation in such underwriting and the inclusion of the
Shareholders' Registrable Securities in the underwriting to the extent provided
herein. In connection with such underwritten offering, the Shareholders shall
enter into an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Agreement, if the managing underwriter or underwriters
determine(s) in good faith that marketing factors require a limitation of the
number of shares to be underwritten, then the managing underwriter(s) may
exclude shares (including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the registration
and the underwriting shall be allocated, first, to the Company in full, and
-----
second, to the Shareholders (subject to the subordination provisions set forth
- ------
in paragraph (c) below). If a Shareholder disapproves of the terms of any such
underwriting, the Shareholder may elect to withdraw therefrom by written notice
to the Company and the underwriter, delivered at least ten (10) business days
prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.
-2-
<PAGE>
(C) SUBORDINATION OF REGISTRATION RIGHTS. Notwithstanding the
------------------------------------
foregoing, each of the Shareholders' registration rights shall be subordinate in
their entirety to the rights of the holders of currently outstanding Company's
Series A Preferred Stock (as set forth in those certain Investor Rights
Agreements dated June 5, 1995 by and between the Company and each of SpaceVest
Fund, L.P. and Jay J. Buck) and the holders of Warrants (as set forth in those
certain Warrant Agreements dated May 1, 1998 by and between the Company and each
of PNC Bank, N.A. and Transamerica Business Credit Corporation).
Notwithstanding any provision herein to the contrary, the Shareholders shall
only be able to include their Registrable Securities in any registration to the
extent that the inclusion thereof will not reduce the amount of shares to be
registered by such securityholders.
(D) EXPENSES. All expenses incurred in connection with a
--------
registration pursuant to this Agreement (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and blue
sky registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of counsel for the Shareholders, shall be borne by the Company. The Shareholders
shall bear their proportionate share (based on the total number of shares sold
in such registration) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such registration.
1.3 OBLIGATIONS OF THE COMPANY. Whenever effecting the registration
--------------------------
of any Registrable Securities under this Agreement, the Company shall, as
expeditiously as reasonably possible:
(A) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of a Shareholder, keep such registration statement effective for up to ninety
(90) days.
(B) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(C) Furnish to the Shareholders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Shareholders
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Shareholders that are included in such registration.
(D) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Shareholders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
-3-
<PAGE>
(E) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.
(F) Notify the Shareholders at any time when a prospectus
relating to such registration statement is required to be delivered under the
Securities Act of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(G) Furnish, at the request of the Shareholders, on the date
that its Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to the Shareholders,
addressed to the underwriters, if any, and to the Shareholders, and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to the Shareholders, addressed to
the underwriters, if any, and to the Shareholders requesting registration of
Registrable Securities.
1.4 FURNISH INFORMATION. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Section 1.2 that the
Shareholders shall furnish to the Company such information regarding the
Shareholders, the Registrable Securities held by them, and the intended method
of disposition of such securities as shall be required to timely effect the
registration of its Registrable Securities.
1.5 DELAY OF REGISTRATION. The Shareholders shall not have any right
---------------------
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.6 INDEMNIFICATION. In the event any Registrable Securities are
---------------
included in a registration statement under Section 1.2:
(A) BY THE COMPANY. To the extent permitted by law, the Company
--------------
shall indemnify and hold harmless each Shareholder, any underwriter (as defined
in the Securities Act) for each Shareholder and each person, if any, who
controls each of the Shareholders or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") (collectively, "Shareholder Indemnitees"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such
-4-
<PAGE>
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(I) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto;
(II) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or
(III) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal or state securities
law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any federal or state securities law in
connection with the offering covered by such registration
statement;
and the Company will reimburse each of the Shareholder Indemnitees for any legal
or other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this subsection
- -------- -------
1.6(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any Shareholder
Indemnitees, including without limitation, any information furnished by the
Shareholders to the Company pursuant to Section 1.4 hereof.
(B) BY THE SHAREHOLDER. To the extent permitted by law, the
------------------
Shareholders will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act (collectively, "Company Indemnitees"),
against any losses, claims, damages or liabilities (one or several) to which the
Company or any such Company Indemnitee may become subject under the Securities
Act, the Exchange Act or other federal or state law, but only, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by the Shareholders, and known by the Shareholders
to be furnished, expressly for use in connection with such registration,
including without limitation any information furnished by the Shareholders to
the Company pursuant to Section 1.4 hereof; and the Shareholders will reimburse
any legal or other expenses reasonably incurred by the Company or any such
Company Indemnitee as incurred in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
-------- -------
-5-
<PAGE>
that the indemnity agreement contained in this subsection 1.6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Shareholders
which consent shall not be unreasonably withheld; and provided further, that the
----------------
total amounts payable in indemnity by the Shareholders under this Section 1.6(b)
in respect of any Violation shall not exceed the net proceeds received by the
Shareholders in the registered offering out of which such Violation arises.
(C) NOTICE. Promptly after receipt by an indemnified party under
------
this Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.6.
(D) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing
-------------------------------------
indemnity agreements of the Company and the Shareholders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement in question becomes effective
or the amended prospectus filed with the Commission pursuant to Rule 424(b) of
the Securities Act (the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of any person if a copy of the Final Prospectus was
furnished to the indemnified party and was not furnished to the person asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(E) SURVIVAL. The obligations of the Company and the
--------
Shareholders under this Section 1.6 shall survive the completion of any offering
of Registrable Securities in a registration statement, and otherwise.
2. ASSIGNMENT AND AMENDMENT.
------------------------
2.1 ASSIGNMENT OF REGISTRATION RIGHTS. The registration rights of
---------------------------------
the Shareholders under Section 1 hereof may not be assigned without the prior
written consent of the Company.
-6-
<PAGE>
2.2 AMENDMENT OF RIGHTS. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
prior written consent of the Company and each of the Shareholders.
2.3 NOTICES. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the Shareholders at:
Paul Graziani Associates Limited Partnership
661 Timber Drive
Wayne, Pennsylvania 19087
Scott Reynolds Associates Limited Partnership
143 Cashel Lane
West Chester, Pennsylvania 19380
or, in the case of the Company, at:
325 Technology Drive
Malvern, Pennsylvania 19355
Attention: Chief Financial Officer
with a copy to:
David J. Sorin, Esq.
Buchanan Ingersoll Professional Corporation
500 College Road East
Princeton Forrestal Center
Princeton, New Jersey 08540
or at such other address as any party or the Company may designate by giving ten
(10) days advance written notice to all other parties.
2.4 ENTIRE AGREEMENT. This Agreement constitutes and contains the
----------------
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties respecting
the subject matter hereof.
2.5 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the Commonwealth of
Pennsylvania as
-7-
<PAGE>
applied to agreements among Pennsylvania residents entered into and to be
performed entirely within Pennsylvania excluding that body of law relating to
conflict of laws and choice of law.
2.6 SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
2.7 THIRD PARTIES. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
2.8 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 2.1,
----------------------
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
2.9 CAPTIONS. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
2.10 COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
2.11 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
* * * * * * * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY: THE SHAREHOLDERS:
- ----------- ----------------
ANALYTICAL GRAPHICS, INC., PAUL GRAZIANI ASSOCIATES
a Pennsylvania corporation LIMITED PARTNERSHIP
By: ________________________ By: ________________________
William Broderick (Authorized Signatory)
Title: Chief Financial Officer, Vice President
Finance and Administration
SCOTT REYNOLDS ASSOCIATES
LIMITED PARTNERSHIP
By: ________________________
(Authorized Signatory)
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 1st day of August, 1998 (the
"Effective Date") by and between Analytical Graphics, Inc., a Pennsylvania
corporation with its principal place of business at 325 Technology Drive,
Malvern, Pennsylvania 19355 (the "Company"), and Paul L. Graziani (the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to secure the continued employment of the
Employee in accordance with the provisions of this Agreement; and
WHEREAS, the Employee desires and is willing to continue his employment
with the Company in accordance herewith.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term. The Company hereby agrees to employ the Employee and the
----
Employee hereby agrees to serve the Company pursuant to the terms and conditions
of this Agreement as Chairman of the Board, President and Chief Executive
Officer of the Company, or in a position at least commensurate therewith in all
material respects, for a term commencing on the Effective Date hereof and
expiring on the third anniversary thereof, provided that the Employee is elected
to such office, or a comparable or higher office, at each annual meeting of the
Board of Directors of the Company (the "Board of Directors") during the term of
this Agreement. If the Employee shall not be so elected at any such annual
meeting of the Board of Directors, the Employee's
<PAGE>
employment hereunder shall forthwith terminate and the Company shall be
obligated to compensate the Employee in accordance with Section 6(a) of this
Agreement.
2. Positions and Duties.
--------------------
(a) Duties. The Employee's duties hereunder shall be those
------
which shall be prescribed from time to time by the Board of Directors in
accordance with the By-Laws of the Company and shall include such executive
duties, powers and responsibilities as customarily attend the office of Chairman
of the Board, President and Chief Executive Officer at companies comparable to
the Company. The Employee will hold, in addition to the office of Chairman of
the Board, President and Chief Executive Officer of the Company, such other
executive offices in the Company and its subsidiaries to which he may be
elected, appointed or assigned by the Board of Directors from time to time and
will discharge such executive duties in connection therewith. During the
employment period, the Employee's position (including status, offices and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned immediately preceding the Effective Date. The
Employee shall devote his full working time, energy and skill (reasonable
absences for vacations and illness excepted), to the business of the Company as
is necessary in order to perform such duties faithfully, competently and
diligently; provided, however, that notwithstanding any provision in this
Agreement to the contrary, the Employee shall not be precluded from devoting
reasonable periods of time required for serving as a member of boards of
companies or organizations which have been approved by the Board of Directors so
long as such memberships or activities do not interfere with the performance of
the Employee's duties hereunder.
-2-
<PAGE>
(b) Board Nomination. So long as the Employee is the Chairman
----------------
of the Board, President and Chief Executive Officer of the Company, the Company
will use diligent efforts to obtain the nomination and election of the Employee
as a director of the Company. In the event that the Employee is elected as a
director of the Company, the Employee shall perform all duties incident to such
directorship faithfully, diligently and competently and in the best interests of
the Company.
3. Compensation. During the term of this Agreement, the Employee
------------
shall receive, for all services rendered to the Company hereunder, the following
(hereinafter referred to as "Compensation"):
(a) Base Salary. For the term hereof, the Employee shall be
-----------
paid an annual base salary equal to one hundred seventy six thousand dollars
($176,000). The Employee's annual base salary shall be payable in equal
installments in accordance with the Company's general salary payment policies
but no less frequently than monthly. Such base salary shall be reviewed, and any
increases in the amount thereof shall be determined, by the Board of Directors
or a compensation committee formed by the Board of Directors (the "Compensation
Committee") at the end of each 12-month period of employment during the term
hereof.
(b) Bonuses. The Employee shall be eligible for and may
-------
receive bonuses. The amount of such bonuses, if any, shall be solely within the
discretion of the Board of Directors or, if formed, the Compensation Committee
thereof.
(c) Incentive Compensation. The Employee shall be eligible for
----------------------
awards from the Company's incentive compensation plans, including without
limitation any stock option plans, applicable to high level executive officers
of the Company or to key employees of the
-3-
<PAGE>
Company or its subsidiaries, in accordance with the terms thereof and on a basis
commensurate with his position and responsibilities.
(d) Benefits. The Employee and his "dependents," as that term
--------
may be defined under the applicable benefit plan(s) of the Company, shall be
included, to the extent eligible thereunder, in any and all plans, programs and
policies which provide benefits for employees and their dependents. Such plans,
programs and policies may include health care insurance, long-term disability
plans, life insurance, supplemental disability insurance, supplemental life
insurance, holidays and other similar or comparable benefits made available to
the Company's employees.
(e) Expenses. Subject to and in accordance with the Company's
--------
policies and procedures, the Employee hereby is authorized to incur, and, upon
presentation of itemized accounts, shall be reimbursed by the Company for, any
and all reasonable and necessary business-related expenses, which expenses are
incurred by the Employee on behalf of the Company or any of its subsidiaries.
4. Absences. The Employee shall be entitled to vacations,
--------
absences because of illness or other incapacity, and such other absences,
whether for holiday, personal time, or for any other purpose, as set forth in
the Company's employment manual or current procedures and policies, as the case
may be, as same may be amended from time-to-time.
5. Termination. In addition to the events of termination and
-----------
expiration of this Agreement provided for in Section 1 hereof, the Employee's
employment hereunder may be terminated only as follows:
-4-
<PAGE>
(a) Without Cause. The Company may terminate the Employee's
-------------
employment hereunder without cause only upon action by the Board of Directors,
and upon no less than sixty (60) days prior written notice to the Employee. The
Employee may terminate employment hereunder without cause upon no less than
sixty (60) days prior written notice to the Company.
(b) For Cause, by the Company. The Company may terminate the
-------------------------
Employee's employment hereunder for cause immediately and with prompt notice to
the Employee, which cause shall be determined in good faith solely by the Board
of Directors. "Cause" for termination shall include, but is not limited to, the
following conduct of the Employee:
(1) Material breach of any provision of this
Agreement by the Employee, which breach shall not have been cured by the
Employee within ten (10) days of receipt of written notice of said breach;
(2) Misconduct as an employee of the Company,
including but not limited to: misappropriating any funds or property of the
Company; attempting to willfully obtain any personal profit from any transaction
in which the Employee has an interest which is adverse to the interests of the
Company; or any other act or omission which substantially impairs the Company's
ability to conduct its ordinary business in its usual manner;
(3) Unreasonable neglect or refusal to perform
the duties assigned to the Employee under or pursuant to this Agreement;
(4) Conviction of a felony; or
(5) Any other act or omission which subjects the
Company or any of its subsidiaries to substantial public disrespect, scandal or
ridicule.
-5-
<PAGE>
(c) For Good Reason by Employee. The Employee may
---------------------------
terminate employment hereunder for good reason immediately and with prompt
notice to the Company. "Good reason" for termination by the Employee shall
include, but is not limited to, the following conduct of the Company:
(1) Material breach of any provision of this
Agreement by the Company, which breach shall not have been cured by the Company
within ten (10) days of receipt of written notice of said breach;
(2) Failure to maintain the Employee in a
position commensurate with that referred to in Section 2 of this Agreement; or
(3) The assignment to the Employee of any duties
inconsistent with the Employee's position, authority, duties or responsibilities
as contemplated by Section 2 of this Agreement, or any other action by the
Company which results in a diminution of such position, authority, duties or
responsibilities, excluding for this purpose any isolated action not taken in
bad faith and which is promptly remedied by the Company after receipt of notice
thereof given by the Employee.
(d) Death. The period of active employment of the
-----
Employee hereunder shall terminate automatically in the event of his death.
(e) Disability. In the event that the Employee shall be
----------
unable to perform duties hereunder for a period of ninety (90) consecutive
calendar days by reason of disability as a result of illness, accident or other
physical or mental incapacity or disability, the Company may, in its discretion,
by giving written notice to the Employee, terminate the Employee's employment
hereunder as long as the Employee is still disabled on the effective date of
such termination.
-6-
<PAGE>
(f) Mutual Agreement. This Agreement may be terminated at
----------------
any time by mutual agreement of the Employee and the Company.
6. Compensation in the Event of Termination. In the event that
----------------------------------------
the Employee's employment pursuant to this Agreement terminates prior to the end
of the term of this Agreement because he is not reelected pursuant to Section 1
or for a reason provided in Section 5 hereof, the Company shall pay the Employee
compensation as set forth below:
(a) Employee Not Elected by Board of Directors; By
----------------------------------------------
Employee for Good Reason; By Company Without Cause In the event that the
- --------------------------------------------------
Employee's employment hereunder is terminated: (i) because the Employee is not
elected to the office of Chairman of the Board, President and Chief Executive
Officer of the Company, or in a position at least commensurate therewith in all
material respects, at any annual meeting of the Company's Board of Directors
during the term of this Agreement, as contemplated by Section 1 hereof; (ii) by
the Employee for good reason pursuant to Section 5(c) hereof; or (iii) by the
Company without cause, then the Company shall continue to pay or provide, as
applicable, the following compensation to the Employee:
(1) Annual base salary as set forth in Section
3(a) hereof; and
(2) Continuing coverage, but only to the extent
required by law, for the Employee and his eligible dependents under all of the
Company's benefit plans, programs and policies in effect as of the date of
termination.
Such compensation shall continue to be paid or
provided, as applicable, in the same manner as before termination, and for a
period of time ending on the date when the term of this Agreement would
otherwise have expired in accordance with Section 1 of this Agreement.
-7-
<PAGE>
The Employee shall not be required to mitigate the amount of any payment
provided for in this Section 6(a) by seeking employment or otherwise, nor shall
any amounts received from employment or otherwise by the Employee offset in any
manner the obligations of the Company hereunder.
(b) By Company Upon Termination of Agreement Due to Employee's
----------------------------------------------------------
Death or Disability. In the event of the Employee's death or if the Company
- -------------------
shall terminate the Employee's employment hereunder for disability pursuant to
Section 5(e) hereof, the base salary payable hereunder shall continue to be paid
at the then current rate for three (3) months after the termination of
employment to the Employee or his personal representative, as applicable.
(c) By Company For Cause or By Employee Without Good Reason.
-------------------------------------------------------
In the event that (i) the Company shall terminate the Employee's employment
hereunder for cause pursuant to Section 5(b) hereof or (ii) the Employee shall
terminate employment hereunder without "good reason" as provided in Section 5(c)
hereof, the Company shall not be obligated to pay the Employee any compensation
except for salary and other compensation which may have been earned and are due
and payable but which have not been paid as of the date of termination.
7. Effect of Termination. In the event of expiration or early
---------------------
termination of this Agreement as provided herein, neither the Company nor the
Employee shall have any remaining duties or obligations hereunder except that:
(a) The Company shall:
(1) Pay the Employee's accrued salary and any
other accrued benefits under Section 3 hereof;
-8-
<PAGE>
(2) Reimburse the Employee for expenses already incurred in
accordance with Section 3(e) hereof;
(3) To the extent required by law, pay or otherwise provide for
any benefits, payments or continuation or conversion rights in accordance with
the provisions of any benefit plan of which the Employee or any of his
dependents is or was a participant; and
(4) Pay the Employee or his beneficiaries any compensation due
pursuant to Section 6 hereof; and
(b) The Employee shall remain bound by the terms of Section 8 hereof
and EXHIBIT A attached hereto.
---------
8. Restrictive Covenant. (a) The Employee acknowledges and agrees that
--------------------
he has access to secret and confidential information of the Company and its
subsidiaries and that the following restrictive covenant is necessary to protect
the interests and continued success of the Company. Except as otherwise
expressly consented to in writing by the Company, until the termination of the
Employee's employment (for any reason and whether such employment was under this
Agreement or otherwise) and thereafter for the period of time, not to exceed
twenty four (24) months, for which the Employee is being compensated at an
annual rate of at least 50% of the last annual base salary received by the
Employee under Section 3(a) hereof (the "Restricted Period"), the Employee shall
not, directly or indirectly, acting as an employee, owner, shareholder, partner,
joint venturer, officer, director, agent, salesperson, consultant, advisor,
investor or principal of any corporation or other business entity:
(i) engage, in any state or territory of the United States
of America or other country where the Company is doing business (determined as
of the date the Employee's
-9-
<PAGE>
employment with the Company terminates), in direct or indirect competition with
the business conducted by the Company or activities which the Company plans to
conduct within one year of termination (determined as of the date the Employee's
employment with the Company terminates);
(ii) request or otherwise attempt to induce or influence,
directly or indirectly, any present customer or supplier, or prospective
customer or supplier, of the Company, or other persons sharing a business
relationship with the Company, to cancel, limit or postpone their business with
the Company, or otherwise take action which might be to the material
disadvantage of the Company; or
(iii) hire or solicit for employment, directly or indirectly,
or induce or actively attempt to influence, any Employee of the Company or any
Affiliate, as such term is defined in the Securities Act of 1933, as amended, to
terminate his or her employment or discontinue such person's consultant,
contractor or other business association with the Company.
(b) If the Employee violates any of the restrictions
contained in Section 8(a) above, the Restrictive Period shall be increased by
the period of time from the commencement of any such violation until the time
such violation shall be cured by the Employee to the satisfaction of the
Company, and the Company may withhold any and all payments, except salary,
otherwise due and owing to the Employee under this Agreement.
(c) In the event that either the geographical area or the
Restrictive Period set forth in Section 8(a) of this Agreement is deemed to be
unreasonably restrictive in any court proceeding, the court may reduce such
geographical area and Restrictive Period to the extent which it deems reasonable
under the circumstances.
-10-
<PAGE>
(d) Nothing in this Section 8, whether express or implied,
shall prevent the Employee from being a holder of securities of a company whose
securities are registered under Section 12 of the Securities Exchange Act of
1934, as amended; provided, however, that the Employee holds of record and
beneficially less than two percent (2%) of the votes eligible to be cast
generally by holders of securities of such company for the election of
directors.
(e) The Employee, as a condition of his continued
employment, acknowledges and agrees that he has reviewed and will continue to be
bound by all of the provisions set forth in Exhibit A attached hereto, which is
---------
incorporated herein by reference and made a part hereof as though fully set
forth herein, during the term of this Agreement, and any time hereafter.
(f) Employee acknowledges and agrees that in the event of a
breach or threatened breach of the provisions of this Section 8 by Employee the
Company may suffer irreparable harm and therefore, the Company shall be
entitled, to the extent permissible by law, immediately to cease to pay or
provide the Employee any compensation being, or to be, paid or provided to him
pursuant to Sections 3 or 6 of this Agreement, and also to obtain immediate
injunctive relief restraining the Employee from conduct in breach or threatened
breach of the covenants contained in this Section 8. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from the Employee.
9. Resolution of Differences Over Breaches of Agreement. Except
----------------------------------------------------
as otherwise provided herein, any controversy or claim arising out of, or
relating to, this Agreement, or the breach hereof, shall be reviewed in the
first instance in accordance with the Company's internal review procedures, if
any, with recourse thereafter--for temporary or preliminary injunctive relief
-11-
<PAGE>
only--to the courts having jurisdiction thereof, and if any relief other than
injunctive relief is sought, then to arbitration in Chester County, Pennsylvania
in accordance with the rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
10. Waiver. The waiver by a party hereto of any breach by the other
------
party hereto of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by a party hereto.
11. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the successors and assigns of the Company, and the Company shall be
obligated to require any successor to expressly assume its obligations
hereunder. This Agreement shall inure to the benefit of and be enforceable by
the Employee or his legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The Employee may not
assign any of his duties, responsibilities, obligations or positions hereunder
to any person and any such purported assignment by him shall be void and of no
force and effect.
12. Notices. Any notices required or permitted to be given under this
-------
Agreement shall be sufficient if in writing, and if personally delivered or when
sent by first class certified or registered mail, postage prepaid, return
receipt requested--in the case of the Employee, to his residence address as set
forth below, and in the case of the Company, to the address of its principal
place of business as set forth below, in care of the Board of Directors--or to
such other person or at such other address with respect to each party as such
party shall notify the other in writing.
-12-
<PAGE>
13. Construction of Agreement.
-------------------------
(a) Governing Law. This Agreement shall be governed by and its
-------------
provisions construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without reference to its principles regarding
conflicts of law.
(b) Severability. In the event that any one or more of the
------------
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
(c) Headings. The descriptive headings of the several
--------
paragraphs of this Agreement are inserted for convenience of reference only and
shall not constitute a part of this Agreement.
14. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties concerning the Employee's employment and all promises,
representations, understandings, arrangements and prior agreements on such
subject are merged herein and superseded hereby. The provisions of this
Agreement may not be amended, modified, repealed, waived, extended or discharged
except by an agreement in writing signed by the party against whom enforcement
of any amendment, modification, repeal, waiver, extension or discharge is
sought. No person acting other than pursuant to a resolution of the Board of
Directors shall have authority on behalf of the Company to agree to amend,
modify, repeal, waive, extend or discharge any provision of this Agreement or
anything in reference thereto or to exercise any of the Company's rights to
terminate or to fail to extend this Agreement.
* * * * * * * * * *
-13-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and attested by its duly authorized officers, and the Employee has set
his hand, all as of the day and year first above written.
ATTEST: Analytical Graphics, Inc.
__________________________ By:_____________________________
WITNESS: EMPLOYEE
__________________________ ________________________________
Paul L. Graziani
Address:______________________________
_______________________________
_______________________________
-14-
<PAGE>
EXHIBIT A
ANALYTICAL GRAPHICS, INC.
EMPLOYEE'S
INVENTION ASSIGNMENT AND CONFIDENTIALITY
AGREEMENT
In consideration of my employment or continued employment by Analytical
Graphics, Inc., a Pennsylvania corporation or any subsidiary or parent
corporation thereof (the "Company"), I hereby represent and agree as follows:
1. I understand that the Company is engaged in the business of
providing software solutions for the space industry and that I may have access
to or acquire information with respect to Confidential Information (as defined
below), including software, processes and methods, development tools,
scientific, technical and/or business innovations.
2. Disclosure of Innovations. I agree to disclose in writing to the
-------------------------
Company all inventions, improvements and other innovations of any kind that I
may make, conceive, develop or reduce to practice, alone or jointly with others,
during the term of my employment with the Company, whether or not they are
related to my work for the Company and whether or not they are eligible for
patent, copyright, trademark, trade secret or other legal protection
("Innovations"). Examples of Innovations shall include, but are not limited to,
discoveries, research, inventions, formulas, techniques, processes, know-how,
marketing plans, new product plans, production processes, advertising, packaging
and marketing techniques and improvements to computer hardware or software.
3. Assignment of Ownership of Innovations. I agree that all Innovations
--------------------------------------
will be the sole and exclusive property of the Company and I hereby assign all
of my rights, title or interest in the Innovations and in all related patents,
copyrights, trademarks, trade secrets, rights of priority and other proprietary
rights to the Company. At the Company's request and expense, during and after
the period of my employment with the Company, I will assist and cooperate with
the Company in all respects and will execute documents, and, subject to my
reasonable availability, give testimony and take further acts requested by the
Company to obtain, maintain, perfect and enforce for the Company patent,
copyright, trademark, trade secret and other legal protection for the
Innovations. I hereby appoint the Secretary of the Company as my
attorney-in-fact to execute documents on my behalf for this purpose.
4. Protection of Confidential Information of the Company. I understand
-----------------------------------------------------
that my work as an employee of the Company creates a relationship of trust and
confidence between myself and the Company. During and after the period of my
employment with the Company, I will not use or disclose or allow anyone else to
use or disclose any "Confidential Information" (as defined below) relating to
the Company, its products, suppliers or customers except as may be necessary in
the performance of my work for the Company or as may be authorized in
-A1-
<PAGE>
advance by appropriate officers of the Company. "Confidential Information" shall
------------------------
include methodologies, processes, tools, innovations, business strategies,
financial information, forecasts, personnel information, customer lists, trade
secrets and any other non-public technical or business information, whether in
writing or given to me orally, which I know or have reason to know the Company
would like to treat as confidential for any purpose, such as maintaining a
competitive advantage or avoiding undesirable publicity. I will keep
Confidential Information secret and will not allow any unauthorized use of the
same, whether or not any document containing it is marked as confidential. These
restrictions, however, will not apply to Confidential Information that has
become known to the public generally through no fault or breach of mine or that
the Company regularly gives to third parties without restriction on use or
disclosure. Upon termination of my work with the Company, I will promptly
deliver to the Company all documents and materials of any nature pertaining to
my work with the Company and I will not take with me any documents or materials
or copies thereof containing any Confidential Information.
5. Non-Solicitation. I understand that my work as an employee of the
----------------
Company creates a relationship of trust and confidence between myself and the
Company. During and after the period of my employment with the Company, I will
not request or otherwise attempt to induce or influence, directly or indirectly,
any present customer or supplier, or prospective customer or supplier, of the
Company, or other persons sharing a business relationship with the Company to
cancel, to limit or postpone their business with the Company, or otherwise take
action which might be to the material disadvantage of the Company. During and
after the period of my employment with the Company, I will not hire or solicit
for employment, directly or indirectly, or induce or actively attempt to
influence, any Employee of the Company or any Affiliate of the Company, as such
term is defined in the Securities Act of 1933, as amended, to terminate his or
her employment or discontinue such person's consultant, contractor or other
business association with the Company.
6. Other Agreements. I represent that my performance of all the terms
----------------
of this Agreement and my duties as an employee of the Company will not breach
any invention assignment agreement, confidential information agreement,
non-competition agreement or other agreement with any former employer or other
party. I represent that I have not and will not bring with me to the Company or
use in the performance of my duties for the Company any documents or materials
of a former employer that are not generally available to the public.
7. Disclosure of this Agreement. I hereby authorize the Company to
----------------------------
notify others, including but not limited to customers of the Company and any of
my future employers, of the terms of this Agreement and my responsibilities
hereunder.
8. Injunctive Relief. I understand that in the event of a breach or
-----------------
threatened breach of this Agreement by me the Company may suffer irreparable
harm and monetary damages alone would not adequately compensate the Company. The
Company will therefore be entitled to injunctive relief to enforce this
Agreement.
-A2-
<PAGE>
9. Enforcement and Severability. I acknowledge that each of the
----------------------------
provisions in this Agreement are separate and independent covenants. I agree
that if any court shall determine that any provision of this Agreement is
unenforceable with respect to its term or scope such provision shall nonetheless
be enforceable by any such court upon such modified term or scope as may be
determined by such court to be reasonable and enforceable. The remainder of this
Agreement shall not be affected by the unenforceability or court ordered
modification of a specific provision.
10. Governing Law. I agree that this Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania.
11. Superseding Agreement. I understand and agree that this Agreement
---------------------
contains the entire agreement of the parties with respect to subject matter
hereof and supersedes all previous agreements and understandings between the
parties with respect to its subject matter.
12. Acknowledgments. I acknowledge that I have read this agreement, was
---------------
given the opportunity to ask questions and sufficient time to consult an
attorney and I have either consulted an attorney or affirmatively decided not to
consult an attorney. I understand that this agreement does not alter the terms
of an executed Employment Agreement with the Company, or in the absence of an
Employment Agreement, this Agreement does not alter my status as an employee at
will and that my employment may be terminated at any time, with or without
cause. I also understand that my obligations under this Agreement survive the
termination of my employment with the Company.
*.*.*.*.*.*.*.*.*.*
-A3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written below.
Date: _________________ ______________________________
Name of Employee:
Address: ______________________
______________________
______________________
______________________
Analytical Graphics, Inc.
Date:__________________ By:______________________________
-A4-
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 1st day of August, 1998 (the
"Effective Date") by and between Analytical Graphics, Inc., a Pennsylvania
corporation with its principal place of business at 325 Technology Drive,
Malvern, Pennsylvania 19355 (the "Company"), and Scott A. Reynolds (the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to secure the continued employment of the
Employee in accordance with the provisions of this Agreement; and
WHEREAS, the Employee desires and is willing to continue his employment
with the Company in accordance herewith.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term. The Company hereby agrees to employ the Employee and the
----
Employee hereby agrees to serve the Company pursuant to the terms and conditions
of this Agreement as Vice President, Chief Software Architect of the Company, or
in a position at least commensurate therewith in all material respects, for a
term commencing on the Effective Date hereof and expiring on the third
anniversary thereof, provided that the Employee is elected to such office, or a
comparable or higher office, at each annual meeting of the Board of Directors of
the Company (the "Board of Directors") during the term of this Agreement. If the
Employee shall not be so elected at any such annual meeting of the Board of
Directors, the Employee's employment
<PAGE>
hereunder shall forthwith terminate and the Company shall be obligated to
compensate the Employee in accordance with Section 6(a) of this Agreement.
2. Positions and Duties.
--------------------
(a) Duties. The Employee's duties hereunder shall be those which shall
------
be prescribed from time to time by the Board of Directors in accordance with the
By-Laws of the Company and shall include such executive duties, powers and
responsibilities as customarily attend the office of Vice President, Chief
Software Architect at companies comparable to the Company. The Employee will
hold, in addition to the office of Vice President, Chief Software Architect of
the Company, such other executive offices in the Company and its subsidiaries to
which he may be elected, appointed or assigned by the Board of Directors from
time to time and will discharge such executive duties in connection therewith.
During the employment period, the Employee's position (including status, offices
and reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned immediately preceding the Effective Date. The
Employee shall devote his full working time, energy and skill (reasonable
absences for vacations and illness excepted), to the business of the Company as
is necessary in order to perform such duties faithfully, competently and
diligently; provided, however, that notwithstanding any provision in this
Agreement to the contrary, the Employee shall not be precluded from devoting
reasonable periods of time required for serving as a member of boards of
companies or organizations which have been approved by the Board of Directors so
long as such memberships or activities do not interfere with the performance of
the Employee's duties hereunder.
-2-
<PAGE>
(b) Board Nomination. So long as the Employee is Vice President, Chief
----------------
Software Architect of the Company, the Company will use diligent efforts to
obtain the nomination and election of the Employee as a director of the Company.
In the event that the Employee is elected as a director of the Company, the
Employee shall perform all duties incident to such directorship faithfully,
diligently and competently and in the best interests of the Company.
3. Compensation. During the term of this Agreement, the Employee shall
------------
receive, for all services rendered to the Company hereunder, the following
(hereinafter referred to as "Compensation"):
(a) Base Salary. For the term hereof, the Employee shall be paid an
-----------
annual base salary equal to one hundred ten thousand dollars ($110,000). The
Employee's annual base salary shall be payable in equal installments in
accordance with the Company's general salary payment policies but no less
frequently than monthly. Such base salary shall be reviewed, and any increases
in the amount thereof shall be determined, by the Board of Directors or a
compensation committee formed by the Board of Directors (the "Compensation
Committee") at the end of each 12-month period of employment during the term
hereof.
(b) Bonuses. The Employee shall be eligible for and may receive
-------
bonuses. The amount of such bonuses, if any, shall be solely within the
discretion of the Board of Directors or, if formed, the Compensation Committee
thereof.
(c) Incentive Compensation. The Employee shall be eligible for awards
----------------------
from the Company's incentive compensation plans, including without limitation
any stock option plans, applicable to high level executive officers of the
Company or to key employees of the
-3-
<PAGE>
Company or its subsidiaries, in accordance with the terms thereof and on a basis
commensurate with his position and responsibilities.
(d) Benefits. The Employee and his "dependents," as that term may be
--------
defined under the applicable benefit plan(s) of the Company, shall be included,
to the extent eligible thereunder, in any and all plans, programs and policies
which provide benefits for employees and their dependents. Such plans, programs
and policies may include health care insurance, long-term disability plans, life
insurance, supplemental disability insurance, supplemental life insurance,
holidays and other similar or comparable benefits made available to the
Company's employees.
(e) Expenses. Subject to and in accordance with the Company's policies
--------
and procedures, the Employee hereby is authorized to incur, and, upon
presentation of itemized accounts, shall be reimbursed by the Company for, any
and all reasonable and necessary business-related expenses, which expenses are
incurred by the Employee on behalf of the Company or any of its subsidiaries.
4. Absences. The Employee shall be entitled to vacations, absences because
--------
of illness or other incapacity, and such other absences, whether for holiday,
personal time, or for any other purpose, as set forth in the Company's
employment manual or current procedures and policies, as the case may be, as
same may be amended from time-to-time.
5. Termination. In addition to the events of termination and expiration of
-----------
this Agreement provided for in Section 1 hereof, the Employee's employment
hereunder may be terminated only as follows:
-4-
<PAGE>
(a) Without Cause. The Company may terminate the Employee's employment
-------------
hereunder without cause only upon action by the Board of Directors, and upon no
less than sixty (60) days prior written notice to the Employee. The Employee may
terminate employment hereunder without cause upon no less than sixty (60) days
prior written notice to the Company.
(b) For Cause, by the Company. The Company may terminate the
-------------------------
Employee's employment hereunder for cause immediately and with prompt notice to
the Employee, which cause shall be determined in good faith solely by the Board
of Directors. "Cause" for termination shall include, but is not limited to, the
following conduct of the Employee:
(1) Material breach of any provision of this Agreement by the
Employee, which breach shall not have been cured by the Employee within ten (10)
days of receipt of written notice of said breach;
(2) Misconduct as an employee of the Company, including but not
limited to: misappropriating any funds or property of the Company; attempting to
willfully obtain any personal profit from any transaction in which the Employee
has an interest which is adverse to the interests of the Company; or any other
act or omission which substantially impairs the Company's ability to conduct its
ordinary business in its usual manner;
(3) Unreasonable neglect or refusal to perform the duties
assigned to the Employee under or pursuant to this Agreement;
(4) Conviction of a felony; or
(5) Any other act or omission which subjects the Company or any
of its subsidiaries to substantial public disrespect, scandal or ridicule.
-5-
<PAGE>
(c) For Good Reason by Employee. The Employee may terminate employment
---------------------------
hereunder for good reason immediately and with prompt notice to the Company.
"Good reason" for termination by the Employee shall include, but is not limited
to, the following conduct of the Company:
(1) Material breach of any provision of this Agreement by the
Company, which breach shall not have been cured by the Company within ten (10)
days of receipt of written notice of said breach;
(2) Failure to maintain the Employee in a position commensurate
with that referred to in Section 2 of this Agreement; or
(3) The assignment to the Employee of any duties inconsistent
with the Employee's position, authority, duties or responsibilities as
contemplated by Section 2 of this Agreement, or any other action by the Company
which results in a diminution of such position, authority, duties or
responsibilities, excluding for this purpose any isolated action not taken in
bad faith and which is promptly remedied by the Company after receipt of notice
thereof given by the Employee.
(d) Death. The period of active employment of the Employee hereunder
-----
shall terminate automatically in the event of his death.
(e) Disability. In the event that the Employee shall be unable to
----------
perform duties hereunder for a period of ninety (90) consecutive calendar days
by reason of disability as a result of illness, accident or other physical or
mental incapacity or disability, the Company may, in its discretion, by giving
written notice to the Employee, terminate the Employee's employment hereunder as
long as the Employee is still disabled on the effective date of such
termination.
-6-
<PAGE>
(f) Mutual Agreement. This Agreement may be terminated at any time by
----------------
mutual agreement of the Employee and the Company.
6. Compensation in the Event of Termination. In the event that the
----------------------------------------
Employee's employment pursuant to this Agreement terminates prior to the end of
the term of this Agreement because he is not reelected pursuant to Section 1 or
for a reason provided in Section 5 hereof, the Company shall pay the Employee
compensation as set forth below:
(a) Employee Not Elected by Board of Directors; By Employee for Good
----------------------------------------------------------------
Reason; By Company Without Cause. In the event that the Employee's employment
- --------------------------------
hereunder is terminated: (i) because the Employee is not elected to the office
of Vice President, Chief Software Architect of the Company, or in a position at
least commensurate therewith in all material respects, at any annual meeting of
the Company's Board of Directors during the term of this Agreement, as
contemplated by Section 1 hereof; (ii) by the Employee for good reason pursuant
to Section 5(c) hereof; or (iii) by the Company without cause, then the Company
shall continue to pay or provide, as applicable, the following compensation to
the Employee:
(1) Annual base salary as set forth in Section 3(a) hereof; and
(2) Continuing coverage, but only to the extent required by law,
for the Employee and his eligible dependents under all of the Company's benefit
plans, programs and policies in effect as of the date of termination.
Such compensation shall continue to be paid or provided, as
applicable, in the same manner as before termination, and for a period of time
ending on the date when the term of this Agreement would otherwise have expired
in accordance with Section 1 of this Agreement. The Employee shall not be
required to mitigate the amount of any payment provided for in this
-7-
<PAGE>
Section 6(a) by seeking employment or otherwise, nor shall any amounts received
from employment or otherwise by the Employee offset in any manner the
obligations of the Company hereunder.
(b) By Company Upon Termination of Agreement Due to Employee's Death
----------------------------------------------------------------
or Disability. In the event of the Employee's death or if the Company shall
- -------------
terminate the Employee's employment hereunder for disability pursuant to Section
5(e) hereof, the base salary payable hereunder shall continue to be paid at the
then current rate for three (3) months after the termination of employment to
the Employee or his personal representative, as applicable.
(c) By Company For Cause or By Employee Without Good Reason. In the
-------------------------------------------------------
event that (i) the Company shall terminate the Employee's employment hereunder
for cause pursuant to Section 5(b) hereof or (ii) the Employee shall terminate
employment hereunder without "good reason" as provided in Section 5(c) hereof,
the Company shall not be obligated to pay the Employee any compensation except
for salary and other compensation which may have been earned and are due and
payable but which have not been paid as of the date of termination.
7. Effect of Termination. In the event of expiration or early termination
---------------------
of this Agreement as provided herein, neither the Company nor the Employee shall
have any remaining duties or obligations hereunder except that:
(a) The Company shall:
(1) Pay the Employee's accrued salary and any other accrued
benefits under Section 3 hereof;
(2) Reimburse the Employee for expenses already incurred in
accordance with Section 3(e) hereof;
-8-
<PAGE>
(3) To the extent required by law, pay or otherwise
provide for any benefits, payments or continuation or conversion rights in
accordance with the provisions of any benefit plan of which the Employee or any
of his dependents is or was a participant; and
(4) Pay the Employee or his beneficiaries any
compensation due pursuant to Section 6 hereof; and
(b) The Employee shall remain bound by the terms of
Section 8 hereof and Exhibit A attached hereto.
---------
8. Restrictive Covenant. (a) The Employee acknowledges and agrees
--------------------
that he has access to secret and confidential information of the Company and its
subsidiaries and that the following restrictive covenant is necessary to protect
the interests and continued success of the Company. Except as otherwise
expressly consented to in writing by the Company, until the termination of the
Employee's employment (for any reason and whether such employment was under this
Agreement or otherwise) and thereafter for the period of time, not to exceed
twenty four (24) months, for which the Employee is being compensated at an
annual rate of at least 50% of the last annual base salary received by the
Employee under Section 3(a) hereof (the "Restricted Period"), the Employee shall
not, directly or indirectly, acting as an employee, owner, shareholder, partner,
joint venturer, officer, director, agent, salesperson, consultant, advisor,
investor or principal of any corporation or other business entity:
(i) engage, in any state or territory of the United States of
America or other country where the Company is doing business (determined as of
the date the Employee's employment with the Company terminates), in direct or
indirect competition with the business
-9-
<PAGE>
conducted by the Company or activities which the Company plans to conduct within
one year of termination (determined as of the date the Employee's employment
with the Company terminates);
(ii) request or otherwise attempt to induce or influence,
directly or indirectly, any present customer or supplier, or prospective
customer or supplier, of the Company, or other persons sharing a business
relationship with the Company, to cancel, limit or postpone their business with
the Company, or otherwise take action which might be to the material
disadvantage of the Company; or
(iii) hire or solicit for employment, directly or indirectly,
or induce or actively attempt to influence, any Employee of the Company or any
Affiliate, as such term is defined in the Securities Act of 1933, as amended, to
terminate his or her employment or discontinue such person's consultant,
contractor or other business association with the Company.
(b) If the Employee violates any of the restrictions
contained in Section 8(a) above, the Restrictive Period shall be increased by
the period of time from the commencement of any such violation until the time
such violation shall be cured by the Employee to the satisfaction of the
Company, and the Company may withhold any and all payments, except salary,
otherwise due and owing to the Employee under this Agreement.
(c) In the event that either the geographical area or the
Restrictive Period set forth in Section 8(a) of this Agreement is deemed to be
unreasonably restrictive in any court proceeding, the court may reduce such
geographical area and Restrictive Period to the extent which it deems reasonable
under the circumstances.
(d) Nothing in this Section 8, whether express or implied,
shall prevent the Employee from being a holder of securities of a company whose
securities are registered under
-10-
<PAGE>
Section 12 of the Securities Exchange Act of 1934, as amended; provided,
however, that the Employee holds of record and beneficially less than two
percent (2%) of the votes eligible to be cast generally by holders of securities
of such company for the election of directors.
(e) The Employee, as a condition of his continued
employment, acknowledges and agrees that he has reviewed and will continue to be
bound by all of the provisions set forth in Exhibit A attached hereto, which is
---------
incorporated herein by reference and made a part hereof as though fully set
forth herein, during the term of this Agreement, and any time hereafter.
(f) Employee acknowledges and agrees that in the event of a
breach or threatened breach of the provisions of this Section 8 by Employee the
Company may suffer irreparable harm and therefore, the Company shall be
entitled, to the extent permissible by law, immediately to cease to pay or
provide the Employee any compensation being, or to be, paid or provided to him
pursuant to Sections 3 or 6 of this Agreement, and also to obtain immediate
injunctive relief restraining the Employee from conduct in breach or threatened
breach of the covenants contained in this Section 8. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from the Employee.
9. Resolution of Differences Over Breaches of Agreement. Except as
----------------------------------------------------
otherwise provided herein, any controversy or claim arising out of, or relating
to, this Agreement, or the breach hereof, shall be reviewed in the first
instance in accordance with the Company's internal review procedures, if any,
with recourse thereafter--for temporary or preliminary injunctive relief
only--to the courts having jurisdiction thereof, and if any relief other than
injunctive relief is sought, then to arbitration in Chester County, Pennsylvania
in accordance with the rules of the
-11-
<PAGE>
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
10. Waiver. The waiver by a party hereto of any breach by the
------
other party hereto of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by a party hereto.
11. Assignment. This Agreement shall be binding upon and inure
-----------
to the benefit of the successors and assigns of the Company, and the Company
shall be obligated to require any successor to expressly assume its obligations
hereunder. This Agreement shall inure to the benefit of and be enforceable by
the Employee or his legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The Employee may not
assign any of his duties, responsibilities, obligations or positions hereunder
to any person and any such purported assignment by him shall be void and of no
force and effect.
12. Notices. Any notices required or permitted to be given under
-------
this Agreement shall be sufficient if in writing, and if personally delivered or
when sent by first class certified or registered mail, postage prepaid, return
receipt requested--in the case of the Employee, to his residence address as set
forth below, and in the case of the Company, to the address of its principal
place of business as set forth below, in care of the Board of Directors--or to
such other person or at such other address with respect to each party as such
party shall notify the other in writing.
-12-
<PAGE>
13. Construction of Agreement.
-------------------------
(a) Governing Law. This Agreement shall be governed by
-------------
and its provisions construed and enforced in accordance with the internal laws
of the Commonwealth of Pennsylvania without reference to its principles
regarding conflicts of law.
(b) Severability. In the event that any one or more of
------------
the provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
(c) Headings. The descriptive headings of the several
--------
paragraphs of this Agreement are inserted for convenience of reference only and
shall not constitute a part of this Agreement.
14. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties concerning the Employee's employment and all promises,
representations, understandings, arrangements and prior agreements on such
subject are merged herein and superseded hereby. The provisions of this
Agreement may not be amended, modified, repealed, waived, extended or discharged
except by an agreement in writing signed by the party against whom enforcement
of any amendment, modification, repeal, waiver, extension or discharge is
sought. No person acting other than pursuant to a resolution of the Board of
Directors shall have authority on behalf of the Company to agree to amend,
modify, repeal, waive, extend or discharge any provision of this Agreement or
anything in reference thereto or to exercise any of the Company's rights to
terminate or to fail to extend this Agreement.
*.*.*.*.*.*.*.*.*.*
-13-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and attested by its duly authorized officers, and the Employee has set
his hand, all as of the day and year first above written.
ATTEST: Analytical Graphics, Inc.
__________________________ By:_____________________________
WITNESS: EMPLOYEE
__________________________ ________________________________
Scott A. Reynolds
Address:________________________
_______________________
_______________________
-14-
<PAGE>
EXHIBIT A
ANALYTICAL GRAPHICS, INC.
EMPLOYEE'S
INVENTION ASSIGNMENT AND CONFIDENTIALITY
AGREEMENT
In consideration of my employment or continued employment by Analytical
Graphics, Inc., a Pennsylvania corporation or any subsidiary or parent
corporation thereof (the "Company"), I hereby represent and agree as follows:
1. I understand that the Company is engaged in the business of
providing software solutions for the space industry and that I may have access
to or acquire information with respect to Confidential Information (as defined
below), including software, processes and methods, development tools,
scientific, technical and/or business innovations.
2. Disclosure of Innovations. I agree to disclose in writing to the
-------------------------
Company all inventions, improvements and other innovations of any kind that I
may make, conceive, develop or reduce to practice, alone or jointly with others,
during the term of my employment with the Company, whether or not they are
related to my work for the Company and whether or not they are eligible for
patent, copyright, trademark, trade secret or other legal protection
("Innovations"). Examples of Innovations shall include, but are not limited to,
discoveries, research, inventions, formulas, techniques, processes, know-how,
marketing plans, new product plans, production processes, advertising, packaging
and marketing techniques and improvements to computer hardware or software.
3. Assignment of Ownership of Innovations. I agree that all Innovations
--------------------------------------
will be the sole and exclusive property of the Company and I hereby assign all
of my rights, title or interest in the Innovations and in all related patents,
copyrights, trademarks, trade secrets, rights of priority and other proprietary
rights to the Company. At the Company's request and expense, during and after
the period of my employment with the Company, I will assist and cooperate with
the Company in all respects and will execute documents, and, subject to my
reasonable availability, give testimony and take further acts requested by the
Company to obtain, maintain, perfect and enforce for the Company patent,
copyright, trademark, trade secret and other legal protection for the
Innovations. I hereby appoint the President and Chief Executive Officer of the
Company as my attorney-in-fact to execute documents on my behalf for this
purpose.
4. Protection of Confidential Information of the Company. I understand
-----------------------------------------------------
that my work as an employee of the Company creates a relationship of trust and
confidence between myself and the Company. During and after the period of my
employment with the Company, I will not use or disclose or allow anyone else to
use or disclose any "Confidential Information" (as defined below) relating to
the Company, its products, suppliers or customers except as may be necessary in
the performance of my work for the Company or as may be authorized in
-A1-
<PAGE>
advance by appropriate officers of the Company. "Confidential Information" shall
------------------------
include methodologies, processes, tools, innovations, business strategies,
financial information, forecasts, personnel information, customer lists, trade
secrets and any other non-public technical or business information, whether in
writing or given to me orally, which I know or have reason to know the Company
would like to treat as confidential for any purpose, such as maintaining a
competitive advantage or avoiding undesirable publicity. I will keep
Confidential Information secret and will not allow any unauthorized use of the
same, whether or not any document containing it is marked as confidential. These
restrictions, however, will not apply to Confidential Information that has
become known to the public generally through no fault or breach of mine or that
the Company regularly gives to third parties without restriction on use or
disclosure. Upon termination of my work with the Company, I will promptly
deliver to the Company all documents and materials of any nature pertaining to
my work with the Company and I will not take with me any documents or materials
or copies thereof containing any Confidential Information.
5. Non-Solicitation. I understand that my work as an employee of the
----------------
Company creates a relationship of trust and confidence between myself and the
Company. During and after the period of my employment with the Company, I will
not request or otherwise attempt to induce or influence, directly or indirectly,
any present customer or supplier, or prospective customer or supplier, of the
Company, or other persons sharing a business relationship with the Company to
cancel, to limit or postpone their business with the Company, or otherwise take
action which might be to the material disadvantage of the Company. During and
after the period of my employment with the Company, I will not hire or solicit
for employment, directly or indirectly, or induce or actively attempt to
influence, any Employee of the Company or any Affiliate of the Company, as such
term is defined in the Securities Act of 1933, as amended, to terminate his or
her employment or discontinue such person's consultant, contractor or other
business association with the Company.
6. Other Agreements. I represent that my performance of all the terms
----------------
of this Agreement and my duties as an employee of the Company will not breach
any invention assignment agreement, confidential information agreement,
non-competition agreement or other agreement with any former employer or other
party. I represent that I have not and will not bring with me to the Company or
use in the performance of my duties for the Company any documents or materials
of a former employer that are not generally available to the public.
7. Disclosure of this Agreement. I hereby authorize the Company to
----------------------------
notify others, including but not limited to customers of the Company and any of
my future employers, of the terms of this Agreement and my responsibilities
hereunder.
8. Injunctive Relief . I understand that in the event of a breach or
-----------------
threatened breach of this Agreement by me the Company may suffer irreparable
harm and monetary damages alone would not adequately compensate the Company. The
Company will therefore be entitled to injunctive relief to enforce this
Agreement.
-A2-
<PAGE>
9. Enforcement and Severability. I acknowledge that each of the
----------------------------
provisions in this Agreement are separate and independent covenants. I agree
that if any court shall determine that any provision of this Agreement is
unenforceable with respect to its term or scope such provision shall nonetheless
be enforceable by any such court upon such modified term or scope as may be
determined by such court to be reasonable and enforceable. The remainder of this
Agreement shall not be affected by the unenforceability or court ordered
modification of a specific provision.
10. Governing Law. I agree that this Agreement shall be governed by
-------------
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
11. Superseding Agreement. I understand and agree that this Agreement
---------------------
contains the entire agreement of the parties with respect to subject matter
hereof and supersedes all previous agreements and
understandings between the parties with respect to its subject matter.
12. Acknowledgments. I acknowledge that I have read this agreement,
---------------
was given the opportunity to ask questions and sufficient time to consult an
attorney and I have either consulted an attorney or affirmatively decided not to
consult an attorney. I understand that this agreement does not alter the terms
of an executed Employment Agreement with the Company, or in the absence of an
Employment Agreement, this Agreement does not alter my status as an employee at
will and that my employment may be terminated at any time, with or without
cause. I also understand that my obligations under this Agreement survive the
termination of my employment with the Company.
*.*.*.*.*.*.*.*.*.*
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written below.
Date: _________________ ______________________________
Name of Employeee:
Address: ______________________
______________________
______________________
Analytical Graphics, Inc.
Date:__________________ By:______________________________
-A4-
<PAGE>
EXHIBIT 10.3
ANALYTICAL GRAPHICS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of August ____,
1998, by and between Analytical Graphics, Inc., a Pennsylvania corporation (the
"Company"), and [ ] ("Indemnitee").
WHEREAS, Indemnitee is an officer and/or director of the Company and
performs a valuable service in such capacity for the Company;
WHEREAS, the Company and Indemnitee recognize the substantial increase in
corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance may be limited;
WHEREAS, the Company and Indemnitee further recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company as an
officer and/or director, the Company wishes to provide for the indemnification
and advancing of expenses to Indemnitee to the maximum extent permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim")
<PAGE>
by reason of (or arising in part out of) any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than thirty (30) days after written
demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section l(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section l(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an
-2-
<PAGE>
initial determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Amended and Restated Articles of Incorporation or Amended and Restated
By-Laws as now or hereafter in effect, the Company shall seek legal advice only
from Independent Legal Counsel (as defined in Section 10(d) hereof) selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section 1(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the President
and Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
-3-
<PAGE>
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
---- ----------
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law, shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief. In connection with any determination by the Reviewing Party or otherwise
as to whether the Indemnitee is entitled to be indemnified hereunder, the burden
of proof shall be on the Company to establish that Indemnitee is not so
entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in such policy or policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Assumption of Defense; Selection of Counsel. In the event the
-------------------------------------------
Company shall be obligated hereunder to pay the Expenses of any action, suit,
proceeding, inquiry or investigation, the Company, if appropriate, shall be
entitled to assume the defense of such action, suit, proceeding, inquiry or
investigation with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld), upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same action, suit,
proceeding, inquiry or investigation; provided that, (i) Indemnitee shall have
the right to employ Indemnitee's counsel in any such action, suit, proceeding,
inquiry or investigation at Indemnitee's expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company or (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense.
Notwithstanding the foregoing, in the event the Company shall not continue to
retain such counsel to defend such action, suit, proceeding, inquiry or
investigation, then the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.
-4-
<PAGE>
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Amended and Restated Articles of Incorporation, the Company's Amended
and Restated By-Laws or by statute. In the event of any change after the date of
this Agreement in any applicable law, statute or rule which expands the right of
a Pennsylvania corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded by
such change. In the event of any change in any applicable law, statute or rule
which narrows the right of a Pennsylvania corporation to indemnify a member of
its board of directors or an officer, employee, agent or fiduciary, such change,
to the extent not otherwise required by such law, statute or rule to be applied
to this Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Amended and Restated Articles of Incorporation, its Amended and
Restated By-Laws, any agreement, any vote of shareholders or disinterested
directors, the Pennsylvania Business Corporation Law, or otherwise. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any action, suit,
proceeding, inquiry or investigation made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Amended and Restated Articles of Incorporation, By-Laws or otherwise) of the
amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses in the investigation, defense, appeal or settlement of any
civil or criminal action, suit, proceeding, inquiry or investigation, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
-5-
<PAGE>
7. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
----------------------------
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Amended and Restated Articles of Incorporation or Amended and Restated By-Laws
now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in
specific cases if the Board of Directors has approved the initiation or bringing
of such suit, or (iii) as otherwise required under the applicable provisions of
the Pennsylvania Business Corporation Law, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
-6-
<PAGE>
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the shareholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as determined in
accordance with Rule 13d-3 under such Act), directly or indirectly, of
securities of the Company representing more than 20% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
shareholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the shareholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power
-7-
<PAGE>
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director of the Company or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action the
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous. In the event of an action instituted by or in
the name of
-8-
<PAGE>
the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement Expenses with respect to such action,
unless as a part of such action the court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the Commonwealth of
Pennsylvania for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
Court of Common Pleas of the Commonwealth of Pennsylvania in and for Chester
County, which shall be the exclusive and only proper forum for adjudicating such
a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania, as applied to contracts between Pennsylvania residents, entered
into and to be performed entirely within the Commonwealth of Pennsylvania,
without regard to the conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties
-9-
<PAGE>
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
**********
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ANALYTICAL GRAPHICS INC.
By: _______________________________________
Paul L. Graziani
President and Chief Executive Officer
Analytical Graphics, Inc.
325 Technology Drive
Malvern, Pennsylvania 19355
AGREED TO AND ACCEPTED:
INDEMNITEE:
_____________________________
(signature)
_____________________________
(name of Indemnitee)
_____________________________
_____________________________
(address)
<PAGE>
Exhibit 10.4
AGREEMENT OF LEASE
Office Building
THIS AGREEMENT OF LEASE by and between Liberty Property Limited Partnership
------------------------------------
organized and existing under the laws of Pennsylvania (herein call "Landlord")
------------
and Premier Solutions Ltd., a Corporation organized and existing under the laws
-------------------------------------
of Pennsylvania (herein called "Tenant").
------------
WITNESSETH:
1. PREMISES. As used in this Article the term building shall mean the
building(s) containing approximately 25,000 rentable square feet (herein called
------
the "Building") on a tract of land (herein called the "Lot") located at 325
---
Technology Drive Malvern, PA 19355 (the Building, the Lot and any other
- ------------------------------------
improvements therein being herein collectively called the "Property"). Landlord
does hereby demise and let unto Tenant and Tenant does hereby lease and take
from Landlord (or the term and upon the terms, covenants, conditions and
provisions set forth herein all that certain portion of the Building containing
25,000 square feet as shown outlined in red on Exhibit "A" hereto which shall be
- ------
completed in accordance with Article 2 hereof having a street address of 325
---
Technology Drive Malvern, PA 19355 (herein called the "Premises") together
- ------------------------------------
with the right to use driveways, sidewalks and loading and parking areas,
lobbies hallways and other common area facilities.
*See attached Article 34.
3. TERM. The term of this lease shall commence on the earlier of substantial
completion or September 1 (herein called the "Commencement Date"). If the date
of substantial completion is delayed as a result of changes requested by Tenant,
the term of the lease shall commence as if the premises were substantially
complete on the originally scheduled date, as extended for reasons other than
those caused by Tenant. Unless sooner terminated in accordance with the terms
hereof, the term of this lease shall end without the necessity for notice from
either party to the other at 12:01 a.m. local time on April 1, 2001 (herein
called the "Expiration Date").
4. USE OF PREMISES. Tenant shall occupy the Premises throughout the term and
shall use the same for and only for general office purposes. The building is
designed to normal office building standards for floor-loading capacity. Tenant
shall not use the Premises in such a way as to exceed such load limits.
5. RENT.
(a) MINIMUM ANNUAL RENT. Tenant shall pay a minimum annual rent of See
---
Attached Article 33 without notice of demand, and without setoff, in equal
- -------------------
monthly installments of See Attached Article 33 in advance, on the first day of
-----------------------
each calendar month during the term of this lease. Provided, however, that rent
for the first full month shall be paid upon the signing of this lease. If the
Commencement Date shall fall on a day other than the first day of a calendar
<PAGE>
month, the rent shall be apportioned pro rata on a per diem basis for the period
between the Commencement Date and the first day of the following calendar month
and such apportioned sum shall be paid on such Commencement Date. In addition,
Tenant shall pay Landlord without setoff the additional rent as hereinafter set
forth. Unless otherwise specifically provided, all sums shall be paid to
Landlord at the address given in Article 30 hereof.
(b) BASE OPERATING COST. In addition to the minimum annual rent, Tenant
shall pay annually Eighty One Thousand Two Hundred Fifty Dollars and 00/100
--------------------------------------------------------
($81,250.00) herein called the "Base Operating Cost" in equal monthly
- ------------
installments concurrent with and in the same manner as Tenant's payment of the
minimum annual rent and adjustments thereto. The Base Operating Cost represents
Landlord's estimate of Tenant's share of the annual operating costs for the 1995
calendar year: to the extent the Base Operating Cost exceeds Tenant's share of
the annual operating costs as calculated for any given calendar year, Landlord
shall credit such excess to Tenant's account for the following year.
(c) ADDITIONAL RENT.
(i) ANNUAL OPERATING COSTS. As used herein the term "annual operating
costs" shall mean the costs to Landlord of operating and maintaining the
Property during each calendar year of the term. Such costs shall include by way
of example rather than limitation: insurance premiums, fees, impositions, costs
for repairs, maintenance, service contracts, management fees, governmental
permits, overhead expenses, and the costs of any other items attributable to
operating or maintaining any or all of the Property excluding any costs which
under generally accepted accounting principles are capital expenditures.
(ii) COMPOSITION OF TENANT'S SHARE OF ANNUAL OPERATING COSTS. After the
end of each calendar year of the term, Landlord shall compute Tenant's share of
the annual operating costs described in Paragraph 5 (d) (i) incurred during such
calendar year by (A) calculating an appropriate adjustment, using generally
accepted accounting principles to avoid allocating to Tenant or to any other
tenant (as the case may be) those specific costs which Tenant or any other
tenant has agreed to pay; (B) calculating an appropriate adjustment, using
generally accepted accounting principles, to avoid allocating to any vacant
space those specific costs which were not incurred for such space; and (C)
multiplying the adjusted annual operating costs by a fraction, the numerator of
which shall be the square foot area of the Premises and the denominator of which
shall be the rentable square foot area of the Building.
(iii) PAYMENTS. Tenant, promptly upon being billed therefor, shall pay to
Landlord as additional rent the amount by which Tenant's share of the annual
operating costs exceeds the Base Operating Cost. If only part of any calendar
year shall fall within the term, the amount computed as additional rent with
respect to such calendar year under the foregoing provisions shall be prorated
in proportion to the portion of such calendar year falling within the term. The
expiration of the term prior to the end of such calendar year shall not impair
Tenant's obligation to pay such prorated portion as aforesaid. Notwithstanding
the foregoing provisions of this Article to the contrary, Landlord shall have
the right, at its option, to make from time to time during the term a reasonable
estimate of the additional rent which may become due
<PAGE>
hereunder with respect to any calendar year, and to require Tenant to pay to
Landlord, at the time the monthly installments of minimum annual rent are
payable, an amount equal to the sum obtained by dividing the estimate of the
additional rent by the number of months remaining in such year. Landlord shall
cause the actual amount of Tenant's share of the annual operating costs to be
computed and certified to Tenant within one hundred and twenty (120) days
following the end of such calendar year, and Tenant or Landlord, as the case may
be, shall within ten (10) days of receipt of the certification thereof pay to
the other the amount of any deficiency or overpayment then due from one to the
other. In lieu thereof, at Landlord's option, Landlord may credit Tenant's
account for any overpayment. Tenant shall have the right to inspect the books
and records used by Landlord in calculating the annual operating costs within
sixty (60) days of receipt of the certification during regular business hours
after having given Landlord written notice at least forty-eight (48) hours prior
thereto; provided, however, that Tenant shall make all payments of additional
rent without delay, and that Tenant's obligation to pay such additional rent
shall not be contingent on any such right.
(d) EXEMPTION FROM TAXATION. It is contemplated by the parties hereto
that the construction of the Premises will be financed by a lender in such a way
that the interest payable upon such loan will be exempt from taxation under
Subtitle "A" of the United States Internal Revenue Code of 1954, as amended.
Tenant hereby agrees not to do anything which would endanger the tax exempt
status of the interest referred to herein, and agrees to file with the Internal
Revenue Service, as and when applicable, from time-to-time, such statements,
applications, elections or other written filings necessary to establish and/or
maintain the tax exempt status of the interest referred to herein, and to
certify to such lender information pertinent to the exemption. Based upon such
expectation and the continued exemption of the interest from federal income
taxation, rent shall be paid at the rates set forth hereinabove; provided,
however, that if as at any time (including after repayment of all principal) the
interest is no longer exempt from federal income taxation as a result of any
action or failure to act by Tenant, then the minimum annual rent payable
hereunder shall be increased, retroactively, if necessary, from the date such
interest shall have ceased being exempt and for the remainder of the term
hereof, by the amount by which such minimum annual rent is exceeded by the
amount which bears the same ratio to such minimum annual rent as the constant
monthly payment to Landlord's lender after the interest is no longer exempt
bears to the constant monthly payment to any lender while the interest is
exempt.
6. IMPOSITIONS. As used in this lease the term "Impositions" refers to all
levies, taxes, assessment and all charges, imposes or burdens of whatsoever kind
and nature, ordinary or extraordinary, which are applicable to the term of this
lease, and which are assessed or imposed by any federal, state or municipal
government or public authority, or under any law, ordinance or regulation
thereof, or pursuant to any recorded covenants or agreements upon or with
respect to the Property or any part thereof, any improvements thereto or this
lease. Tenant shall pay to Landlord with the monthly payment of minimum annual
rent any imposition imposed directly upon this lease or the rent payable
hereunder or amounts payable by any subtenants. Nothing herein contained shall
be interpreted as requiring Tenant to pay any income, excess profits, corporate
capital stock or franchise tax imposed or assessed upon Landlord, unless such
tax or any similar tax is levied or assessed, in lieu of all or any part of any
currently existing imposition
<PAGE>
or an increase in any currently existing imposition. If under these requirements
of any state or local law with respect to such new method of taxation, Tenant is
prohibited from paying such new imposition, Landlord may, at its election,
terminate this lease by giving written notice thereof to Tenant.
7. INSURANCE. (a) SEE ATTACHED ARTICLE 37
(b) LIABILITY. Tenant, at Tenant's sole cost and expense, shall maintain
and keep if effect throughout the term insurance against liability for bodily
injury (including death) or property damage in or about the Premises or the
Property under a policy of comprehensive general public liability insurance,
with such limits as to each as may be reasonably required by Landlord from time
to time, but not less than $500,000 for each person and $1,000,000 for each
occurrence of bodily injury (including death) and $500,000 for property damage.
The policies of comprehensive general public liability insurance shall name
Landlord and Tenant as the insured parties. Each such policy shall provide that
it shall not be cancelable without at least thirty (30) days prior written
notice to Landlord and to any mortgagee named in an endorsement thereto and
shall be issued by an insurer and in a form satisfactory to Landlord. At least
ten (10) days prior to the Commencement Date, a certificate of insurance shall
be delivered to Landlord. If Tenant shall fail, refuse or neglect to obtain or
to Maintain any insurance that it is required to provide or to furnish Landlord
with satisfactory evidence of coverage on any such policy, Landlord shall have
the right to purchase such insurance. All such payments made by Landlord shall
be recoverable by Landlord from Tenant, together with interest thereto
additional rent promptly upon being billed therefor.
(c) WAIVER OF SUBROGATION. Each of the parties hereto hereby releases the
other, to the extent of the releasing party's insurance coverage, from any and
all liability for any loss or damage covered by such insurance which may be
inflicted upon the property of such party even if such loss or damage shall be
brought about by the fault or negligence of the other party, its agents or
employees; provided, however, that this release shall be effective only with
respect to loss or damage occurring during rush time as the appropriate policy
of insurance shall contain a clause to the effect that this release shall not
affect said policy or the right of the insured to recover thereunder. If any
policy does not permit such a waiver, and if the party to benefit therefrom
requests that such a waiver be obtained, the other party agrees to obtain an
endorsement to its insurance policies permitting such waiver of subrogation if
it is available. If an additional premium is charged for such waiver, the party
benefiting therefrom agrees to pay the amount of such additional premium
promptly upon being billed therefor.
(d) INCREASE OF PREMIUMS. Tenant will not do anything or fail to do
anything which will cause the cost of Landlord's insurance to increase or which
will prevent Landlord from procuring policies (including but not limited to
public liability) from companies and in a form satisfactory to Landlord. If any
breach of this Paragraph (d) by Tenant shall cause the rate of fire or other
insurance to be increased, Tenant shall pay the amount of such increase as
additional rent promptly upon being billed therefor.
8. REPAIRS AND MAINTENANCE. (a) See Attached Article 38
<PAGE>
(b) Tenant, as its sole cost and expense and throughout the term of this
lease, shall keep and maintain the Premises in a neat and orderly condition.
(c) Landlord, throughout the term of this lease, shall make all necessary
repairs to the Premises and other improvements located on the Property;
provided, however, that Landlord shall have no responsibility to make any
repairs unless and until Landlord receives written notice of the need for such
repair. Landlord shall keep and maintain a common area of the Property and any
sidewalks, parking areas, curbs and access ways adjoining the Property in a
clean and orderly condition, free of accumulation of dirt, rubbish, snow and
ice, and shall keep and maintain all landscaped areas in a neat and orderly
condition.
(d) Repairs and replacements to the Premises and the Property arising out
of or caused by Tenant's use, manner of use or occupancy of the Premises or by
Tenant's installation in or upon the Premises or by any act or omission of
Tenant or any employee, agent, contractor, or invitee of Tenant shall be made at
the sole cost and expense of Tenant. Tenant shall not bear the expense of any
repairs or replacements to the Premises or the Property arising out of or caused
by any other Tenant's use, manner of use or occupancy of the Property or by any
other Tenant's installation in or upon the Property, or by any act or omission
of any other Tenant or any other Tenant's employees, agents, contractors or
invitees.
9. UTILITIES. Tenant shall be solely responsible for and shall pay promptly to
the appropriate service provider all rates, costs, charges for water service,
sewer service, gas, electricity, light, heat, [unintelligible] power, telephone
and other community services and any and all other utilities or services
rendered or supplied upon or in connection with the Premises.
10. JANITORIAL SERVICES. Tenant to be responsible for janitorial services and
trash removal, with a vendor to be approved by Landlord, in advance.
11. GOVERNMENTAL REGULATIONS.
(a) Tenant shall not violate any laws, ordinances, notices, orders, rules,
regulations or requirements of any federal, state or municipal government or any
department , commission, board or officer thereof, or of the National Board of
Fire Underwriters or any other body exercising similar functions, relating to
the Premises or to the use or manner of use of the Property.
(b) Tenant shall pay a pro rata share of capital improvements which
Landlord shall install or construct in compliance with governmental requirements
or as energy saving devices. Such pro rata share shall be determined as if such
capital improvement had a useful life of ten (10) years and that Tenant shall
only have to pay for the portion of the useful life of the capital improvement
which falls within the term or any extended term of this lease. Tenant shall
thus make payments in equal annual installments for such capital improvements
each annual payment to be equal to Tenant's share of one-tenth (1/10) of the
cost of the capital improvement, including any interest or finance charges
thereon until the term or any renewal thereof shall
<PAGE>
expire or until the cost of the improvement has been fully paid for, whichever
shall first occur; such payments shall be computed by Landlord at the time of
installation of the capital improvement in the same manner as Landlord makes
computations of tenant's share of the annual operating costs pursuant to
Paragraph 5 (d)(ii) hereof. (SEE ATTACHED ARTICLE 35)
12. SIGNS. Landlord will place Tenant's name and suite number on the Building
standard sign. Except for signs which are located wholly within the interior of
the Premises and which are not visible from the exterior of the Premises, no
signs shall be placed, erected, maintained or painted at any place upon the
Premises or the Property.
13. ALTERATIONS, ADDITIONS AND FIXTURES.
(a) Subject to the provisions of Article 14 hereof, Tenant shall have the
right to install in the Premises any trade fixtures from time to time during the
term of this lease; provided, however, that no such installation or removal
thereof shall affect the structural portion of the Premises and that Tenant
shall repair and restore any damage or injury to the Premises or the Property
caused thereby.
(b) Tenant shall not make or permit to be made any alterations,
improvements or additions to the Premises or Property without on each occasion
first presenting to Landlord plans and specifications therefor and obtaining
Landlord's prior written consent thereto. Landlord shall respond in a timely
manner. If Landlord shall consent to any such proposed alterations,
improvements or additions, then Tenant shall make the proposed alteration,
improvements and additions at Tenant's sole cost and expense provided that (i)
Tenant supplies any necessary permits and certificates of insurance therefor;
(ii) such alterations and improvements do not impair the structural strength of
the Building or any other improvements or reduce the value of the Property;
(iii) Tenant shall take or cause to be taken all steps that are required by
Article 14 hereof and that are required or permitted by law in order to avoid
the imposition of any mechanic's, laborer's or materialman's lien upon the
Premises, Building or Lot; (iv) Tenant shall use a contractor approved by
Landlord; and (v) the occupants of the Building and of any adjoining real estate
owned by Landlord are not annoyed or disturbed by reason thereof. Any and all
alterations, improvements and additions to the Property which are constructed,
installed or otherwise made by Tenant shall be the property of Tenant until the
expiration or sooner termination of this lease; at that time all such
alterations and additions shall remain on the Property and become the property
of Landlord without payment therefor by Landlord; unless, upon the termination
of this lease, Landlord shall give written notice to Tenant to remove the same;
in which event Tenant will remove such alterations, improvements and additions,
and repair and restore any damage to the Property caused by the installation or
removal thereof; however, upon Tenant's request, Landlord will exercise this
option at the time approval is given for the alterations, improvements, and
additions.
14. MECHANIC'S LIENS. Tenant shall promptly pay contractors and materialmen
who supply labor, work or materials to Tenant at the Premises or the Property so
as to minimize the utility of a lien attaching to the Premises or the Property.
Tenant shall take all steps permitted by
<PAGE>
lease in order to avoid the imposition to any mechanic's, laborer's or
materialman's lien upon the Premises, the Property or the Lot. Should any such
lien or notice of lien be filed for work performed for Tenant other than by
Landlord, Tenant shall bond against or discharge the same within fifteen (15)
days after the lien or claim is filed or formal notice of said lien or claim has
been issued regardless of the validity of such lien or claim. Nothing in this
lease is intended to authorize Tenant to do or cause any work or labor to be
done or any materials to be supplied for the account of Landlord, all of the
same to be solely for Tenant's account and as Tenant's risk and expense.
Throughout this lease the term "mechanic's lien" is used to include any lien,
encumbrance or charge levied or imposed upon the Premises or the Property or any
interest therein or income therefrom on account of any mechanic's, laborer's or
materialman's lien or arising out of any debt or liability to or any claim or
demand of any contractor, mechanic, supplier, materialman or laborer and shall
include without limitation any mechanic's notice of intention given to Landlord
or Tenant, any stop order given to Landlord or Tenant, any notice of refusal to
pay naming Landlord or Tenant and any injunctive or equitable action brought by
any person entitled to any mechanic's lien.
15. LANDLORD'S RIGHT OF ENTRY.
(a) Tenant shall permit Landlord and the authorized representatives of
Landlord and of any mortgagee or any prospective mortgagee to enter the Premises
at all reasonable times for the purpose of (i) inspecting them or (ii) making
any necessary repairs thereto or to the Property and performing any work
therein. During the progress of any work on the Premises or the Property,
Landlord will attempt not to inconvenience Tenant, but shall not be liable for
inconvenience, annoyance, disturbance, loss of business or other damage to
Tenant by reason of making any repair or by bringing or storing materials,
supplies, tools and equipment in the Premises during the performance of any
work, and the obligations of Tenant under this lease shall not be thereby
affected in any manner whatsoever.
(b) Landlord shall have the right at all reasonable times but only after 24
hours prior notice and accompanied by an employee designated by Tenant, except
in the event of an emergency, to enter and to exhibit the Premises for the
purpose of sale of mortgage, and, during the last nine (9) months of the terms
of this lease, to enter and to exhibit the Premises to any prospective tenant.
16. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises or Building shall be damaged or destroyed by fire or
other casualty, Tenant shall promptly notify Landlord, and Landlord, subject to
the mortgagee's consent and to the conditions set forth in this Article 14,
shall repair, rebuild or replace such damage and restore the Premises to
substantially the same condition in which they were immediately prior to such
damage or destruction; provided, however, that Landlord shall only be obligated
to restore such damage which is covered by the fire and other extended coverage
insurance policies.
<PAGE>
(b) The work shall be commenced promptly and completed with due diligence,
taking into account the time required by Landlord to effect a settlement with,
and procure insurance proceeds from, the insurer, and for delays beyond
Landlord's reasonable control.
(c) The net amount of any insurance proceeds (excluding proceeds received
pursuant to a rental coverage endorsement) recovered by reason of the damage or
destruction of the Building in excess of the cost of adjusting the insurance
claim and collecting the insurance proceeds (such excess amount being
hereinafter called the "net insurance proceeds") shall be applied towards the
reasonable cost of restoration. If in Landlord's reasonable opinion the net
insurance proceeds will not be adequate to complete such restoration, Landlord
shall have the right to terminate this lease and all the unaccrued obligations
of the parties hereto by sending a written notice of such termination to Tenant,
the notice to specify a termination date no less than ten (10) days after its
transmission; provided, however, that except during the last two (2) years of
the term, Tenant may require Landlord to withdraw the notice of termination by
agreeing to pay the cost of restoration in excess of the net insurance proceeds
and by giving Landlord adequate security for such payment prior to the
termination date specified in Landlord's notice of termination. If the net
insurance proceeds are more than adequate, the amount by which the net insurance
proceeds exceed the cost of restoration will be retained by Landlord or applied
to repayment of any mortgage secured by the Premises.
(d) Landlord's obligation or election to restore the Premises under this
Article shall not include the repair, restoration or replacement of the
fixtures, improvements, alterations, furniture or any other property owned,
installed, made by, or in the possession of Tenant.
(e) Landlord shall maintain insurance against loss or damage to the
Building by fire and such other casualties as may be included within fire and
extended coverage insurance or all-risk insurance, together with a rental
coverage endorsement or other comparable form of coverage. Tenant will receive
an abatement of its minimum annual rent to the extent of payments received by
Landlord from the carrier providing the rental coverage endorsement.
17. NON-ABATEMENT OF RENT. Except as otherwise expressly provided as to damage
by fire or by any other casualty in Paragraph 16 (c) and as to condemnation in
Paragraphs 19 (a) and (b) there shall be no abatement or reduction of the
minimum rent, additional rent or other rent payable hereunder for any cause
whatsoever, and this lease shall not terminate, and Tenant shall not be entitled
to surrender the Premises.
18. INDEMNIFICATION OF LANDLORD. Tenant will indemnify Landlord and save
Landlord harmless from and against any and all claims, actions, damages,
liability and expense (including without limitation fees of attorney,
investigators and experts) in connection with loss of life, personal injury or
damage to property caused to any person in or about the Premises or arising out
of the occupancy or use by Tenant of the Premises or any part thereof or
occasioned wholly or in part by any act or omission of Tenant, its agents,
contractors, employees, licensees or invitees; unless such loss, injury or
damage was caused by the negligence of Landlord, its agents, contractors,
employees, licensees or invitees. Without limiting the foregoing, Tenant will
forever release and hold Landlord harmless from all claims arising out of damage
to Tenant's property
<PAGE>
unless such damage occurs as a result of Landlord's negligent failure to
maintain the Premises in accordance with this lease agreement or to make repairs
after having received written notice of the need for such repair. In case any
such claim, action or proceeding is brought against Landlord, upon notice from
Landlord and at Tenant's sole cost and expense, Tenant shall resist or defend
such claim action or proceeding or shall cause it to be resisted or defended by
an insurer.
19. CONDEMNATION.
(a) TERMINATION. (i) If all of the Premises are covered by a condemnation;
or (ii) if any part of the Premises is covered by a condemnation and the
remainder thereof is insufficient for the reasonable operation therein of
Tenant's business; or, (iii) subject to the provisions of Paragraph (b)(i)
hereof, if any of the Property is covered by a condemnation and, in Landlord's
sole opinion, it would be impractical or the condemnation proceeds are
insufficient to restore the remainder of the Property; then, in any such event,
this lease shall terminate and all obligations hereunder shall cease as of the
date upon which possession is taken by the condemnor and the rent herein
reserved shall be apportioned and paid in full by Tenant to Landlord to that
date and all rent prepaid for periods beyond that date shall forthwith be repaid
by Landlord to Tenant.
(b) PARTIAL CONDEMNATION.
(i) If there is a partial condemnation and Landlord decides to
terminate pursuant to Paragraph (a) hereof, except during the last two (2) years
of the term, Tenant may require Landlord to withdraw its notice of termination
by: (A) giving Landlord written notice thereof within ten (10) days from
transmission of Landlord's notice to Tenant of Landlord's intention to
terminate. (B) agreeing to pay the cost of restoration in excess of the
condemnation proceeds reduced by those sums expended by Landlord in collecting
the condemnation proceeds, and (C) giving Landlord adequate security for such
payment within such ten (10) day period.
(ii) If there is a partial condemnation and this lease has not been
terminated pursuant to Paragraph (a) hereof, Landlord shall restore the Building
and the improvements which are part of the Premises to a condition and size as
nearly comparable as reasonably possible to the condition and size thereof
immediately prior to the date upon which possession shall have been taken by the
condemnor. If the condemnation proceeds are more than adequate to cover the
cost of restoration and the Landlord's expenses in collecting the condemnation
proceeds, any excess proceeds shall be retained by Landlord or applied to
repayment of any mortgage secured by the Premises.
(iii) If there is a partial condemnation and this lease has not been
terminated by the date upon which the condemnation shall have obtained
possession, the obligations of Landlord and Tenant under this lease shall be
unaffected by such condemnation except that there shall be an equitable
abasement for the balance of the term of the minimum annual rent according to
the value of the Premises before and after the date upon which the condemnor
shall have taken possession. In the event that the parties are unable to agree
upon the amount of such abatement, either party may submit the issue to
arbitration.
<PAGE>
(c) AWARD. In the event of a condemnation affecting Tenant, Tenant shall
have the right to make a claim against the condemnor for removal expenses,
business dislocation damages and moving expenses; provided and to the extent,
however, that such claims or payments do not reduce the sums otherwise payable
by the condemnor to Landlord. Except as aforesaid, Tenant hereby waives all
claims against Landlord and against the condemnor, and Tenant hereby assigns to
Landlord all claims against the condemnor including, without limitation, all
claims for leasehold damages and diminution in value of Tenant's leasehold
interest.
(d) TEMPORARY TAKING. If the condemnor should take only the right to
possession for a fixed period of time or for the duration of an emergency or
other temporary condition, then, notwithstanding anything hereinabove provided,
this lease shall continue in full force and effect without any abatement of
rent, but the amounts payable by the condemnor with respect to any period of
time prior to the expiration or sooner termination of this lease shall be paid
by the condemnor to Landlord and the condemnor shall be considered a subtenant
of Tenant. Landlord shall apply the amount received from the condemnor
applicable to the rent due hereunder net of costs to Landlord for the collection
thereof, or as much thereof as may be necessary for the purpose, toward the
amount due from Tenant as rent for that period; and, Tenant shall pay to
Landlord any deficiency between the amount thus paid by the condemnor and the
amount of the rent, or Landlord shall pay to Tenant any excess of the amount of
the award over the amount of the rent.
20. QUIET ENJOYMENT. Tenant, upon paying the minimum rent, additional rent and
other charges herein provided for, and observing and keeping all comments,
agreements and conditions of this lease on its part to be kept, shall quietly
have and enjoy the Premises during the term of this lease without hindrance or
molestation by anyone claiming by or through Landlord, subject, however, to the
exceptions, reservations and conditions of this lease. The Landlord hereby
reserves the right to prescribe, at its sole discretion, reasonable rules and
regulations (herein called the "Rules and Regulations") having uniform
applicability to all tenants of the Building and governing the use and enjoyment
of the Premises and the remainder of the Property; provided that the Rules and
Regulations shall not materially interfere with the Tenant's use and enjoyment
of the Premises in accordance with the provisions of this lease or general
office purposes. The Tenant shall adhere to the Rules and Regulations and shall
cause its agents, employees, invitees, visitors and guests to do so. A copy of
the Rules and Regulations in effect on the date hereof is attached hereto as
Exhibit "E".
21. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTED ASSIGNMENT. Tenant shall not assign, mortgage, pledge or
encumber this lease, or sublet the whole or any part of the Premises, without
the prior written consent of Landlord which consent shall not be unreasonably
withheld. This prohibition against assigning or subletting shall be construed
to include a prohibition against any assignment or subletting by operation of
law, and/or a transfer by any person or persons controlling Tenant on the date
of the lease of such control to a person or persons not controlling Tenant on
the date of the lease. In the event of any assignment of this lease made with
or without Landlord's consent,
<PAGE>
Tenant nevertheless shall remain liable for the performance of all of the terms,
conditions and covenants of this lease and shall require any assignee to execute
and deliver to Landlord an assumption of liability agreement in form
satisfactory to Landlord, including an assumption by the assignee of all the
obligation of Tenant and assignee's ratification of and agreement to be bound by
all the provisions of this lease. Landlord shall be entitled to, and Tenant
shall promptly remit to Landlord, any profit which may inure to the benefit of
Tenant as a result of any subletting of the Premises or assignment of this
lease, whether or not consented to be Landlord.
(b) PERCENTAGE AGREEMENTS. It is agreed that Tenant shall not enter into
any assignment, sublease, license, concession or other agreement for use,
occupancy or utilization of the whole or any part of the Premises with or
without Landlord's consent, which provides for 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 or entity from the space leased, used, occupied or
utilized (other than an amount based on a fixed percentage or percentages of
receipts or sales), and any such purported assignment, sublease, license,
concession or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
22. SUBORDINATION. This lease and Tenant's rights hereunder shall be subject
and subordinate at all times in lien and priority to any first mortgage or other
primary encumbrances now or hereafter placed upon or affecting the Premises, and
to any second mortgage or encumbrance with the consent of the first mortgagee,
and to all renewals, modifications, consolidations and extensions thereof,
without the necessity of any further instrument or act on the part of Tenant.
Tenant shall execute and deliver upon demand any further instrument or
instruments confirming the subordination of this lease to the lien of any such
first mortgage or to the lien of any other mortgage if requested to do so by
Landlord with the consent of the first mortgagee, and any further instrument or
instruments of attornment that may be desired by any such mortgagee or Landlord.
Notwithstanding the foregoing, any mortgagee may at any time subordinate its
mortgage to this lease, without Tenant's consent, by giving notice in writing to
Tenant, and thereupon this lease shall be deemed prior to such mortgage without
regard to their respective dates of execution and delivery, and in that event
such mortgagee shall have the same rights with respect to this lease as though
this lease had been executed prior to the execution and delivery of the mortgage
and had been assigned to such mortgagee.
23. MEMORANDUM OF LEASE: TENANT'S CERTIFICATE.
(a) Tenant, at any time and from time to time and within 15 days after
Landlord's written request, shall execute, acknowledge and deliver to Landlord a
short form or memorandum of this lease for recording purposes.
(b) Tenant, at any time and from time to time and within 15 days after
Landlord's written request, so long as there are no material and substantial
defects in the Premises which Landlord is obligated to remedy and which Landlord
is not proceeding to remedy and so long as Landlord is not otherwise in default
of this lease, shall execute, acknowledge and deliver to Landlord a written
instrument in recordable form certifying that this lease is unmodified and in
<PAGE>
full force and effect (or, if there have been modifications, that it is in full
force and effect as modified and stating the modifications); stating that the
improvements required by Article 2 hereof have been completed; certifying that
Tenant has accepted possession of the Premises; stating the date on which the
term of the lease commenced and the dates to which minimum rent, additional rent
and other charges have been paid in advance, if any; stating that to the best
knowledge of the signer of such instrument Landlord is set in default of this
lease; stating any other fact or certifying any other condition reasonably
requested by Landlord or required by any mortgagee or prospective mortgagee or
purchaser of the Premises or any interest herein; and stating that it is
understood that such instrument may be relied upon by any mortgagee or
prospective mortgagee or purchaser of the Premises or any interest therein or by
any assignee of Landlord's interest in this lease or by any assignee of any
mortgagee. The foregoing instrument shall be addressed to Landlord and to any
mortgagee, prospective mortgagee, purchaser or other party specified by
Landlord.
25. SURRENDER.
(a) Subject to the term of Paragraphs 13(b) and 16 (c) hereof at the
expiration or earlier termination of the term hereof, Tenant shall promptly
yield up, clean and neat, and in the same condition, order and repair in which
they are required to be kept throughout the term hereof, the Premises and all
improvements, alterations and additions thereto, and all fixtures and equipment
servicing the Building, ordinary wear and tear excepted.
(b) If Tenant, or any person claiming through Tenant, shall continue to
occupy the Premises after the expiration or earlier termination of the term or
any renewal thereof, such occupancy shall be deemed to be under a month-to-month
tenancy under the same terms and conditions set forth in this lease; except,
however, that the minimum annual rent during such continued occupancy shall be
double the amount set forth in Paragraphs 5 (a) and (b) hereof. Anything to
the contrary notwithstanding, any holding over by Tenant without Landlord's
prior written consent shall constitute a default hereunder and shall be subject
to all the remedies set forth in Article 26 hereof.
26. DEFAULT-REMEDIES.
(a) DEFAULT: It shall be an event of default:
(i) If Tenant does not pay in full when due and without demand any and
all installments of minimum rent or additional rent or any other charges or
payments whether or not herein included as rent; or
(ii) If Tenant violates or fails to perform or otherwise breaches any
agreement, term, covenant or condition herein contained; or
(iii) If Tenant abandons the Premises or removes or attempts to remove
Tenant's goods or property therefrom other than in the ordinary course of
business without
<PAGE>
having first paid to Landlord in full all minimum rent,
additional rent and other charges that may have become due as well as all which
will become due thereafter; or
(iv) If Tenant becomes insolvent or bankrupt in any sense or makes an
assignment for the benefit of creditors or offers a composition or settlement to
creditors, or if a petition in bankruptcy or for reorganization or for an
arrangement with creditors under any federal or state law is filed by or against
Tenant, or a bill in equity or other proceeding for the appointment of a
receiver, trustee, liquidator, custodian, conservator or similar official for
any of Tenant's assets is commenced, or if any of the real or personal property
of Tenant shall be levied upon by any sheriff, marshal or constable; provided,
however, that any proceeding brought by anyone other than the parties to this
lease under any bankruptcy, reorganization arrangement, insolvency,
readjustment, receivership or similar law shall not constitute a default until
such proceeding, decree, judgment or order has continued unstayed for more than
sixty (60) consecutive days.
(v) If any of the events enumerated in Paragraph (a) (iv) of this
Article shall happen to any guarantor of this lease:
(b) REMEDIES. Then, and in any such event, Landlord shall have the
following rights:
(i) To charge a late payment penalty of five (5%) percent of any
amount owed to Landlord pursuant to this lease which is not paid within five (5)
days of the date which is set forth in the lease if a date is specified, or, if
a date is not specified, within thirty (30) days of receipt by Tenant of a bill
therefor from Landlord. If Landlord incurs a penalty in connection with any
payment which Tenant has failed to make within the times required in this lease,
Tenant shall pay Landlord, in addition to such sums, the full amount of such
penalty incurred by Landlord.
(ii) To accelerate the whole or any part of the rent for the entire
unexpired balance of the term of this lease, as well as all other charges,
payments, costs and expenses herein agreed to be paid by Tenant, and any rent or
other charges, payments, costs and expenses if so accelerated shall, in addition
to any and all installments of rent already due and payable and in arrears, and
any other charge or payment herein reserved, included or agreed to be treated or
collected as rent and any other charge, expense or cost herein agreed to be paid
by Tenant which may be due and payable and in arrears, be deemed due and payable
as if, by the terms and provisions of this lease, such accelerated rent and
other charges, payments, costs and expenses were on that date payable in
advance.
(iii) To enter the Premises and without further demand or notice
proceed to distress and sale of the goods, chattels and personal property there
found, to levy the rent and other charges herein payable as rent, and Tenant
shall pay all costs and officers' commissions which are permitted by law,
including watchmen's wages and sums chargeable to Landlord, and further
including commission[s] to the constable or other person making the levy, and in
such case all costs, officers' commissions and other charges shall immediately
attach and become part of the claim of Landlord for rent, and any tender of rent
without said costs, commissions and
<PAGE>
charges made after the issuance of a warrant of distress, shall not be
sufficient to satisfy the claim of Landlord.
(iv) To re-enter the Premises, together with all additions,
alterations and improvements, and, at the option of Landlord, remove all persons
and all or any property therefrom, either by summary dispossess proceedings or
by any suitable action or proceeding at law or by force or otherwise, without
being liable for prosecution or damages therefor, and repossess and enjoy the
Premises. Upon recovering possession of the Premises by reason of or based upon
or arising out of a default on the part of Tenant, Landlord may, at Landlord's
option, either terminate this lease or make such alterations and repairs as may
be necessary in order to relet the Premises and relet the Premises or any part
or parts thereof, either in Landlord's name or otherwise, for a term or terms
which may, at Landlord's option, be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and at such
rent or rents and upon such other terms and conditions as in Landlord's sole
discretion may seem advisable and to such person or persons as may in Landlord's
discretion seem best; upon each such reletting all rents received by Landlord
from such reletting shall be applied: first, to the payment of any costs and
expenses of such reletting, including brokerage fees and attorney's fees and all
costs of such alterations and repairs; second, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; third, to
the payment of rent due and unpaid hereunder, and the residue, if any, shall be
held by Landlord and applied in payment of future rent as it may become due and
payable hereunder. If such rentals received from such reletting during any month
shall be less than that to be paid during that month by Tenant, Tenant shall pay
any such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such re-entry or taking possession of the Premises or the making of
alterations or improvements thereto or the reletting thereof shall be construed
as an election on the part of Landlord to terminate this lease unless written
notice of such intention by given to Tenant. Tenant, for Tenant and Tenant's
successors and assigns, hereby irrevocably constitutes and appoints Landlord
Tenant's and their agent to collect the rents due and to become due under all
subleases of the Premises or any parts thereof without in any way affecting
Tenant's obligation to pay any unpaid balance of rent due or to become due
hereunder. notwithstanding any such reletting without termination, Landlord may
at any time thereafter elect to terminate this lease for such previous breach.
Landlord shall exercise goof faith efforts to relet the Premise and collect the
rent under such reletting.
(v) To terminate this lease and the term hereby created without any
right on the part of Tenant to waive the forfeiture by payment of any sum due or
by other performance of any condition, term or covenant broken. Whereupon
Landlord shall be entitled to recover, in addition to any and all sums and
damages for violation of Tenant's obligations hereunder in existence at the time
of such termination, damages for Tenant's default in an amount equal to the
amount of the rent reserved for the balance of the term of this lease, as well
as all other charges, payments, costs and expenses herein agreed to be paid by
Tenant, all discovered at the rate of six percent (6%) per annum to their then
present worth, less the fair rental value of the Premises for the remainder of
said term, also discounted at the rate of six percent (6%) per annum to its then
present worth, all of which amount shall be immediately due and payable from
Tenant to Landlord.
<PAGE>
(vi) Whenever not prohibited by the law of the state in which the
Property is located, when this lease and the term or any extension or renewal
thereof shall have been terminated on account of any default by Tenant, or when
the term hereby created or any extension or renewal thereof shall have expired,
it shall be lawful for any attorney of any court of record to appear as attorney
for Tenant as well as for all persons claiming by, through or under Tenant, and
to sign after 3 days written notice from Landlord an agreement for entering in
any competent court an amicable action in ejectment and judgment against Tenant
and all persons claiming by, through or under Tenant and therein confess
judgment for the recovery by Landlord of possession of the Premises, for which
this lease shall be his sufficient warrant; thereupon, if Landlord so desires,
an appropriate writ of possession may issue forthwith, without any prior writ or
proceeding whatsoever, and provided that if for any reason after such action
shall have been commenced it shall be determined and possession of the Premises
remain in or be restored to Tenant, Landlord shall have the right for the same
default and upon any subsequent default or defaults, or upon the termination of
this lease or Tenant's right of possession as hereinbefore set forth, to bring
on or more further amicable action or actions as hereinbefore set forth to
recover possession of the Premises and confess judgment for the recovery of
possession of the Premises as hereinbefore provided.
(vii) Whenever not provided by the law of the state in which the
Property is located, if Tenant shall default in the payment of the rent herein
reserved or in the payment of any other sums due hereunder by Tenant, Tenant
hereby authorizes and empowers any prothonorary or attorney of any court of
record to appear for Tenant in any and all actions which may be brought for said
rent and said other sums; and to sign for Tenant after 3 days written notice
from Landlord an agreement for entering in any competent court an amicable
action or actions for the recovery of said rental and other sums; and in said
suits or in said amicable action or actions to confess judgment against Tenant
for all or any part of said rental and said other sums, including, but not
limited to the amounts due from Tenant to Landlord under Paragraphs (b) (i),
(ii), (iii) or (iv) above; and for interest and costs, together with an
attorney's commission for collection of five percent (5%). Such authority shall
not be exhausted by one exercise thereof, but judgment may be confessed as
aforesaid from time to time as often as any of said rental and other sums shall
fall due or be in arrears, and such powers may be exercised as well after the
expiration of the initial term of this lease and during any extended or renewal
term of this lease and after the expiration of any extended or renewal term of
this lease.
(c) NON-WAIVER. No waiver by Landlord of any breach by Tenant of any of
Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by
Landlord of any rights and remedies with respect to such or any subsequent
breach.
(d) GRACE PERIOD. Notwithstanding anything hereinabove stated, except in
the case of emergency set forth in Article 24 and except in the event of any
default enumerated in Paragraphs (a) (iii), (iv) and (v) of this Article,
neither party hereto will exercise any right or remedy provided for in this
lease or allowed by law because of any default of the other, except
<PAGE>
those remedies contained in Paragraph (6) (i) of this Article unless such party
shall have first given ten (10) days written notice thereof to the defaulting
party, and the defaulting party shall have failed to cure the default within
such period; provided, however, that if the default consists of something other
than the failure to pay money which cannot reasonably be cured within ten (10)
days, neither party hereto will exercise any such right or remedy if the
defaulting party begins to cure the default within the ten (10) days and
continues actively and diligently in good faith to completely cure said default;
and further provide that Landlord shall not be required to give such ten (10)
days notice more than two (2) times during any twelve (12) month period.
(e) RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or reserved to Landlord is intended to be exclusive of any other right or
remedy provided herein or by law, but each shall be cumulative and in addition
to every other right or remedy given herein or now or hereafter existing at law
or in equity or by statute.
27. CONDITION OF TITLE AND OF PREMISES. Tenant represents that the Property,
the Lot and the Premises, the title thereto, the zoning thereof, the street or
streets, sidewalks, parking areas, curbs and access ways adjoining them, any
surface and sub-surface conditions thereof, and the present uses and non-uses
thereof, have been examined by Tenant, and Tenant accepts them in the condition
or state in which they now are, or any of them now, is, without relying on any
representation, covenant or warranty, express or implied, in fact or in law, by
Landlord and without recourse to Landlord, as to the title thereto, the
encumbrances thereon, the appurtenances thereto, the nature, condition or
usability thereof or the use or uses to which the Premises and the Property or
any part thereof may be put, except as to work to be performed by Landlord
pursuant to Article 2 hereof. Tenant's occupancy of the Premises shall
constitute acceptance of the work performed by Landlord pursuant to Article 2
hereof.
28. INTERPRETATION.
(a) CAPTIONS. The captions in this lease are for convenience only and are
not a part of this lease and do not in any way define, limit, describe or
amplify the terms and provisions of this lease or the scope or intent thereof.
(b) ENTIRE AGREEMENT. This lease represents the entire agreement between
the parties hereto and there are no collateral or oral agreements or
understandings between Landlord and Tenant with respect to the Premises of the
Property. No rights, easements or licenses are acquired in the Property or any
land adjacent to the Property by Tenant by implication or otherwise except as
expressly set forth in the provisions of this lease. This lease shall not be
modified in any manner except by an instrument in writing executed by the
parties. Tenant agrees to make such changes to this lease as are required by any
mortgagee, provided such changes do not substantially affect Tenant's rights and
obligation hereunder. The masculine (or neuter) pronoun, singular number, shall
include the masculine, feminine and neuter genders and the singular and plural
number.
<PAGE>
(c) EXHIBITS. Each writing or plan referred to herein as being attached
hereto as an Exhibit or otherwise designated herein as an Exhibit hereto is
hereby made a part hereof.
(d) COVENANTS. The terms, covenants and obligations set forth herein all
constitute conditions and not covenants of this lease.
(e) ARBITRATION. Wherever arbitration is set forth herein as the
appropriate resolution of a dispute, issues shall be submitted for arbitration
to the American Arbitration Association in the city nearest to the Premises in
which offices of the American Arbitration Association are located. Landlord and
Tenant will comply with the rules then obtaining of the American Arbitration
Association and the determination of award rendered by the arbitrator(s) shall
be final, conclusive and binding upon the parties and not subject to appeal, and
judgment thereon may be entered in any court of competent jurisdiction.
(f) INTEREST. Whenever interest is required to be paid hereunder, such
interest shall be at the highest rate permitted under law but not in excess of
fifteen percent (15%).
29. DEFINITIONS.
(a) "Landlord". The word "Landlord" is used herein to include the Landlord
named above as well as its heirs, successors and assigns, each of whom shall
have the same rights, remedies, powers, authorities and privileges as he would
have had he originally signed this lease as Landlord. Any such person, whether
or not named herein, shall have no liability hereunder after he ceases to hold
title to the Premises except for obligations which may have theretofore accrued.
Neither Landlord nor any principal of Landlord nor any owner of the Building or
the Lot, whether disclosed or undisclosed, shall have any personal liability
with respect to any of the provisions of this lease or the Premises, and if
Landlord is in breach or default with respect to Landlord's obligations under
this lease or otherwise, Tenant shall look solely to the equity of Landlord in
the Premises for the satisfaction of Tenant's remedies.
(b) "TENANT". The word "Tenant" is used herein to include the Tenant named
above as well as its successors and assigns, each of which shall be under the
same obligations, liabilities and disabilities and each of which shall have the
same rights, privileges and powers as it would have possessed had it originally
signed this lease as Tenant. Each and every of the persons named above as Tenant
shall be bound formally and severally by the terms, covenants and agreements
contained herein. However, no such rights, privileges or powers shall inure to
the benefit of any assignee of Tenant immediate or remote, unless the assignment
to such assignee is permitted or has been approved in writing by Landlord. Any
notice required or permitted by the terms of this lease may be given by or to
any one of the persons named above as Tenant, and shall have the same force and
effect s if given by or to all thereof.
(c) "MORTGAGE" AND "MORTGAGEE". The word "mortgage" is used herein to
include any lien or encumbrance on the Premises or the Property or on any part
of or interest in or appurtenance to any of the foregoing, including without
limitation any ground rent or ground
<PAGE>
lease if Landlord's interest is or becomes a leasehold estate. The word
"mortgagee" is used herein to include the holder of any mortgage, including any
ground lessor if Landlord's interest is or becomes a leasehold estate. Wherever
any right is given to a mortgagee, that right may be exercised on behalf of such
mortgagee by any representative or servicing agent of such mortgagee.
(d) "PERSON". The word "person" is used herein to include a natural person,
a partnership, a corporation, an association, and any other form of business
association or entity.
(e) "DATE OF THIS LEASE". The "date of this lease" shall be the date upon
which this lease has been fully executed by both parties.
30. NOTICES. All notices, demands, requests, consents, certificates and waivers
required or permitted hereunder from either party to the other shall be in
writing and sent by United States certified mail, return receipt requested,
postage prepaid. Notices to Tenant shall be addressed to 333 Technology Drive,
---------------------
Malvern, PA 19355 or, after the Commencement Date, to the Premises. Notices to
- -----------------
Landlord shall be addressed to 65 Valley Stream Parkway, Malvern, PA 19355 with
-------------------------------------------
a copy to any mortgagee or other party designated by Landlord. Either party may
at any time, in the manner set forth for giving notices to the other, specify a
different address to which notices to it shall be sent.
31. SECURITY DEPOSIT. At the time of signing this lease Tenant shall deposit
with Landlord as cash security for the faithful the sum of Twenty Thousand and
00/100 ($20,000.00) to be retained by Landlord performance and observance by
Tenant of Dollars the covenants, agreements and conditions of this lease.
Notwithstanding anything to the contrary contained in any law or statute now
existing or hereafter passed (i) Tenant shall not be entitled to any interest
whatever on the cash security, (ii) Landlord shall not be obligated to hold the
cash security in trust or in a separate account, and (iii) Landlord shall have
the right to commingle the cash security with its other funds. Landlord may use,
apply or retain the whole or any part of the cash security to the extent
required for the payment of any minimum rent, any additional rent or any other
sums payable hereunder as to which Tenant is in default or to the extend
required for the reimbursement to Landlord of any sum which Landlord may expend
or may be required to expend by reason of Tenant's default in respect to any of
the covenants, agreements or conditions of this lease. If Tenant shall fully and
faithfully comply with all of the covenants, agreements and conditions of this
lease, the cash security shall be returned to Tenant after the date fixed as the
expiration of the term of this lease and surrender of the Premises to Landlord.
If the Premises are sold to a bona fide purchaser, Landlord shall have the right
to transfer the aforesaid cash security to such purchaser, by which transfer
Landlord shall be released from all liability for the return thereof, and Tenant
shall look solely to the new landlord for the return thereof.
32. ADDITIONAL ARTICLES. The following Additional Articles 33 through 39
attached hereto are hereby made a part hereof.
<PAGE>
IN WITNESS WHEREOF, and in consideration of the mutual entry into this lease and
for other good and valuable consideration, and intending to be legally bound,
each party hereto has caused this agreement to be duly executed under seal.
Landlord:
Liberty Property Limited Partnership
By: Liberty Property Trust, Sole General Partner
Date signed:
5/23/95 /s/ James J. Mazzarelli
_____________________________ By: ________________________________
James J. Mazzarelli, Senior Vice President
Tenant:
Premier Solutions, Ltd.
Date signed:
5/2/95
_____________________________ By: _________________________________
Attest: _______________________________
(Corporate Seal)
CORPORATE RESOLUTION AND AUTHORIZATION OF AGENCY
It is hereby certified that a meeting of a quorum of the directors of the
corporation which is the Tenant herein was held _____________________________ ,
19___ and that it was resolved to enter into this lease and further that the
officers of the corporation and ___________________________________ as agent of
the corporation, have been authorized, empowered and directed in the corporate
name and with the corporate seal to execute and deliver any or all documents and
to pay all fees and charges necessary to carry the entry into and compliance
with this lease.
___________________________________
Secretary
<PAGE>
ATTACHED TO AND PART OF THE AGREEMENT OF LEASE
BETWEEN
LIBERTY PROPERTY LIMITED PARTNERSHIP
AND
PREMIER SOLUTIONS, LTD.
ARTICLE 33. MINIMUM ANNUAL RENT
-------------------
It is understood that Tenant shall pay Minimum Annual Rent in accordance
with the provisions of Paragraph 5(a) of this lease pursuant to the following
schedule:
<TABLE>
<CAPTION>
MINIMUM EQUAL
ANNUAL MONTHLY
RENT INSTALLMENT
---- -----------
<S> <C> <C>
July 1, 1995 - August 31, 1995 $168,750.00 $14,062.50
September 1, 1995 - August 31, 1996 $200,000.00 $16,666.67
September 1, 1996 - August 31, 1997 $300,000.00 $25,000.00
September 1, 1997 - August 31, 1998 $337,500.00 $28,125.00
September 1, 1998 - August 31, 1999 $337,500.00 $28,125.00
September 1, 1999 - August 31, 2000 $337,500.00 $28,125.00
September 1, 2000 - March 31, 2001 $337,500.00 $28,125.00
</TABLE>
ARTICLE 34. CONDITION OF PREMISES
---------------------
(a) Landlord has let the Premises in maid cleaned "as is" condition prior
to commencement of Tenants' improvement work and without any representation,
other than those specifically endorsed here on by Landlord, through its
officers, employees, servants, and/or agents. It is understood and agreed that
Landlord is under no duty to make repairs, alternations, or decorations at the
inception of this lease except as set forth on Exhibit "C".
(b) The Premises shall be completed by Tenant and its contractor, at
Tenant's sole expense, in accordance with the plans attached hereto as Exhibit
"B" (the "Plans") and the specifications attached hereto as Exhibit "C" (the
"Specifications"). Landlord hereby consents to the improvements Tenant intends
to make to the Premises in accordance with the Plans and Specifications. Tenant
is required to make all improvements compliant with ADA Regulations. Prior to
commencement of construction, Tenant shall deliver to Landlord a copy of a
Waiver of Lien as filed in the Office of the Prothonotary for Chester County,
Pennsylvania and duly executed by Tenant and all of Tenant's contractors. All
construction shall be done in a good and workmanlike manner and shall comply at
the time of completion with all applicable and lawful laws, ordinances,
regulations and orders of the federal state, county or other governmental
authorities having jurisdiction thereof.
(c) Landlord shall contribute $125,000 towards tenants improvements,
$70,000 to be paid on the Commencement Date and $55,000 to be paid 9 months
thereafter.
<PAGE>
ATTACHED TO AND PART OF THE AGREEMENT OF LEASE
BETWEEN
LIBERTY PROPERTY LIMITED PARTNERSHIP
AND
PREMIER SOLUTIONS, LTD.
ARTICLE 35. GOVERNMENTAL REGULATIONS (Article 11 continued)
-----------------------------------------------
Landlord represents that to the best of Landlord's knowledge the Premises
at the time of Tenant's occupancy shall comply with all applicable laws,
including ADA, building codes and zoning ordinances, regulations and orders of
the Federal, State, County or other government authorities having jurisdiction
at the time of Tenant's occupancy.
ARTICLE 36. BROKER
------
Tenant represents and warrants to Landlord that all of Tenant's dealings
with regard to the Premises have been solely with The Nichols Realty Services
Company and Liberty Property Limited Partnership, and that no other broker,
agent or party has shown the Premises to Tenant or negotiated with Tenant in
regard thereto.
ARTICLE 37. INSURANCE (Paragraph 7)
-----------------------
(a) Landlord shall maintain and keep in effect throughout the term of this
lease insurance against loss or damage to the Building or the Property by fire
and such other casualties as may be included within either fire and extended
coverage insurance or all-risk insurance, boiler insurance, plate glass
insurance, war risk insurance (when available) and such other insurance as
Landlord may desire or as may reasonably be required from time to time by any
mortgagee. Tenant shall pay to Landlord as additional rent (as included in
Subparagraph 5(c)) its Proportionate Share of premiums to be paid by Landlord
for insurance promptly upon being billed therefore.
ARTICLE 38. REPAIRS AND MAINTENANCE (Paragraph 8)
-------------------------------------
(a) Landlord shall maintain all HVAC systems appurtenant to the Premises
using a service firm (s) acceptable to Landlord which shall provide services and
maintenance in accordance with the manufacturer's recommendations and shall
provide a copy of the contract to Landlord. Tenant shall pay its proportionate
share of the cost of all maintenance of the HVAC systems appurtenant to the
Premises to be performed by Landlord pursuant to this Paragraph (a) as
additional rent, as included in Subparagraph 5(c), promptly upon being billed
therefore.
ARTICLE 39. EARLY TERMINATION
Tenant may terminate this Lease Agreement on March 31, 2000 ("Termination
Date") by giving landlord 12 months prior written notice and by paying 3 months
of the then minimum annual rent and base operating costs plus the unamortized
portion of tenant improvements (amortized at 10.5%) on or before the Termination
Date.
<PAGE>
ASSIGNMENT AGREEMENT
--------------------
This Agreement is made the 26th day of August, 1997, by and between
Safeguard Scientifics, Inc., a Pennsylvania corporation having offices at 435
Devon Park Drive, Wayne, Pennsylvania 19087 ("Tenant") and Analytical Graphics,
Inc., having offices a 660 American Avenue, King of Prussia, Pennsylvania 19406
("Assignee"). For purposes hereof, the "Effective Date" shall be the date
determined pursuant to Section 4.1 hereof.
WHEREAS Premier Solutions, Inc., Tenant's predecessor in interest, is the
tenant referred to under a certain Agreement of Lease dated May 23, 1995
("Lease) with Liberty Property Limited Partnership, a Pennsylvania limited
partnership, as landlord, ("Landlord") whereby said predecessor leased all that
certain known as 325 Technology Drive, Malvern, Pennsylvania ("Premises"), which
Premises is more particularly described in the copy of said Lease which is
attached hereto as Exhibit "A" and
WHEREAS all right, title and interest as tenant under said Lease presently
vests in herein Tenant by way of an assumption of said Lease from said
predecessor including all of the rights and obligations of tenant thereunder and
WHEREAS the Tenant and Assignee understand that the assignment is and shall
be subject to landlord's consent which shall be in the form attached hereto.
NOW THEREFORE, in consideration of One Dollar and for other good and
valuable consideration and intending to be legally bound, the Tenant hereby
assigns and the Assignee hereby assumes said Lease on the following terms and
conditions:
1.0 Assignment of Lease
-------------------
1.1 Effective as of the Effective Date Tenant hereby assigns to
Assignee all of its rights, title and interest as tenant under
the Lease and with respect to the Premises, and hereby delegates
to Assignee all of its obligations under the Lease accruing from
and after the Effective Date; and Assignee hereby accepts such
assignment and delegation as of the Effective Date and assumes
all of the obligations on the part of the tenant to be performed
including all rental payments under the Lease accruing from and
after the Effective Date.
2.0 Satisfaction of Assignment
--------------------------
2.1 The requirements of Paragraph 21 of the Lease, "Assignment and
Subletting", providing for the proposed assignee to execute an
assumption of liability agreement shall be deemed satisfied by
the execution by the parties of the Consent to Assignment
attached hereto.
3.0 Security Deposit
----------------
3.1 At the time of execution of the Lease, Tenant paid to Landlord
the amount of Twenty Thousand ($20,000) Dollars as a security
deposit
<PAGE>
to secure the tenant's performance under the Lease. Upon
execution hereof, Assignee shall deliver to Tenant its good check
in the aforesaid amount in exchange for which Tenant hereby
assigns to Assignee its rights in the existing security deposit
held by Landlord.
4.0 Acceptance of Premises by Assignee and Alterations
--------------------------------------------------
4.1 Assignee accepts the premises in its "as-is" condition, subject
to the Lease and subject further to the Tenant's removing its
personal property, if any, from the Premises and causing certain
alterations and improvements to be made in the Premises, all as
set forth in a separate letter agreement between Tenant and
Assignee, a copy of which is attached hereto as Exhibit "B". The
plans and specifications with respect to such alterations and
improvements shall be subject to the Landlord's approval as
provided in said Lease. Upon substantial completion of the
alterations and improvements the Tenant shall notify Assignee
thereof and the Effective Date shall be the fifth calender day
next following the date of said notice. Substantial completion
shall mean that the construction and other work for which Tenant
is responsible under Exhibit B hereof shall have been completed
to the extent that the Premises may be fully occupied by Assignee
for general office use, subject only to completion of minor
finishing work and adjustment of equipment (i.e. punchlist items
which do not interfere with Assignee's use of Premises and which
Tenant shall promptly correct) and Tenant has obtained a
certificate of occupancy for the Premises.
5.0 Tenant's Representation/Indemnities
-----------------------------------
5.1 Tenant hereby represents that:
(a) The copy of the Lease attached as Exhibit "A" hereto is
a true, complete and correct copy of the Lease, and
there has been no amendment, modification, or
supplement of any kind or nature varying the stated
terms and conditions thereof.
(b) The Lease is presently in full force and effect.
(c) The initial term of the Lease commenced on September 1,
1995, and expires March 31, 2001.
(d) All rentals and other charges due and payable under the
Lease by the Tenant thereunder have been paid through
the date hereof. In the event Landlord shall be
entitled to any Additional Rent under Paragraph 5 of
the Lease for the Operating Year in which the Effective
Date occurs, Assignee and Tenant agree that any such
amounts shall be equitably apportioned between them
after Assignee's receipt of Landlord's statement
therefor. The additional rent, i.e. for operating and
other costs, currently being paid by
<PAGE>
Tenant pursuant to the Lease is, according to Tenant's
records, $9,604.17 per month (no warranty intended)
which sum shall be subject to further adjustment as in
the Lease provided
(e) No notice has been received by Tenant of a default
under the Lease and there are no defaults otherwise by
Tenant under the Lease which have not been cured. The
"unamortized portion" of tenant improvements mentioned
in Lease paragraph 39 as of March 31, 2000 will be
$28,061.69.
5.2 Mutual Indemnifications- Assignee/Tenant
(a) Assignee hereby agrees to indemnify and hold Tenant
harmless from and against any and all losses, damages,
liabilities, actions, claims, costs, and expenses
(including reasonable attorney's fees) arising out of
or resulting from (i) Assignee's use and occupancy of
the Premises, (ii) any act or omission by Assignee or
any of its employees, agents, servants, or visitors,
and (iii) any failure by Assignee to perform or observe
any of the covenants and obligations to be performed
and observed by tenant under the Lease after the
Effective Date. Assignee's obligations under this
paragraph shall survive the expiration or termination
of this Assignment.
(b) Tenant hereby agrees to indemnify, defend and hold
Assignee harmless from and against any and all losses,
damages, liabilities, actions, claims, costs and
expenses including reasonable attorney's fees) arising
out of or resulting from (i) Tenant's use and occupancy
of the Premises prior to the Effective Date and; (ii)
any breach of any covenant or representation by Tenant
hereunder. Tenant's obligations under this Paragraph
shall survive the expiration or termination of this
Agreement.
The above indemnities shall be limited to "out of pocket" damages
of the indemnified party and shall not include consequential
damages such as business interruption or loss of business.
6.0 Additional Lease Provisions
---------- ----------------
6.1 Satellite Dish
--------------
Assignee shall have the right to install, at its own cost,
on the roof of the building of which the Premises is a part,
two (2) satellite dishes which shall be approximately three
(3) feet and nine (9) feet in diameter, respectively, the
location and
<PAGE>
installation of which shall be subject to the approval of
Landlord and Tenant's Association and shall (a) be done in a good
and workmanlike manner and in accordance with any pertinent laws
or regulations governing same and (b) shall not cause
interference with other electronic or similar equipment present
in the building. Assignee shall be responsible for and indemnify
and hold harmless Landlord and Tenant in accordance with
paragraph 18 of said Lease against any and all claims for
property damage and/or personal injury arising from the
installation, removal or presence of the satellite dishes on the
building and the installation and maintenance of the satellite
dishes shall be covered under Assignee's insurance to be
maintained under paragraph 7. Upon expiration or termination of
the Lease, the satellite dishes shall be removed and any damage
to the roof or the building caused thereby shall be promptly
repaired by Assignee.
6.2 Sign Installation
-----------------
Subject to Landlord's and Tenant's Association's consent, and the
consent of any governmental authority, if necessary, Assignee may
install, at its own cost and expense, a monument sign on the
existing monument located on the premises identifying the
Assignee.
6.3 Notices
-------
Any notice required to be given hereunder shall be in writing and
considered as properly given if hand-delivered (on the date of
delivery) and within five (5) days of mailing if sent by
certified or registered mail, return receipt requested, with
proper postage, to the respective address of the other party(ies)
as follows:
If to Tenant:
------------
Safeguard Scientifics, Inc.
435 Devon Park Drive
Wayne,PA 19087
Attention: Michael Miles
Fax: (610) 293-0601
If to Assignee:
--------------
Analytical Graphics,Inc.
325 Technology Drive
Malvern, PA 19355
Attention: William Broderick
Fax: (610) 337-3058
or the actual date of transmission, if sent by telefax or telecopy. Any
party may change its notice address by notice to the other parties.
<PAGE>
7.0 Security System and Utility Accounts
------------------------------------
7.1 Tenant shall leave in place for Assignee's use any existing
security system and, if system is "card access", Tenant will turn
over the access cards to Assignee for reprogramming.
7.2 Tenant and Assignee shall cooperate with each other in
transferring all utility accounts to the name of the Assignee as
of the Effective Date.
8.0 Miscellaneous
-------------
8.1 This Agreement together with the exhibits hereto constitutes the
entire agreement among the parties and supersedes any prior or
collateral agreement or understanding among the parties, and
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. No amendment
of this agreement shall be effective unless made in writing and
signed by a duly authorized representative of each party.
8.2 Assignee represents and warrants to Tenant and to Landlord that
all of its dealings in connection with this assignment were
conducted solely through the broker, Tactix Realty, whose
commission shall be the obligation of Tenant pursuant to a
separate letter agreement between Tenant or its authorized
representative and said broker.
8.3 All captions herein are for convenience only and are not deemed
to have any substantial meaning.
8.4 This Agreement shall be governed by laws of the Commonwealth of
Pennsylvania.
8.5 This Agreement may be executed in one or more counterparts, all
of which, taken together, shall constitute one and the same
agreement, and shall be binding upon the parties when each party
shall have executed at least one counterpart hereof.
IN WITNESS WHEREOF, each of the parties hereto have caused this agreement
to be fully executed by an authorized representative as of the day and year
first written above.
Safeguard Scientifics, Inc.
(Tenant)
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------
Date: 08/26/97
-------------------------
Analytical Graphics, Inc.
(Assignee)
By: /s/ Will. J. Broderick
---------------------------
Date: 08/26/97
-------------------------
<PAGE>
CONSENT TO ASSIGNMENT
---------------------
LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership
("Landlord") as Landlord under that certain Lease dated May 23, 1995 by and
between PREMIER SOLUTIONS LTD, ("Lease") and assigned by a Consent to Assignment
dated April 15, 1997 to SAFEGUARD SCIENTIFICS, INC. a Pennsylvania corporation
("Tenant"), as Tenant, subject to and specifically conditioned upon the
following terms and conditions, hereby grants its consent to the assignment by
Tenant, as assignor, to ANALYTICAL GRAPHICS, INC. ("Assignee") of Tenant's
rights and obligations as Tenant under the Lease ("the "Assignment") in
consideration of Tenant's and Assignee's acknowledgment and acceptance of the
following terms and conditions:
1. NO RELEASE. This Consent shall in no way release Tenant or any person or
entity claiming by, through or under Tenant from any of its obligations under
the Lease, as the same may be amended from time to time, without respect to any
provision to the contrary in the Assignment.
2. TENANT'S CONTINUING LIABILITY. Tenant shall be liable to Landlord for any
default under the Lease, whether such default is caused by Tenant or Assignee or
anyone claiming by or through either Tenant or Assignee, but the foregoing shall
not be deemed to restrict or diminish any right which Landlord may have against
Assignee pursuant to the Lease, in law or in equity for violation of the Lease
or otherwise.
3. ASSUMPTION OF LIABILITY. From and after the "Effective Date" as that term
is defined in a certain Assignment Agreement between Tenant and Assignee,
Assignee assumes all obligations of Tenant under the Lease (including, without
limitation, all duties to cause and keep Landlord and others named or referred
to in the Lease fully insured and indemnified in accordance with the terms of
the Lease) and from and after the "Effective Date" as that term is defined in a
certain Assignment Agreement between Tenant and Assignee, ratifies and agrees to
be bound by all the provisions of the Lease. Further, Assignee confirms that it
has reviewed the Lease with any legal counsel of Assignee's choosing and
Assignee agrees that Landlord shall have the right of direct action against
Assignee pursuant to the same remedies as are available against Tenant.
4. LIMITED CONSENT. This Consent shall be deemed limited solely to the
Assignment, and Landlord reserves the right to consent or to withhold consent
and all other rights under the Lease with respect to any other matters
including, without limitation, any further or additional assignments, subleases
or transfers of the Lease or any interest therein or thereto.
<PAGE>
5. DEFAULT. In the event that the Assignee shall be in default under the
Lease, Landlord shall forward to Tenant a copy of any default notice it may
serve on Assignee. Tenant, so long as it promptly and continually cures
such default, shall at its option, and with Landlord's written consent,
retain all rights and remedies against Assignee (and Landlord shall assign
same to Tenant) as are available to Landlord under the Lease, including the
recovery of damages and/or possession of the Premises. The foregoing shall
not be deemed to restrict or diminish any right which Landlord may have
against Assignee pursuant to the Lease.
6. SECURITY DEPOSIT. Landlord hereby acknowledges that Tenant has assigned to
Assignee all of Tenant's rights, if any; in any security deposit held by
Landlord pursuant to Article 31 of the Lease. Tenant shall have no further
rights to said security deposit. As of the date hereof Landlord
acknowledges that it is holding Twenty thousand ($20,000.00) Dollars as a
security deposit pursuant to Article 31 of the Lease.
7. LANDLORD'S ACKNOWLEDGES. Landlord acknowledges that (a) the copy of the
Lease attached as Exhibit "A" hereto is a true, complete and correct copy
of the Lease, and there has been no amendment, modification, or supplement
of any kind or nature varying the stated terms and conditions thereof and
(b) the Lease is presently in full force and effect and (c) the initial
term of the Lease commenced on September 1, 1995, and expires March 31,
2001 and (d) all rentals and other charges due and payable under the Lease
by the Tenant thereunder have been paid through the date hereof and (e) no
notice has been issued by Landlord of a default under the Lease and there
are no defaults otherwise by Tenant under the Lease which have not been
cured. Pursuant to Article 39 of the Lease, the unamortized portion of
tenant improvements as of March 31, 2000, will be $28,061.69. The
termination fee also includes three (3) months base rent and operating
expenses, both as of the time of termination.
8. PARTIES BOUND; PAYMENT OF EXPENSES. By executing this Consent, Tenant and
Assignee acknowledge and agree (a) to be bound by all terms and conditions
of Landlord's consent to the Assignment as set forth herein and (b) that
Landlord shall not be bound by this Consent unless Landlord receives a
fully executed original copy of this Consent, a certificate of Assignee's
insurance in compliance with Section 7(c) of the Lease and timely payment
for its expenses, which will be approximately One Thousand Five Hundred
($1,500.00) Dollars in connection with this Consent in accordance with
Section 18 of the Lease. Landlord shall give Assignee a copy of a receipt
for said expenses when they are paid in full.
9. DEFINED TERMS. All terms defined in the Lease shall have the meaning in
this Consent unless otherwise expressly set forth herein.
2
<PAGE>
IN WITNESS WHEREOF and intending to be legally bound and to bind their
respective successors and assigns, Landlord, Tenant and Assignee have executed
this Consent to Assignment as of the 28 day of August, 1997.
Witness/Attest: LANDLORD:
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: Liberty Property Trust,
Sole General Partner
/s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
- --------------------------- --------------------------------
Name:
Title: Sen Vice Pres
TENANT:
SAFEGUARD SCIENTIFICS, INC.
By:/s/ [SIGNATURE ILLEGIBLE]
- -------------------------- --------------------------------
Name: [SIGNATURE ILLEGIBLE]
Title: [ILLEGIBLE]
ASSIGNEE:
ANALYTICAL GRAPHICS, INC.
By:/s/ William J. Broderick
- -------------------------- --------------------------------
Name: William J. Broderick
Title: CFO
3
<PAGE>
EXHIBIT 10.5
ANALYTICAL GRAPHICS, INC.
INCENTIVE STOCK OPTION PLAN
ANALYTICAL GRAPHICS, INC., a corporation organized under the laws of the
Commonwealth of Pennsylvania (hereinafter referred to as the "Company"), hereby
adopts the following Incentive Stock Option Plan for certain of its officers and
key employees:
1. Purpose
-------
This Incentive Stock Option Plan (hereinafter referred to as the "Plan") is
intended to advance the interests of the Company by providing officers and other
key employees having substantial responsibility for the direction and management
of the Company with an opportunity to acquire a proprietary interest in the
Company and an additional incentive to promote its success and to encourage them
to remain in the employ of the Company. The Plan is intended to permit stock
options granted under the Plan to qualify as incentive stock options under
Section 422A of the Internal Revenue Code of 1986, as amended ("IRC"). All
options granted under the Plan are referred to as "Options".
2. Administration of Plan
----------------------
The Plan shall be administered by a Stock Option Committee (the "Committee")
comprised of one director of the Company and legal counsel who shall be
appointed by its Board of Directors. Members of the Committee shall not be
eligible to receive Options. The Committee may adopt rules and regulations from
time to time for carrying out the Plan. The interpretation and construction of
any provision of the Plan by the Committee shall be final and conclusive.
3. Eligibility
-----------
The Committee shall grant Options only to key employees of the Company who
perform services of major importance in the management, operation and
development of the business of the Company, and it shall determine the number of
shares to be allocated to each Option; provided that the number of shares
covered by each Option does not conflict with the permissible ownership of stock
under the terms of the Shareholder's Agreement executed on October 24, 1990 by
the common stockholders of the Company.
1
<PAGE>
4. Stock
-----
Upon approval of this Incentive Stock Option Plan, the Company shall
authorize the Committee to appropriate and to grant Options and to issue and
sell for the purpose of the Plan an aggregate of One Thousand (1,000) shares of
the Class A Voting Common Stock of the Company. Options to purchase any shares
issued pursuant to the Plan that, for any reason, expire or are terminated
unexercised may be reissued under the Plan provided that such reissuance does
not violate the provisions of IRC Section 422A and the limitations described in
Paragraph 10. The Company shall not be required to issue or deliver any
certificate for shares of its stock purchased upon exercise of any part of an
Option before the Board of Directors shall have been advised by counsel that all
applicable legal requirements have been complied with.
5. Tax Character of Options
------------------------
All Options granted under this Plan shall be Incentive Stock Options,
subject to the limitations described in Paragraph 10. To the extent that an
Option granted under this Plan exceeds the limitations described in Paragraph
10, the Option shall not be an Incentive Stock Option.
6. Price
-----
The purchase price of each share of stock covered by an Option granted
hereunder shall be equal to the fair market value per share of the Company's
common stock on the date the Option is granted.
7. Duration and Exercise of Options
--------------------------------
(a) The Option period shall be ten (10) years from the date the Option
is granted, except that such period shall be reduced with respect to any
Options outlined below in the event of death or termination of employment or
retirement of the Optionee; provided that the Committee may, in the case of
merger, consolidation, dissolution or liquidation, accelerate the expiration
date and the dates on which any part of the Option shall be exercisable for all
of the shares covered thereby, but the effectiveness of such acceleration, and
any exercise of the Option pursuant thereto in excess of the number of shares
for which it would have been exercisable in the absence of such acceleration,
shall be conditioned upon the consummation of the merger, consolidation,
dissolution or liquidation.
(b) The exercise of any Option and delivery of the optioned shares
shall be contingent upon receipt by the Company of the full
2
<PAGE>
purchase price in cash.
(c) No Option may be exercised after termination of employment of the
Optionee, or after notice of termination, except as hereinafter provided.
(d) Except as otherwise provided herein, no Option shall be
exercisable until the first anniversary of the grant thereof, when it shall
become exercisable for twenty-five percent of the shares covered thereby on each
of the first, second, third and fourth anniversaries of the grant thereof.
(e) If an Optionee shall die while employed by the Company, such
Option may be exercised ( to the extent that the Optionee would have been
entitled to do so at the date of his death) by the personal representative of
the Optionee within ninety (90) days of the date of the Optionee's death.
8. Non-transferability of Options
------------------------------
An Option, by its terms, shall not be transferable otherwise than by will
or by the laws of descent and distribution, and an Option may be exercised
during the lifetime of the Optionee only by him.
9. Effect of Stock Dividends, etc.
-------------------------------
The Committee shall make appropriate adjustments in the price of the shares
and the number allotted or subject to allotment if there are any changes in the
common stock of the Company by reason of stock dividends, stock splits, reverse
stock splits, recapitalizations, mergers or consolidations.
10. Limitations on Incentive Stock Options
--------------------------------------
Notwithstanding anything in this Plan to the contrary, the aggregate fair
market value (determined at the time of grant) of stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year may not exceed $100,000.
11. Expiration and Termination of the Plan
--------------------------------------
Options may be granted under the Plan at any time until the Plan is
terminated by the Board of Directors of the Company or until such earlier date
when termination of the Plan shall be required by applicable law. If not sooner
terminated, the Plan shall terminate automatically ten years from the date on
which the Plan was originally approved by the Board of Directors of the
Company.
3
<PAGE>
12. Amendments
----------
The Board of Directors of the Company may from time to time make such
changes in and additions to the Plan as it may deem proper; provided that no
change shall be made that increases (except pursuant to Paragraph 9) the total
number of shares covered by the Plan or effects any change in who may receive
Options under the Plan or materially increases the benefits accruing to
Optionees hereunder unless such change is authorized by the holders of the
common stock of the Company. Notwithstanding the foregoing, the Board of
Directors of the Company may amend the Plan, without stockholder approval, to
the extent necessary to cause Incentive Stock Options granted under the Plan to
meet the requirements of IRC Section 422A.
13. Interpretation
--------------
The terms of this Plan are subject to all present and future regulations
and rulings of the Secretary of the Treasury or his delegate relating to the
qualification of Incentive Stock Options under IRC Section 422A. If any
provision of the Plan conflicts with any such regulation or ruling, then that
provision of the Plan shall be void and of no effect.
14. Effective Date of the Plan
--------------------------
This Incentive Stock Option Plan shall become effective upon adoption by
the Board of Directors, subject to approval by the stockholders of the Company.
4
<PAGE>
EXHIBIT 10.6
ANALYTICAL GRAPHICS, INC.
NON-QUALIFIED STOCK OPTION PLAN
A. PURPOSE AND SCOPE
The purposes of this Plan are to encourage stock ownership by key
employees, consultants and advisors of Analytical Graphics, Inc. (herein called
the "Company") to provide an incentive for such employees, consultants and
advisors to expand and improve the profits and prosperity of the Company, and to
assist the Company in attracting and retaining key employees, consultants and
advisors through the grant of Options to purchase shares of the Company's common
stock.
B. STOCK TO BE OPTIONED
Subject to the provisions of Section K of the Plan, the maximum number of
shares of Stock that may be optioned or sold under the Plan is 100,000 shares.
Such shares may be treasury, or authorized, but unissued, shares of stock of the
Company.
C. ADMINISTRATION
The Plan shall be administered by the Stock Option Plan Committee
("Committee"). Two members of the Committee shall constitute a quorum for the
transaction of business. The Committee shall be responsible to the Board of
Directors ("Board") for the operation of the Plan, and shall make
recommendations to the Board with respect to participation in the Plan by
advisors of the Company, and with respect to the extent of that participation.
The
<PAGE>
interpretation and construction of any provision of the Plan by the Committee
shall be final, unless otherwise determined by the Board. No member of the
Board or the Committee shall be liable for any action or determination made by
him in good faith.
D. ELIGIBILITY
The Board, upon recommendation of the Committee, may grant Options to any
employee, consultant or advisor of the Company. Options may be awarded by the
Board at any time and from time to time to new participants, or to then
Participants, or to a greater or lesser number of Participants, as the Board,
upon recommendation by the Committee shall determine. Options granted at
different times need not contain similar provisions.
E. OPTION PRICE
The purchase price for Stock under each Option shall be determined by the
Committee at the time the option is granted.
F. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by the Board and
shall be evidenced by agreements in such form as the Board, upon recommendation
of the Committee, shall from time to time approve. Such agreements shall comply
with and be subject to the following terms and conditions:
1. SERVICE AGREEMENT. The Board may, in its discretion, include in any
Option granted under the Plan a condition that the Participant shall agree to
remain as an employee, consultant or advisor of, and to render services to, the
Company for a period of
<PAGE>
time (specified in the agreement) following the date that the option is granted.
No such agreement shall impose upon the Company, however, any obligation to
retain the services of the Participant for any period of time.
2. Time and Method of Payment. The Option Price shall be paid in full in
cash at the time an Option is exercised under the Plan. Otherwise, an exercise
of any Option granted under the Plan shall be invalid and of no effect. Promptly
after the exercise of an Option and the payment of the full Option Price, the
Participant shall be entitled to the issuance of a stock certificate evidencing
his or her ownership of such Stock. A Participant shall have none of the rights
of a shareholder until shares are issued to him, and no adjustment will be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
3. Number of Shares. Each Option Agreement shall state the total number
of shares of Stock to which it pertains.
4. Option Period and Limitations on Exercise of Options. The Board may,
in its discretion, provide that an Option may not be exercised in whole or in
part for any period or periods of time specified in the Option Agreement. Except
as provided in the Option Agreement (i.e., vesting), an Option may be exercised
in whole or in part at any time during its term. The Board shall have total
discretion regarding the vesting of exercise rights for Options issued pursuant
to this Plan. No Option may be exercised after the expiration of ten years from
the date it is granted. No Option may be exercised for a fractional share of
Stock.
<PAGE>
G. TERMINATION OF SERVICE
Except as provided in Section H below, if a Participant ceases to render
employment, consulting or advisory services to the Company his Options which are
not vested according to the terms of that Participant's Option Agreement shall
terminate immediately; provided, however, that if a Participant's cessation as
-------- -------
advisor ("cessation") to the Company is due to his retirement with the consent
of the Company, the Participant may, at any time within three months after such
cessation, exercise his Options to the extent that he was entitled to exercise
them on the date of cessation, but in no event shall any Option be exercisable
more than ten years from the date it was granted. The Committee may cancel an
Option during the three month period referred to in this paragraph, if the
Participant engages in employment or activities contrary, in the opinion of the
Committee, to the best interests of the Company. The Committee shall determine
in each case whether cessation shall be considered a retirement with the consent
of the Company, and, subject to applicable law, whether a leave of absence shall
constitute a cessation. Any such determination of the Committee shall be final
and conclusive, unless overruled by the Board.
H. RIGHTS IN EVENT DEATH
If a Participant dies while serving as an employee, consultant or advisor
to the Company, or within three months after having retired as an employee,
consultant or advisor with the consent of the Company, and without having fully
exercised his Options, the executors or administrators, or legatees or heirs, of
his estate
<PAGE>
shall have the right to exercise such Options to the extent that such deceased
Participant was entitled to exercise the Options on the date of his death;
provided, however, that in no event shall the Options be exercisable more than
- -------- -------
ten years from the date they were granted.
I. NO OBLIGATIONS TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Participant
to exercise such Option.
J. NONASSIGNABILITY
Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant. Options conferred under this Plan shall
not be assigned, pledged, or encumbered except as otherwise provided in the
Plan.
K. STOCK ADJUSTMENTS
In the event of a reorganization, recapitalization, change of shares, stock
split, or spinoff, stock dividend, reclassification, subdivision or combination
of shares, merger, consolidation, rights offering, or any other change in the
corporation structure or shares of the Company, the Board shall make such
adjustment as it, in its sole discretion, deems appropriate in the number and
kind of shares authorized by the Plan, in the number and kind of shares covered
by grants made under the Plan or in the purchase prices of outstanding Options,
and such adjustments shall be effective and binding on the Optionee and the
Company for all purposes of the Plan.
<PAGE>
In the event of a merger or consolidation in which the Company is not the
surviving corporation or the sale of all or substantially all of the Company's
assets, all outstanding Options, notwithstanding the terms of such Options,
shall become fully vested and exercisable prior to consummation of such merger
or sale of assets at such time(s) as the Board shall determine.
L. AMENDMENT AND TERMINATION
The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.
M. REPURCHASE OF SHARES ISSUED PURSUANT TO PLAN
Each Option Agreement executed pursuant to the Plan and all Shares issued
upon the exercise of an Option shall contain a provision that, if the employment
of the Optionee with the Company, or such Optionee's consulting or advisory
services shall be terminated for any reason whatsoever, involuntarily or
voluntarily, except for retirement, disability, or death, then the Company, at
its sole election, shall have the right to purchase any shares of Common Stock
which the Optionee acquired by exercising the Option prior to the date of such
termination at a price to be agreed upon
<PAGE>
jointly by the Company and the Optionee. In the event that the Company and the
Optionee cannot agree on a price, the price shall be equal to the result
obtained by dividing the book value of the Company by the number of Shares
outstanding immediately prior to the date of such termination. The term "book
value of the Company" shall mean that amount determined from the most recent
regular financial statement of the Company by subtracting the total amount of
its liabilities from the total net book value of its assets. The most recent
regularly prepared financial statement of the Company prior to the date of
termination shall be used for the purposes of such calculation but appropriate
adjustments shall be made, however, for dividends and other distributions to
shareholders generally which occur after the date of such financial statement.
Such provisions shall apply to and be binding upon all transfers or assignees of
such shares.
The repurchase rights granted to the Company pursuant to this paragraph M
shall terminate when the Company has made a public offering of its common stock
pursuant to the Securities Act of 1933, as amended.
N. RESERVATION OF SHARES OF STOCK
The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the
<PAGE>
Company for the lawful issuance and sale of its Stock hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell Stock as
to which the requisite authority has not been obtained.
N. EFFECTIVE DATE OF PLAN
The Plan shall be effective from the date that the Plan is approved and
adopted by the Board, that date being October 1, 1994.
<PAGE>
EXHIBIT 10.7
ANALYTICAL GRAPHICS, INC.
1995 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Certain Definitions. As used herein, the following definitions shall
-------------------
apply:
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Analytical Graphics, Inc., a Pennsylvania
-------
corporation.
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange for the last market trading day prior to the time of
determination as reported in the Wall Street Journal or such other source as the
Administrator deems reliable or;
(ii) If the Common Stock is quoted on Nasdaq (but not on the
National Market System thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1995 Stock Plan.
----
-2-
<PAGE>
(s) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of stock purchase rights under Section 11 below.
(t) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(u) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 150,700 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and officers.
-----------------------------------------------------
With respect to grants of Options or stock purchase rights to Employees who are
also officers or directors of the Company, the Plan shall be administered by (A)
the Board if the Board may administer the Plan in compliance with Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with
respect to a plan intended to qualify thereunder as a discretionary plan, or (B)
a Committee designated by the Board to administer the Plan, which Committee
shall be constituted in such a manner as to permit the Plan to comply with Rule
16b-3 with respect to a plan intended to qualify thereunder as a discretionary
plan. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or stock purchase rights to
- ---------
Employees or
-3-
<PAGE>
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the board or (B) a Committee designated by the
Board, which committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock option
plans, if any, of Pennsylvania corporate and securities laws and of the Code
(the "Applicable Laws"). Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administration shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and stock purchase rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and stock
purchase rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
-4-
<PAGE>
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation or waiver of
forfeiture restrictions regarding any Option or other award and/or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted; and
(x) to determine the terms and restrictions applicable to
stock purchase rights and the Restricted Stock purchased by exercising such
stock purchase rights.
(c) Effect of Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
-5-
<PAGE>
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
-6-
<PAGE>
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of the
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws. In making
its determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
-7-
<PAGE>
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
-------------------------
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's consulting relationship
or Continuous Status as an Employee as a result of his total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at
-8-
<PAGE>
the date of death. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of the Option shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock purchase rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer stock purchase rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the stock purchase right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the Committee
may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by
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<PAGE>
the Administrator in its sole discretion. In addition, the provisions of
Restricted Stock purchase agreements need not be the same with respect to each
purchaser.
(d) Rights as a Shareholder. Once the stock purchase right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock purchase right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or stock purchase right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing
to have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the stock purchase right,
if any, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
All elections by an Optionee to have Shares for this purpose shall be made
in writing in a form acceptable to the Administrator and shall be subject to the
following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or stock purchase right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
-10-
<PAGE>
13. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock spilt, reverse stock spilt, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Board shall notify the Optionee at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action. In
the event of a merger or consolidation of the Company with or into another
corporation or the sale of all or substantially all of the Company's assets
(hereinafter, a "merger"), the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent subsidiary of
such successor corporation. In the event that such successor corporation does
not agree to assume the Option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Optionee to
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. If the Board
makes an Option fully exercisable in lieu of assumption or substitution in the
event of a merger, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option will terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger, the Option or right confers the right to purchase, for
each Share of stock subject to the Option immediately prior to the merger, the
consideration (whether stock, cash, or other securities or property) received in
the merger by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
was not solely common stock of the successor corporation or its Parent, the
Board may, with the consent of the successor corporation and the participant,
provide for the consideration to be received upon the exercise of the Option,
for each Share of stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
-11-
<PAGE>
14. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
17. Reservations of Shares. The Company, during the term of this Plan,
----------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of
-12-
<PAGE>
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Agreements. Options and stock purchase rights shall be evidenced by
----------
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
-13-
<PAGE>
20. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
-14-
<PAGE>
EXHIBIT 10.8
ANALYTICAL GRAPHICS, INC.
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract and
--------------------
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, non-Employee members of the Board
and Consultants of the Company and its Subsidiaries and to promote the success
of the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or non-statutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder. Stock purchase rights may also be
granted under the Plan.
2. Certain Definitions. As used herein, the following definitions shall
-------------------
apply:
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock, $0.01 par value, of the
------------
Company.
(f) "Company" means Analytical Graphics, Inc., a Pennsylvania
-------
corporation.
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange for the last market trading day prior to
the time of determination as reported in the Wall Street Journal or such
other source as the Administrator deems reliable; or
(ii) If the Common Stock is quoted on Nasdaq (but not on the
National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high and low asked prices for the
Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1998 Stock Plan.
----
(s) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of stock purchase rights under Section 11 below.
(t) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
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<PAGE>
(u) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 500,000 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options or stock purchase rights to Employees who are
also officers or directors of the Company, the Plan shall be administered
by (A) the Board if the Board may administer the Plan in compliance with
Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3"), or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted in such a manner as to
permit the Plan to comply with Rule 16b-3. Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed
by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Rule 16b-3 with respect to a plan intended to qualify thereunder.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or stock purchase rights to
---------
Employees who are neither directors nor officers of the Company or to
Consultants, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in compliance with Rule 16b-3, or (B) a Committee
designated by the Board, which Committee shall be constituted in such a
manner as to satisfy the legal requirements relating to the administration
of incentive stock option plans, if any, of Pennsylvania corporate law and
applicable securities laws and of the Code (the "Applicable Laws"). Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board
may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
-3-
<PAGE>
substitution therefor, fill vacancies, however caused, and remove all
members of the Committee and thereafter directly administer the Plan, all
to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan
---------------------------
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and stock purchase rights may from time to time be granted
hereunder;
(iii) to determine whether and to what extent Options and stock
purchase rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but
not limited to, the share price and any restriction or limitation or waiver
of forfeiture restrictions regarding any Option or other award and/or the
shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common
Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount, if any, of any deemed earnings on any deferred amount during any
deferral period);
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(x) to determine the terms and restrictions applicable to
stock purchase rights and the Restricted Stock purchased by exercising such
stock purchase rights.
-4-
<PAGE>
(c) Effect of Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to terminate
his employment or consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the consummation of
------------
the initial public offering of the Company's Common Stock; provided the Board of
Directors has previously adopted the Plan, and provided further that the Plan is
approved by the shareholders of the Company as described in Section 19 of the
Plan. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
-5-
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws. In making
its determination as to the type of
-6-
<PAGE>
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
-------------------------
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's consulting relationship
or Continuous Status as an Employee as a result of his total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option
-7-
<PAGE>
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of the Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock purchase rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer stock purchase rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the stock purchase right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable
-8-
<PAGE>
upon the voluntary or involuntary termination of the purchaser's employment with
the Company for any reason (including death or Disability). The purchase price
for Shares repurchased pursuant to the Restricted Stock purchase agreement shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at such rate as the Committee may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the stock purchase right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock purchase right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or stock purchase right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the stock purchase right,
if any, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or
-9-
<PAGE>
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or stock purchase
right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another corporation or the sale of all or substantially all of the Company's
assets (hereinafter, a "merger"), the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Board shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger, the Option or right confers the
right to purchase, for each Share of stock subject to the Option immediately
prior to the merger, the consideration (whether stock, cash, or other securities
or property) received in the merger by holders of Common Stock for each Share
held
-10-
<PAGE>
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger was not solely common stock of the successor corporation
or its Parent, the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon the exercise
of the Option, for each Share of stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in Fair Market
Value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-11-
<PAGE>
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options and stock purchase rights shall be evidenced by
----------
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
20. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
-12-
<PAGE>
EXHIBIT 10.9
EXECUTION COPY
--------------
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT"), is entered into as of May 1, 1998
(the "CLOSING DATE"), between ANALYTICAL GRAPHICS, INC., a Pennsylvania
corporation (the "BORROWER") and PNC BANK, NATIONAL ASSOCIATION, both as the
sole lender under the Revolving Credit (as defined below) (referred to in such
capacity as the "REVOLVING CREDIT LENDER") and in its capacity as agent for the
"BANKS" identified on Annex I to this Agreement (referred to in such capacity as
-------
the "AGENT") and the Banks. References herein to "PNC" shall mean PNC Bank,
National Association, both in its capacity as the Revolving Credit Lender and
as the Agent.
The Borrower, PNC and the Banks with the intent to be legally bound, agree
as follows:
1. LOAN. The following loan and credit facilities (collectively referred to as
----
the "LOAN"), shall be subject to and governed by this Agreement:
$2,500,000 Senior Secured Revolving Credit ("REVOLVING CREDIT")
$4,000,000 Junior Secured Term Loan ("TERM LOAN")
The proceeds of each of the Revolving Credit and the Term Loan shall be used to
refinance existing indebtedness of the Borrower, to finance the working capital
requirements of the Borrower and to pay fees and expenses in connection
herewith.
2. TERMS AND CONDITIONS. Subject to the terms and conditions hereof and
--------------------
relying upon the representations and warranties herein set forth, the
Revolving Credit Lender and each of the Banks severally agree to make the
Loan to the Borrower at any time or from time to time on or after the
Closing Date in accordance with the terms of this Agreement.
2.1 REVOLVING CREDIT. The Revolving Credit shall have the following terms:
----------------
(a) Lender: The Revolving Credit Lender.
------
(b) Maturity Date: 18 months from the date of this Agreement or on
-------------
such later date as may be designated by the Revolving Credit
Lender by written notice from the Revolving Credit Lender to the
Borrower (such date referred to herein as the "REVOLVING CREDIT
TERMINATION DATE").
(C) Interest Rates:
--------------
(i) Primary: Prime Rate (as defined hereinafter) plus 1.0% per
-------
annum, but in no event greater than the maximum rate permitted by
law; the "PRIME RATE" shall be the rate of interest per annum
publicly announced by the Agent from time to time as its Prime
Rate in effect at its principal
<PAGE>
office in Pittsburgh, Pennsylvania.
(ii) Optional Interest Rate: in addition to the rate of interest
----------------------
set forth in the preceding subparagraph, the Revolving Credit
Lender and the Borrower may from time to time negotiate a fixed
or capped rate of interest at the time of the making an advance
under the Revolving Credit.
(d) Facility Fee: the Borrower agrees to pay to the Revolving Credit
------------
Lender a facility fee accruing from the Closing Date until the
Revolving Credit Termination Date in amount equal to .375% per annum,
calculated on the basis of a 360-day year for the actual days elapsed,
on the average daily amount of the unused portion of the Revolving
Credit during the period for which payment is made, payable quarterly
in arrears on the last day of each March, June, September and December
and on the Revolving Credit Termination Date or upon such earlier date
as the Revolving Credit shall terminate, as provided herein,
commencing on the first of such dates to occur after the date hereof.
(e) Borrowing Base/Availability: the Revolving Credit shall be
---------------------------
available in amounts determined in accordance with the Borrowing Base
Rider in the form attached hereto as Exhibit A.
---------
(f) Requests. Except as otherwise provided herein, the Borrower may
--------
from time to time prior to the Revolving Credit Termination Date
request the Revolving Credit Lender to make a Loan under the Revolving
Credit by delivering to the Revolving Credit Lender, not later than
12:00 Noon, Eastern Standard time a request by telephone immediately
confirmed in writing by letter, facsimile or telex in such form (a
"LOAN REQUEST"), it being understood that the Revolving Credit Lender
may rely on the authority of any individual making such a telephonic
request without the necessity of receipt of such written confirmation.
Each Loan Request shall be irrevocable and shall specify (i) the
proposed borrowing date; and (ii) the aggregate amount of the proposed
Loan.
(g) Revolving Credit Note. The Obligation of the Borrower to repay
---------------------
the aggregate unpaid principal amount of the Revolving Credit,
together with interest thereon, shall be evidenced by a promissory
note of the Borrower ("REVOLVING CREDIT NOTE") payable to the order of
the Revolving Credit Lender in a principal amount equal to the lesser
of (i) the maximum amount of the Revolving Credit and (ii) the
aggregate unpaid principal amount outstanding under the Revolving
Credit.
(h) Lockbox. The Revolving Credit Lender will establish a lockbox at
-------
the Revolving Credit Lender to which all Account Debtors of the
Borrower who are Official Bodies (as defined in the Borrowing Base
Rider) will submit all payments in respect of the Borrower's accounts
receivable. A form of Lockbox Agreement
2
<PAGE>
is attached hereto as Exhibit B.
---------
2.2 TERM LOAN. The Term Loan shall have the following terms:
---------
(a) Lender: the Banks, with PNC Bank, N.A. as the Agent.
------
(b) Maturity Date: January 2, 2001 or on such later date as may be
-------------
designated by the Agent (with the consent of the Banks) by written
notice from the Agent to the Borrower (such date referred to herein as
the "TERM LOAN TERMINATION DATE").
(c) Interest Rate: Prime Rate plus 3.5% per annum, but in no event
-------------
greater than the maximum rate permitted by law.
(d) Facility Fee: the Borrower shall pay to the Agent, for the
------------
ratable benefit of the Banks, a facility fee in the amount of $60,000,
payable with respect to the First Tranche. An additional fee of
$20,000 shall be payable at the time of funding the Second Tranche.
(e) Availability: the Term Loan shall be available in two tranches:
------------
(i) $3,000,000 at Closing (the "FIRST TRANCHE")
(ii) $1,000,000 within thirty (30) days of Closing, subject to
final approval by Agent and the Banks (the "SECOND TRANCHE")
(f) Requests: Except as otherwise provided herein, the Borrower may
--------
request the Agent to fund the Second Tranche of the Term Loan by
submitting a Loan Request to the Agent in the manner and subject to
the conditions set forth in Section 2.1(f).
(g) Term Notes. The Obligations of the Borrower to repay the
----------
aggregate unpaid principal amount of the Term Loan, together with
interest thereon, shall be evidenced by a promissory note or notes of
the Borrower (each a "TERM NOTE" and together with the Revolving
Credit Note, the "NOTES") payable to the order of the Bank(s) in a
face amount equal to the maximum amount of the Term Loan.
(h) Warrants. In consideration for the extension of the Term Loan,
--------
the Borrower hereby grants to the Agent, for the ratable benefit of
the Banks, warrants (the "WARRANTS") in accordance with and subject to
the terms of the Warrant Agreement attached hereto as Exhibit C (the
---------
"WARRANT AGREEMENT").
2.3 MANDATORY PREPAYMENTS.
---------------------
3
<PAGE>
(a) Initial Public Offering/Disposition of Assets. The Borrower shall
---------------------------------------------
prepay the Loan in an amount equal to 100% of the Net Proceeds (as
defined below) of (i) any sale or issuance of equity securities
pursuant to a public offering and (ii) any sale, lease, assignment,
exchange or other disposition for cash of any asset or group of
assets not made in the ordinary course of business (including, without
limitation, insurance proceeds paid as a result of any destruction,
casualty or taking of any property of the Borrower or any Subsidiary)
constituting five percent (5%) or more of the Borrowers assets as of
any date determination.
(b) Excess Cash Flow. Upon completion of each of its fiscal years
----------------
(beginning with the fiscal year ended December 31, 1998), Borrower
shall prepay the Loan in an amount equal to 100% of Excess Cash flow
(as defined below) for such fiscal year. Such prepayment shall be due
on or before the earlier of the date on which the Borrower is required
to deliver its annual Financial Statements in respect of each fiscal
year and the date on which such Financial Statements are actually
delivered.
(c) Application of Prepayments. Amounts prepaid pusuant to this
--------------------------
Section 2.3 shall be applied first to the prepayment of any amount by
-----
which the aggregate principal amount outstanding under the Revolving
Credit exceeds the Borrowing Base (as set forth in the Borrowing Base
Rider); provided, that no amounts advanced under the Revolving Credit
--------
in excess of $2,500,000 shall be subject to such repayment priority,
second to the installments of principal under the Term Loan until paid
------
in full, and third to prepayment of the Revolving Credit.
-----
(d) Prepayment Defined Terms. For purposes of this Section 2.3, "NET
------------------------
PROCEEDS" shall mean the aggregate cash consideration received by
the Borrower in connection with any transaction referred to in
Section 2.3(a) less the expenses (including out-of-pocket expenses)
incurred by the Borrower in connection with such transaction
(including, in the case of issuance of equity securities,
underwriters' commissions and fees) and the amount of any federal and
state taxes incurred with such transaction, in each case as certified
by the President or Chief Financial Officer of the Borrower at the
time of such transaction and "EXCESS CASH FLOW" shall mean for any
applicable fiscal year 50% of the Borrower's EBITDA (including non-
cash charges) in excess of Four Million Dollars ($4,000,000).
3. SECURITY.
--------
The security for repayment of the Loan shall include but not be
limited to the collateral, guaranties and other documents heretofore,
contemporaneously or hereafter executed and delivered to PNC (the "SECURITY
DOCUMENTS"), which shall secure repayment of the Loan, the Notes and all
other loans, advances, debts, liabilities, obligations, covenants and
duties owing by the Borrower to the Revolving Credit Lender
4
<PAGE>
and the Banks of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether arising under
any agreement, instrument or document, whether or not for the payment of
money, whether arising by reason of an extension of credit, opening of a
letter of credit, loan or guarantee or in any other manner, whether arising
out of overdrafts on deposit or other accounts or electronic funds
transfers (whether through automatic clearing houses or otherwise) or out
of the non-receipt of or inability to collect funds or otherwise not being
made whole in connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those acquired by
assignment or participation), absolute or contingent, joint or several, due
or to become due, now existing or hereafter arising, and any amendments,
extensions, renewals or increases and all costs and expenses of PNC
incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including
but not limited to reasonable attorneys' fees and expenses but subject to
the provisions of Section 10 (a)(i) (hereinafter referred to collectively
as the "OBLIGATIONS"). This Agreement (including the Addendum and any
Riders thereto), the Notes, the Warrant Agreement, the Security Documents
and the Guaranty and the Suretyship Agreement in substantially the form
attached as Exhibit D (the "SUBSIDIARY GUARANTY") and Subsidiary Security
---------
Documents (if applicable) are collectively referred to as the "LOAN
DOCUMENTS".
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby makes the following
------------------------------
representations and warranties to PNC which shall be true and correct as
of the date of this Agreement and the date of the making of a Loan, and
which shall be true and correct except as otherwise set forth on the
Addendum attached hereto and incorporated herein by reference (the
"ADDENDUM"). At any time after the creation or acquisition by the Borrower
of one or more Subsidiaries pursuant to the provisions of Section 12, any
restatement of the representations and warranties contained in this Section
4 (excepting Section 4.2 and 4.4) required in accordance with Section 8.2
shall be true and correct with respect to the Borrower and each of its
Subsidiaries then in existence or to the Borrower and all of its
Subsidiaries on a consolidated basis, as applicable.
4.1. EXISTENCE, POWER AND AUTHORITY. The Borrower is duly organized,
------------------------------
validly existing and in good standing under the laws of the
jurisdiction of its formation and has the power and authority to own
and operate its assets and to conduct the business in which it is
currently engaged, and is duly qualified, licensed and in good
standing to do business in all jurisdictions where its ownership of
property or the nature of its business requires such qualification or
licensing, except where the failure to be so qualified or licensed
would not have a material adverse effect on (a) the business,
operations, property, condition (financial or otherwise) or prospects
of the Borrower or (b) the validity or enforceability of this
Agreement or any of the other Loan Documents or the rights or remedies
of the Revolving Credit Lender, the Agent or the Banks hereunder or
thereunder (a "MATERIAL ADVERSE EFFECT"). The Borrower is duly
authorized to execute and deliver the Loan Documents, all necessary
action to authorize the execution and delivery of
5
<PAGE>
the Loan Documents has been properly taken, and the Borrower is duly
authorized to borrow under this Agreement and to perform all of the
other terms and provisions of the Loan Documents. As of the Closing
Date, the Borrower does not own, nor has it ever owned, any shares of
capital stock of or other equity interest in any corporation,
partnership, joint venture or other entity.
4.2. FINANCIAL STATEMENTS.
--------------------
(a) The Borrower has delivered or caused to be delivered to PNC its
balance sheet and income statement for the fiscal quarter ended March
31, 1998 (the "HISTORICAL FINANCIAL STATEMENTS"). The Historical
Financial Statements fairly present the financial condition, assets
and liabilities, whether accrued, absolute, contingent or otherwise
and the results of the Borrower's operations for the period specified
therein. The Historical Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied from period to period subject in the case of
interim statements to normal year-end adjustments and to any comments
and notes reasonably acceptable to PNC.
(b) The Borrower has delivered to PNC projections of its anticipated
financial performance for the period beginning on January 1, 1998 and
running through December 31, 2000 (the "FINANCIAL PROJECTIONS").
4.3. NO MATERIAL ADVERSE CHANGE. Since the date of the Historical Financial
--------------------------
Statements, the Borrower has not suffered any damage, destruction or
loss to its assets, and no event or condition has occurred or exists,
which has had or could reasonably be excepted to have a Material
Adverse Effect. Since the preparation of the financial Projections,
there has been no material adverse change as against such Financial
Projections
4.4. BINDING OBLIGATIONS. The Borrower has full power and authority to
-------------------
enter into the transactions provided for in this Agreement and has
been duly authorized to do so by appropriate action of its Board of
Directors; and the Loan Documents, when executed and delivered by the
Borrower, will constitute the legal, valid and binding obligations of
the Borrower enforceable in accordance with their terms, subject to
the effects of applicable bankruptcy, insolvency, reoraganization,
fraudulent conveyance, moratorium or other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
4.5. NO DEFAULTS OR VIOLATIONS. These does not exist any Event of Default
-------------------------
under this Agreement or any material default or violation by the
Borrower of or under any of the terms, conditions or obligations of:
(i) its articles of incorporation or bylaws;
6
<PAGE>
(ii) any material indenture, mortgage, deed of trust, franchise, permit
contract, agreement, or other instrument to which it is a party or by
which it is bound; or (iii) any law, regulation, ruling, order,
injunction, decree, condition or other requirement applicable to or
imposed upon it by any law, the action by any court or any governmental
authority or agency; and the consummation of this Agreement and the
transactions set forth herein will not result in any such material default
or violation.
4.6. TITLE TO ASSETS. The Borrower has valid title to, or a valid leasehold
---------------
interest in, the assets reflected on the Historical Financial Statements,
free and clear of all liens and encumbrances, except for (i) current taxes
and assessments not yet due and payable, (ii) liens and encumbrances, if
any, reflected or noted in the Historical Financial Statements, (iii)
assets disposed of by the Borrower in the ordinary course of business
since the date of the Historical Financial Statements, (iv) those liens or
encumbrances specified on the Addendum and (v) any liens or encumbrances
permitted by Section 6.2.
4.7. LITIGATION. Except as set forth on the Addendum, there are no actions,
----------
suits, proceedings or governmental investigations pending or, to the
Borrower's knowledge, threatened against the Borrower, which could
reasonably be expected to result in a material adverse change in its
business, assets, operations, financial condition or results of
operations.
4.8. TAX RETURNS. The Borrower has filed or caused to be filed all tax returns
-----------
that are required to be filed by it in connection with any federal, state
or local tax, duty or charge levied, assessed or imposed upon it or its
property or withheld by it, including unemployment, social security and
similar taxes and all of such taxes, have been either paid or adequate
reserve or other provision has been made.
4.9. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which the
----------------------
Borrower may have any liability complies in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), including minimum funding requirements, and during the
five year period prior to the date on which this representation is made or
deemed made, (i) no Prohibited Transaction (as defined under ERISA) has
occurred with respect to any such plan, (ii) no Reportable Event (as
defined under Section 4043 of ERISA) has occurred with respect to any such
plan which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Section 4042 of ERISA, (iii) the Borrower has
not withdrawn from any such plan or initiated steps to do so, and (iv) no
steps have been taken to terminate any such plan.
4.10. ENVIRONMENTAL MATTERS. The Borrower is in compliance, and has during the
---------------------
last five years been in compliance, in all material respects, with all
Environmental Laws, including, without limitation, all Environmental Laws
in jurisdictions in
7
<PAGE>
which the Borrower owns or operates, or has owned or operated, a facility
or site, stores any of the collateral which secures the Obligations,
arranges or has arranged for disposal or treatment of hazardous substances
or solid waste, accepts or has accepted for transport any hazardous
substances or solid waste or holds or has held any interest in real
property or otherwise. Except as otherwise disclosed on the Addendum, no
litigation or proceeding arising under, relating to or in connection with
any Environmental Law is pending or, to the best of the Borrower's
knowledge, threatened against the Borrower, any real property which the
Borrower holds or has held an interest or any past or present operation of
the Borrower. No release, threatened release or disposal of hazardous
waste or solid waste is occurring, or to the Borrower's knowledge has
occurred, on, under or to any real property in which the Borrower holds
any interest or performs any of its operations, in material violation of
any Environmental Law. As used in this Section, "LITIGATION OR PROCEEDING"
means any demand, claim notice, suit, suit in equity, action,
administrative action, investigation or inquiry whether brought by a
governmental authority or other person, and "ENVIRONMENTAL LAWS" means all
provisions of laws, statutes, ordinances, rules, regulations, permits,
licenses, judgments, writs, injunctions, decrees, orders, awards and
standards promulgated by any governmental authority concerning health,
safety and protection of, or regulation of the discharge of substances
into, the environment.
4.11. YEAR 2000. The Borrower has reviewed the areas within its business and
---------
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis the risk that certain
computer applications used by the Borrower may be unable to recognize and
perform properly date-sensitive functions involving dates prior to and
after December 31, 1999 (the "YEAR 2000 PROBLEM"). The Year 2000 Problem
will not have, and is not reasonably expected to have, a Material Adverse
Effect.
4.12. INTELLECTUAL PROPERTY. The Borrower owns or has the right to use all
---------------------
patents, patent rights, trademarks, trade names, service marks,
copyrights, intellectual property, technology, know-how and processes
necessary for the conduct of its business as currently conducted, except
for any such failure to own or license which would not have a Material
Adverse Effect.
4.13. REGULATORY MATTERS. No part of the proceeds of the Loan will be used for
------------------
"purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time in
effect or for any purpose which violates the provisions of the Regulations
of such Board of Governors.
4.14. SOLVENCY. On the Closing Date, after giving effect to the transactions
--------
contemplated by the Loan Documents, the Borrower will have sufficient cash
flow to enable it to pay its debts as the mature.
8
<PAGE>
4.15. DISCLOSURE. None of the Loan Documents contains any untrue
----------
statement of material fact or omits to state a material fact
necessary in order to make the statements contained in this
Agreement or the Loan Documents not misleading in light of the
circumstances in which they were made.
4.16. REQUIRED CONSENTS. Except as set forth on the Addendum, all
-----------------
consents, approvals and authorizations required by any
applicable law or any agreement to which the Borrower is a party
in connection with the execution, delivery and performance of
this Agreement and the other Loan Documents by the Borrower have
been obtained.
5. AFFIRMATIVE COVENANTS. The Borrower agrees that from the date of
---------------------
execution of this Agreement until all Obligations have been fully paid
and any commitments of the Revolving Credit Lender or any Bank to the
Borrower have been terminated, the Borrower will comply at all times
with the following affirmative covenants.
5.1. BOOKS AND RECORDS. The Borrower shall, and shall cause each of
-----------------
its Subsidiaries, if any, to maintain books and records in
accordance with GAAP and give representatives of PNC access
thereto at all reasonable times following notice from PNC,
including permission to examine, copy and make abstracts from
any of such books and records and such other information as PNC
may from time to time reasonably request.
5.2. INTERIM FINANCIAL STATEMENTS; CERTIFICATE OF NO DEFAULT;
--------------------------------------------------------
ACCOUNTS RECEIVABLE. The Borrower shall furnish PNC within 20
-------------------
days after the end of each calendar month a detailed report on
its accounts receivable in such reasonable detail consistent
with the form currently used by the Borrower's management. A
copy of the most recently prepared such form is attached hereto
as Exhibit E. The Borrower shall also provide within 45 days of
---------
the end of each quarter its Financial Statements (as defined
hereinafter) for such period, in reasonable detail, certified by
the President, Chief Executive Officer or Chief Financial
Officer of the Borrower and prepared in accordance with GAAP
applied from period to period subject to any notes and comments
reasonably acceptable to PNC. The Borrower shall also deliver
(a) a monthly certificate signed by such officer which
identifies all accounts receivable for which the Account Debtor
(as defined in the Borrowing Base Rider) is an agency or
political subdivision of the United States federal government,
together with such information with respect to each such account
receivable required to complete all the forms attached hereto as
Exhibit F, as such forms may be amended or supplemented from
---------
time to time, under the Assignment of Claims Act of 1940, as
amended, and (b) a quarterly certificate which verifies
compliance with applicable financial covenants for the period
then ended and whether any Event of Default exists, and, if so,
the nature thereof and the corrective measures the Borrower
proposes to take. "FINANCIAL STATEMENTS" means the Borrower's
consolidated (and, if required by the Agent in its reasonable
9
<PAGE>
discretion, consolidating) balance sheets, income statements and statements
of cash flows for the year or (excepting statements of cash flows) quarter
together with year-to-date figures and comparative figures for the
corresponding periods of the prior year.
5.3. ANNUAL FINANCIAL STATEMENTS. The Borrower shall furnish the Borrower's
---------------------------
Financial Statements to PNC within 90 days after the end of each fiscal
year of the Borrower. Those Financial Statements will be prepared in
accordance with GAAP and audited by Coopers & Lybrand or another
independent certified public accountant of nationally recognized standing.
Audited Financial Statements shall contain the unqualified opinion of
Coopers & Lybrand or another independent certified public accountant of
nationally recognized standing and its examination shall have been made in
accordance with GAAP consistently applied from period to period. The
Borrower will also provide filings made with any regulatory authority and
such other information reasonably requested by PNC, from time to time.
5.4. PAYMENT OF TAXES AND OTHER CHARGES. The Borrower shall, and shall cause
----------------------------------
each of its Subsidiaries, if any, to pay, discharge or otherwise satisfy
when due all indebtedness and all taxes, assessments, charges, levies and
other liabilities imposed upon the Borrower, or any such Subsidiary, as
applicable, its income, profits, property or business, except those which
currently are being contested in good faith by appropriate proceedings and
for which the Borrower and its Subsidiaries, as applicable, shall have set
aside adequate reserves in accordance with GAAP or made other adequate
provision with respect thereto acceptable to PNC.
5.5. MAINTENANCE OF EXISTENCE, OPERATION AND ASSETS. The Borrower shall, and
----------------------------------------------
shall cause each of its Subsidiaries, if any, to continue to engage in
business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take
all reasonable action to maintain all rights, privileges and franchises
necessary in the normal conduct of its business except as otherwise
permitted pursuant to Sections 6.5 or 6.6; keep its properties in good
operating condition and repair; and make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto.
5.6. INSURANCE. The Borrower shall, and shall cause each of its Subsidiaries, if
---------
any, to maintain with financially sound and reputable insurers, insurance
with respect to its property and business against such casualties and
contingencies, of such types and in such amounts as is customary for
companies engaged in the same or similar business. With respect to
insurance of any and all Collateral (as defined in Security Agreement), the
provisions in the Security Documents relating to insurance will control.
10
<PAGE>
5.7. COMPLIANCE WITH LAWS. The Borrower shall, and shall cause each of
--------------------
its Subsidiaries, if any, to comply with all laws applicable to the
Borrower or any such Subsidiary and to the operation of its business
(including any statute, rule or regulation relating to employment
practices and pension benefits or to environmental, occupational and
health standards and controls) except to the extent that failure to
comply could not, in the aggregate, have a Material Adverse Effect.
5.8. BANK ACCOUNTS. The Borrower shall establish (within a commercially
-------------
reasonable period after the Closing Date) and maintain at PNC all of
the Borrower's primary depository accounts.
5.9. FINANCIAL COVENANTS. The Borrower (and, as applicable, its
-------------------
Subsidiaries, on a consolidated basis) shall comply with all of the
financial and other covenants, if any, set forth on the Addendum,
subject to all applicable notice and cure periods set forth herein.
5.10. ADDITIONAL REPORTS. The Borrower shall provide prompt written notice
------------------
to PNC of the occurrence of any of the following of which the
Borrower or any of its Subsidiaries obtains knowledge (together with
a description of the action which the Borrower or any such
Subsidiary proposes to take with respect thereto): (i) any Event of
Default or any event specified in Section 7, which, with the giving
of notice, lapse of time or both, would become an Event of Default,
(ii) any litigation filed by or against the Borrower in which the
amount involved is $100,000 or more and not covered by insurance,
(iii) any Reportable Event or Prohibited Transaction with respect to
any Employee Benefit Plan(s) (as defined in ERISA) or (iv) any event
which might reasonably be expected to result in a material adverse
change in the business, assets, operations, financial condition or
results of operation of the Borrower or any such Subsidiary, as
applicable.
5.11. MEETINGS OF DIRECTORS. PNC shall be entitled to have one
---------------------
representative attend meetings of the board of directors of the
Borrower for the purpose of observing such proceedings, unless such
attendance would be inappropriate as determined by the chairman of
the Borrower's Board of Directors.
6. NEGATIVE COVENANTS. The Borrower covenants and agrees that from the date of
------------------
execution of this Agreement until all Obligations have been fully paid and
any commitments of the Revolving Credit Lender and the Banks to the
Borrower have been terminated, the Borrower shall not, and shall not permit
any of its Subsidiaries to, without the prior written consent of PNC.
6.1. INDEBTEDNESS. Create, incur, assume or suffer to exist any
------------
indebtedness for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in
accordance with customary practices) ("INDEBTEDNESS"), except:
11
<PAGE>
(a) Indebtedness under the Loan Documents;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(c) Indebtedness identified on the Addendum and renewals, extensions
and modifications thereof which do not increase the principal thereof;
(d) Indebtedness of a corporation which becomes a Subsidiary after
the date hereof, provided that (i) such Indebtedness existed at the
time such corporation became a Subsidiary and was not created in
anticipation thereof and (ii) immediately after giving effect to the
acquisition of such corporation by the Borrower no Event of Default
shall have occurred and be continuing;
(e) Additional Indebtedness in an amount not to exceed in the
aggregate at any time Two Million Five Hundred Thousand Dollars
($2,500,000), less amounts funded under the Second Tranche; and
(f) Indebtedness of the Borrower, as set forth on the Addendum, the
payment of the principal thereof which is subordinated to the prior
payment in full of the principal and interest (including post-petition
interest) on the Notes and all other Obligations of the Borrower to
PNC and the Banks hereunder ("SUBORDINATED DEBT") and such other
Subordinated Debt as shall from time to time be approved by PNC and
the Banks.
6.2. LIENS. Create, incur, assume or permit to exist any mortgage, pledge,
-----
encumbrance or other security interest or lien (collectively "LIENS")
upon any assets or revenues now owned or hereafter acquired except
for:
(a) Liens for taxes, assessments or similar charges which are not yet
due and payable;
(b) The following, (i) if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been
stayed and continue to be stayed or (ii) if a final judgment is
entered and such judgment is discharged within thirty (30) days of
entry, and in either case they do not materially affect the Collateral
or, in the aggregate, materially impair the ability of any of the
Borrower or any Subsidiary to perform its Obligations hereunder or
under the other Loan Documents:
(A) Liens for taxes, assessments or charges due and payable and
subject to interest or penalty, provided that the Borrower or
--------
Subsidiary, as applicable, maintains such reserves or other
appropriate provisions as shall be required by GAAP and pays all
such taxes, assessments or charges
12
<PAGE>
forthwith upon the commencement of proceedings to foreclose any such lien;
or
(B) Liens of mechanics, materialmen, warehousemen, repairmen, carriers, or
other statutory nonconsensual liens;
(c) Pledges or deposits made in the ordinary course of business to secure
payment of workmen's compensation, or to participate in any fund in connection
with workmen's compensation, unemployment insurance, old-age pensions or other
social security programs;
(d) Good-faith pledges or deposits made in the ordinary course of business to
secure performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, not in excess of the aggregate amount due thereunder,
or to secure statutory obligations, or surety, appeal, indemnity, performance or
other similar bonds required in the ordinary course of business;
(e) Liens consisting of zoning restrictions, easements or other restrictions on
the use of real property, none of which materially impairs the use of such
property or the value thereof, and none of which is violated in any material
respect by existing or proposed structures or land use;
(f) Liens on the property or assets of a corporation which becomes a Subsidiary
after the Closing Date securing Indebtedness permitted by Section 6.1(d),
provided that (i) such Liens existed at the time such corporation became a
- --------
Subsidiary and were not created in anticipation thereof, (ii) any such Lien is
not spread to cover any property or assets of such corporation after the time
such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness
secured thereby is not increased;
(g) Liens (not otherwise permitted hereunder) upon tangible property securing
Indebtedness of the Borrower or any of its Subsidiary or deferred payments by
such Borrower or Subsidiary for the purchase of such tangible property; provided
that (i) such Liens shall be created substantially simultaneously with the
acquisition of such tangible property, (ii) such Liens do not any time encumber
any property other than the property financed by such Indebtedness, (iii) the
amount of the Indebtedness secured thereby is not increased, and (iv) the
principal amount of the Indebtedness secured by such Lien shall at not time
exceed 90% of the original purchase price of such property at the time it was
acquired;
(h) Liens specified on the Addendum; and
(i) Liens created pursuant to the Security Documents.
13
<PAGE>
6.3. LOANS AND INVESTMENTS. Make or suffer to remain outstanding any loan or
---------------------
advance to, or purchase, acquire, hold beneficially or own any stock,
bonds, notes or securities of, or any partnership interest (whether general
or limited) or limited liability company interest in, or any other
investment or interest in, or make any capital contribution to, any other
person or entity, or agree, become or remain liable to do any of the
foregoing, except:
(a) trade credit extended on usual and customary terms in the ordinary
course of business;
(b) equity interests in any Subsidiary;
(c) loans and advances by the Borrower to its wholly owned Subsidiaries
and by such Subsidiaries to the Borrower not to exceed $200,000 in the
aggregate at any one time outstanding;
(d) loans and advances to officers of the Borrower or its Subsidiaries not
to exceed $50,000 in the aggregate at any one time outstanding;
(e) loans by the Borrower to employees in connection with management
incentive plans not to exceed $50,000 in the aggregate at any one time
outstanding;
(f) advances to employees to meet expenses incurred by such employees in
the ordinary course of business; and
(g) investments disclosed on the Borrower's Historical Financial
Statements or acceptable to PNC.
6.4. GUARANTEES. Become directly or indirectly liable for, or assume, guarantee,
----------
become surety for, endorse or otherwise agree, become or remain directly or
contingently liable upon or with respect to, any obligation or liability of
any other person or entity, except for the guaranty of the Obligations of
the Borrower provided by each Subsidiary of the Borrower pursuant to the
Subsidiary Guaranty and any guaranty of the Borrower of Indebtedness of the
Subsidiaries permitted hereunder.
6.5. MERGER OR TRANSFER OF ASSETS. Subject to the provisions of Section 2.3,
----------------------------
merge or consolidate with or into any person, firm or corporation or lease,
sell, transfer or otherwise dispose of property or assets (excluding the
sale of inventory in the ordinary course of business) with an aggregate
book value in excess of Two Hundred Thousand Dollars ($200,000), whether
now owned or hereafter acquired, except:
14
<PAGE>
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the
--------
continuing or surviving corporation) or with or into any one or more
wholly owned Subsidiaries of the Borrower; provided that the wholly
--------
owned Subsidiary or Subsidiaries shall be the continuing or surviving
corporation;
(b) any wholly owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Borrower or any wholly owned Subsidiary of the
Borrower and the Borrower may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to any wholly owned Subsidiary; and
(c) the Borrower or any Subsidiary may sell or transfer assets which
are obsolete or no longer necessary or required in the conduct of the
Borrower's or such Subsidiary's business.
6.6. CHANGE IN BUSINESS, MANAGEMENT OR OWNERSHIP. Make or permit any
-------------------------------------------
material change in the nature of its business as carried on as of the
date hereof, in the composition of its current executive management,
or in its equity ownership other than (i) transfers to heirs and
beneficiaries of a stockholder upon the death or incapacity of a
stockholder, (ii) in connection with a bona fide underwritten initial
public offering of the capital stock of the Borrower, or (iii)
pursuant to the provisions of an employee stock option plan adopted by
the Borrowers board of directors, not to exceed 400,000 shares of the
Borrower's common stock issued after the Closing Date. For purposes of
this Section 6.6, a "MATERIAL CHANGE" in the composition of the
Borrower's executive management shall mean the termination, for any
reason, of more than two of the individuals holding the following
executive management positions as of the Closing Date: Chief Executive
Officer, Chief Financial Officer and Executive Vice President of
Sales.
6.7. DIVIDENDS. Declare or pay any dividends on or make any distribution
---------
with respect to any class of its equity or ownership interest, or
purchase, redeem, retire or otherwise acquire any of its equity except
dividends or other distributions payable by any Subsidiary to the
Borrower or another Subsidiary.
6.8. SUBSIDIARIES. Own or create directly or indirectly any Subsidiaries
------------
other than any Subsidiary (as defined in Section 12) formed after the
Closing Date which joins this Agreement as a Guarantor pursuant to the
terms of Section 12.
7. EVENTS OF DEFAULT. The occurrence of any of the following will be deemed to
-----------------
be an "EVENT OF DEFAULT":
7.1. PAYMENT DEFAULT. The Borrower shall fail to pay any payment of
---------------
principal or any payment of interest, in each case within ten (10)
business days following the
<PAGE>
date when due, in respect of the Obligations.
7.2. COVENANT DEFAULT. The Borrower or any Subsidiary shall default in the
----------------
performance of, or violate any of, the covenants or agreements
contained any Loan Document, which default shall not have been cured
within fifteen (15) business days after the occurrence thereof.
7.3. BREACH OF WARRANTY. Any representation or warranty made or deemed made
------------------
by the Borrower or any Subsidiary in any Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement
or any such other Loan Document shall prove to have been incorrect in
any material respect on or as of the date made or deemed made.
7.4. BANKRUPTCY OR INSOLVENCY. A proceeding shall have been instituted in a
------------------------
court having jurisdiction over the Borrower or any Subsidiary seeking
a decree or order for relief in respect of Borrower or such Subsidiary
in an involuntary case under any applicable bankruptcy, insolvency
reorganization or other similar law and such involuntary case shall
remain undismissed or unstayed and in effect for a period of sixty
(60) consecutive days, or Borrower or any Subsidiary shall commence a
voluntary case under any such law or consent to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator,
conservator (or other similar official).
7.5. OTHER DEFAULT. The occurrence of an Event of Default as defined in any
-------------
of the Loan Documents.
Upon the occurrence of an Event of Default, and at any time thereafter, PNC may
declare all Obligations hereunder immediately due and payable and will have all
rights and remedies (which are cumulative and not exclusive) specified in the
Notes and the Security Documents and available under applicable law or in
equity.
8. CONDITIONS. The obligations of the Revolving Credit Lender and each of the
----------
Banks to make any advance of fund any tranche, as applicable, under the
Loan is subject to the following conditions being satisfied as of the date
of the advance:
8.1. FUNDING OF THE FIRST TRANCHE AND INITIAL ADVANCE UNDER THE REVOLVING
--------------------------------------------------------------------
CREDIT. On the Closing Date:
------
(a) No Event of Default. No Event of Default or event which with the
-------------------
passage of time, provision of notice or both would constitute an
Event of Default shall have occurred and be continuing.
(b) Authorization Documents. The Borrower shall have furnished to PNC
-----------------------
16
<PAGE>
certified copies of resolutions of its Board of Directors authorizing the
execution of this Agreement, the Warrant Agreement, the Notes and the
Security Documents, or other proof of authorization satisfactory to the
agent.
(c) Delivery of Loan Documents. The borrower shall have delivered to PNC
--------------------------
the Loan Documents and such other instruments and documents which PNC may
reasonably request in connection with the transactions provided for in this
Agreement.
(d) Opinion of Counsel. Counsel for the borrower shall have delivered to
------------------
PNC, for the benefit of each Bank, a written opinion, dated the Closing
Date and in form and substance satisfactory to PNC and its counsel.
(e) Representations and Warranties. The representations and warranties of
------------------------------
the Borrower to PNC shall be true and correct in all material respects on
and as of such date (except representations and warranties which expressly
relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or
times referred to therein).
(f) Opening Balance Sheet. the Borrower shall furnish to PNC with its
---------------------
Balance sheet dated March 31, 1998 (the "OPENING BALANCE SHEET").
(g) Power of Attorney. The Borrower shall furnish to PNC with a power of
-----------------
attorney, substantially in the form of Exhibit G, authorizing PNC to
---------
execute and deliver on the Borrower's behalf any and all assignment and
notice documentation required to assure compliance with the federal
Assignment of Claims Act of 1940, as amended.
(h) Consents. The Borrower shall have obtained all consents required by
--------
Section 4.16.
8.2. SECOND TRANCHE AND ADDITIONAL ADVANCES. At the time of funding the Second
--------------------------------------
Tranche or making any additional advances under the Revolving Credit and
after giving effect to any such proposed extensions of credit: the
representations and warranties of the borrower and each of its
Subsidiaries, if any contained in the Loan Documents shall be true on and
as of the date of such funding or advance with the same effect as though
such representations and warranties had been made on and as of such date
(except representations and warranties which expressly relate soley to an
earlier date or time, which representations and warranties shall be true
and correct on and as of the specific dates or times referred to therein)
and the Borrower and each of its Subsidiaries, if any, shall have performed
and complied with all convenants and conditions hereof; no Event of Default
or any event specified in Section 7, which, with the giving of notice,
lapse of time or both, would become an Event of Default, shall have
occurred and be continuing or shall exist; the funding of the Second
Tranche or the advancement of funds under
17
<PAGE>
the Revolving Credit shall not contravene any law applicable to the
Borrower, the Revolving Credit Lender, or the Banks, as applicable;
and the Borrower shall have delivered to PNC a duly executed and
completed Loan Request.
9. THE AGENT. The relationship between the Agent and the Banks shall be
---------
governed as follows:
9.1. APPOINTMENT. Each Bank hereby irrevocably designates, appoints and
-----------
authorizes PNC Bank, National Association to act as Agent for such
Bank under this Agreement and to execute and deliver or accept on
behalf of each of the Banks the other Loan Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Term Note by the
acceptance of a Term Note shall be deemed irrevocably to authorize,
the Agent to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and any other instruments
and agreements referred to herein, and to exercise such powers and to
perform such duties hereunder as are specifically delegated to or
required of the Agent by the terms hereof, together with such powers
as are reasonably incidental thereto. PNC Bank, National Association
agrees to act as the Agent on behalf of the bank to the extent
provided in this Agreement.
9.2. DELEGATION OF DUTIES. The Agent may perform any of its duties
--------------------
hereunder by or through agents or employees (provided such delegation
--------
does not constitute a relinquishment of its duties as Agent) and,
subject to Sections 9.5 and 10, shall be entitled to engage and pay
for the advice or services of any attorneys, accountants or other
experts concerning all matters pertaining to its duties hereunder and
to rely upon any advice so obtained.
9.3. NATURE OF DUTIES: INDEPENDENT CREDIT INVESTIGATION. The Agent shall
--------------------------------------------------
have no duties or responsibilities except to administer the Loans in
good faith in the same manner it administers the Loans in its capacity
as the Revolving Credit Lender hereunder and except those expressly
set forth in this Agreement and no implied covenants, functions,
responsibilities, duties obligations, or liabilities shall be read
into this Agreement or otherwise exist. The duties of the Agent shall
be mechanical and administrative in nature; the Agent shall not have
by reason of this Agreement a fiduciary or trust relationship in
respect of any Bank; and nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the
Agent any obligations in respect of this Agreement except as expressly
set forth herein. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the
Agent is not intended to connote and fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable
law. Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an administrative
relationship between independent contracting
18
<PAGE>
parties. Each Bank expressly acknowledges (i) that the Agent has not
made any representations or warranties to it and that no act by the
Agent hereafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty
by the Agent to any Bank; (ii) that it has made and will continue to
make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own
appraisal of the creditworthiness of the Borrower in connection with
this Agreement and the making and continuance of the Loans hereunder;
and (iii) except as expressly provided herein, that the Agent shall
have no duty or responsibility, either initially or on a continuing
basis, to provide any Bank with any credit or other information with
respect thereto, whether coming into its possession before the making
of any Loan or at any time or times thereafter.
9.4. ACTION IN DISCRETION OF AGENT; INSTRUCTIONS FROM THE BANKS. The Agent
-----------------------------------------------------------
agrees, upon the written request signed by the Required Banks (as
defined in Section 13.4), to take or refrain from taking any action of
the type specified as being within the Agent's rights, powers or
discretion herein, provided that the Agent shall not be required to
--------
take any action which exposes the Agent to personal liability or which
is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to take
any such action, unless this Agreement specifically requires the
consent of the Required Banks. Any action taken or failure to act
pursuant to such instructions or discretion shall be binding on the
Banks, subject to Section 9.5. Subject to the provisions of Section
9.5, no Bank shall have any right of action whatsoever against the
Agent as a result of the Agent acting or refraining from acting
(except where such action or inaction constitutes gross negligence or
willful misconduct by the Agent) hereunder in accordance with the
instructions of the Required Banks, or in the absence of such
instructions, in the absolute discretion of the Agent.
9.5. EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY. Neither the Agent
------------------------------------------------
nor any of its directors, officers, employees, agents, attorneys or
Affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith
including pursuant to any Loan Document, unless caused by its or their
own gross negligence or willful misconduct, (b) be responsible in any
manner to any of the Banks for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement or any
other Loan Documents or for any recital, representation, warranty,
document, certificate, report or statement herein or made or furnished
under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to
ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions hereof or thereof on the part of
the Borrower, or the financial condition of the Borrower, or the
existence or possible existence of any
19
<PAGE>
Event of Default. No claim may be made by the Borrower, any Bank,
the Agent or any of their respective Subsidiaries against the
Agent, any Bank or any of their respective directors, officers,
employees, agents, attorneys or Affiliates, or any of them, for
any special, indirect or consequential damages or, to the fullest
extent permitted by Law, for any punitive damages in respect of
any claim or cause of action (whether based on contract, tort,
statutory liability,or any other ground) based on, arising out of
or related to any Loan Document or the transactions contemplated
hereby or any act, omission or event occurring in connection
therewith, including the negotiation, documentation,
administration or collection of the Loans, and the Borrower (for
itself and on behalf of each of its Subsidiaries), the Agent and
each Bank hereby waive, release and agree never to sue upon any
claim for any such damages, whether such claim now exists or
hereafter arises and whether or not it is now known or suspected
to exist in its favor. Each Bank agrees that, except for notices,
reports and other documents expressly required to be furnished to
the Agent hereunder, copies of which notices, reports and
documents shall be provided by the Agent to the Banks, the Agent
and each of its directors, officers, employees, agents, attorneys
or Affiliates shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning
the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which
may come into the possession of the Agent or any of its
directors, officers, employees, agents, attorneys or Affiliates.
9.6. REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY BANKS. Each Bank
---------------------------------------------------
agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrower and without limiting the Obligation of
the Borrower to do so) in the same proportion that such Bank's
portion of the Term Loan bears to the Loan (its "RATABLE SHARE")
from and against all liabilities, obligations, losses,
damages,penalties, actions, judgments, suits, costs, expenses or
disbursements, including attorneys' fees and disbursements
(including the allocated costs of staff counsel), and costs of
appraisers and environmental consultants, of any kind or nature
whatsoever which may be imposed on, incurred by or asserted
against the Agent, in its capacity as such, in any way relating
to or arising out of this Agreement or any other Loan Documents
or any action taken or omitted by the Agent hereunder or
thereunder, provided that no Bank shall be liable for any portion
--------
of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements (a)
if the same results from the Agent's gross negligence or willful
misconduct, or (b) if such Bank was not given notice of the
subject claim and the opportunity to participate in the defense
thereof, at its expense (except that such Bank shall remain
liable to the extent such failure to give notice does not result
in a loss to the Bank, or (c)if the same results from a
compromise and settlement agreement entered into without the
consent of such Bank, which shall not be unreasonably withheld.
In addition, each Bank agrees promptly upon demand to reimburse
the Agent (to the extent not reimbursed by
20
<PAGE>
the Borrower and without limiting the Obligation of the Borrower to
do so) in proportion to its Ratable Share for all amounts due and
payable by the Borrower to the Agent in connection with the Agent's
periodic audit of the Borrower's books, records and business
properties.
9.7. RELIANCE BY AGENT. The Agent shall be entitled to rely upon any
-----------------
writing, telegram, telex or teletype message, resolution, notice,
consent, certificate, letter, cablegram, statement, order or other
document or conversation by telephone or otherwise believed by it to
be genuine and correct and to have been signed, sent or made by the
proper Person or Persons, and upon the advice and opinions of
counsel and other professional advisers selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any
action hereunder unless it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to
take any such action.
9.8. NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence or likelihood of occurrence of any Event
of Default unless the Agent has received written notice from a Bank
or the Borrower referring to this Agreement, describing such Event
of Default and stating that such notice is a "notice of default."
9.9. NOTICES. The Agent shall promptly send to each Bank a copy of all
-------
notices received from the Borrowers pursuant to the provisions of
this Agreement or the other Loan Documents promptly upon receipt
thereof. The Agent shall promptly notify the Borrower and the other
Banks of each change in the Prime Rate and the effective date
thereof.
9.10. BANKS IN THEIR INDIVIDUAL CAPACITIES. With respect to the Loans made
------------------------------------
by it, and any other rights and powers given to it as a Bank
hereunder or under any of the other Loan Documents, the Agent shall
have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the Agent, and the term
"Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. Each of the Banks and their
respective Affiliates may, upon prior written notice to the Agent
and the other Banks, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount
drafts for, act as trustee under indentures of, and generally engage
in any kind of banking or trust business with, the Borrower and its
Affiliates, in the case of the Agent, as though it were not acting
as Agent hereunder and in the case of each Bank, as though such Bank
were not a Bank hereunder. The Banks acknowledge that, pursuant to
such activities, the Agent or its Affiliates may (i) receive
information regarding the Borrower (including information that may
be subject to confidentiality obligations in favor of the Borrower)
and acknowledge that the Agent shall be under no obligation to
provide
21
<PAGE>
such information to them, and (ii) accept fees and other
consideration from the Borrower for services in connection with this
Agreement and otherwise without having to account for the same to the
Banks.
9.11. HOLDERS OF NOTES. The Agent may deem and treat any payee of any Term
----------------
Note as the owner thereof for all purposes hereof unless and until
written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person
or entity who at the time of making such request or giving such
authority or consent is the holder of any Term Note shall be
conclusive and binding on any subsequent holder, transferee or
assignee of such Term Note or of any Term Note or Term Notes issued
in exchange therefor.
9.12. EQUALIZATION OF BANKS. The Banks agree among themselves that, with
---------------------
respect to all amounts received by any Bank for application on any
Obligation hereunder or under any Term Note, whether received by
voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any
other non-pro rata source, equitable adjustment will be made in the
manner stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Banks and such
holders in proportion to their interests in payments under the Term
Notes. The Banks receiving any such amount shall purchase for cash
from each of the other Banks an interest in such Bank's Loans in such
amount as shall result in a ratable participation by the Banks in the
aggregate unpaid amount under the Term Notes, provided that if all or
--------
any portion of such excess amount is thereafter recovered from the
Bank making such purchase, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, together with
interest or other amounts, if any, required by law (including court
order) to be paid by the Bank making such purchase.
9.13. SUCCESSOR AGENT. The Agent may resign as Agent by giving not less
---------------
than thirty (30) days' prior written notice to the Borrower. If the
Agent shall resign under this Agreement, then either (a) the Banks
shall appoint from among the Banks a successor agent for the Banks,
subject to the consent of the Borrower, such consent not to be
reasonably withheld (nor shall any such consent be required if an
Event of Default shall have occurred and be continuing), or (b) if a
successor agent shall not be so appointed and approved within the
thirty (30) day period following the Agent's notice to the Banks of
its resignation, then the Agent shall appoint, with the consent of
the Borrower, such consent not to be unreasonably withheld, a
successor agent who shall serve as Agent until such time as the Banks
appoint and the Borrower consent to the appointment of a successor
agent. Upon its appointment pursuant to either clause (a) or (b)
above, such successor agent shall succeed to the rights, powers and
duties of the Agent, and the term "Agent" shall mean such successor
agent, effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated without any other
22
<PAGE>
or further act or deed on the part of such former Agent or any of the
parties to this Agreement. After the resignation of any Agent
hereunder, the provisions of this Section 9.13 shall inure to the
benefit of such former Agent and such former Agent shall not by
reason of such resignation be deemed to be released from liability
for any actions taken or not taken by it while it was an Agent under
this Agreement.
9.14. CALCULATIONS. In the absence of gross negligence or willful
------------
misconduct, the Agent shall not be liable for any error in computing
the amount payable to any Bank whether in respect of the Loans, fees
or any other amounts due to the Banks under this Agreement. In the
event an error in computing any amount payable to any Bank is made,
the Agent, the Borrower and each affected Bank shall, forthwith upon
discovery of such error, make such adjustments as shall be required
to correct such error, and any compensation therefor will be
calculated at the Federal Funds Effective Rate. For purposes of any
such calculation under this Section 9.14, the "FEDERAL FUNDS
EFFECTIVE RATE" for any day shall mean the rate per annum announced
by the Federal Reserve Bank of New York (or any successor) on such
day as being the weighted average of the rates on overnight federal
funds transactions arranged by federal funds brokers on the previous
trading day; provided, if such Federal Reserve Bank (or its
--------
successor) does not announce such rate on any day, the "Federal Funds
Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
9.15. BENEFICIARIES. Except as expressly provided herein, the provisions of
-------------
this Section 9 are solely for the benefit of the Agent and the Banks,
and the Borrower shall not have any rights to rely on or enforce any
of the provisions hereof. In performing its functions and duties
under this Agreement, the Agent shall act solely as agent of the
Banks and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for the
Borrower.
10. REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY THE BORROWER. The Borrower
----------------------------------------------------------
agrees to pay or reimburse the Agent, for the benefit of the Banks and hold
the Agent and each of the Banks harmless against, (a) all reasonable and
necessary out-of-pocket costs and expenses incurred by the Agent in
connection with the (i) preparation, negotiation and delivery of this
Agreement and the other Loan Documents, and any modifications thereto;
provided, that the foregoing out-of-pocket costs and expenses related to
--------
the initial preparation, reasonable negotiation and delivery of the Loan
Documents shall not exceed $7,000, and (ii) collection of the loan or
instituting, maintaining, preserving, enforcing and foreclosing the
security interest in any of the collateral securing the Loan, whether
through judicial proceedings or otherwise, or in defending or prosecuting
any actions or proceedings arising out of or relating to this Agreement,
including reasonable fees and expenses of counsel (which may include costs
of in-house counsel); and (b) all liabilities,
23
<PAGE>
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against any Bank or the Agent, in its
capacity as such, in any way relating to or arising out of this Agreement
or any other Loan Documents or any action taken or omitted by any Bank or
the Agent hereunder or thereunder, provided that the Borrower shall have no
--------
obligation to the Agent or any Bank hereunder with respect to any such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements arising from the Agent's or any
Bank's gross negligence or willful misconduct, or if the Borrower was not
given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense (except that the Borrower shall remain
liable to the extent such failure to give notice does not result in a loss
to the Borrower), or if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower, which shall not
be unreasonably withheld. Nothing in this Section 10 prevents the Borrower
from obtaining its own counsel and controlling its own defense in any
action.
11. INCREASED COSTS. Within twenty (20) days following written demand, together
---------------
with the written evidence of the justification therefor, the Borrower
agrees to pay PNC for the account of any applicable Bank, all direct costs
incurred and any losses suffered or payments made by PNC or any Bank as a
consequence of making the Loan by reason of any change in law or regulation
or its interpretation imposing any reserve, deposit, allocation of capital
or similar requirement (including without limitation, Regulation D of the
board of Governors of the Federal Reserve System) on PNC, its holding
company or any Bank or any of their respective assets.
12. JOINDER OF GUARANTORS. The Borrower shall cause each Subsidiary (as defined
---------------------
below) to execute and deliver to PNC (i) a Guarantor Joinder in
substantially the form attached hereto as Exhibit H pursuant to which it
---------
shall join as a Guarantor of each of the documents to which the Guarantors
are parties; (ii) documents in the forms described in Section 8.1, modified
as appropriate to relate to such Subsidiary; and (iii) documents necessary
to grant and perfect prior security interests to the Revolving Credit
Lender and to the Agent for the benefit of the Banks in all Collateral held
by such Subsidiary (the "SUBSIDIARY SECURITY DOCUMENTS"). The Borrower
shall cause each such Subsidiary to deliver such Guarantor Joinder and
related documents to PNC within five (5) Business Days after the date of
the filing of such Subsidiary's articles of incorporation if the Subsidiary
is a corporation, the date of the filing of its certificate of limited
partnership if it is a limited partnership or the date of its organization
if it an entity other than a limited partnership or corporation. For
purposes of this Agreement a "SUBSIDIARY" shall mean as to the Borrower, or
any Subsidiary of the Borrower, a corporation, partnership or other entity
of which shares of stock or ownership interest having ordinary voting power
(other than stock or such other ownership interest having such power only
by reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more
24
<PAGE>
intermediaries, or both, by the Borrower or another Subsidiary.
13. MISCELLANEOUS.
--------------
13.1. NOTICES. All notices, demands, requests, consents, approvals and
--------
other communications required or permitted hereunder must be in
writing and will be effective upon receipt if delivered personally
to such party, or if sent by facsimile transmission with
confirmation of delivery, or by nationally recognized overnight
courier service, to the address set forth below or to such other
address as any party may give to the other in writing for such
purpose:
To PNC: To the Borrower:
PNC Bank, National Association Analytical Graphics, Inc.
1000 Westlakes Drive, Suite 200 325 Technology Drive
Berwyn, PA 19312 Malvern, PA 19355
Attention: Gregory M. Cote Attention: William J. Broderick, CFO
Facsimile No.: (610) 725-5799 Facsimile No.: (610) 578-1001
with a copy to:
PNC Mullet-Bank Loan Administration
One PNC Plaza, 22/nd/ Floor
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Arlene M. Ohler
Facsimile No.: (412) 762-8672
Notices to the Banks shall be directed to the addresses set forth on Annex I to
-------
this Agreement.
13.2. PRESERVATION OF RIGHTS. No delay or omission on the part of PNC to
----------------------
exercise any right or power arising hereunder will impair any such
right or power or be considered a waiver of any such right or power
or any acquiescence therein, nor will the action or inaction of PNC
impair any right or power arising hereunder. The rights and remedies
hereunder of PNC are cumulative and not exclusive of any other
rights or remedies which PNC may have under other agreements, at law
or in equity.
13.3. ILLEGALITY. In case any one or more of the provisions contained in
----------
this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or
impaired thereby.
25
<PAGE>
13.4. CHANGES IN WRITING. Except as otherwise expressly provided in this
------------------
Agreement, no modification, amendment or waiver of any provision of
this Agreement or any other Loan Documents nor consent to any
departure by the Borrower therefrom, will in any event be effective
unless the same is in writing and signed by PNC and those Banks whose
commitments under the Term Loan (as set forth on Annex I hereto,
-------
aggregate at least 66 2/3% of the total amount of the Term Loan
(including the commitment of PNC) (collectively, the "REQUIRED
BANKS") and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given; provided,
--------
however, that without the written consent of all of the Banks, no
-------
such modification, amendment, waiver or consent may be made or given
which will (a) increase the amount of the Term Loan or extend the
Term Loan Termination Date, (b) extend the time for payment of
principal or interest of any Term Loan or any fee payable to any
Bank, (c) reduce the principal amount of or the rate of interest
borne by the Term Loan or reduce any fee payable to any Bank, (d)
release any Collateral (except for sales of assets permitted by
Section 6.5) or any Subsidiary from its obligations under the
Subsidiary Guaranty or (e) alter any provision regarding the pro rata
treatment of the Banks, change the definition of Required Banks or
change any requirement providing for the Banks or the Required Banks
to authorize the taking of any action hereunder; provided further,
-------- -------
that the Revolving Credit Lender, in its sole discretion, without the
consent of the Required Banks, may make such modifications or
amendments or grant such waivers as it deems necessary or appropriate
with respect to Section 2.1 of this Agreement and the Revolving
Credit Note. No Notice to or demand on the Borrower in any case will
entitle the Borrower to any other or further notice or demand in the
same, similar or other circumstance.
13.5. ENTIRE AGREEMENT. This Agreement (including the documents and
----------------
instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof.
13.6. COUNTERPARTS. This Agreement may be signed in any number of
------------
counterpart copies and by the parties hereto on separate
counterparts, but all such copies shall constitute one and the same
instrument.
13.7. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
----------------------
to the benefit of the Borrower and PNC and their respective,
successors and assigns; provided, however, that the Borrower may not
-------- -------
assign this Agreement in whole or in part without the prior written
consent of PNC.
13.8. INTERPRETATION. In this Agreement, unless PNC and the Borrower
--------------
otherwise agree in writing, the singular includes the plural and the
plural the singular; words importing any gender include the other
genders; references to statutes are to be
26
<PAGE>
construed as including all statutory provisions consolidating,
amending or replacing the statute referred to; the word "or" shall be
deemed to include "and/or", the words "including", "includes" and
"include" shall be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of
sections) or exhibits are to those of this Agreement unless otherwise
indicated; and references to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and
other modifications are not prohibited by the terms of this
Agreement. Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this
agreement for any other purpose. Unless otherwise specified in this
Agreement, all accounting terms shall be interpreted and all
accounting determinations shall be made in accordance with GAAP as in
effect from time to time.
13.9. ASSIGNMENTS. Each Bank may, at its own cost, make assignments of all
-----------
or any part of the Term Loans made by it to one or more banks or
other entities. The Borrower hereby authorizes each Bank to provide,
without any notice to the Borrower, any information concerning the
Borrower, including information pertaining to the Borrower's
financial condition, business operations or general creditworthiness,
to any person or entity which may succeed to or participate in all or
any part of such Bank's interest in the Loan, provided that such
person or entity agrees to maintain the confidentiality of such
information. In the case of an assignment, upon receipt by the Agent
of an Assignment and Assumption Agreement in the form attached hereto
as Exhibit I (no Bank shall be released from its obligations with
---------
respect to the Loan unless such fully executed Assignment and
Assumption Agreement is delivered to the Agent), the assignee shall
have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have
if it had been a signatory Bank hereunder, Annex I hereof shall be
-------
amended accordingly, and upon surrender of any Term Note subject to
such assignment, the Borrower shall execute and deliver a new Term
Note to the assignee in an amount equal to the amount of the Term
Loan assumed by it and a new Term Note to the assigning Bank in an
amount equal to the Term Loan retained by it hereunder. Each
assignment will be in the minimum principal amount of $750,000. The
assigning Bank shall pay to the Agent a service fee in the amount of
$3,000 for each assignment.
13.10. GOVERNING LAW AND JURISDICTION. This Agreement has been delivered to
------------------------------
and accepted by PNC and each other Bank and will be deemed to be made
in the Commonwealth of Pennsylvania. THIS AGREEMENT WILL BE
INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, EXCLUDING ITS CONFLICT
27
<PAGE>
OF LAWS RULES. The Borrower hereby irrevocably consents to the
exclusive jurisdiction of any state or federal court seated in
Allegheny County, Pennsylvania, and consents that all service of
process be sent by nationally recognized overnight courier
service directed to the Borrower at the Borrower's address set
forth herein and service so made will be deemed to be completed
on the business day after deposit with such courier; provided
that nothing contained in this Agreement will prevent the Agent
from bringing any action, enforcing any award or judgment or
exercising any rights against the Borrower individually, against
any security or against any property of the Borrower within any
other county, state or other foreign or domestic jurisdiction.
PNC, each other Bank and the Borrower agree that the venue
provided above is the most convenient forum for both the Agent
and the Borrower. The Borrower waives any objection to venue and
any objection based on a more convenient forum in any action
instituted under this Agreement.
13.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, PNC AND THE OTHER
--------------------
BANKS IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING
TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS. EACH OF THE BORROWER, PNC AND THE OTHER BANKS
ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
13.12. CONFIDENTIALITY. Each Bank agrees to keep confidential all non-
---------------
public information provided to it by the Borrower pursuant to
this Agreement that is designated by the Borrower in writing as
confidential; provided that nothing herein shall prevent any Bank
--------
from disclosing any such information (i) to the Agent or any
other Bank, (ii) to any recipient which receives such information
having been made aware of the confidential nature thereof, (iii)
to its employees, directors, agents, attorneys, accountants and
other professional advisors, (iv) upon the request or demand of
any examiner or other governmental authority or agency having
jurisdiction over such Bank, (v) in response to any order of any
court or other governmental authority or agency or as may
otherwise be required pursuant to any applicable law, (vi) which
has been publicly disclosed other than in breach of this
Agreement, or (vii) in connection with the exercise of any remedy
hereunder.
The Borrower acknowledges that is has read and understood all the provisions of
this Agreement, including the waiver of jury trial, and has been advised by
counsel as necessary or appropriate.
[Signature Pages to Follow]
28
<PAGE>
WITNESS the due execution of this Loan Agreement as a document under seal,
as of the date first written above.
ATTEST: ANALYTICAL GRAPHICS, INC.
By: /s/ Richard Spinogatti By: /s/ William J. Broderick (SEAL)
-------------------------------- -------------------------------
Print Name: Richard Spinogatti Print Name: William J. Broderick
------------------------ -----------------------
Title: Controller Title: CFO
----------------------------- -----------------------------
PNC BANK,
NATIONAL ASSOCIATION,
as Agent
By: /s/ Gregory Cote
--------------------------------
Print Name: Gregory Cote
------------------------
Title: VP
-----------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Ian Schnider
--------------------------------
Print Name: Ian Schnider
------------------------
Title: Illegible
-----------------------------
29
<PAGE>
PNC BANK,
NATIONAL ASSOCIATION,
as one of the Banks
By: /s/ Gregory Cote
-------------------------------
Print Name: Gregory Cote
-----------------------
Title: VP
----------------------------
PNC BANK,
NATIONAL ASSOCIATION,
as the Revolving Credit Lender
By: /s/ Gregory Cote
-------------------------------
Print Name: Gregory Cote
-----------------------
Title: VP
----------------------------
30
<PAGE>
ADDENDUM to that certain Loan Agreement dated May 1, 1998 between ANALYTICAL
GRAPHICS, INC., as the Borrower, the Banks party thereto and PNC BANK, NATIONAL
ASSOCIATION, as the Revolving Credit Lender and as the Agent.
I. FINANCIAL COVENANTS
-------------------
1. The Borrower will not permit its pretax profit (calculated in accordance
with GAAP), determined on a quarterly basis, to be less than the following
amounts for the fiscal quarters specified below:
Quarter Ending
--------------
June 30, 1998 Greater than $1,250,000 Less than
September 30, 1998 $ 250,000
December 31, 1998 $1,000,000
March 31, 1999 Greater than $2,500,000 Less than
Beginning with the two quarters ended June 30, 1999, and determined on a
Rolling Two Quarter basis thereafter, the Borrower will not permit its
pretax profit for any two consecutive quarters to be less than $1.
2. The Borrower will maintain at all times a ratio of Current Assets to
Current Liabilities of not less than the following as measured on the dates
specified below:
June 30, 1998 0.80:1
September 30, 1998 1.00:1
December 31, 1998 (and thereafter) 1.50:1
3. The ratio of Borrower's Total Funded Debt to Rolling Four Quarter EBITDA
shall not exceed the following as measured on the dates specified below:
Quarter Ending
--------------
September 30, 1998 2.7:1
(EBITDA for quarter ended, annualized)
December 31, 1998 2.0:1
(EBITDA for two quarters ended, annualized)
March 31, 1999 2.0:1
(EBITDA for three quarters ended, annualized)
June 30, 1999 (and thereafter) 2.0:1
31
<PAGE>
4. The ration of Borrower's Total Funded Debt to Tangible Net Worth, shall not
exceed the following as measured on the dates specified below:
<TABLE>
<CAPTION>
Quarter Ending
--------------
<S> <C>
September 30, 1998 6.0:1
December 31, 1998 3.0:1
March 31, 1999 (and thereafter) 2.5:1
</TABLE>
DEFINITIONS:
- -----------
"CURRENT ASSETS" means the sum of cash, certificates of deposit, accounts
receivable and marketable securities.
"CURRENT LIABILITIES" means the sum of all current liabilities plus amounts
outstanding under the Revolving Credit not classified as current
liabilities, less deferred revenue (measured in accordance with GAAP) and
the current portion of any Subordinated Debt, if any.
"EBITDA" means operating income plus depreciation and amortization, plus
non-cash charges calculated in accordance with generally accepted
accounting principles.
"TANGIBLE NET WORTH" means the owner's equity of Borrower calculated in
accordance with generally accepted accounting principles, plus any deferred
revenue (measured in accordance with GAAP), plus Subordinated Debt, if
any, minus intangibles.
"TOTAL FUNDED DEBT" means the sum of all secured (junior and senior)
indebtedness of Borrower and all reimbursement obligations of Borrower
under any letters of credit.
32
<PAGE>
II. PERMITTED ENCUMBRANCES
----------------------
See Attached
III. ENVIRONMENTAL MATTERS
---------------------
None
IV. REQUIRED CONSENTS
-----------------
SpaceVest, LP
V. SUBORDINATED DEBT
-----------------
None
33
<PAGE>
ANNEX 1
TERM LOAN COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
FIRST TRANCHE
- -------------
<TABLE>
<CAPTION>
AMOUNT OF RATABLE
-------
BANK COMMITMENT SHARE
----- ---------- -----
<S> <C> <C>
PNC Bank, National Association
1000 Westlakes Drive, Suite 200
Berwyn, PA 19312
Attention: Gregory M. Cote
Telephone (610)725-5775
Telecopy: (610)725-5799 $1,500,000.00 50%
Transamerica Business Credit Corporation
15260 Ventura Boulevard, Suite 1240
Sherman Oaks, CA 91403
Attention: Ian Schnider
Telephone (818)995-3225
Telecopy: (818)995-3214 $1,500,000.00 50%
[SECOND TRANCHE
- ---------------
AMOUNT OF RATABLE
-------
BANK COMMITMENT SHARE
----- ---------- -----
Name: PNC Bank, National Association
(same address as above) $ ___________ __%
[Bank]
__________________________
__________________________
Attention: _______________
Telephone (___)___-_____ $ ___________ __%
Telecopy: (___)___-_____ ______________
</TABLE>
34
<PAGE>
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF YEAR OF
NAME INCORPORATION INCORPORATION OWNERSHIP
---- --------------- ------------- ---------
<S> <C> <C> <C>
AGIX, Inc. Pennsylvania 1998 100%
XIGA Corporation Delaware 1998 100%
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated June 19, 1998, except for Note 8 for which the date is July
28, 1998, on our audits of the financial statements of Analytical Graphics,
Inc. We also consent to the references to our firm under the captions
"Experts" and "Selected Financial Data."
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 5, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 JUN-30-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 854 1,113
<SECURITIES> 0 0
<RECEIVABLES> 3,587 3,442
<ALLOWANCES> 20 20
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,604 4,760
<PP&E> 2,668 3,087
<DEPRECIATION> 1,124 1,524
<TOTAL-ASSETS> 6,663 7,275
<CURRENT-LIABILITIES> 5,499 5,700
<BONDS> 0 0
2,662 2,713
0 0
<COMMON> 40 42
<OTHER-SE> (1,929) (4,220)
<TOTAL-LIABILITY-AND-EQUITY> 6,663 7,275
<SALES> 12,862 6,506
<TOTAL-REVENUES> 12,862 6,506
<CGS> 1,864 967
<TOTAL-COSTS> 1,864 967
<OTHER-EXPENSES> 12,366 7,995
<LOSS-PROVISION> 20 0
<INTEREST-EXPENSE> 95 169
<INCOME-PRETAX> (1,416) (2,592)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,416) (2,592)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,416) (2,592)
<EPS-PRIMARY> (.38) (.67)
<EPS-DILUTED> (.38) (.67)
</TABLE>
