<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CONCORD COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
MASSACHUSETTS 3669 04-2710876
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or
organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
CONCORD COMMUNICATIONS, INC.
33 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
(508) 460-4646
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
JOHN A. BLAESER, CHIEF EXECUTIVE OFFICER AND PRESIDENT
CONCORD COMMUNICATIONS, INC.
33 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
(508) 460-4646
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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<S> <C>
EDWIN L. MILLER, JR., ESQ. LEWIS J. GEFFEN, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP................. MINTZ, LEVIN, COHN, FERRIS,
125 High Street GLOVSKY AND POPEO, P.C.
Boston, Massachusetts 02110 One Financial Center
(617) 248-7000 Boston, Massachusetts 02111
(617) 542-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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======================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 3,335,000 shares $12.00 $40,020,000 $12,128
======================================================================================================
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(1) Includes 435,000 shares which the Underwriters have the option to purchase
from the Company to cover over allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION DATED AUGUST , 1997
2,900,000 SHARES
[LOGO]
COMMON STOCK
Of the shares of Common Stock offered hereby, 2,300,000 shares are being
sold by Concord Communications, Inc. ("Concord" or the "Company") and 600,000
shares are being sold by the Selling Stockholders. The Company will not receive
any of the proceeds from the sale of shares by the Selling Stockholders. See
"Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price of the Common Stock will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for quotation of the
Common Stock on the Nasdaq National Market under the symbol "CCRD."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN 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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============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2) Proceeds to
Selling
Stockholders
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
============================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$750,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 435,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount
will total $ , the Proceeds to Company will total
$ and the Proceeds to the Selling Stockholders will total
$ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
---------------------
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
WESSELS, ARNOLD & HENDERSON
, 1997
<PAGE> 3
[PICTURES AND CAPTIONS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information including "Risk Factors" and financial statements and notes thereto,
appearing elsewhere in this Prospectus.
THE COMPANY
Concord develops, markets and supports a family of turnkey, automated,
scaleable, software-based performance analysis and reporting solutions for the
management of computer networks. By providing a global view of network
performance, the Company's products enable the effective and efficient
management of large and medium-size multi-vendor networks, both by end users and
network service providers, including telecommunications carriers, Internet
service providers (ISPs), systems integrators and outsourcers. The Company's
Network Health product family retrieves and compiles vital network statistics,
performs extensive analyses of those statistics and provides intuitive,
informative, user-friendly graphical reports. The Company's software-only
solutions provide information technology (IT) executives, managers and
technicians with the information necessary to assess and correct costly network
inefficiencies, make cost-effective network purchasing decisions and predict
network failures.
The Company's Network Health product family is a line of performance
analysis and reporting solutions that automate the collection of critical
network information from the Simple Network Management Protocol (SNMP)
management information bases (MIBs) commonly installed in IT equipment. The
Company uses a proprietary MIB translation module that enables the gathering of
data from diverse network elements and technologies for analysis by Network
Health's patented performance analysis and reporting software. Immediately after
installation, the Company's products automatically generate reports that assess
network characteristics, including baseline performance, bandwidth utilization,
network volume, traffic and trends. Concord currently markets versions of
Network Health which are designed to analyze and report on: local and wide area
network (LAN and WAN) segments; specific applications for various network
elements, such as routers, switches and servers; and traffic pattern analysis of
the various nodes and applications used within the network.
The Company's Network Health product family provides organizations with the
following benefits: (i) capacity planning--providing information to support
business decisions relating to network utilization and future capacity
requirements; (ii) reduction in data communications expenses--identifying excess
capacity on each WAN, leased line or frame relay circuit; (iii) effective
allocation of resources--allowing management to effectively deploy networking
resources and personnel; and (iv) service level monitoring--assisting managers
in making network resource allocation decisions within an organization and
assisting both network service providers and end users in monitoring the
availability of negotiated service level agreements.
The Company's initial target market has been organizations with large and
medium-size networks comprised of 150 or more network elements. The Company
markets to these potential customers through its own sales force, sales agents,
network service providers, including telecommunications carriers, value added
resellers and OEMs. Frequently, customers initially purchase Network Health
products that analyze and report on a subset of their network elements. Benefits
derived from the initial licensing agreement by customers often lead to expanded
agreements that cover a larger proportion of the customers' networks. Based upon
forecasts from industry sources, the Company believes that within the
performance analysis and reporting market there are currently over 200 million
potentially manageable elements. The Company believes that to date less than
0.5% of these elements are being managed utilizing software-based analysis and
reporting.
As of June 30, 1997, the Company had over 400 customers operating in and
serving a variety of industries. Representative customers include America
Online, Inc., Ameritech Corporation, AT&T Corporation, The Bear Stearns
Companies, Inc., British Telecommunications plc, Burlington Northern Santa Fe
Corporation, Department of Commerce, Dow Jones & Company, Inc., Ernst & Young,
LLP, MCI Telecommunications Corp., Morgan Stanley Group Inc., Motorola Inc., New
York Stock Exchange, Inc., Pfizer Inc., The Prudential Service Company, The
Procter & Gamble Company, Sprint Corporation, Viacom International Inc., Visa
International and U S WEST, Inc.
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The Company was incorporated in Massachusetts in 1980 under the name
Concord Data Systems, Inc. and, in 1986, its legal name was changed to Concord
Communications, Inc. As used in this Prospectus, references to the "Company" and
"Concord" refer to Concord Communications, Inc. The Company's principal
executive offices are located at 33 Boston Post Road West, Marlboro,
Massachusetts 01752. The Company's telephone number is (508) 460-4646.
THE OFFERING
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<S> <C>
Common Stock offered by the Company................... 2,300,000 shares
Common Stock offered by the Selling Stockholders...... 600,000 shares
Common Stock to be outstanding after the offering..... 11,317,723 shares (1)
Use of Proceeds....................................... For general corporate purposes,
including working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol................ CCRD
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
----------------------------------------------- ENDED
DEC. DEC. DEC. JUNE 30,
JAN. 2, JAN. 1, 31, 30, 28, -------------------
1993 1994 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ 2,048 $ 3,493 $ 4,065 $ 4,355 $ 9,007 $ 3,469 $ 7,701
Gross profit............................ 603 1,527 2,124 3,191 7,050 2,538 6,422
Loss from continuing operations......... (3,139) (3,004) (4,394) (3,784) (5,055) (2,795) (966)
Income (loss) from discontinued
operations............................ 2,195 (68) 117 -- -- -- --
Net loss................................ $ (944) $(3,072) $(4,277) $(3,784) (5,055) (2,795) (966)
Pro forma net loss per common and common
equivalent share (unaudited) (3)...... $ (0.52) $ (0.29) $ (0.10)
Pro forma weighted average number of
common and common equivalent shares
outstanding (unaudited) (3)........... 9,768 9,768 9,775
</TABLE>
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<CAPTION>
JUNE 30, 1997
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(4)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,873 $ 1,873 $24,652
Working capital (deficit).................................. (2,467) (2,467) 20,312
Total assets............................................... 5,586 5,586 28,139
Long-term debt, net of current portion..................... 860 860 860
Redeemable convertible preferred stock..................... 14,919 -- --
Total stockholders' equity (deficit)....................... (16,328) (1,409) 21,370
</TABLE>
- ---------------
(1) Based on shares outstanding as of June 30, 1997. Excludes: (i) 2,138,256
shares of Common Stock issuable upon the exercise of options outstanding as
of such date at a weighted average exercise price of $0.82 per share; and
(ii) 1,281,250 additional shares reserved for future grants of issuances
under the Company's stock option and stock purchase plans. See
"Capitalization," "Management--Equity Plans," "--Director Compensation" and
Note 6 of Notes to Financial Statements.
(2) Adjusted to reflect, upon the closing of this offering, the conversion of
all outstanding shares of the Company's Preferred Stock into 8,108,258
shares of Common Stock.
(3) Computed on the basis described in Note 1 of Notes to Financial Statements.
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<PAGE> 6
(4) Adjusted to reflect the sale of the shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $11.00, after
deducting the estimated underwriting discount and offering expenses. See
"Use of Proceeds" and "Capitalization."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results contemplated in the forward-looking statements as a result of a number
of factors, including, but not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
------------------------
Except as set forth in the Financial Statements or as otherwise noted
herein, information in this Prospectus: (i) assumes no exercise of the
Underwriters' over-allotment option; (ii) reflects the filing of the Restated
Articles of Organization of the Company and a 1-for-2 reverse split of the
Company's Common Stock, both of which will occur prior to this offering; and
(iii) reflects the conversion of all outstanding shares of Preferred Stock into
an aggregate of 8,108,258 shares of Common Stock, which will occur upon the
closing of this offering.
Network Health and the Concord logo are registered trademarks of the
Company. The Total View!(TM) is a trademark of the Company. All other trademarks
or trade names referred to in this Prospectus are the property of their
respective owners.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
LIMITED OPERATING HISTORY; ANTICIPATED CONTINUING LOSSES; UNCERTAINTY OF FUTURE
OPERATING RESULTS
The Company changed its focus to network management software in 1991 and
commercially introduced its first Network Health product in 1995. Accordingly,
the Company has only a limited operating history in the network performance
analysis and reporting market upon which an evaluation of its business and
prospects can be based. The Company has incurred significant net losses in each
of the last five fiscal years and expects that it will not achieve profitability
on an annual basis until at least fiscal 1998, if at all. As of June 30, 1997,
the Company had accumulated net losses of $32.2 million. The limited operating
history of the Company and its dependence on a single product family in an
emerging market makes the prediction of future results of operations difficult
or impossible, and the Company and its prospects must be considered in light of
the risks, costs and difficulties frequently encountered by emerging companies,
particularly companies in the competitive software industry. Although the
Company has achieved recent revenue growth, there can be no assurance that the
Company can generate substantial additional revenue growth on a quarterly or
annual basis, or that any revenue growth that is achieved can be sustained.
Revenue growth that the Company has achieved or may achieve may not be
indicative of future operating results. In addition, the Company has increased,
and plans to increase further, its operating expenses in order to fund higher
levels of research and development, increase its sales and marketing efforts,
develop new distribution channels, broaden its customer support capabilities and
expand its administrative resources in anticipation of future growth. To the
extent that increases in such expenses precede or are not subsequently followed
by increased revenues, the Company's business, results of operations and
financial condition would be materially adversely affected. There can be no
assurance that the Company will achieve or sustain profitability. The Company
must achieve substantial revenue growth in order to become profitable. In
addition, in view of recent revenue growth, the rapidly evolving nature of its
business and markets and its limited operating history in its current market,
the Company believes that period-to-period comparisons of financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company is likely to experience significant fluctuations in quarterly
operating results caused by many factors, including, but not limited to: (i)
changes in the demand for the Company's products; (ii) the timing, composition
and size of orders from the Company's customers, including the tendency for
significant bookings to occur in the last month of each fiscal quarter; (iii)
spending patterns and budgetary resources of its customers on network management
software solutions; (iv) the success of the Company's new customer generation
activities; (v) introductions or enhancements of products, or delays in the
introductions or enhancements of products, by the Company or its competitors;
(vi) changes in the Company's pricing policies or those of its competitors;
(vii) changes in the distribution channels through which products are sold;
(viii) the Company's ability to anticipate and effectively adapt to developing
markets and rapidly changing technologies; (ix) changes in networking or
communications technologies; (x) the Company's ability to attract, retain and
motivate qualified personnel; (xi) changes in the mix of products sold; (xii)
the publication of opinions about the Company and its products, or its
competitors and their products, by industry analysts or others; and (xiii)
changes in general economic conditions. Unlike other software companies with a
longer history of operations, the Company does not derive a significant portion
of its revenues from maintenance contracts, and therefore does not have a
significant ongoing revenue stream that may tend to mitigate quarterly
fluctuations in operating results. Furthermore, the Company is attempting to
expand its channels of distribution, and increases in the Company's revenues
will be dependent on its ability to implement successfully its distribution
strategy. Due to the buying patterns of certain of the Company's customers and
also to the Company's own sales incentive programs focused on annual sales
goals, revenues in the Company's fourth quarter could be higher than revenues in
the first quarter of the succeeding year. There also may be
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<PAGE> 8
other factors that significantly affect the Company's quarterly results which
are difficult to predict given the Company's limited operating history, such as
seasonality and the timing of receipt and delivery of orders within a fiscal
quarter.
Consistent with software industry practice, the Company expects to operate
with a limited amount of backlog. As a result, quarterly sales and operating
results depend generally on the volume and timing of orders within the quarter,
the tendency of sales to occur late in fiscal quarters and the ability of the
Company to fill orders received within the quarter, all of which are difficult
to forecast and manage. The Company's expense levels are based in part on its
expectations of future orders and sales, which, given the Company's limited
operating history, are extremely difficult to predict. A substantial portion of
the Company's operating expenses are related to personnel, facilities, and sales
and marketing programs. This level of spending for such expenses cannot be
adjusted quickly and is, therefore, relatively fixed in the short term.
Accordingly, any significant shortfall in demand for the Company's products in
relation to the Company's expectations would have an immediate and material
adverse effect on the Company's business, results of operations and financial
condition.
Due to all of the foregoing factors, the Company believes that its
quarterly operating results are likely to vary significantly in the future.
Therefore, in some future quarter the Company's results of operations may fall
below the expectations of securities analysts and investors. In such event, the
trading price of the Company's Common Stock would likely be materially adversely
affected.
EMERGING NETWORK MANAGEMENT SOFTWARE MARKET
The market for the Company's products is in an early stage of development.
Although the rapid expansion and increasing complexity of computer networks in
recent years has increased the demand for network management software products,
the awareness of and the need for such products is a recent development. Because
the market for these products is only beginning to develop, it is difficult to
assess the size of this market, the appropriate features and prices for products
to address this market, the optimal distribution strategy and the competitive
environment that will develop. The development of this market and the Company's
growth will be significantly dependent on the willingness of network service
providers, including telecommunications carriers, ISPs, systems integrators and
outsourcers, to integrate network performance analysis and reporting software
into their product and service offerings. Failure of the network performance
analysis and reporting market to grow or failure of the Company to properly
assess and address such market would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Industry Background."
DEPENDENCE ON TELECOMMUNICATIONS CARRIERS
A significant portion of the Company's revenues are, and are expected to
continue to be, attributable to sales of products to telecommunications
carriers. The Company's future performance is significantly dependent upon
telecommunications carriers' increased incorporation of the Company's solutions
as part of their package of product and service offerings to end users. The
failure of the Company's products to perform favorably in and become an accepted
component of the telecommunications carriers' product and service offerings, or
a slower than expected increase or a decrease in the volume of sales of the
Company's products and services to telecommunications carriers, could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Customers."
CONCENTRATED PRODUCT FAMILY
The Company currently derives substantially all of its revenues from its
Network Health product family, and the Company expects that revenues from these
products will continue to account for substantially all of the Company's
revenues for the foreseeable future. Broad market acceptance of these products
is, therefore, critical to the Company's future success, and any factor
adversely affecting sales or pricing levels of these products could have a
material adverse effect on the Company's business, results of operations and
financial condition. There can be no assurance that market acceptance of Network
Health will increase or even remain at current levels. Factors that may affect
the market acceptance of the Company's products include the
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<PAGE> 9
availability and price of competing products and technologies and the success of
the sales efforts of the Company and its marketing partners. Moreover, the
Company anticipates that its competitors will introduce additional competitive
products, particularly if demand for network management software products
increases, which may reduce future market acceptance of the Company's products.
In addition, new competitors could enter the Company's market and offer
alternative products which may impact the market acceptance of the Company's
products. The Company's future performance will also depend in part on the
successful development, introduction and market acceptance of new and enhanced
products. There can be no assurance that any such new or enhanced products will
be successfully developed, introduced and marketed, and failure to do so would
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business -- Products and Technology," and
"-- Competition."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON STANDARD PROTOCOLS
The software industry is characterized by rapid technological change,
frequent introductions of new products, changes in customer demands and evolving
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards can render existing products obsolete
and unmarketable. Network Health's ability to analyze and generate reports, as
well as the quality of the reports, is dependent on Network Health's utilization
of the industry-standard SNMP protocol and the data resident in conventional
MIBs. Any change in these industry standards, the development of vendor-specific
proprietary MIB technology, or the emergence of new network technologies could
affect the compatibility of Network Health with these devices which, in turn,
could affect Network Health's ability to analyze and generate comprehensive
reports or the quality of the reports. Furthermore, although the Company's
products currently run exclusively on industry-standard UNIX operating systems
and although the Company has a Windows NT product in development, any
significant change in industry-standard operating systems could affect the
demand for, or the pricing of, the Company's products. Any of the foregoing
developments could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Industry
Background," "-- Products and Technology" and "-- Product Development."
PRODUCT ENHANCEMENTS AND NEW PRODUCTS
Because of rapid technological change in the software industry and
potential changes in the network management software market and industry
standards, the life cycle of versions of Network Health is difficult to
estimate. The Company's future success will depend upon its ability to address
the increasingly sophisticated needs of its customers by developing and
introducing enhancements to Network Health on a timely basis that keep pace with
technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to Network Health or in developing new
products that respond to technological changes, evolving industry standards or
customer requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of such
enhancements or new products, or that such enhancements or new products will
adequately address the requirements of the marketplace and achieve any
significant degree of market acceptance. See "Business -- Industry Background,"
"-- Products and Technology" and "-- Product Development."
COMPETITION; NEW ENTRANTS
The market for the Company's products is new, intensely competitive,
rapidly evolving and subject to technological change. Competitive and
alternative offerings are available from the major product categories of remote
monitoring (RMON) probe vendors, element management software, and other
performance analysis and reporting offerings. Another area of competition comes
from a number of companies offering network performance reporting services;
including International Network Services (INS). In addition, the Company expects
the large network management platform vendors to begin to offer products
directly competitive with the Company's products. These companies may bundle
their products with other hardware and software in a manner that may discourage
users from purchasing products offered by the Company. This strategy may be
particularly effective for companies with leading market shares in the network
hardware and software market,
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<PAGE> 10
including Hewlett-Packard Company, International Business Machines Corporation
and Cabletron Systems, Inc. Developers of network element management solutions
such as Cisco Systems, Inc., 3Com Corporation and Bay Networks, Inc. may also
compete with the Company in the future. The Company expects competition to
persist, increase and intensify in the future with possible price competition
developing in the Company's markets. Many of the Company's current and potential
competitors have longer operating histories and significantly greater financial,
technical and marketing resources and name recognition than the Company. The
Company does not believe its market will support a large number of competitors
and their products. In the past, a number of software markets have become
dominated by one or a small number of suppliers, and a small number of suppliers
or even a single supplier may dominate the Company's market. If the Company does
not provide products that achieve success in its market in the short term, the
Company could suffer an insurmountable loss in market share and brand name
acceptance, which would result in a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete effectively with current and
future competitors. See "Business -- Competition."
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company's success depends significantly upon its proprietary
technology. The Company relies on a combination of patent, copyright, trademark
and trade secret laws, non-disclosure agreements and other contractual
provisions to establish, maintain and protect its proprietary rights, all of
which afford only limited protection. The Company has four issued U.S. patents,
three pending U.S. patent applications, and various foreign counterparts. There
can be no assurance that patents will issue from these pending applications or
from any future applications or that, if issued, any claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that any patents that have been or may be issued will not be
challenged, invalidated or circumvented, or that any rights granted thereunder
would provide protection of the Company's proprietary rights. Failure of any
patents to protect the Company's technology may make it easier for the Company's
competitors to offer equivalent or superior technology. The Company has
registered or applied for registration for certain trademarks, and will continue
to evaluate the registration of additional trademarks as appropriate. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or services or to obtain
and use information that the Company regards as proprietary. Third parties may
also independently develop similar technology without breach of the Company's
proprietary rights. In addition, the laws of some foreign countries do not
protect proprietary rights to as great an extent as do the laws of the United
States. In addition, the Company's products are licensed under shrink wrap
license agreements that are not signed by licensees and therefore may not be
binding under the laws of certain jurisdictions.
Certain technologies used by the Company's products are licensed from third
parties, generally on a non-exclusive basis. The termination of any such
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in the Company's ability to ship
certain of its products while it seeks to implement technology offered by
alternative sources, and any required replacement licenses could prove costly.
While it may be necessary or desirable in the future to obtain other licenses
relating to one or more of the Company's products or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all.
Although the Company does not believe that it is infringing the
intellectual property rights of others, claims of infringement are becoming
increasingly common as the software industry develops and legal protections,
including patents, are applied to software products.
Litigation may be necessary to protect the Company's proprietary
technology, and third parties may assert infringement claims against the Company
with respect to their proprietary rights. Any claims or litigation can be
time-consuming and expensive regardless of their merit. Infringement claims
against the Company can cause product release delays, require the Company to
redesign its products or require the Company to enter into royalty or license
agreements, which agreements may not be available on terms acceptable to the
Company or at all. See "Business -- Proprietary Rights."
9
<PAGE> 11
RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and testing and use by
current and potential customers, errors will not be found in new products after
commencement of commercial shipments or, if discovered, that the Company will be
able to successfully correct such errors in a timely manner or at all. The
occurrence of errors and failures in the Company's products could result in loss
of or delay in market acceptance of the Company's products, and alleviating such
errors and failures could require significant expenditure of capital and other
resources by the Company. The consequences of such errors and failures could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Since the Company's products are used by its customers to predict future
network problems and avoid failures of the network to support critical business
functions, design defects, software errors, misuse of the Company's products,
incorrect data from network elements or other potential problems within or out
of the Company's control that may arise from the use of the Company's products
could result in financial or other damages to the Company's customers. The
Company does not maintain product liability insurance. Although the Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential claims as well as any liabilities
arising from such claims, such provisions may not effectively protect the
Company against such claims and the liability and costs associated therewith.
Accordingly, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition. The Company
provides warranties for its products for a period of time (usually six months)
after the software is purchased. The Company's license agreements generally do
not permit product returns by the customer, and product returns and warranty
expense for fiscal 1994, 1995 and 1996 represented less than 1.0% of total
revenues during each of such periods. However, no assurance can be given that
product returns will not increase as a percentage of total revenues in future
periods. See "Business -- Products and Technology," "-- Customers," and
"-- Product Development."
RELIANCE ON STRATEGIC PARTNERS AND OTHER EVOLVING DISTRIBUTION CHANNELS
The Company's distribution strategy is to develop multiple distribution
channels, including sales through strategic marketing partners, value added
resellers, telecommunications carriers, other network service providers, OEMs,
and independent software vendors, as well as international distributors
(collectively "channel partners"). The Company has developed a number of these
relationships and intends to continue to develop new channel partner
relationships. Accordingly, the success of the Company will be dependent in
large part on its ability to develop these additional distribution relationships
and on the performance and success of these third parties, particularly
telecommunications carriers and other network service providers. The Company's
channel partner relationships have been established recently, and the Company
cannot predict the extent to which its channel partners will be successful in
marketing the Company's products. The Company generally expects that its
agreements with its channel partners will be terminable by either party without
cause. The Company's inability to attract important and effective channel
partners, or their inability to penetrate their respective market segments, or
the loss of any of the Company's channel partners, as a result of competitive
products offered by other companies or products developed internally by these
channel partners or otherwise, could materially adversely affect the Company's
business, results of operations and financial condition. See "Business -- Sales
and Marketing."
MANAGEMENT OF POTENTIAL GROWTH
The Company recently has experienced significant growth in its sales and
operations and in the complexity of its products and product distribution
channels. The Company has recently increased and is continuing to increase the
size of its sales force and coverage territories. Furthermore, the Company has
recently established and is continuing to establish additional distribution
channels through third party relationships. The Company's growth, coupled with
the rapid evolution of the Company's markets, has placed, and is likely to
continue to place, significant strains on its administrative, operational and
financial resources and increase demands on its internal systems, procedures and
controls. If the Company is unable to manage
10
<PAGE> 12
future growth effectively, the Company's business, results of operations and
financial condition could be materially adversely affected. See
"Business -- Sales and Marketing," "-- Employees," and "Management."
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its key technical and senior management personnel, none of whom is bound by an
employment agreement. The loss of the services of any of such personnel could
have a material adverse effect on the business, results of operations and
financial condition of the Company. The Company does not maintain key person
life insurance policies on any of its employees other than John A. Blaeser. The
Company's success is highly dependent on its continuing ability to identify,
hire, train, motivate and retain highly qualified management, technical, and
sales and marketing personnel, including recently hired officers and other
employees. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary management, technical, and sales and marketing
personnel could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Employees" and
"Management."
EXPANSION INTO INTERNATIONAL MARKETS
The Company intends to expand its operations outside of the United States
and enter additional international markets, primarily through the establishment
of additional reseller arrangements. The Company expects to commit additional
time and development resources to customizing its products and services for
selected international markets and to developing international sales and support
channels. There can be no assurance that such efforts will be successful.
In addition to the uncertainty as to the Company's ability to establish an
international presence, there are certain difficulties and risks inherent in
doing business internationally, including, but not limited to: (i) costs of
customizing products and services for international markets; (ii) dependence on
independent resellers; (iii) multiple and conflicting regulations; (iv) exchange
controls; (v) longer payment cycles; (vi) unexpected changes in regulatory
requirements; (vii) import and export restrictions and tariffs; (viii)
difficulties in staffing and managing international operations; (ix) greater
difficulty or delay in accounts receivable collection; (x) potentially adverse
tax consequences; (xi) the burden of complying with a variety of laws outside
the United States; (xii) the impact of possible recessionary environments in
economies outside the United States; and (xiii) political and economic
instability. In addition, the Company's ability to expand its business in
certain countries will require modification of its products, particularly
national language support. Furthermore, the Company expects that its export
sales will be denominated predominantly in United States dollars. An increase in
the value of the United States dollar relative to other currencies could make
the Company's products and services more expensive and, therefore, potentially
less competitive in international markets. As the Company increases its
international sales, its total revenue may also be affected to a greater extent
by seasonal fluctuations resulting from lower sales that typically occur during
the summer months in Europe and other parts of the world.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the shares of
Common Stock of the Company, and there can be no assurance that an active public
market for the shares of Common Stock of the Company will develop or be
sustained after the offering. The initial public offering price will be
determined by negotiation between the Company and the Underwriters based upon
several factors. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The market price of
the shares of Common Stock may be highly volatile and could be subject to wide
fluctuations in response to variations in results of operations, announcements
of technological innovations or new products by the Company or its competitors,
changes in financial estimates by securities analysts or other events or
factors. In addition, the financial markets have experienced significant price
and volume fluctuations that have particularly affected the market prices of
equity securities of many high technology companies and that often
11
<PAGE> 13
have been unrelated to the operating performance of such companies or have
resulted from the failure of the operating results of such companies to meet
market expectations in a particular quarter. Broad market fluctuations or any
failure of the Company's operating results in a particular quarter to meet
market expectations may adversely affect the market price of the shares of
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, results of operations and
financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in
the public market after this offering, or the perception that such sales could
occur, could adversely affect the market price of the shares of the Company's
Common Stock. Of the 11,443,715 shares of Common Stock to be outstanding upon
completion of this offering, the 2,900,000 shares offered hereby will be freely
tradeable without restriction. All of the remaining 8,543,715 shares of Common
Stock are restricted securities as that term is defined in Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). Of these
restricted securities, approximately shares which are not subject to
the lock-up agreements described below will become eligible for sale in the
public market immediately following this offering pursuant to Rule 144(k) under
the Securities Act, and approximately shares which are not subject to
the lock-up agreements described below will become eligible for sale in the
public market 90 days following the date of this Prospectus pursuant to Rule 144
or Rule 701 under the Securities Act. Taking into consideration the effect of
lock-up agreements entered into by all officers and directors and certain
stockholders of the Company, an additional shares will become
eligible for sale upon expiration of the lock-up agreements 180 days after the
date of this Prospectus, subject to the provisions of Rules 144 and 701. The
Company intends to file a Registration Statement on Form S-8 within 30 days of
the closing of the offering, after which time an additional
shares will become eligible for sale. The holders of approximately
shares of Common Stock to be outstanding upon the closing of this
offering are entitled to certain rights with respect to registration of such
shares for sale to the public beginning 180 days after the closing of this
offering. See "Management -- Executive Compensation," and "-- Equity Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER EFFECT OF CHARTER AND BY-LAW
PROVISIONS AND MASSACHUSETTS LAW
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to fix the rights, preferences, privileges and
restrictions of such shares without any further vote or action by the Company's
stockholders. Although the Company has no current plans to issue shares of
Preferred Stock, the potential issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of, and the voting and
other rights of the holders of, Common Stock. The Company's Board of Directors
is divided into three classes, each of which serves for a staggered three-year
term. Such staggered Board may make it more difficult for a third party to gain
control of the Company's Board of Directors. In addition, certain provisions of
the Company's corporate charter and by-laws and of Massachusetts law may be
deemed to have an anti-takeover effect and may discourage takeover attempts not
first approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). See "Description of
Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in this offering will experience an immediate
dilution of $9.11 per share in the pro forma net tangible book value of their
Common Stock from the assumed initial public offering price of $11.00 per share.
Additional dilution is likely to occur upon the exercise of outstanding stock
options. See "Dilution."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$22,779,000 ($27,229,050 if the Underwriters' over-allotment option is exercised
in full), after deducting the estimated underwriting discount and offering
expenses. The Company expects to use the net proceeds for general corporate
purposes, including working capital. However, the Company has not allocated any
specific portion of the net proceeds to such purposes, and management will have
the ability to allocate such proceeds at its discretion. From time to time in
the ordinary course of business, the Company evaluates the acquisition of
products, businesses and technologies that complement the Company's business,
for which a portion of the net proceeds may be used. Currently, however, the
Company does not have any understandings, commitments or agreements with respect
to any such acquisitions. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in interest-bearing,
investment-grade securities. The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders.
DIVIDEND POLICY
The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate that it will pay any cash
dividends in the foreseeable future. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements and the
general financial condition of the Company, general business conditions and
contractual restrictions on payment of dividends, if any. In addition, the
Company's lines of credit prohibit the payment of dividends without prior lender
approval.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the long-term indebtedness and
capitalization of the Company at June 30, 1997 on an actual, pro forma, and pro
forma as adjusted basis. The table should be read in conjunction with the
Company's Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion............... $ 860 $ 860 $ 860
-------- -------- --------
Redeemable convertible preferred stock:
Preferred stock, par value $0.01 per share:
Authorized, 6,657,030 shares (1,000,000
shares pro forma and as adjusted); issued
and outstanding, 6,437,722 shares (no
shares pro forma or as adjusted)......... 14,919 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.01 par value:
Authorized 25,000,000 shares, issued and
outstanding, 909,465 shares (9,017,723
shares pro forma and 11,317,723 shares as
adjusted)(3)............................. 9 90 113
Additional paid-in capital........................... 18,352 33,190 55,946
Deferred compensation................................ (141) (141) (141)
Accumulated deficit.................................. (34,548) (34,548) (34,548)
-------- -------- --------
Total stockholders' equity (deficit)....... (16,328) (1,409) 21,370
-------- -------- --------
Total capitalization....................... $ (549) $ (549) $ 22,230
======== ======== ========
</TABLE>
- ---------------
(1) Adjusted to give effect to the conversion into Common Stock of all of the
outstanding shares of Preferred Stock upon the closing of this offering.
(2) Adjusted to give effect to the sale by the Company of 2,300,000 shares of
Common Stock at an assumed initial public offering price of $11.00 per share
and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds."
(3) Based on shares outstanding as of June 30, 1997. Does not include 2,138,256
shares of Common Stock issuable upon the exercise of options outstanding as
of such date at a weighted average exercise price of $0.82 per share. Also
does not include 1,281,250 additional shares reserved for future grants of
issuances under the Company's stock option and stock purchase plans. See
"Capitalization," "Management -- Equity Plans," "-- Director Compensation"
and Note 6 of Notes to Financial Statements.
14
<PAGE> 16
DILUTION
As of June 30, 1997, the pro forma net tangible book value (deficit) of the
Company, assuming the conversion of all outstanding shares of Preferred Stock,
was $(1,634,190) or $(0.18) per share of Common Stock. Pro forma net tangible
book value (deficit) per share represents the amount of the Company's total
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding on a pro forma basis at that date.
After giving effect to the sale of the 2,300,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$11.00 per share and after deducting the estimated underwriting discount and
offering expenses), the pro forma net tangible book value of the Company as of
June 30, 1997 would have been approximately $21,371,000 or $1.89 per share. This
represents an immediate increase in net tangible book value of $2.07 per share
to existing stockholders and an immediate dilution of $9.11 per share to new
investors in this offering. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $11.00
Pro forma net tangible book value (deficit) per share as of
June 30, 1997............................................... $(0.18)
Increase in net tangible book value per share attributable to
new investors................................................ 2.07
------
Pro forma net tangible book value per share after this offering.... 1.89
------
Dilution per share to new investors................................ $ 9.11
======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price paid per share by
existing stockholders and by the new investors purchasing shares in this
offering (before deducting the estimated underwriting discount and estimated
offering expenses), at an assumed initial public offering price of $11.00 per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 9,017,723 79.7% $33,130,000 56.7% $ 3.67
New investors...................... 2,300,000 20.3 25,300,000 43.3 $ 11.00
------- ----------- -------
Total......................... 11,317,723 100.0% $58,430,000 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders of 600,000 shares in this offering will
reduce the number of shares of Common Stock held by existing stockholders to
8,417,723, or 74.4% of the total number of shares of Common Stock
outstanding immediately after this offering, and will increase the number of
shares of Common Stock held by new investors to 2,900,000, or 25.6% of the
total number of shares of Common Stock outstanding immediately after this
offering. See "Principal and Selling Stockholders."
The foregoing table assumes: (i) the conversion of all outstanding shares
of Preferred Stock into Common Stock; (ii) no exercise of the Underwriters'
over-allotment option; and (iii) no exercise of stock options outstanding as of
June 30, 1997. As of June 30, 1997, there were options outstanding to purchase a
total of 2,138,256 shares of Common Stock at a weighted average exercise price
of $0.82 per share. To the extent that any of these options are exercised, there
will be further dilution to new investors. See "Capitalization," "Management --
Equity Plans," "Description of Capital Stock" and Note 6 of Notes to Financial
Statements.
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following table sets forth for the periods indicated selected financial
data of the Company. The statement of operations data for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 and the six months
ended June 30, 1997 and the balance sheet data as of December 30, 1995, December
28, 1996 and June 30, 1997 have been derived from the Company's financial
statements audited by Arthur Andersen LLP, independent public accountants, which
are included elsewhere in this Prospectus. The statement of operations data for
years ended January 2, 1993 and January 1, 1994 and the balance sheet data as of
January 2, 1993, January 1, 1994 and December 31, 1994 have been derived from
financial statements audited by Arthur Andersen LLP not included in this
Prospectus. The statement of operations data for the six months ended June 30,
1996 have been derived from the unaudited financial statements of the Company.
The unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's financial position and results of operations for the period
presented. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of future results of operations. The data set forth
below are qualified by the more detailed financial statements and notes thereto
included elsewhere in this Prospectus and should be read in conjunction
therewith and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and Notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------ JUNE 30,
JAN. 2, JAN. 1, DEC. 31, DEC. 30, DEC. 28, --------------------
1993 1994 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License revenues........................ $ 2,021 $ 3,232 $ 3,416 $ 3,443 $ 7,845 $ 2,982 $ 6,890
Service revenues........................ 27 261 649 912 1,162 487 811
------- ------- ------- ------- ------- ------- ------
Total revenues...................... 2,048 3,493 4,065 4,355 9,007 3,469 7,701
Cost of revenues............................ 1,445 1,966 1,941 1,164 1,957 931 1,279
------- ------- ------- ------- ------- ------- ------
Gross profit................................ 603 1,527 2,124 3,191 7,050 2,538 6,422
------- ------- ------- ------- ------- ------- ------
Operating expenses:
Research and development................ 1,174 1,514 2,374 2,361 3,933 1,850 2,126
Sales and marketing..................... 1,852 2,300 3,391 3,694 7,040 3,056 4,320
General and administrative.............. 766 754 751 1,000 1,177 492 900
------- ------- ------- ------- ------- ------- ------
Total operating expenses............ 3,792 4,568 6,516 7,055 12,150 5,398 7,346
------- ------- ------- ------- ------- ------- ------
Operating loss.............................. (3,189) (3,041) (4,392) (3,864) (5,100) (2,860) (924)
Other income (expense), net................. 50 37 (2) 80 45 65 (42)
------- ------- ------- ------- ------- ------- ------
Loss from continuing operations......... (3,139) (3,004) (4,394) (3,784) (5,055) (2,795) (966)
Income (loss) from discontinued
operations................................ 2,195 (68) 117 -- -- -- --
------- ------- ------- ------- ------- ------- ------
Net loss............................ $ (944) $(3,072) $(4,277) $(3,784) $ (5,055) $ (2,795) $ (966)
======= ======= ======= ======= ======= ======= ======
Pro forma net loss per common and common
equivalent share (unaudited)(1)........... $ (0.52) $ (0.29) $ (0.10)
Pro forma weighted average common and common
equivalent shares outstanding
(unaudited)(2)............................ 9,768 9,768 9,775
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997
------------------------------------------------------ --------------------
JAN. 2, JAN. 1, DEC. 31, DEC. 30, DEC. 28, PRO
1993 1994 1994 1995 1996 ACTUAL FORMA(3)
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 2,102 $ 4,202 $ 1,619 $ 4,397 $ 1,664 $ 1,873 $ 1,873
Working capital (deficit)................... 2,326 4,329 1,907 3,316 (1,387) (2,467) (2,467)
Total assets................................ 3,831 6,288 3,989 6,729 5,584 5,586 5,586
Long-term debt, net of current portion...... -- -- -- -- 668 860 860
Redeemable convertible preferred stock...... -- 5,161 7,527 13,616 14,478 14,919 --
Total stockholders' equity (deficit)........ 3,120 (54) (4,716) (9,126) (15,035) (16,328) (1,409)
</TABLE>
- ---------------
(1) Reflects the conversion of all outstanding shares of the Company's Preferred
Stock into 8,108,258 shares of Common Stock.
(2) Computed on the basis described in Note 1 of Notes to Financial Statements.
(3) Adjusted to reflect, upon the closing of this offering, the conversion of
all outstanding shares of the Company's Preferred Stock into 8,108,258
shares of Common Stock.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Concord develops, markets and supports a family of turnkey, automated,
scaleable, software-based performance analysis and reporting solutions for the
management of computer networks. Substantially all of the Company's revenues are
derived from the Network Health product family which began shipping in the first
quarter of 1995.
From its inception until 1992, the Company manufactured a line of
manufacturing automation hardware and software solutions utilizing the
Manufacturing Automation Protocol (MAP) designed for manufacturing shop floors.
Significant sales of MAP products ended in 1992 when the Company discontinued
all MAP-related operations. During 1990, the Company began to develop the
Trakker product line, the Company's first product for the network performance
analysis and reporting market. Trakker was a hardware and software solution that
performed segment monitoring within a LAN and collected data to be used for
performance analysis and reporting. Trakker was introduced during 1991 and was
the primary source of the Company's revenues from 1992 through 1994. In 1994,
the Company began developing the Network Health product family which began
shipping in 1995. During 1996, the Company discontinued sales of the Trakker
product line and derived substantially all of its revenues from the Network
Health product family.
The Company sells its Network Health product family to organizations with
large and medium-size networks, as well as network service providers which
include telecommunications carriers, ISPs, systems integrators and outsourcers.
The Company derives revenues from software licenses and maintenance service
agreements. Pricing for each product in the Network Health product family
includes a fixed price portion plus a variable portion depending upon the number
of elements being analyzed by the Company's products within the customer's
network. Revenues from software licenses are recognized upon the execution of a
purchase order and shipment of the software provided that no significant
obligations on the part of the Company remain outstanding and collection of the
related receivable is deemed probable by management. Revenues from services are
recognized ratably over the period during which the services are performed.
License revenues and service revenues that have been prepaid or invoiced but
that do not yet qualify for recognition as revenues under the Company's policy,
are reflected as deferred revenues. The Company has not capitalized any software
development costs as they have been expensed as incurred.
As of June 30, 1997, the Company had accumulated net losses of $32.2
million. The Company's operating expenses increased substantially during 1996 as
the Company made investments related to the continued development, sales and
marketing of Network Health products. The market for the Company's products is
new and emerging. Therefore, the Company believes that it is critical to
continue to invest in a market penetration strategy that involves increased
investments in new products and product enhancements, additional sales and
marketing personnel, and new channels of distribution. Consequently, the Company
anticipates that operating expenses related to these areas will continue to
increase on an absolute basis for the foreseeable future.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by each item in the Company's Statement of
Operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30,
-------------------------- -------------------
1994 1995 1996 1996 1997
------ ----- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License revenues......................... 84.0% 79.1% 87.1% 86.0% 89.5%
Service revenues......................... 16.0 20.9 12.9 14.0 10.5
---- --- --- --- ---
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues.............................. 47.7 26.7 21.7 26.8 16.6
Gross profit.................................. 52.3 73.3 78.3 73.2 83.4
---- --- --- --- ---
Operating expenses:
Research and development................. 58.4 54.2 43.7 53.3 27.6
Sales and marketing...................... 83.4 84.8 78.2 88.1 56.1
General and administrative............... 18.5 23.0 13.0 14.2 11.7
---- --- --- --- ---
Total operating expenses...................... 160.3 162.0 134.9 155.6 95.4
---- --- --- --- ---
Operating loss................................ (108.0) (88.7) (56.6) (82.4) (12.0)
Other income (expense), net................... (0.1) 1.8 .5 1.8 (.5)
---- --- --- --- ---
Loss from continuing operations.......... (108.1) (86.9) (56.1) (80.6) (12.5)
Income from discontinued operations...... 2.9 0.0 0.0 0.0 0.0
---- --- --- --- ---
Net loss................................. (105.2)% (86.9)% (56.1)% (80.6)% (12.5)%
==== === === === ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES
Total revenues increased 122.0% to $7.7 million in the six months ended
June 30, 1997 from $3.5 million in the six months ended June 30, 1996.
License revenues increased 131.1% to $6.9 million, or 89.5% of total
revenues, in the six months ended June 30, 1997 from $3.0 million, or 86.0% of
total revenues, in the six months ended June 30, 1996. License revenues include
fees from granting the right to use the Company's software products. License
revenues in both periods were derived solely from the Network Health product
family. The increase in license revenues was the result of increased sales of
all products to new customers and sales to existing customers of: (i) the
Network Health-Router/Switch product, introduced in the third quarter of 1996;
(ii) other new and add-on product sales; and (iii) additional network element
license sales.
Service revenues increased 66.5% to $811,000, or 10.5% of total revenues,
in the six months ended June 30, 1997 from $487,000, or 14.0% of total revenues,
in the six months ended June 30, 1996. Service revenues consist of fees for
maintenance and training services. During the first six months of 1996, the
Company derived service revenues from services provided for the Trakker product
line, all of which were discontinued during the second half of 1996. During the
first half of 1997, there were no service revenues derived from the maintenance
of the Trakker product line.
COST OF REVENUES
Cost of revenues increased 37.4% to $1.3 million, or 16.6% of total
revenues, in the six months ended June 30, 1997 from $931,000, or 26.8% of total
revenues in the six months ended June 30, 1996, resulting in gross margins of
83.4% and 73.2% in each respective period. Cost of revenues include direct
software product costs, which consist primarily of expenses related to product
component royalty costs, product media duplication and manuals, and personnel
costs associated with providing customer support in connection with maintenance
service contracts. Royalty costs are comprised of third party software costs.
The improvement in
18
<PAGE> 20
the gross margin percentage is attributable to lower royalty unit costs
associated with the higher sales unit volumes during the 1997 period and a
one-time charge for the write-off of inventories associated with the
discontinuation of the Trakker product line during 1996.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 14.9% to $2.1 million, or 27.6%
of total revenues, in the six months ended June 30, 1997 from $1.9 million, or
53.3% of total revenues, in the six months ended June 30, 1996. Research and
development expenses consist primarily of personnel costs associated with
software product development. The absolute dollar spending increased $276,000
due to increased headcount in research and development from 29 to 37 people
associated with the development of future product releases. The Company's
product architecture and higher revenue base have allowed the Company to
introduce new products at lower incremental costs thereby reducing research and
development expenses as a percentage of revenues.
SALES AND MARKETING
Sales and marketing expenses increased 41.4% to $4.3 million, or 56.1% of
total revenues, in the six months ended June 30, 1997 from $3.1 million, or
88.1% of total revenues, in the six months ended June 30, 1996. Sales and
marketing expenses consist primarily of salaries, commissions to sales personnel
and agents, travel, tradeshow participation, public relations and other
promotional expenses. The absolute dollar spending increased $1.3 million due to
the building of the direct sales force and marketing and promotional activities
to penetrate the market for the Network Health product family. The decline in
sales and marketing expenses as a percentage of total revenues is due to sales
productivity improvements resulting from the expansion of the Network Health
product family, increased revenues from existing customers, improved lead
generation and reduced sales cycles. Headcount in sales and marketing increased
from 32 to 37 people from June 30, 1996 to June 30, 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 82.9% to $900,000, or 11.7%
of total revenues, in the six months ended June 30, 1997 from $492,000, or 14.2%
of total revenues, in the six months ended June 30, 1996. General and
administrative expenses consist primarily of salaries for financial,
administrative and management personnel and related travel expenses, as well as
legal and accounting expenses. The absolute dollar spending increased $408,000
due to increased headcount in general and administrative from eight to 14
people. General and administrative expenses declined as a percentage of total
revenues during the 1997 period due to a significant increase in revenues during
that period.
OTHER INCOME (EXPENSE), NET
Other income consists of interest earned on funds available for investment
net of interest paid in connection with the financing of capital equipment. The
Company realized net other income of $42,000 for the six months ended June 30,
1997 and had net other expense of $65,000 for the six months ended June 30,
1996.
FISCAL YEARS ENDED 1994, 1995 AND 1996
REVENUES
Total revenues were $4.1 million, $4.4 million and $9.0 million in 1994,
1995 and 1996, respectively, representing increases of 7.1% from 1994 to 1995,
and 106.8% from 1995 to 1996. All 1994 revenues were derived from the Trakker
product line. During the first quarter of 1995, the Company introduced its
current product family, Network Health. During 1995, revenues from Network
Health and Trakker were $2.3 million and $2.1 million, respectively. During
1996, revenues derived from the Network Health product family increased 294.9%
to $8.8 million from $2.2 million in 1995 as the Company began focusing solely
on its Network Health product family and the Trakker product line was
discontinued.
19
<PAGE> 21
License revenues were $3.4 million, $3.4 million and $7.8 million in 1994,
1995 and 1996, respectively, representing increases of 0.8%, from 1994 to 1995,
and 127.9% from 1995 to 1996. License revenues accounted for 84.0%, 79.1% and
87.1% of total revenues in 1994, 1995 and 1996, respectively. License revenues
increased by 0.8% to $3.4 million during 1995 as sales of the Trakker product
line decreased and sales of the Network Health product family increased. During
1996, the Company discontinued development and sales of the Trakker product line
resulting in a decline in Trakker license revenues to $181,000. License revenues
of Network Health increased to $7.7 million in 1996 as the Company began
shipping Network Health - Frame Relay in the first quarter of 1996 and Network
Health - Router/Switch in the third quarter of 1996. During 1996, the Company
added over 175 new Network Health customers.
Service revenues were $649,000, $912,000 and $1.2 million in 1994, 1995 and
1996, respectively, representing increases of 40.5% from 1994 to 1995, and 27.4%
from 1995 to 1996. Service revenues accounted for 16.0%, 20.9%, and 12.9% of
total revenues in 1994, 1995 and 1996, respectively. Service revenues increased
as a percentage of total revenues during 1995 as the Trakker product line
customer base continued to pay for maintenance of their existing Trakker
hardware products while current sales of those products declined as the Company
de-emphasized the Trakker product line. The decline in service revenues as a
percentage of sales during 1996 is attributable to the discontinuance of the
Trakker product line and the cancellation of related service contracts.
COST OF REVENUES
Cost of revenues were $1.9 million, $1.2 million and $2.0 million in 1994,
1995 and 1996, respectively, representing a decrease of 40.0% from 1994 to 1995,
and an increase of 68.1% from 1995 to 1996. Cost of revenues accounted for
47.7%, 26.7% and 21.7% of total revenues in 1994, 1995 and 1996, respectively,
resulting in gross margins of 52.3%, 73.3% and 78.3% in each respective period.
Cost of revenues declined as a percentage of total revenues in each of the three
years due to the decline in sales of the Trakker product line which included
hardware and the associated hardware costs. During 1996, substantially all
product revenues were derived from the licensing of the Network Health product
family and consequently, there was no significant hardware cost of revenues
incurred during 1996. Software product costs consist primarily of expenses
related to product component royalty costs, product media, duplication and
manuals.
RESEARCH AND DEVELOPMENT
Research and development expenses were $2.4 million, $2.4 million and $3.9
million in 1994, 1995 and 1996, respectively, representing a decrease of 0.5%
from 1994 to 1995, and an increase of 66.6% from 1995 to 1996. Research and
development expenses accounted for 58.4%, 54.2%, and 43.7% of total revenues in
1994, 1995 and 1995, respectively. The absolute dollar spending increased $1.6
million from 1995 to 1996 due to investments made in the Network Health product
family to add new products and enhance the existing products. Headcount in
research and development increased from 20 to 34 people from 1995 to 1996.
SALES AND MARKETING
Sales and marketing expenses were $3.4 million, $3.7 million and $7.0
million in 1994, 1995 and 1996, respectively, representing an increase of 8.9%
from 1994 to 1995, and 90.6% from 1995 to 1996. Sales and marketing expenses
accounted for 83.4%, 84.8% and 78.2% of total revenues in 1994, 1995 and 1996,
respectively. The absolute dollar spending increased $3.3 million from 1995 to
1996 due to building the direct sales force and marketing and promotional
activities to develop and penetrate the market for the Network Health product
family. During 1996, the Company increased sales and marketing personnel
expenses, incurred significantly higher commissions expense due to increased
sales, and increased its participation in industry trade shows, seminars and
other promotional activities. Sales and marketing expenses declined as a
percentage of total revenues from 1995 to 1996 due to sales productivity
improvements. Headcount in sales and marketing at the end of 1994, 1995 and 1996
was 21, 19 and 31 people, respectively.
20
<PAGE> 22
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $751,000, $1.0 million and $1.2
million in 1994, 1995 and 1996, respectively, representing increases of 33.2%
from 1994 to 1995, and 17.7% from 1995 to 1996. General and administrative
expenses accounted for 18.5%, 23.0% and 13.0% of total revenues in 1994, 1995
and 1996, respectively. The absolute dollar spending increased $177,000 from
1994 to 1995 due to the addition of personnel. General and administrative
expenses declined as a percentage of total revenues from 1995 to 1996 due to a
significant increase in revenues.
OTHER INCOME (EXPENSE), NET
The Company had net other expense of $2,000 in 1994. The Company realized
net other income of $80,000 and $45,000, respectively, in 1995 and 1996.
INCOME FROM DISCONTINUED OPERATIONS
During 1992, the Company discontinued its MAP business segment and
completed a substantial portion of the disposition during 1992 and 1993. Income
from discontinued operations in 1994 related to the final disposition of the
remaining MAP assets.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly results of
operations in dollar amounts and as a percentage of total revenues for the
periods indicated. The information for each of these quarters includes all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of this information when read in
conjunction with the Company's Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The results of operations for any quarter and any
quarter-to-quarter trends are not necessarily indicative of the results to be
expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
1995 1995 1996 1996 1996 1996 1997 1997
----- ------- ------- ------- ------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License revenues................. $ 794 $ 1,252 $ 1,288 $ 1,695 $2,017 $ 2,845 $3,105 $3,785
Service revenues................. 258 256 250 237 327 348 351 460
----- ------- ------- ------- ----- ------- ----- -----
Total revenues............... 1,052 1,508 1,538 1,932 2,344 3,193 3,456 4,245
Cost of revenues..................... 231 349 328 604 377 648 587 692
----- ------- ------- ------- ----- ------- ----- -----
Gross profit......................... 821 1,159 1,210 1,328 1,967 2,545 2,869 3,553
----- ------- ------- ------- ----- ------- ----- -----
Operating expenses:
Research and development......... 587 795 898 952 961 1,122 1,035 1,091
Sales and marketing.............. 874 1,213 1,305 1,751 1,647 2,337 1,971 2,349
General and administrative....... 146 299 233 259 234 451 432 468
----- ------- ------- ------- ----- ------- ----- -----
Total operating expenses..... 1,607 2,307 2,436 2,962 2,842 3,910 3,438 3,908
----- ------- ------- ------- ----- ------- ----- -----
Operating loss....................... (786) (1,148) (1,226) (1,634) (875) (1,365) (569) (355)
Other income (expense), net.......... 27 14 42 23 (6) (14) (19) (23)
----- ------- ------- ------- ----- ------- ----- -----
Net loss..................... $(759) $(1,134) $(1,184) $(1,611) $ (881) $(1,379) $ (588) $ (378)
===== ======= ======= ======= ===== ======= ===== =====
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
----------------------------------------------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
1995 1995 1996 1996 1996 1996 1997 1997
----- ----- ----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License revenues................ 75.5% 83.0% 83.7 % 87.7% 86.0% 89.1% 89.8 % 89.2%
Service revenues................ 24.5 17.0 16.3 12.3 14.0 10.9 10.2 10.8
----- ----- ----- ----- ----- ----- ----- -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues.................... 22.0 23.1 21.3 31.3 16.1 20.3 17.0 16.3
Gross profit........................ 78.0 76.9 78.7 68.7 83.9 79.7 83.0 83.7
Operating expenses:
Research and development........ 55.8 52.7 58.4 49.3 41.0 35.1 29.9 25.7
Sales and marketing............. 83.0 80.5 84.9 90.6 70.2 73.3 57.0 55.4
General and administrative...... 13.9 19.8 15.1 13.4 10.0 14.1 12.6 11.0
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses.... 152.7 153.0 158.4 153.3 121.2 122.5 99.5 92.1
----- ----- ----- ----- ----- ----- ----- -----
Operating loss...................... (74.7) (76.1) (79.7) (84.6) (37.3) (42.8) (16.5) (8.4)
----- ----- ----- ----- ----- ----- ----- -----
Net other income (expense).......... 2.6 0.9 2.7 1.2 (0.3) (0.4) (0.5) (0.5)
----- ----- ----- ----- ----- ----- ----- -----
Net Loss.................... (72.1)% (75.2)% (77.0)% (83.4)% (37.6)% (43.2)% (17.0)% (8.9)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's revenues, expenses and results of operations have been
subject to significant quarterly fluctuations, due to a variety of factors. See
"Risk Factors--Potential Fluctuations in Quarterly Operating Results." These
factors make the estimation and forecast of revenues difficult on a quarterly
basis. The Company plans to continue increasing its product development and
sales expenses in absolute dollars on a quarterly basis in an effort to increase
its market share. These increases will be based in part on the estimation and
forecasting of future revenues. As a result, the estimation of quarterly results
of operations is difficult and should not be relied upon as any indication of
future performance.
License revenues are difficult to forecast quarter to quarter. Due to the
buying patterns of certain of the Company's customers and also to the Company's
own sales incentive programs which are focused on annual sales goals, revenues
in the Company's fourth quarter could be higher than revenues in the first
quarter of the succeeding year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through the
private sale of equity securities and a credit line for equipment purchases. The
Company had a working capital deficit of $2.5 million at June 30, 1997.
Net cash provided by (used in) operating activities was $(4.1) million,
$(2.1) million and $(2.9) million in 1994, 1995 and 1996, respectively, and
$(2.5) million and $467,000 for the six months ended June 30, 1996 and 1997,
respectively. Cash and cash equivalents were $1.6 million, $4.4 million and $1.7
million at December 31, 1994, December 30, 1995 and December 28, 1996,
respectively and $1.9 million at June 30, 1997. In each period, the Company
experienced significant net losses. Deferred revenues increased for the year
ended December 28, 1996 due to an increase in overall sales activity leading to
increases in deferred maintenance contracts and software license sales with
remaining contingencies. Accrued expenses also increased significantly for the
year ended December 28, 1996 due primarily to compensation expenses associated
with the increase in sales volume.
Investing activities have consisted solely of the acquisition of property,
plant and equipment, most notably computer and networking equipment to support
the growing employee base and corporate infrastructure. Financing activities
consisted of the sales of preferred stock in 1994 and 1995 and proceeds from
bank borrowings in connection with equipment purchases during 1996 and the first
six months of 1997.
During 1996, the Company entered into an agreement for an equipment line of
credit in the amount of $1.0 million (the "Equipment Line") with a bank. The
Equipment Line, as amended, bears interest at the bank's prime rate (8.50% at
June 30, 1997) plus 2% and is collateralized by substantially all of the
Company's assets. As of December 28, 1996, the outstanding borrowings under the
Equipment Line amounted to $925,000. In 1997, the Company received additional
advances of $74,000 through March 25, 1997, at which time the total amount of
$999,000 due under the Equipment Line was converted into a term loan payable in
36
22
<PAGE> 24
even monthly payments of principal plus interest at the bank's prime rate plus
2% through March 25, 2000. As of June 30, 1997, the principal balance on the
term loan payable was $915,000.
The Company has a revolving working capital line of credit. Borrowings
outstanding under the line are limited to the lesser of $2.5 million or 90% of
eligible accounts receivable less the principal amount that remains outstanding
under an existing equipment line of credit. Interest on this line is at the rate
of prime plus 2% and will be reduced to the prime rate the first day of the
month following the closing of this offering. The Company's line of credit
expires on April 2, 1998. As of June 30, 1997, the Company had $842,000
available for future borrowings under this agreement. The Company entered into a
new equipment line of credit with available borrowings of up to $1.0 million
during June of 1997. As of June 30, 1997, the Company had available $775,000 for
future borrowings under this agreement.
The Company had available net operating loss carryforwards of approximately
$27.0 million and federal research and development tax credit carryforwards of
approximately $1.5 million as of December 28, 1996 to reduce future income tax
liabilities. These carryforwards expire from 1997 through 2012 and are subject
to review and possible adjustment by the appropriate taxing authorities.
Approximately $13.7 million of the Company's net operating loss and research and
development tax credit carryforwards expire between 1997 and 2001. Pursuant to
the Tax Reform Act of 1986, the utilization of net operating loss carryforwards
for tax purposes may be subject to an annual limitation if a cumulative change
of ownership of more than 50% occurs over a three-year period. As a result of
the Company's 1995 preferred stock financings, such a change in ownership has
occurred. Also, following the completion of the Offering, the Company expects
that another ownership change may occur. As a result of these ownership changes,
the use of the net operating loss carryforwards will be limited. The Company has
deferred tax assets of approximately $14.0 million comprised primarily of net
operating loss carryforwards and research and development credits. The Company
has fully reserved for these deferred tax assets by recording a valuation
allowance of $14.0 million, as the Company believes that it is more likely than
not that it will not be able to realize this asset.
As of June 30, 1997, the Company's principal sources of liquidity included
cash and equipment lines of credit. The Company believes that the net proceeds
from this offering, together with its current cash balances, cash provided by
future operations and available borrowings under its lines of credit, will be
sufficient to meet its working capital and anticipated capital expenditure
requirements for at least the next 12 months. Although operating activities may
provide cash in certain periods, to the extent the Company experiences growth in
the future, its operating and investing activities may require significant cash.
Consequently, any such future growth may require the Company to obtain
additional equity or debt financing.
23
<PAGE> 25
BUSINESS
INTRODUCTION
Concord develops, markets and supports a family of turnkey, automated,
scaleable, software-based performance analysis and reporting solutions for the
management of computer networks. By providing a global view of network
performance, the Company's products enable the effective and efficient
management of large and medium-size multi-vendor networks, both by end users and
network service providers, including telecommunications carriers, ISPs, systems
integrators and outsourcers. The Company's Network Health product family
retrieves and compiles vital network statistics, performs extensive analyses of
those statistics and provides intuitive, informative, user-friendly graphical
reports. The Company's software-only solutions provide IT executives, managers
and technicians with the information necessary to assess and correct costly
network inefficiencies, make cost-effective network purchasing decisions and
predict network failures.
The Company's initial target market has been organizations with large and
medium-size networks of 150 or more network elements. The Company markets to
these potential customers through its own sales force, sales agents, value added
resellers, network service providers, including telecommunication carriers, and
OEMs. As of June 30, 1997, the Company had over 400 customers operating in and
serving a variety of industries. Representative customers include America
Online, Inc., Ameritech Corporation, AT&T Corporation, The Bear Stearns
Companies, Inc., British Telecommunications plc, Burlington Northern Santa Fe
Corporation, Department of Commerce, Dow Jones & Company, Inc., Ernst & Young
LLP, MCI Telecommunications Corp., Morgan Stanley Group Inc., Motorola Inc., New
York Stock Exchange, Inc., Pfizer Inc., Prudential Service Company, The Procter
& Gamble Company, Sprint Corporation, Viacom International Inc., Visa
International and U S WEST, Inc.
INDUSTRY BACKGROUND
The pervasiveness and sophistication of business process applications, such
as email, remote access, electronic commerce and order entry systems, have
significantly increased the amount of data traffic across networks. As these
applications have become an integral part of managing information within an
enterprise, businesses have developed and expanded their computer networks to
connect remote operations, branch offices, telecommuters, customers and
suppliers, among others. These increases in data traffic, coupled with the
emergence of widely distributed computing across heterogeneous platforms, have
increased the demands placed on both LANs and WANs. The sophisticated and
complex technologies that have been developed to meet these demands, such as LAN
switching, frame relay and ATM, must not only enhance bandwidth and
connectivity, but must also interface with existing legacy environments in order
to build an effective integrated business infrastructure.
Increased network complexities, combined with inadequate centralized
network analysis and planning functions, have led to network congestion and the
inefficient use of both LAN and WAN resources and unnecessary purchases of
additional networking hardware, leased lines and digital carrier WAN bandwidth.
Because the consequences of network congestion and failure can range from a
temporary reduction in productivity to significant financial loss, the
reliability and performance of networks has assumed critical importance. To
ensure the reliability and performance of these networks, organizations are
increasingly relying on network management software.
The technical complexity of providing for high levels of automation,
aggregation and scalability over thousands of network elements has made
comprehensive network management applications difficult to develop. Solutions
originally developed for network management were centralized, mainframe-based
systems that offered a platform from which the network manager could monitor the
network. These systems were expensive, provided limited functionality and were
generally closed and proprietary. With the emergence of distributed computing
environments, independent tool vendors began developing solutions that solved
specific technical network problems. The emergence of MIBs along with a
standardized protocol (SNMP) provided not only a mechanism to measure all
networking elements but also the required enabling technology for technical
network management. SNMP facilitated the development of technical tools, such as
network element management solutions and RMON and RMON2 probe-based solutions.
Network element manage-
24
<PAGE> 26
ment solutions allow technical personnel to diagnose problems, but are usually
limited to a particular vendor's equipment. Probe-based solutions provide
technical information on a specific network segment only and may provide
monitoring and reporting capabilities that are usually dependent on data
accumulated from the particular probes.
Although these tools have enhanced the technical management of networks and
are particularly useful in isolating and correcting problems in networks after
such problems have already occurred, the dependency of organizations on their
networks has necessitated new, broad-based network management solutions. These
solutions enable organizations to optimize the performance and minimize the
costs of their existing network infrastructure, identify developing network
problems and support decisions relating to future network infrastructure growth.
IT executives and managers of both large and small networks are coming to
recognize that in order to optimize network resources and effectively plan for
future demand, performance analysis and reporting solutions must reside at the
core of the network as a means of aggregating relevant network data into a
comprehensive picture of network health. Based upon forecasts from industry
sources, the Company believes that within the performance analysis and reporting
market there are currently over 200 million potentially manageable elements. The
Company believes that to date less than 0.5% of these elements are being managed
utilizing software-based analysis and reporting.
THE CONCORD SOLUTION
Concord develops, markets and supports a family of turnkey, automated,
scaleable, software-based performance analysis and reporting solutions for the
management of computer networks. The Company's Network Health product family
retrieves and compiles vital network statistics, performs extensive analyses of
those statistics and provides intuitive, informative, user-friendly graphical
reports. The Company's products are capable of simultaneously polling, analyzing
and reporting on over 5,000 elements per workstation.
The Company's Network Health product family provides organizations with the
following benefits: (i) capacity planning -- providing information to support
business decisions relating to network utilization and future capacity
requirements; (ii) reduction in data communications expenses -- identifying
excess capacity on each WAN, leased line or frame relay circuit; (iii) effective
allocation of resources -- allowing management to effectively deploy networking
resources and personnel; and (iv) service level monitoring -- assisting managers
in making network resource allocation decisions within an organization and
assisting both network service providers and end users in monitoring the
availability of negotiated service level agreements.
In providing these benefits, the Company's Network Health product family
incorporates the following features:
FULLY AUTOMATED, TURNKEY IMPLEMENTATION. The Company's products provide
turnkey solutions for fully automated network performance analysis and
reporting. Installation can be accomplished in a few hours without the use of
additional network hardware. Once installed, the Company's software immediately
generates standardized reports on a variety of topics, such as: (i) situations
to watch for potential trouble spots; (ii) exceptions analysis for identifying
deviations from specified performance levels; and (iii) bandwidth utilization
for managing and allocating limited network resources. These standardized
reports can be accessed via the Web, directly at the network monitoring console,
or through printed reports.
SCALEABLE, SOFTWARE-ONLY SOLUTION. The Network Health product family is
designed to collect data from heterogeneous networking environments without the
use of additional probes and network monitoring tools. The Company's products
are easily scaled to meet the demands for network performance analysis and
reporting as an organization's network infrastructure expands. Network Health
provides managers with the ability to purchase add-on software licenses as
needed.
MULTI-LEVEL REPORTING. The Company's Network Health product family
generates a comprehensive package of graphical reports that provide information
and analyses on a wide variety of pre-programmed parameters. Information is
provided for use at multiple levels of management, from a general overview of
network performance for chief information officers to a port-by-port analysis of
specific network hardware for managers or technicians.
25
<PAGE> 27
TECHNOLOGY AND VENDOR INDEPENDENCE. The Company's Network Health product
family provides performance analysis and reporting of elements within an
organization's heterogeneous LAN and WAN infrastructure, independent of network
technology and hardware vendor. The Company's products are easily extendible to
new technologies and network architectures.
STRATEGY
The Company's objective is to maintain its leadership position in the
expanding market for automated network performance analysis and reporting
software solutions for the management of networks. To achieve its objective,
Concord is pursuing the following strategies:
LEVERAGE CORE TECHNOLOGY FOR FUTURE PRODUCT ENHANCEMENTS. The Network
Health product architecture is designed to enable the Company to rapidly develop
and market new product enhancements. The Company has targeted several critical
areas in which it seeks to extend its technology leadership, including
increasing scaleability to poll, analyze and report on over 20,000 elements per
workstation, improving ease-of-use and adding functionality through enhanced
predictive analysis. In addition, the Company is focused on expanding Network
Health's ability to analyze the performance of network applications and IT
technologies such as ATM switches and remote access devices and is focused on
porting the Network Health product family to a Windows NT platform.
EXPAND EXISTING CUSTOMER BASE. The Company has expended significant
resources to build an installed base of over 400 customers and network service
providers which, the Company believes, will create significant barriers to entry
for potential competitors. The Company intends to build upon its installed
customer base by employing a multi-tiered sales strategy that includes proactive
sales to organizations with large and medium-size networks and extending
alliances with network equipment vendors and network service providers. The
Company intends to expand its international presence from Europe and Korea to
include additional distributors in Europe, the Pacific Rim and Latin America.
FOCUS ON TELECOMMUNICATIONS CARRIERS AND OTHER NETWORK SERVICE
PROVIDERS. Telecommunications carriers and other network service providers are
both end users of Network Health products as well as providers of network
services that are enhanced by the Company's products. With many large
organizations outsourcing network services, the Company believes that network
service providers, including telecommunications carriers, ISPs, systems
integrators and outsourcers, can accelerate expansion of the Company's existing
customer base and play a crucial role in determining standards for network
performance analysis and reporting software.
EXPAND RELATIONSHIPS WITH STRATEGIC PARTNERS. The Company currently has
marketing or OEM relationships with Bay Networks, Inc., Cabletron Systems, Inc.,
Cascade Communications Corp., FORE Systems, Inc., NetScout Systems, Inc. and
Newbridge Networks Corporation. The Company's partnering strategy is to
establish cooperative arrangements with as many leading IT companies as
possible, ranging from joint marketing and development arrangements to OEM
arrangements for the development and marketing of integrated product offerings.
BROADEN PENETRATION OF AND LEVERAGE EXISTING CUSTOMER BASE. Concord
intends to aggressively focus on increasing revenues from its existing customer
base through the issuance of expansion licenses for the monitoring of additional
network elements and the securing of additional maintenance contracts. The
Company also intends to proactively target existing customers for new product
sales as well. The Company also intends to proactively target existing customers
for sales of future versions of Network Health which are capable of analyzing
the performance of network applications and technologies such as ATM switches
and remote access devices, and running on the Windows NT platform.
PRODUCTS AND TECHNOLOGY
The Company's Network Health product family automatically provides
enterprise-wide performance analysis and reporting for the large number of
elements typically found within networks. The technical complexity of providing
for high levels of automation, aggregation and scalability over thousands of
network
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<PAGE> 28
elements has made comprehensive network management applications difficult to
develop. The Network Health platform automatically locates devices on the
network, identifies MIB variables, polls devices, and stores data in a
relational database. After the data has been analyzed, Network Health
automatically generates multiple reports which can be retrieved from the network
console or via the Web. Network Health software operates continuously to provide
full-time data gathering and on demand reporting. Network Health reports show
the effects of usage and serve as a basis for agreeing to and understanding
service levels, proactively addressing potential network failures, managing
bandwidth and capacity, identifying security violations and understanding the
usage patterns of the network and the network's various elements.
The critical technology components in the Network Health architecture are
the polling engine, the MIB translation file, the database and group filter, and
the reporting engine. Each of these components is device independent, and thus
can function on any type of network device or segment irrespective of the
network equipment vendor or technology. These components automate the functions
of locating the appropriate devices for polling, gathering only the appropriate
variables and data from those devices, and converting the data into canonical
format which facilitates analysis. The distributed nature of the product allows
for the product components and the user to be located at any location within the
organization. Through the use of sophisticated algorithms and heuristics, the
gathered data can be analyzed to make predictions of upcoming problems
throughout the network. The report viewing components within the reporting
engine allow the rendering and display of multiple views and reports in a
graphical fashion for Web output, print output or integration level output to
other products.
By focusing on the issues of capacity, errors, service levels and
utilization, Network Health's manner of reporting provides a common model which
covers a broad spectrum of network elements and technologies. Pricing for
Network Health applications includes a fixed license fee per application and a
variable fee based on the number of network elements managed by that
application. During 1996 and through the first six months of 1997, initial
orders with new customers for the Company's Network Health products ranged from
approximately $10,000 to $300,000.
The following table lists certain information with respect to the various
products which comprise the broad Network Health product family:
<TABLE>
<CAPTION>
APPLICATION DESCRIPTION QUARTER FIRST SHIPPED
- ------------------- ------------------------------------------------------- ---------------------
<S> <C> <C>
LAN/WAN Monitors, analyzes and reports on performance of shared Q1 1995
and switched media LANs, WAN links, modem banks and
other RMON or MIB capable media.
Frame Relay Identifies actual utilization and quality of services Q1 1996
provided, compares to current committed information
rates, predicts usage trends and enables modeling of
appropriate purchased bandwidth using data collected
from RMON and other MIBs.
Router/Switch Profiles performance of critical internetworking Q3 1996
devices enabling proactive management, rapid
troubleshooting, and informed upgrade and purchase
decisions.
Traffic Accountant Using data available from RMON2 probes, provides Q4 1996
enterprise level view of traffic content (applications
and users) mapped to user defined business groupings
such as departments, managed domains, business
processes, geographic areas, and customers. Facilitates
chargeback, budget justification, and usage policy
enforcement.
Server Profiles performance of networked servers, enabling Q3 1997
proactive management, rapid troubleshooting and
informed upgrade and purchase decisions.
</TABLE>
Additionally, the Company is currently developing an enhanced version of
Network Health. This version of the software is expected to significantly
increase the number of network elements that can be managed from a single
server, enhance the ability of customers and network service providers to
customize Network Health's reports and extend the operating systems supported by
Network Health to include Windows NT.
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<PAGE> 29
NETWORK HEALTH -- LAN/WAN pioneered scaleable performance analysis and
reporting for LANs as well as WANs by providing reports that allow users to
solve business problems. This application provides information on capacity,
errors, trends, over-utilization, under-utilization, and service levels through
intuitive charts and graphs. These charts and graphs minimize technology
differences to allow a single report format to cover a broad set of
technologies, including Ethernet, Token Ring, and fiber distributed data
interface (FDDI) to 56Kbps, T1, T3 and switched multimegabit data service
(SMDS). A typical initial installation manages approximately 100 segments, rings
or leased lines.
NETWORK HEALTH -- FRAME RELAY is used to manage the unique aspects of frame
relay Permanent Virtual Circuits (PVCs). This application indicates poor carrier
service by: (i) identifying carrier network congestion; (ii) end user over-usage
of the Committed Information Rate (CIR); and (iii) timing for upgrades to higher
capacities or downgrades to less expensive lower capacities. Network Health --
Frame Relay is often used by network service providers for quality of service
discussion. A typical initial installation manages approximately 250 PVCs.
NETWORK HEALTH -- ROUTER/SWITCH expands Network Health reports to cover the
increased complexity of managing the behavior of the network's routers and
switches. This application gathers information on and analyzes CPUs, memory
usage, buffer utilization, buffer misses and other such detail to provide the
first level of insight into the operation and capacities of the routers and
switches themselves. For example, with the Situations to Watch panel in the
Network Health -- Router/Switch report, needed memory upgrades can be forecasted
to allow for an orderly upgrade of the router's memory. When a router has been
identified as needing attention, the At-A-Glance Reports provide an historical
snapshot of a router's recent performance, enabling network managers to
determine a course of action. A typical initial installation manages
approximately 50 devices.
NETWORK HEALTH -- TRAFFIC ACCOUNTANT is a software application that
provides information on nodes, access patterns and applications used. This
application scales to enterprise networks, providing an array of reports
covering cost allocation, security audit trails, security exception reports,
reconfiguration reports, application usage, Internet usage and department
utilization. The percentage of the entire network used by particular departments
or divisions in an organization can be reported in a single chart. A typical
initial installation collects data from 50 RMON2 probes.
NETWORK HEALTH -- SERVER analyzes and reports on servers in a scaleable
manner allowing a network manager to understand the trends, capacities and
service levels of the server's CPUs, memory, disks, partitions, virtual memory,
swapping, paging and performance and operational characteristics. The diversity
of server vendors coupled with the increased complexity of servers necessitates
a unique application. The product's analysis and prediction capability, for
example, can be used to identify the disks in need of upgrade before they become
capacity constrained. This product was introduced during July of 1997.
REPORT COMPONENTS
Network Health reports can be viewed daily, weekly and monthly in a secure
manner by IT executives, managers and technicians as well as departments,
divisions and business units. The broad nature of the Network Health model for
displaying information allows a few key components to be used in multiple
products, each of which is described below.
MAIN REPORT
The Main Report provides the user with a number of different ways to view
the elements managed by Network Health in a single report format. This report
provides the following information:
- Daily Network Volume -- Shows historical trend in the entire network
- Hourly Network Volume -- Shows daily trend, compared to an historic
baseline
- Hourly Health Index -- Shows hourly quality of service of the network
- Situations to Watch -- Predicts when problems will occur
- Volume Leaders -- Shows volume and health of the largest elements in the
network
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<PAGE> 30
- Health Index Leaders -- Shows elements most in need of proactive
attention
- Volume Change Leaders -- Shows elements with change that create
performance problems
- Health Index Change Leaders -- Shows elements improving or declining in
the quality of service
- Daily Volume vs. Baseline -- Shows per element volume and historical
trend comparisons
- Bandwidth Utilization -- Shows per element daily bandwidth distribution
- Average Health Index -- Shows per element quality of service indicator
EXCEPTION REPORT
The Exception Report is often used as the morning "To do" list for the
network managers. This report provides the following information:
- Exception Summary -- "To do" list naming elements in need of proactive
attention
- Exception Detail Report -- Per element detail of "To do" list detailing
problems and accompanied by graphic historical information
AT-A-GLANCE AND DRILL DOWN REPORTS
The At-A-Glance and Drill Down Reports allow the user to view the element
in sufficient detail to understand the next action required and what resources
are necessary to dispatch in order to troubleshoot and proactively eliminate the
problem. These reports provide the following information:
- At-A-Glance -- Shows a detailed history of essential performance and
service indicators of routers, switches and servers
- Bandwidth Utilization -- Displays historical information on any data
collected
- Multi-variable trend -- Displays a range of historical information on
elements in the database
TRAFFIC ACCOUNTANT REPORTS
Traffic Accountant has a broad range of reports and capability to aggregate
nodes, networks and data. These reports provide the following information:
- Accounting Report -- Displays total network volume consumed by
individual departments
- Security Report -- Shows unauthorized access to the network and the use
of network resources
- Audit Trail -- Shows detailed activity of individual nodes
- Re-configuration reports -- Shows percentage utilization of networks
thereby allowing simulation of changes and their positive and negative
effects
- Application Traffic -- Shows application activity by department, or by
user, over historical time periods
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<PAGE> 31
CUSTOMERS
The Company sells its products to organizations with large and medium-size
networks, as well as network service providers which include telecommunications
carriers, ISPs, systems integrators and outsourcers. The Company's products are
used by a diverse set of customers in a variety of industries. As of June 30,
1997, the Company had over 400 customers in the following 12 countries: the
United States, Germany, Canada, the United Kingdom, Holland, France, Korea,
Belgium, Sweden, Switzerland, Australia and South Africa. The following is a
representative list of customers that have purchased in excess of $50,000 of the
Company's products and services for the period from January 1, 1996 through June
30, 1997.
<TABLE>
<S> <C> <C>
Analog Devices, Inc. Dresdner Bank AG New York Stock Exchange, Inc.
Abbott Laboratories DSC Communications Corporation Northrop Grumman Corporation
Allied Signal Inc. Dun & Bradstreet Corporation NYNEX Corporation
America Online, Inc. Ernst & Young LLP Pfizer Inc.
Ameritech Corporation First Union National Bank Reuters America Inc.
AT&T Corporation Fleet Financial Group, Inc. Scientific Atlanta, Inc.
Bell South Frontier Information Technologies, Scudder, Stevens & Clark
Bloomberg L.P. Inc. Sprint Corporation
Blue Cross/Blue Shield Association Gateway 2000, Inc. State of Arizona Public Services
Booz, Allen, & Hamilton Inc. Government of British Columbia Tennaco Packaging
British Telecommunications plc HiServ (formerly Hoehcst Celanese) The Bear Stearns Companies, Inc.
Bureau of Census Lexis-Nexis The Procter & Gamble Company
Burlington Northern Santa Fe MCI Telecommunications Corporation The Prudential Service Company
Corporation Memorial Sloan-Kettering Toys "(REVERSE R LOGO)" Us, Inc.
Citizens Utilities Company Metropolitan Life Insurance Co. U S WEST, Inc.
Computer Sciences Corporation MFS Communications Company, Inc. United Technologies Corporation
Dell Computer Corporation Morgan Stanley Group Inc. Viacom International Inc.
Department of Commerce Motorola Inc. Visa International
Donaldson, Lufkin & Jenrette, Inc. Navy Federal Credit Union WilTel Communications, LLC
Dow Jones & Company, Inc. New York Mercantile Exchange
New York State Department of Social
Services
</TABLE>
CUSTOMER SERVICE
The post-sales support organization is responsible for providing ongoing
technical support and training for the Company's customers. For an annual fee, a
customer will receive telephone and email support, as well as new releases of
the Company's products. The Company offers a toll-free customer support line to
customers. Support personnel answer the technical support calls and generally
provide same-day responses to questions that cannot be resolved during the
initial call. All calls are logged, opened, tracked, and closed with daily
updates to the customer, Concord's sales teams and Concord's executive
management team. Concord will deploy any one of its 12 field pre-sales technical
support representatives in the event that an on-site visit is necessary. At June
30, 1997, the Company employed eight technical post-sales support personnel as
well as one product trainer.
SALES AND MARKETING
The Company markets its products in the United States to organizations with
large and medium-size networks, as well as network service providers which
include telecommunications carriers, ISPs, systems integrators and outsourcers
primarily through a direct sales force, sales agents and through value added
resellers (VARs). Internationally, the Company markets exclusively through
distributors. Additionally, the Company has entered into joint marketing and
joint development arrangements with a number of companies.
At June 30, 1997, the Company had 11 domestic sales teams each comprised of
one direct sales person and one technical support person targeting the following
11 different geographic regions: Atlanta and the Southeast; Dallas; Detroit;
Denver; New England; New York; the Carolinas; Northern California; Philadelphia;
Southern California; and Washington, D.C. In addition, the Company employs four
sales personnel to support the 11 domestic sales teams. Internationally, the
Company has a sales office in London, England with one sales person and one
technical support person. At June 30, 1997 the Company utilized 11 international
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<PAGE> 32
distributors in nine geographic regions, including: the United Kingdom, Germany,
France, Sweden, Korea, the Benelux region, Australia and South Africa. It is the
responsibility of each sales team to manage all sales within its geographic
territory by signing up, training, and managing a small number of sales agents,
VARs, network service providers and outsourcers, as well as selling directly to
customers. The Company generates sales through seminars, trade shows, Internet
postings, press articles, referrals, mass mailings and cold calling as well as
through relationships with sales agents, VARs, network service providers and
outsourcers. Typically, the sales process encompasses an initial sales
presentation, a proof-of-concept evaluation, a closing meeting and a purchasing
process. The sales process typically takes 90 to 120 days. Add-on business to
the customer base occurs as a result of customers increasing the size of their
networks and customers wishing to utilize additional products offered by the
Company.
The Company distributes its products through a network of more than 15
VARs, and at June 30, 1997, the Company had relationships with over 20 network
service providers. The network service providers offer the Company's products as
part of their service offerings. At June 30, 1997, the Company also had eight
joint marketing and development partners, including Bay Networks, Inc.,
Cabletron Systems, Inc., Cascade Communications Corp., FORE Systems, Inc.,
NetScout Systems, Inc. and Newbridge Networks Corporation that work with the
Company's direct sales force. The Company recently introduced a professional
services referral program aimed at its key network consulting partners. Under
this program, the Company will provide professional services through these
partners directly to its customers.
At June 30, 1997, the Company employed six marketing personnel who
position, promote and market the Company's products. These individuals are
engaged in a variety of activities, including direct marketing, public
relations, tradeshows, advertising, Internet postings, and seminars. At June 30,
1997, the Company employed 31 sales personnel, consisting of two management
personnel, 13 sales persons, 14 technical support persons and two inside sales
persons.
PRODUCT DEVELOPMENT
Management believes that the Company's future success depends in large part
on its ability to continue to enhance existing products and develop new products
that maintain technological competitiveness and deliver value to existing and
new customers. The Company has made and intends to continue to make substantial
investments in product development. Extensive product development input is
obtained through customers and the Company's monitoring of end user needs and
changes in the marketplace.
The Company introduced the initial version of Network Health focused at the
LAN and WAN environments in the first quarter of 1995. During 1996, the Company
introduced three additional versions of Network Health -- Frame Relay,
Router/Switch and Traffic Accountant. During July of 1997, the Company
introduced its Network Health -- Server product. The Company is currently
developing an enhanced version of Network Health. This version of the software
is expected to significantly increase the number of network elements that can be
managed from a single server, enhance the ability of large customers and network
service providers to customize the reports generated by the products, and extend
the operating systems supported by the products to include Windows NT. The
Company intends to continue to enhance its current product line in the areas of
scaleability, reporting options and types, and predictive analysis capabilities.
The Company also plans to develop and deliver new products aimed at performance
analysis and reporting for other networking, computing and application
environments.
The Company's total expenses for research and development for the years
1994, 1995 and 1996 and the six months ended June 30, 1997 were $2.4 million,
$2.4 million, $3.9 million and $2.1 million, respectively. The Company
anticipates that it will continue to commit substantial resources to research
and development in the future and that product development expenses may increase
in absolute dollars in future periods. To date, the Company's development
efforts have not resulted in any capitalized software development costs. As of
June 30, 1997, the Company's product development organization consisted of 37
people.
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<PAGE> 33
COMPETITION
The market for the Company's products is highly competitive and subject to
rapid technological change. Although the Company has experienced limited
competition to date from products with comparable capabilities, the Company
expects competition to increase in the future. The Company currently competes
principally on the basis of: (i) the breadth of its products' features; (ii) the
automated, scaleable, and cost effective nature of its products; and (iii) the
Company's knowledge, expertise and service ability gained from years of close
interaction with customers. While the Company believes that it currently
competes favorably overall with respect to these factors, there can be no
assurance that the Company will be able to continue to do so.
The Company competes or may compete directly or indirectly with the
following categories of companies: (i) other developers of network performance
analysis and reporting solutions, such as Kaspia Systems, Inc., and report
toolset vendors, such as Desktalk Systems, Inc.; (ii) large, well established
networking OEMs such as International Business Machines Corporation,
Hewlett-Packard Company, and Cabletron Systems, Inc. that have developed network
management platforms; (iii) developers of network element management solutions
such as Cisco Systems, Inc., 3Com Corporation and Bay Networks, Inc.; (iv)
companies offering network performance reporting services such as International
Network Services (INS); and (v) to a lesser degree, probe vendors such as
NetScout Systems, Inc. Additional competitors, including large networking or
telecommunications equipment manufactures, telecommunications service providers,
and computer hardware and software companies, may enter this market, thereby
further intensifying competition. Additionally, there can be no assurance that
one or more of the Company's customers may not attempt to develop competing
products internally or that one or more of the companies Concord has developed
relationships with, such as the network management platform developers and probe
vendors, will not try to develop a product that competes more directly with
Network Health.
Many of the Company's current and prospective competitors have
significantly greater financial, selling and marketing, technical and other
resources than the Company. As a result, these competitors may be able to devote
greater resources to the development, promotion, sale and support of their
products than the Company. Moreover, these companies may introduce additional
products that are competitive with or better than those of the Company or may
enter into strategic relationships to offer better products than those currently
offered by the Company. There can be no assurance that the Company's products
would effectively compete with such new products.
To remain competitive, the Company must continue to invest in research and
development, selling and marketing, and customer service and support. In
addition, as the Company enters new markets and utilizes different distribution
channels, the technical requirements and levels and bases of competition may be
different than those experienced in the Company's current market. There can be
no assurance that the Company will be able to successfully compete against
either current or potential competitors in the future. See "Risk
Factors -- Competition; New Entrants."
PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other contractual provisions to
establish, maintain and protect its proprietary rights in its products. The
Company has four issued U.S. patents, three pending U.S. patent applications and
various foreign counterparts. There can be no assurance that patents which have
been or may be issued will not be challenged, invalidated or circumvented, or
any rights thereunder will provide protection of the Company's intellectual
property rights. The Company believes that, because of the rapid pace of
technological change in the software and data communications industries, the
legal intellectual property protection for its products is a less significant
factor in the Company's success than the knowledge, abilities and experience of
the Company's employees, the frequency of its product enhancements, the
effectiveness of its marketing activities and the timeliness and quality of its
support services. See "Risk Factors -- Uncertain Protection of Intellectual
Property Rights." Certain technologies used in the Company's products are
licensed from third parties, including the database technology employed in the
Company's Network Health product family. Such third-
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<PAGE> 34
party licenses are generally non-exclusive, royalty based licenses. With respect
to the database technology, the Company is obligated to make minimum fixed price
payments to the extent that the royalty under such license does not exceed a
certain minimum threshold. The termination of any such licenses, or the failure
of the third-party licensors to adequately maintain or update their products,
could result in delay in the Company's ability to ship certain of its products
while it seeks to implement technology offered by alternative sources, and any
required replacement licenses could prove costly. While it may be necessary or
desirable in the future to obtain other licenses relating to one or more of the
Company's products or relating to current or future technologies, there can be
no assurance that the Company will be able to do so on commercially reasonable
terms or at all.
EMPLOYEES
As of June 30, 1997, the Company had a total of 97 employees, all but two
of whom were based in the United States. Of the total, 37 were in research and
development, nine were in customer support, 31 were in sales, six were in
marketing, and 14 were in finance, administration and operations. The Company's
future performance depends in significant part upon the continued service of its
key engineering, technical support and sales 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. See "Risk
Factors -- Management of Growth; Dependence Upon Key Personnel."
FACILITIES
The Company's corporate office and principal facility is located in
Marlboro, Massachusetts. Under an amendment signed in March of 1997, the Company
increased space under lease in this facility from 20,000 to 30,000 square feet.
The amended lease expires in June of 2002. This facility accommodates finance,
administration and operations, research and development, customer support and
marketing. The Company also leases, on a short term basis, sales office space in
Dallas, Texas and London, England. The Company believes that its current
facilities will meet its needs through at least the next 12 months.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes could have a
material adverse effect on the business, results of operations and financial
condition of the Company.
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<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -------------------------------------------
<S> <C> <C>
John A. Blaeser........................... 55 Chief Executive Officer, President and
Director
Kevin J. Conklin.......................... 44 Vice President, Marketing
Ferdinand Engel........................... 49 Vice President, Engineering
Gary E. Haroian........................... 45 Vice President, Finance and Administration,
Chief Financial Officer, Clerk and
Treasurer
Daniel D. Phillips, Jr.................... 43 Vice President, Worldwide Sales
Frederick W.W. Bolander(1)................ 35 Director
Richard M. Burnes, Jr.(1)(2).............. 56 Director
Robert C. Hawk............................ 57 Director
John Robert Held(1)....................... 59 Director
Deepak Kamra(2)........................... 40 Director
Robert M. Wadsworth(1).................... 37 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
John A. Blaeser has been Chief Executive Officer and President of the
Company since January 1, 1996 and a Director of the Company since 1985. Prior to
joining the Company, from 1991 until 1996, Mr. Blaeser was Managing General
Partner of EG&G Venture Management, a venture capital firm. Mr. Blaeser is also
a Director of Datawatch Corp.
Kevin J. Conklin has been Vice President, Marketing, of the Company since
March 1994. Prior to joining Concord, Mr. Conklin was Vice President of Product
Marketing and Development at Artel Communications from June 1993 until joining
Concord in March 1994, and from July 1991 to June 1993 Mr. Conklin served as
Director of Marketing at Artel Communications.
Ferdinand Engel has been the Vice President, Engineering of the Company
since 1989. Prior to joining Concord, Mr. Engel was Vice President, Engineering
for Technology Concepts at Bell Atlantic.
Gary E. Haroian has been the Vice President, Finance and Administration and
Chief Financial Officer of the Company since February 1997, and also serves as
Clerk and Treasurer of the Company. Prior to joining the Company, Mr. Haroian
was President and Chief Executive Officer of Stratus Computer. At Stratus, Mr.
Haroian held the positions of Controller from 1983 until 1985, Vice President
and Chief Financial Officer from 1985 until 1991, Vice President, Corporate
Operations, from 1991 until 1993, Executive Vice President from 1993 until 1994,
and President and Chief Operating Officer from 1994 until 1996.
Daniel D. Phillips, Jr. has been Vice President, Worldwide Sales, of the
Company since May 1994. Prior to joining Concord, Mr. Phillips was Vice
President, Worldwide Sales, of Epoch Systems. While at Epoch Systems from
September 1989 until May 1994, Mr. Phillips also held the positions of Vice
President, International and OEM Operations, and Director of International
Operations.
Frederick W.W. Bolander has been a Director of the Company since April
1995. Mr. Bolander has been associated with Apex Investment Partners, a venture
capital firm and an affiliate of the Company, in various capacities since
October 1994 and has been a General Partner of the firm since April 1996. From
May 1993 to September 1993, Mr. Bolander was a Consultant to the African
Communications Group, a venture capital and project management firm, and from
September 1985 to September 1992, Mr. Bolander held the position of Manager for
AT&T Corporation.
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<PAGE> 36
Richard M. Burnes, Jr. has been a Director of the Company since December
1995. Mr. Burnes has been a General Partner of Charles River Ventures, a venture
capital firm and an affiliate of the Company, since 1970.
Robert C. Hawk has been a Director of the Company since December 1996. Mr.
Hawk has served as President of Hawk Communications since April 1997. Prior to
joining Hawk Communications, Mr. Hawk served as President and Chief Executive
Officer of US WEST Multimedia Communications, Inc. from April 1996 until April
1997, and from 1988 until April 1996 as President of the Carrier Division of U S
WEST Communications, Inc. Mr. Hawk is also a director of DIVA Communications,
PairGain Technologies, Xylan Corp. and Premisys Communications.
John Robert Held has been a Director of the Company since December 1996.
Previously, Mr. Held had served as President of Chipcom Corporation from 1988
until 1995. Mr. Held is also a Director of Brown & Sharpe Manufacturing Company.
Deepak Kamra has been a Director of the Company since November 1993. Mr.
Kamra has been associated with Canaan Partners, a venture capital firm and an
affiliate of the Company, since March 1991 and a General Partner of the firm
since March 1995. Prior to joining Canaan Partners, Mr. Kamra was the General
Manager, National Sales Force, of Aspect Telecommunications, a
telecommunications equipment company. Mr. Kamra is also a Director of Hello
Direct.
Robert M. Wadsworth has been a Director of the Company since April 1993.
Mr. Wadsworth has been Vice President of Hancock Venture Partners, Inc. since
April 1990, and Managing Director of HVP Partners, LLC since January 1997.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors are duly elected and qualified.
There are no family relationships among any of the executive officers or
directors of the Company.
Upon the closing of the offering, the Company's Board of Directors will be
divided into three classes, with the members of each class of directors serving
for staggered three-year terms. Messrs. Hawk and Held will serve in the class
the term of which expires in 1998; Messrs. Bolander, Kamra and Wadsworth will
serve in the class the term of which expires in 1999; and Messrs. Blaeser and
Burnes will serve in the class the term of which expires in 2000. Upon the
expiration of the term of each class of directors, directors comprising such
class of directors will be elected for a three-year term at the next succeeding
annual meeting of stockholders. The Company's classified Board of Directors
could have the effect of increasing the length of time necessary to change the
composition of a majority of the Board of Directors. In general, at least two
annual meetings of stockholders will be necessary for stockholders to effect a
change in a majority of the members of the Board of Directors. See "Description
of Capital Stock -- Massachusetts Law and Certain Provisions of the Company's
Restated Articles of Organization and By-Laws."
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Messrs. Burnes and Kamra. The Audit
Committee reviews, with the Company's independent auditors, the scope and timing
of their audit services and any other services they are asked to perform, the
auditor's report on the Company's financial statements following completion of
their audit and the Company's policies and procedures with respect to internal
accounting and financial controls. In addition, the Audit Committee will make
annual recommendations to the Board of Directors for the appointment of
independent auditors for the ensuing year.
The Compensation Committee consists of Messrs. Bolander, Burnes, Held and
Wadsworth. The Compensation Committee will review and evaluate the compensation
and benefits of all officers of the Company, review general policy matters
relating to compensation and benefits of employees of the Company and make
recommendations concerning these matters to the Board of Directors. The
Compensation Committee also will administer the Company's stock option and stock
purchase plans. See "-- Equity Plans."
35
<PAGE> 37
DIRECTOR COMPENSATION
Directors who are not employees of the Company (also referred to as
"outside directors"), who currently consist of Messrs. Bolander, Burnes, Hawk,
Held, Kamra and Wadsworth, do not receive an annual retainer or any fees for
attending regular meetings of the Board of Directors. Directors are reimbursed
for reasonable out-of-pocket expenses incurred in attending such meetings.
Non-employee directors are also eligible for participation in the Company's 1997
Non-Employee Director Stock Option Plan. See "-- Equity Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and approves compensation and
benefits for the Company's key executive officers, administers the Company's
stock purchase and stock option plans and makes recommendations to the Board
regarding such matters. The Compensation Committee is comprised of Frederick
W.W. Bolander, Richard M. Burnes, Jr., John Robert Held and Robert M. Wadsworth.
No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Board or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned by John A. Blaeser, the Company's Chief Executive Officer and President,
and the Company's three other most highly compensated executive officers who
were serving as executive officers at the end of fiscal 1996 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company in fiscal 1996. No other executive officer of the Company received
salary and bonus of $100,000 or more in fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
AWARDS
ANNUAL SECURITIES
COMPENSATION(1) UNDERLYING
FISCAL ------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION(2) YEAR SALARY BONUS(3) (NO. OF SHARES)(4) COMPENSATION(5)
- ------------------------------------ ------- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
John A. Blaeser..................... 1996 $175,000 $ 87,500 647,017 $ --
Chief Executive Officer and
President
Ferdinand Engel..................... 1996 $156,489 $ 82,500 223,352 $ 1,197
Vice President, Engineering
Kevin J. Conklin.................... 1996 $119,999 $ 44,450 123,384 $ 977
Vice President, Marketing
Daniel D. Phillips, Jr.............. 1996 $137,417 $110,708 214,269 --
Vice President, Worldwide Sales
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include medical, group life
insurance or other benefits which are available to all salaried employees
of the Company, and certain perquisites and other benefits, securities or
property which do not exceed the lesser of $50,000 or 10% of the person's
salary and bonus shown in the table.
(2) Mr. Haroian, the Vice President, Finance and Administration, Chief Financial
Officer, Clerk and Treasurer of the Company, who joined the Company in
February 1997, would be among the five most highly compensated individuals
had he been with the Company during fiscal 1996. Mr. Haroian's base salary
is $156,000; upon joining the Company, he also received a stock option to
purchase 136,250 shares of Common Stock at an exercise price of $1.90 per
share.
36
<PAGE> 38
(3) Represents bonuses earned in 1996 for services rendered in 1996. Mr.
Phillips' bonus amount represents commissions earned in 1996 on the
shipment of product.
(4) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1996 to its executive officers. Options granted to the Named Executive
Officers were granted at fair market value as determined by the Board of
Directors based on all factors available to them on the grant date. These
factors included the history of, and prospects for, the Company and the
industry in which it competes, an assessment of the Company's past and
present operations and financial performance, the prospects for future
earnings of the Company, the present state of the Company's development,
the possibility of an initial public offering by the Company and market
prices of publicly traded common stocks of comparable companies in recent
periods.
(5) The Company paid insurance premiums for disability insurance coverage for
Messrs. Engel and Conklin.
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the year ended
December 28, 1996 by the Company to each of the Named Executive Officers:
OPTION GRANTS DURING FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
---------------------------------------------------------- RATES OF STOCK
NUMBER OF PERCENT OF PRICE
SECURITIES TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE/ EXPIRATION -------------------
NAME(3) GRANTED FISCAL 1996 SHARE(1) DATE 5% 10%
- -------------------------- ---------- --------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
John A. Blaeser........... 547,017 $0.10 1/1/04 $26,118 $ 62,556
100,000 0.90 11/1/04 42,971 102,923
------- ------ ------- ------ -------
Total................ 647,017 34.4% $69,089 $165,479
Ferdinand Engel........... 198,352 $0.10 1/1/04 $ 9,470 $ 22,683
12,500 0.10 5/1/04 597 1,429
12,500 0.40 10/1/04 2,387 5,718
------- ------ ------- ------ -------
Total................ 223,352 11.9% $12,454 $ 29,830
Kevin J. Conklin.......... 110,884 $0.10 1/1/04 $ 5,294 $ 12,681
12,500 0.40 10/1/04 2,387 5,718
------- ------ ------- ------ -------
Total................ 123,384 6.6% $ 7,681 $ 18,399
Daniel D. Phillips, Jr.... 201,769 $0.10 1/1/04 $ 9,634 $ 23,074
12,500 0.40 10/1/04 2,387 5,718
------- ------ ------- ------ -------
Total................ 214,269 11.4% $12,021 $ 28,792
</TABLE>
- ---------------
(1) All options were incentive stock options and were granted pursuant to the
Company's 1995 Stock Plan at not less than fair market value as determined
by the Board of Directors of the Company as of the date of grant. Options
vest in installments over a period of four years with 25% of the options
vesting twelve months from the date of grant and the remaining options
vesting quarterly on an equal basis over a three year period. The options
expire eight years from the date of grant. No stock options have been
exercised by these executive officers subsequent to December 28, 1996,
except that on July 31, 1997, Mr. Engel exercised an option for 30,000
shares of Common Stock at $.10 per share and Mr. Phillips exercised an
option for 94,367 shares of Common Stock at $.10 per share.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the options. These numbers are calculated based
on rules promulgated by the Securities and Exchange
37
<PAGE> 39
Commission. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the time of such exercise and the future
performance of the Company's Common Stock.
(3) Mr. Haroian, who joined the Company in 1997, was granted an option to
purchase 136,250 shares of Common Stock at an exercise price per share of
$1.90.
The following table provides information regarding unexercised stock
options held as of December 28, 1996 by each of the Named Executive Officers.
Such persons did not exercise any stock options in fiscal 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Blaeser.......................... 31,453 615,564 $56,615 $ 1,028,017
Ferdinand Engel.......................... 36,327 187,025 65,389 332,895
Kevin J. Conklin......................... 17,715 105,669 31,886 186,456
Daniel D. Phillips, Jr................... 31,315 182,954 56,366 325,569
</TABLE>
- ---------------
(1) There was no public trading market for the Common Stock as of December 28,
1996. Accordingly, these values have been calculated by determining the
difference between the fair market value of the securities underlying the
option as of December 28, 1996 ($1.90 per share as determined by the Board
of Directors) and the exercise price of the Named Executive Officer's
options. In determining the fair market value of the Company's Common
Stock, the Board of Directors considered various factors, including the
Company's financial condition and business prospects, its operating
results, the absence of a market for its Common Stock and the risks
normally associated with technology companies. The actual realizable value
of the options based on the price to the public in the Offering may
substantially exceed the potential realizable value shown in the table.
EQUITY PLANS
1995 Stock Plan. The Company has granted incentive stock options ("ISOs")
and non-qualified stock options ("NQOs") (collectively, "Stock Options") to
directors, officers and other employees of and consultants to the Company under
its 1995 Stock Plan (the "1995 Plan"). The 1995 Plan is administered by the
Board of Directors. Pursuant to the terms of the 1995 Plan, Stock Options
granted under the 1995 Plan are exercisable within eight years of the original
grant date and generally vest over a period of four years from the date of
grant. Under the 1995 Plan, as of June 30, 1997, Stock Options to purchase
2,392,652 shares of Common Stock, at a weighted average exercise price of $0.79
per share, have been granted, of which Stock Options to purchase 148,839 shares
of Common Stock have been exercised and Stock Options to purchase 105,557 shares
of Common Stock have been canceled. Upon the consummation of a "change in
control" of the Company, each employee's stock option agreement provides for the
acceleration of vesting of the option by eighteen months. The 1995 Plan will be
terminated upon completion of the offering and the Company will adopt the 1997
Stock Plan.
1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") was
adopted by the Board of Directors in July 1997 and, subject to stockholder
approval, is expected to be put in place by the Company upon completion of this
offering. Under the terms of the 1997 Plan, the Company will be authorized to
grant ISOs and NQOs (as well as awards of stock ("Awards") and opportunities to
make direct purchases of stock ("Purchases")) to directors, officers and other
employees of and consultants to the Company. The aggregate number of shares of
Common Stock which may be issued pursuant to the 1997 Plan is 750,000.
The 1997 Plan will be administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1997 Plan, the Compensation
Committee will have the authority to select the optionees and determine the
terms of the Stock Options, Awards and Purchases granted under the 1997 Plan,
38
<PAGE> 40
including: (i) the time or times at which Stock Options, Awards and Purchases
may be granted; (ii) whether Stock Options granted will be ISOs or NQOs; (iii)
the number of shares subject to each Stock Option, Award or Purchase; (iv) when
each Stock Option becomes exercisable; (v) the exercise price of the Stock
Option, which in the case of an ISO cannot be less than the fair market value of
the Common Stock as of the date of grant, or not less than 110% of the fair
market value in the case of ISOs granted to an employee or officer holding 10%
or more of the voting stock of the Company; (vi) the duration of the Stock
Option; and (vii) the time, manner and form of payment upon exercise of a Stock
Option. A Stock Option shall not be transferable by the recipient except by will
or by the laws of descent and distribution, or in the case of NQOs, only to the
extent set forth in the agreement relating to such option or pursuant to a valid
domestic relations order. Generally, no ISO may be exercised more than 60 days
following termination of employment and no Stock Options may be exercised
following termination of employment for cause. However, in the event that
termination is due to death or disability, the Stock Option is exercisable for a
maximum of 180 days after such termination. To date, no Stock Options have been
granted pursuant to the 1997 Plan.
1997 Employee Stock Purchase Plan. The form of 1997 Employee Stock
Purchase Plan (the "1997 Purchase Plan") was adopted by the Board of Directors
in July 1997 and is expected to be put in place by the Company upon completion
of the offering. The 1997 Purchase Plan will provide for the issuance of a
maximum of 375,000 shares of Common Stock pursuant to the exercise of
nontransferable options granted to participating employees.
The 1997 Purchase Plan will be administered by the Compensation Committee
of the Board of Directors. All employees of the Company who have completed more
than 180 days of employment and whose customary employment is more than 20 hours
per week and for more than five months in any calendar year will be eligible to
participate in the 1997 Purchase Plan. Employees who would own five percent or
more of the total combined voting power or value of the Company's stock
immediately after the grant and non-employee directors may not participate in
the 1997 Purchase Plan. To participate in the 1997 Purchase Plan, an employee
must authorize the Company to deduct an amount (not less than one percent nor
more than ten percent of a participant's total cash compensation) from his or
her pay during six-month payment periods (the "Payment Period"). The first
Payment Period will begin on the day that the offering is commenced and will end
on June 30, 1998. Thereafter, the Payment Periods will commence on January 1 and
July 1 of each year, but in no case shall an employee be entitled to purchase
more than 20,000 shares in any one Payment Period. The exercise price for the
option granted in each Payment Period shall be 85% of the lesser of the market
price of the Common Stock on the first or last business day of the Payment
Period. If an employee is not a participant on the last day of the Payment
Period, such employee shall not be entitled to exercise his or her option, and
the amount of his or her accumulated payroll deductions will be refunded.
Options granted under the 1997 Purchase Plan shall not be transferable by a
participant except by will or by the laws of descent and distribution. An
employee's rights under the 1997 Purchase Plan shall terminate upon his or her
voluntary withdrawal from the plan at any time or upon termination of
employment. No options have been granted to date under the 1997 Purchase Plan.
1997 Non-Employee Director Stock Option Plan. The form of 1997
Non-Employee Director Stock Option Plan (the "Directors Plan"), providing for
the annual grant of stock options to purchase shares of Common Stock to outside
directors, was adopted by the Board of Directors in July 1997. A total of 95,000
shares of Common Stock have been reserved for issuance under the Directors Plan.
The Directors Plan will be administered by the Compensation Committee of
the Board of Directors. Under the Directors Plan, following completion of the
offering, each new eligible director will be granted an option to purchase 7,500
shares of Common Stock upon the later of the adoption of the plan or the
director's first appointment or election to the Board of Directors and starting
with the 1998 Annual Meeting of Stockholders of the Company, each eligible
director shall be automatically granted an option to purchase 1,875 shares of
Common Stock each year following the final adjournment of the Company's Annual
Meeting of Stockholders.
The exercise price of options granted under the Directors Plan will be 100%
of the fair market value per share of the Common Stock on the date the option is
granted. Options initially granted to each director under
39
<PAGE> 41
the Directors Plan will become exercisable over a four-year period from the date
of grant. The options will expire on the tenth anniversary of the grant date. If
an optionee ceases to be a director of the Company after his or her option
becomes fully exercisable, the option will remain exercisable in accordance with
its terms. If an optionee ceases to be a director of the Company for any reason
prior to the time his or her option becomes fully exercisable, the option will
terminate with respect to the shares as to which the option is not then
exercisable and any portion of his or her option which is vested but has not
been exercised may be exercised within sixty days of the date such director
ceased to be a director. In the event of a merger, consolidation or similar
corporate transaction, the vesting of all outstanding options under the
Directors Plan will be accelerated so that all outstanding options are vested
and exercisable in full prior to the consummation of such transaction. If such
options are not exercised prior to the consummation of such transaction, and are
not assumed or replaced by the successor entity, such options will terminate.
401(k) PROFIT SHARING PLAN
The Company has a Section 401(k) Retirement Savings Plan (the "401(k)
Plan"). The 401(k) Plan is a tax-qualified plan covering Company employees who
have completed six consecutive months of service with the Company, are over 21
years of age and elect to participate in the 401(k) Plan. Under the 401(k) Plan,
participants may elect to defer a portion of their compensation, subject to
certain limitations. In addition, at the discretion of the Board of Directors,
the Company may make profit sharing contributions into the 401(k) Plan. During
1996, the Company did not contribute to the 401(k) Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into a Management Change in Control Agreement (the
"Management Agreements") with each of John A. Blaeser, Kevin J. Conklin,
Ferdinand Engel, Gary E. Haroian and Daniel D. Phillips, Jr. Pursuant to the
terms of the Management Agreements, each of the foregoing management members
(other than Mr. Blaeser) is entitled to receive a single severance payment in
cash in an amount equal to six months' base annual salary (and equal to twelve
months' base annual salary in the case of Mr. Blaeser) if any such management
member is terminated by the Company without cause or such management member
voluntarily terminates his employment with the Company for "good reason" (each a
"Termination Event"), in each case within six months of a change in control of
the Company. In addition, effective upon a change in control of the Company, the
vesting date for each such management member's unvested options shall be
accelerated by a period of 24 months. If within 24 months of a change in control
of the Company there is a Termination Event, all of such management member's
remaining unvested options shall become fully vested. Each such management
member has entered into a non-competition agreement with the Company pursuant to
which each such management member has agreed following a change in control of
the Company not to compete with the Company for a period of six months if such
management member has been terminated with or without cause by the Company or
has voluntarily terminated his employment for "good reason."
In addition, certain of John A. Blaeser's option agreements provide for
automatic acceleration of all of his unvested options following a merger,
consolidation, or a sale, conveyance or disposition of all or substantially all
of the assets of the Company or if he is no longer a director of the Company,
other than by reason of death, disability, or resignation.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated By-Laws of the Company (the "Restated By-Laws") and the
Restated Articles of Organization of the Company provide that the directors and
officers of the Company shall be indemnified by the Company to the fullest
extent authorized by Massachusetts law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of the Company. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), may be permitted to directors, officers and controlling
persons of the Company pursuant to the Restated By-Laws, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. The
40
<PAGE> 42
Company intends to obtain insurance which insures the directors and officers of
the Company against certain losses and which insures the Company against certain
of its obligations to indemnify such directors and officers. In addition, the
Restated Articles of Organization of the Company provide that the directors of
the Company will not be personally liable for monetary damages to the Company
for breaches of their fiduciary duty as directors, unless they violated their
duty of loyalty to the Company or its stockholders, acted in bad faith,
knowingly or intentionally violated the law, authorized illegal dividends or
redemptions or derived an improper personal benefit from their action as
directors. Such limitations of personal liability under the Massachusetts
Business Corporation Law do not apply to liabilities arising out of certain
violations of the federal securities laws. While non-monetary relief such as
injunctive relief, specific performance and other equitable remedies may be
available to the Company, such relief may be difficult to obtain or, if
obtained, may not adequately compensate the Company for its damages.
The Company intends to enter into Indemnification Agreements with each of
its current directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Restated By-Laws and to provide additional procedural protections.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. There is no pending litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification by the Company will be required or permitted. The Company is not
aware of any threatened litigation or proceeding that might result in a claim
for such indemnification.
41
<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of July 31,
1997, and as adjusted to reflect the sale of the shares of Common Stock offered
hereby, by (i) each person known by the Company to be the beneficial owner of
more than five percent of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each Named Executive Officer (see "Management -- Executive
Compensation"); (iv) all executive officers and directors as a group; and (v)
each Selling Stockholder. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that are
currently exercisable or that are or may become exercisable within 60 days of
July 31, 1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite such
stockholder's name.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) BENEFICIAL OWNERSHIP
----------------------- AFTER OFFERING(1)(2)
NUMBER OF SHARES -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE OFFERED NUMBER PERCENTAGE
- ----------------------------------------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Charles River Partnership VII,
Limited Partnership(3)................. 1,960,785 21.4% -- 1,960,785 17.1%
Apex Investment Fund II, L.P.(4)......... 1,569,335 17.2% -- 1,569,335 13.7%
Canaan Ventures II Offshore C.V.(5)...... 821,033 9.0% -- 821,033 7.2%
Hancock Venture Partners, Inc.(6)........ 724,999 7.9% -- 724,999 6.3%
The Productivity Fund II, L.P.(7)........ 628,167 6.9% -- 628,167 5.5%
Bay Partners IV(8)....................... 576,901 6.3% -- 576,901 5.0%
Bay Partners SBIC, L.P.(9)............... 576,901 6.3% -- 576,901 5.0%
California BPIV, L.P.(10)................ 576,901 6.3% -- 576,901 5.0%
Pioneer Capital Corporation(11).......... 567,220 6.2% -- 567,220 5.0%
Pioneer Ventures Limited
Partnership(12)........................ 567,220 6.2% -- 567,220 5.0%
Canaan Ventures II Limited
Partnership(13)........................ 520,525 4.5% -- 520,525 4.5%
B.U.N.P.................................. 216,768 2.4% 216,768 -- *
Massachusetts Technology Development
Corporation............................ 321,584 3.5% 153,212 168,372 1.5%
First Century Partnership III............ 57,609 * 57,609 -- *
Kanematsu USA Inc.(14)................... 57,609 * 19,203 -- *
Harvest Ventures, Inc.(15)............... 43,207 * 43,207 -- *
TVM TechnoVenture Enterprises............ 43,207 * 43,207 -- *
Grace Ventures Corp...................... 28,388 * 28,388 -- *
Kanematsu Electronics Ltd................ 19,203 * 19,203 -- *
Kanematsu Corporation.................... 19,203 * 19,203 -- *
John A. Blaeser(16)...................... 236,550 2.5% -- 236,550 2.0%
Kevin J. Conklin(17)..................... 73,157 * -- 73,157 *
Ferdinand Engel(18)...................... 99,756 1.1% -- 99,756 *
Daniel D. Phillips, Jr................... 94,367 1.0% -- 94,367 *
Frederick W.W. Bolander(19).............. 7,500 * -- 7,500 *
Richard M. Burnes, Jr.(20)............... 1,960,785 21.4% -- 1,960,785 17.1%
Robert Hawk(21).......................... 20,000 * -- 20,000 *
John Robert Held(22)..................... 20,000 * -- 20,000 *
Deepak Kamra(23)......................... 1,341,558 14.7% -- 1,341,558 11.7%
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) BENEFICIAL OWNERSHIP
NUMBER OF SHARES AFTER OFFERING(1)(2)
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE OFFERED NUMBER PERCENTAGE
- ----------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Robert Wadsworth(24)..................... 732,499 8.0% -- 732,499 6.4%
All executive officers and directors as
a group (11 persons)(25)............... 4,586,172 48.2% -- 4,586,172 38.8%
</TABLE>
- ---------------
* Indicates less than one percent.
(1) Assumes conversion of all of the Company's outstanding shares of Preferred
Stock into Common Stock.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
435,000 shares from the Company is not exercised.
(3) The address of Charles River Partnership VII, Limited Partnership is 1000
Winter Street, Suite 3300, Waltham, MA 02154.
(4) The address of Apex Investment Fund II, L.P. is 233 South Wacker Drive,
Suite 9500, Chicago, IL 60606.
(5) The address of Canaan Ventures II Offshore C.V. is 2884 Sand Hill Road,
Suite 115, Menlo Park, CA 94025.
(6) Consists of the shares described in Note (21) below which may be deemed to
be beneficially owned by Hancock Venture Partners, Inc. ("HVP"). HVP is a
General Partner of Back Bay Partners L.P. II, which is the General Partner
of John Hancock Venture Capital Fund Limited Partnership II, and is also a
General Partner of Back Bay Partners L.P., which is the General Partner of
Evergreen I Limited Partnership. HVP has sole voting and investment power
over the shares of Common Stock owned by John Hancock Venture Capital Fund
Limited Partnership II and Evergreen I Limited Partnership. HVP disclaims
beneficial ownership of all such shares. HVP's address is One Financial
Center, 44th Floor, Boston, MA 02111.
(7) The address of The Productivity Fund II, L.P. is 233 South Wacker Drive,
Suite 9500, Chicago, IL 60606.
(8) Includes 192,301 and 30,769 shares of Common Stock held of record by Bay
Partners SBIC, L.P. and California BPIV, L.P., respectively, which may be
deemed to be beneficially owned by Bay Partners IV by virtue of its
relationship to such entities. The address of Bay Partners IV is 10600 N.
DeAnza Blvd., Suite 100, Cupertino, CA 95014.
(9) Includes 353,831 and 30,769 shares of Common Stock held of record by Bay
Partners IV and California BPIV, L.P., respectively, which may be deemed to
be beneficially owned by Bay Partners SBIC, L.P. by virtue of its
relationship to such entities. The address of Bay Partners SBIC, L.P. is
10600 N. DeAnza Blvd., Suite 100, Cupertino, CA 95014.
(10) Includes 353,831 and 192,301 shares of Common Stock held of record by Bay
Partners IV and Bay Partners SBIC, L.P., respectively, which may be deemed
to be beneficially owned by California BPIV, L.P. by virtue of its
relationship to such entities. The address of California BPIV, L.P. is
10600 N. DeAnza Blvd., Suite 100, Cupertino, CA 95014.
(11) Includes 564,833 shares of Common Stock held of record by Pioneer Ventures
Limited Partnership which may be deemed to beneficially owned by Pioneer
Capital Corporation by virtue of its relationship to such entity. The
address of Pioneer Capital Corporation is 60 State Street, Boston, MA
02109.
(12) Includes 2,387 shares of Common Stock held of record by Pioneer Capital
Corporation which may be deemed to beneficially owned by Pioneer Ventures
Limited Partnership by virtue of its relationship to such entity. The
address of Pioneer Ventures Limited Partnership is 60 State Street, Boston,
MA 02109.
(13) The address of Canaan Ventures II Limited Partnership is 2884 Sand Hill
Road, Suite 115, Menlo Park, CA 94025.
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<PAGE> 45
(14) Includes 19,203 and 19,203 shares of Common Stock held of record by
Kanematsu Corporation and Kanematsu Electronics Ltd., respectively, which
may be deemed to be beneficially owned by Kanematsu USA Inc. by virtue of
its relationship to such entities.
(15) Consists of 5,761 shares of Common Stock held of record by ASEA-Harvest
Partners I, 1,440 shares of Common Stock held of record by BCC Capital
Corporation, 7,777 shares of Common Stock held of record by European
Development Capital Limited Partnership, 4,321 shares of Common Stock held
of record by Nordic Investors Limited, 11,523 shares of Common Stock held
of record by NORO Venture Partners IV, 2,880 shares of Common Stock held of
record by Campanius Harvest Partners I, 2,880 shares of Common Stock held
of record by WFG-Harvest Partners and 6,625 shares of Common Stock held of
record by 767 VCI Ventures NV, all of which may be deemed to be
beneficially owned by Harvest Partners, Inc. by virtue of its relationship
to such entities.
(16) Includes 220,003 shares of Common Stock issuable upon exercise of options
granted to Mr. Blaeser.
(17) All such shares of Common Stock are issuable upon exercise of options
granted to Mr. Conklin.
(18) Includes 69,756 shares of Common Stock issuable upon exercise of options
granted to Mr. Engel.
(19) Consists of shares of restricted stock which vest over a period of four
years. The Company has a right of repurchase with respect to these shares
upon certain events.
(20) Consists of 1,960,785 shares of Common Stock held of record by Charles
River Partnership VII, Limited Partnership which Mr. Burnes may be deemed
to beneficially own. Mr. Burnes, a director of the Company, is a General
Partner of Charles River Ventures, the General Partner of Charles River
Partnership VII, Limited Partnership. Mr. Burnes disclaims beneficial
ownership of all such shares.
(21) Consists of shares of restricted stock which vest over a period of four
years. The Company has a right of repurchase with respect to these shares
upon certain events.
(22) Consists of shares of restricted stock which vest over a period of four
years. The Company has a right of repurchase with respect to these shares
upon certain events.
(23) Consists of 520,525 and 821,033 shares of Common Stock held of record by
Canaan Ventures II Limited Partnership and Canaan Ventures II Offshore
C.V., respectively, which Mr. Kamra may be deemed to beneficially own. Mr.
Kamra, a director of the Company, is a General Partner of Canaan Venture
Partners II, L.P., the General Partner of Canaan Ventures II Limited
Partnership and Canaan Ventures II Offshore C.V. Mr. Kamra disclaims
beneficial ownership of all such shares.
(24) Includes 202,855 and 522,144 shares of Common Stock held of record by
Evergreen I Limited Partnership and John Hancock Venture Capital Fund
Limited Partnership II, respectively, which Mr. Wadsworth may be deemed to
beneficially own. Mr. Wadsworth, a director of the Company, is the Managing
Director of HVP, a General Partner of the General Partner of each of these
entities. Mr. Wadsworth disclaims beneficial ownership of all such shares.
Also includes 7,500 shares of restricted stock which vest over a period of
four years. The Company has a right of repurchase with respect to these
shares upon certain events. See Note (6).
(25) Includes 362,916 shares of Common Stock issuable upon exercise of options.
44
<PAGE> 46
CERTAIN TRANSACTIONS
In December 1994, the Company issued 1,470,595 shares (without giving
effect to a one-for-three reverse stock split in December 1995) of Series A
Convertible Preferred Stock at $1.36 per share in a private placement
transaction. In February and March of 1995, the Company issued an additional
aggregate of 703,892 shares (without giving effect to a one-for-three reverse
stock split in December 1995) of its Series A Convertible Preferred Stock at
$1.36 per share and 427,080 shares (without giving effect to a one-for-three
reverse stock split in December 1995) of Common Stock at a price per share of
$.10 in a private placement transaction. In December 1995 and January 1996 the
Company issued an aggregate of 4,460,789 shares of its Series B Convertible
Preferred Stock at a price per share of $1.02 in a private placement
transaction. In addition, certain holders of the Series A Convertible Preferred
Stock exchanged their shares for 36,070 shares of the Company's Series A-1
Convertible Preferred Stock in December 1995 (the Series A Convertible Preferred
Stock, the Series A-1 Convertible Preferred Stock and Series B Convertible
Preferred Stock are referred to collectively as the "Preferred Stock"). The
holders of the Preferred Stock are entitled to certain registration rights with
respect to the shares of Common Stock issued or issuable upon conversion
thereof. See "Description of Capital Stock -- Registration Rights." The
Preferred Stock will convert into an aggregate of 8,108,258 shares of Common
Stock on or immediately prior to the closing of this offering. Investors in
these financings included: Apex Investment Fund II, L.P. ("Apex"), The
Productivity Fund, II L.P. ("Productivity"), Charles River Partnership VII,
Limited Partnership ("Charles River"), Canaan Ventures II Limited Partnership
and Canaan Ventures II Offshore C.V. (collectively, "Canaan") Evergreen I
Limited Partnership ("Evergreen") and John Hancock Venture Capital Fund Limited
Partnership II ("John Hancock"). Mr. Burnes, a Director of the Company, is
affiliated with Charles River. Mr. Kamra, a Director of the Company, is
affiliated with Canaan. Mr. Wadsworth, a Director of the Company, is affiliated
with Evergreen and John Hancock. Mr. Bolander, a Director of the Company, is
affiliated with Apex and Productivity.
Mr. Burnes, a Director of the Company, is also a Director of Cascade
Communications Corp. ("Cascade"). In October 1996, the Company and Cascade
entered into a Network Management Partners Program Agreement pursuant to which
Cascade will refer certain of its U.S. and international customers to the
Company for the purchase and evaluation of network management products and/or
technical support services.
Mr. Hawk has served in various capacities for companies affiliated with US
WEST Business Resources, Inc. The Company has licensed certain software programs
and related services to US WEST Business Resources, Inc.
The Company believes that all transactions set forth above were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties. The Company has adopted a policy whereby all future
transactions between the Company and its officers, directors and affiliates will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be approved by a majority of disinterested
members of the Board of Directors.
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<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and the filing of the Company's
Restated Articles of Organization (the "Restated Articles"), the authorized
capital stock of the Company will consist of 50,000,000 shares of Common Stock,
$.01 par value per share, and 1,000,000 shares of preferred stock, $.01 par
value per share (the "Preferred Stock").
COMMON STOCK
As of June 30, 1997, there were 9,017,723 shares of Common Stock
outstanding on a pro forma basis (giving effect to the 1-for-2 reverse stock
split and the conversion of all outstanding Preferred Stock upon the closing of
this offering), held of record by 256 stockholders. Based upon the pro forma
number of shares outstanding as of that date and giving effect to the issuance
of the 2,300,000 shares of Common Stock offered hereby, there will be 11,317,723
shares of Common Stock outstanding upon the closing of this offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into shares of Common Stock. Thereafter, the Board of
Directors will be authorized, subject to certain limitations prescribed by law,
without further stockholder approval, to issue from time to time up to an
aggregate of 1,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED ARTICLES OF
ORGANIZATION AND BY-LAWS
Following the offering, the Company expects that it will have more than 200
stockholders, thus making it subject to Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. In general, this statute prohibits a
publicly-held Massachusetts corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless (i) the interested stockholder obtains the approval of the
Board of Directors prior to becoming an interested stockholder, (ii) the
interested stockholder acquires 90% of the outstanding voting stock of the
corporation (excluding shares held by certain affiliates of the corporation) at
the time it becomes an interested stockholder, or (iii) the business combination
is approved by both the Board of Directors and the holders of two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). An "interested stockholder" is a person who, together
with affiliates and
46
<PAGE> 48
associates, owns (or at any time within the prior three years did own) five
percent or more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder. By
a vote of a majority of its stockholders, the Company may elect not to be
governed by Chapter 110F, but such an amendment would not be effective for
twelve months and would not apply to a business combination with any person who
became an interested stockholder prior to the adoption of the amendment.
Massachusetts General Laws Chapter 156B, Section 50A generally requires
that publicly-held Massachusetts corporations have a classified board of
directors consisting of three classes as nearly equal in size as possible,
unless the corporation elects to opt out of the statute's coverage. The Board of
Directors has opted out of the statute's coverage. The Company's Restated
Articles do, however, contain provisions which give effect to Section 50A.
The Restated By-Laws include a provision excluding the Company from the
applicability of Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions." In general, this statute provides that any
stockholder of a corporation subject to this statute who acquires 20% or more of
the outstanding voting stock of a corporation may not vote such stock unless the
stockholders of the corporation so authorize. The Board of Directors may amend
the Restated By-Laws at any time to subject the Company to this statute
prospectively.
The Restated Articles require that nominations for the Board of Directors
made by a stockholder comply with certain notice procedures. A notice by a
stockholder of a planned nomination must be given not less than 60 and not more
than 90 days prior to a scheduled meeting, provided that if less than 70 days'
notice is given of the date of the meeting, a stockholder will have ten days
within which to give such notice. The stockholder's notice of nomination must
include particular information about the stockholder, the nominee and any
beneficial owner on whose behalf the nomination is made. The Company may require
any proposed nominee to provide such additional information as is reasonably
required to determine the eligibility of the proposed nominee.
The Restated By-Laws also require that a stockholder seeking to have any
business conducted at a meeting of stockholders give notice to the Company not
less than 60 and not more than 90 days prior to the scheduled meeting, provided
in certain circumstances that a ten-day notice rule applies. The notice from the
stockholder must describe the proposed business to be brought before the meeting
and include information about the stockholder making the proposal, any
beneficial owner on whose behalf the proposal is made, and any other stockholder
known to be supporting the proposal. The Restated By-Laws require the Company to
call a special stockholders meeting at the request of stockholders holding at
least 40% of the voting power of the Company.
The Restated Articles and the Restated By-Laws provide that the directors
and officers of the Company shall be indemnified by the Company to the fullest
extent authorized by Massachusetts law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of the Company. Insofar as indemnification for
liabilities arising under the Securities Act, may be permitted to directors,
officers and controlling persons of the Company pursuant to the Restated
By-Laws, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. The Company intends to obtain insurance which
insures the directors and officers of the Company against certain losses and
which insures the Company against certain of its obligations to indemnify such
directors and officers. In addition, the Restated Articles provide that the
directors of the Company will not be personally liable for monetary damages to
the Company for breaches of their fiduciary duty as directors, unless they
violated their duty of loyalty to the Company or its stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors. Such limitations of personal liability under the Massachusetts
Business Corporation Law do not apply to liabilities arising out of certain
violations of the federal securities laws. While non-monetary relief such as
injunctive relief, specific performance and other equitable remedies may be
available to the Company, such relief may be difficult to obtain or, if
obtained, may not adequately compensate the Company for its damages.
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<PAGE> 49
The Restated Articles provide that any amendment to the Restated Articles,
the sale, lease or exchange of all or substantially all of the Company's
property and assets, or the merger or consolidation of the Company into or with
any other corporation may be authorized by the approval of the holders of a
majority of the shares of each class of stock entitled to vote thereon, rather
than by two-thirds as otherwise provided by statute, provided that the
transactions have been authorized by a majority of the members of the Board of
Directors and the requirements of any other applicable provisions of the
Restated Articles have been met.
In addition, the Restated Articles provide that shares of the Company's
Preferred Stock may be issued in the future without stockholder approval and
upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. See "-- Preferred Stock".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe,
LP.
LISTING
Application has been made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "CCRD."
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<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,443,715 shares
of Common Stock outstanding (assuming no exercise of outstanding stock options).
Of these shares, the 2,900,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"), may
generally only be sold in compliance with the limitations of Rule 144 described
below.
SALES OF RESTRICTED SHARES
The remaining 8,543,715 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. Of the Restricted Shares, up to 1,139,152 shares may be
eligible for sale in the public market immediately after this offering pursuant
to Rule 144(k) under the Securities Act; of these shares are subject
to the lock-up agreements described below (the "Lock-up Agreements"). All of the
remaining Restricted Shares may be eligible for sale in the public market in
accordance with Rule 144 or Rule 701 under the Securities Act beginning 90 days
after the date of this Prospectus; of these shares are subject to
Lock-up Agreements. Certain security holders have the right to have their
Restricted Shares registered by the Company under the Securities Act as
described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with those of others), including an Affiliate, who
has beneficially owned Restricted Shares for at least one year is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock (approximately shares immediately after this offering) or (ii)
the average weekly trading volume in the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of such
sale is filed. Sales under Rule 144 are also subject to certain limitations on
manner of sale, notice requirements, and availability of current public
information about the Company. In addition, under Rule 144(k), a person who is
not an Affiliate and has not been an Affiliate for at least three months prior
to the sale and who has beneficially owned Restricted Shares for at least two
years may resell such shares without compliance with the foregoing requirements.
In meeting the one and two year holding periods described above, a holder of
Restricted Shares can include the holding periods of a prior owner who was not
an Affiliate.
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired on the exercise of currently outstanding options may be resold by
persons, other than Affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
Affiliates under Rule 144 without compliance with its one-year minimum holding
period, subject to certain limitations.
STOCK OPTIONS
As of June 30, 1997, options to purchase a total of 2,138,256 shares of
Common Stock were outstanding and 1,621,679 of the shares issuable pursuant to
such options are not yet exercisable. Holders of these options who own
beneficially in excess of have executed Lock-up Agreements. An
additional shares of Common Stock are available for future grants
under the Company's stock option and stock purchase plans. See
"Management -- Equity Plans."
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option plans. The Company expects to file these registration statements
approximately 30 days following the closing of this offering, and such
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will thereupon be eligible for sale in
the public markets, subject to the Lock-Up Agreements, to the extent applicable.
The Company intends to file a registration statement on Form S-8 to register all
shares of Common Stock issuable pursuant to its 1997 Employee Stock Purchase
Plan upon commencement of the offering.
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<PAGE> 51
LOCK-UP AGREEMENTS
Certain security holders and all officers and directors of the Company, who
in the aggregate hold of the outstanding shares of Common Stock and
optionholders who own beneficially in excess of , have agreed,
pursuant to the Lock-up Agreements, that they will not, without the prior
written consent of Montgomery Securities, offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock
beneficially owned by them for a period of 180 days after the date of this
Prospectus.
REGISTRATION RIGHTS
Upon the expiration of contractual lock-up periods, certain security
holders of the Company (the "Rights Holders") will be entitled to require the
Company to register under the Securities Act the sale of up to a total of
shares of outstanding Common Stock (the "Registrable Shares") under
the terms of certain agreements between the Company and the Rights Holders (the
"Registration Agreements"). The Registration Agreements provide that in the
event the Company proposes to register any of its securities under the
Securities Act at any time or times, the Rights Holders, subject to certain
exceptions, shall be entitled to include Registrable Shares in such
registration. However, the managing underwriter of any such offering may exclude
for marketing reasons some or all of such Registrable Shares from such
registration. The Rights Holders have, subject to certain conditions and
limitations, additional rights to require the Company to prepare and file a
registration statement under the Securities Act with respect to their
Registrable Shares. The Company is generally required to bear the expenses of
all such registrations, except underwriting discounts and commissions.
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<PAGE> 52
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Montgomery Securities, Robertson, Stephens & Company LLC and Wessels, Arnold &
Henderson, L.L.C. (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement (the "Underwriting
Agreement") by and among the Company, the Selling Stockholders and the
Underwriters, to purchase from the Company and the Selling Stockholders the
number of shares of Common Stock indicated below opposite their respective names
at the initial public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares if they
purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities....................................................
Robertson, Stephens & Company LLC........................................
Wessels, Arnold & Henderson, L.L.C.......................................
--------
Total............................................................... 2,900,000
========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters initially propose to offer the shares of Common Stock to
the public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than
$ per share, and the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives. The Common Stock is offered subject
to receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 435,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.
At the request of the Company, the Underwriters have reserved approximately
145,000 of the shares of Common Stock offered by the Company hereby for sale at
the initial public offering price to directors, officers, employees and certain
individuals associated with the Company, its directors, its officers or its
employees. The number of shares of Common Stock available to the public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares that are not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their employees and controlling
persons against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotments, entering stabilizing bids, effecting
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<PAGE> 53
syndicate short covering transactions and penalty bids. An over-allotment means
the confirming of sales of Common Stock in excess of the number of shares of
Common Stock offered hereby. A stabilizing bid means the placing of any bid, or
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of the Common Stock. A syndicate short covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with the offering.
A penalty bid means an arrangement that permits the Underwriters to reclaim a
selling concession from a syndicate member in connection with the offering when
shares of Common Stock sold by the syndicate member are purchased in syndicate
covering transactions. Such transactions may stabilize the market price of the
Common Stock at a level above that which otherwise might prevail in the open
market and, if commenced, may be discontinued at any time.
Stockholders of the Company who will hold an aggregate of of the
outstanding shares of Common Stock of the Company following completion of this
offering (plus shares of Common Stock issuable upon the exercise of
stock options that will have vested within 180 days from the date of this
Prospectus), including all of the directors and executive officers of the
Company, have agreed, subject to certain limited exceptions, that they will not,
without the prior written consent of Montgomery Securities (which consent may be
withheld in the sole discretion of Montgomery Securities), directly or
indirectly, sell, offer, contract or grant any option to sell, make any short
sale (including without limitation any "short vs. the box"), pledge, transfer,
establish an open put equivalent position within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock,
currently owned or hereafter acquired (excluding any shares of Common Stock
purchased on the open market), either of record or beneficially (as defined in
Rule 13d-3 under the Exchange Act) by such party, or publicly announce such
party's intention to do any of the foregoing, for a period of 180 days after the
date of this Prospectus. In addition, the Company has agreed in the Underwriting
Agreement that, during the period of 180 days after the date of this Prospectus,
without the prior written consent of Montgomery Securities (which consent may be
withheld in the sole discretion of Montgomery Securities), it will not issue,
offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities or any other securities convertible into or
exchangeable with the Company's Common Stock or other equity security, subject
to certain limited exceptions. Montgomery Securities may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to these lock-up agreements. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters will not
confirm sales of Common Stock offered by this Prospectus to accounts over which
they exercise discretionary authority in excess of five percent of the number of
shares of Common Stock offered hereby.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company and the
Representatives. Among the factors expected to be considered in such
negotiations are the history of, and prospects for, the Company and the industry
in which it competes, an assessment of the Company's management, its past and
present operations, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state of
the Company's development, the general condition of the securities markets at
the time of the offering and the market prices of and demand for publicly traded
common stocks of comparable companies in recent periods and other factors deemed
relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
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<PAGE> 54
EXPERTS
The Financial Statements of the Company as of December 30, 1995 and
December 28, 1996 and for each of the three years in the period ended December
28, 1996 and as of June 30, 1997 and the six months then ended included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is made
to the copy of such agreement filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549, and at
its regional offices in New York (Seven World Trade Center, New York, New York
10007) and in Chicago (Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60611) and copies of all or any part thereof may be obtained
from such offices upon payment of the prescribed fees. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission which can be accessed at
http://www.sec.gov.
The Company intends to furnish holders of its Common Stock offered hereby
with annual reports containing financial statements audited by an independent
accounting firm and with quarterly reports containing unaudited summary
financial statements for each of the first three quarters of each fiscal year.
53
<PAGE> 55
CONCORD COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 30, 1995, December 28, 1996, June 30, 1997 and Pro Forma
June 30, 1997 (Unaudited)........................................................... F-3
Statements of Operations for the Years Ended December 31, 1994, December 30, 1995 and
December 28, 1996 and for the Six Months Ended June 30, 1996 (Unaudited) and 1997... F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit for the
Years Ended December 31, 1994, December 30, 1995 and December 28, 1996 and for the
Six Months Ended June 30, 1997 and Pro Forma June 30, 1997 (Unaudited).............. F-5
Statements of Cash Flows for the Years Ended December 31, 1994, December 30, 1995 and
December 28, 1996 and for the Six Months Ended June 30, 1996 (Unaudited) and 1997... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 56
After the reverse stock split discussed in Note 4 to the Concord Communications,
Inc. financial statements is effected, we expect to be in a position to render
the following audit report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 6, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Concord Communications, Inc.:
We have audited the accompanying balance sheets of Concord Communications,
Inc. (a Massachusetts corporation) as of December 30, 1995, December 28, 1996
and June 30, 1997, and the related statements of operations, redeemable
convertible preferred stock and stockholders' deficit and cash flows for each of
the three years in the period ended December 28, 1996 and the six months ended
June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Concord Communications, Inc.
as of December 30, 1995, December 28, 1996 and June 30, 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 28, 1996 and the six months ended June 30, 1997, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
August 1, 1997
F-2
<PAGE> 57
CONCORD COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, 1997
DECEMBER 30, DECEMBER 28, JUNE 30, (UNAUDITED)
1995 1996 1997 (NOTE 1(h))
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 4,396,538 $ 1,663,896 $ 1,872,727 $ 1,872,727
Accounts receivable, net of allowance of approximately
$130,000, $210,000, $280,000 and $280,000,
respectively.......................................... 1,018,802 2,273,255 1,701,180 1,701,180
Prepaid expenses and other current assets............... 140,462 148,934 93,217 93,217
------------ ------------ ------------ ------------
Total current assets................................ 5,555,802 4,086,085 3,667,124 3,667,124
------------ ------------ ------------ ------------
Equipment and Improvements, at cost:
Equipment............................................... 4,650,292 5,376,966 5,795,515 5,795,515
Leasehold improvements.................................. 70,862 78,759 85,957 85,957
------------ ------------ ------------ ------------
4,721,154 5,455,725 5,881,472 5,881,472
Less -- Accumulated depreciation and amortization....... 3,548,035 3,957,519 4,188,704 4,188,704
------------ ------------ ------------ ------------
1,173,119 1,498,206 1,692,768 1,692,768
------------ ------------ ------------ ------------
Deferred Financing Costs.................................... -- -- 225,897 225,897
------------ ------------ ------------ ------------
$ 6,728,921 $ 5,584,291 $ 5,585,789 $ 5,585,789
============ ============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable........................................ $ 1,186,848 $ 1,560,312 $ 1,533,796 $ 1,533,796
Accrued expenses........................................ 678,840 2,324,927 2,037,010 2,037,010
Deferred revenue........................................ 373,666 1,331,291 2,216,978 2,216,978
Current portion of long-term debt....................... -- 257,000 346,763 346,763
------------ ------------ ------------ ------------
Total current liabilities........................... 2,239,354 5,473,530 6,134,547 6,134,547
------------ ------------ ------------ ------------
Long-Term Debt.............................................. -- 667,502 859,535 859,535
------------ ------------ ------------ ------------
Commitments and Contingencies (Note 8)
Redeemable Convertible Preferred Stock:
Series A, $.01 par value --
Authorized -- 1,965,373 shares, none pro forma
Issued and outstanding -- 1,940,863 shares, none pro
forma recorded at redemption value.................... 8,893,639 9,427,506 9,704,662 --
Series A-1, $.01 par value --
Authorized -- 212,044 shares, none pro forma
Issued and outstanding -- 36,070 shares, none pro
forma recorded at redemption value.................... 169,399 179,106 184,257 --
Series B, $.01 par value --
Authorized -- 4,479,613 shares, none pro forma
Issued and outstanding -- 4,460,789 shares, none pro
forma recorded at redemption value.................... 4,552,617 4,871,117 5,030,367 --
------------ ------------ ------------ ------------
Total redeemable convertible preferred stock........ 13,615,655 14,477,729 14,919,286 --
------------ ------------ ------------ ------------
Stockholders' Deficit --
Preferred Stock, $.01 par value --
Authorized -- 1,000,000 shares
Issued and outstanding -- none........................ -- -- -- --
Common stock, $.01 par value -- Authorized -- 25,000,000
shares Issued and outstanding -- 760,345, 844,482,
909,465 and 9,017,723 shares, respectively............ 7,603 8,445 9,095 90,177
Additional paid-in capital.............................. 18,089,332 18,097,045 18,351,768 33,189,972
Deferred compensation................................... -- -- (140,508) (140,508)
Accumulated deficit..................................... (27,223,023) (33,139,960) (34,547,934) (34,547,934)
------------ ------------ ------------ ------------
Total stockholders' deficit......................... (9,126,088) (15,034,470) (16,327,579) (1,408,293)
------------ ------------ ------------ ------------
$ 6,728,921 $ 5,584,291 $ 5,585,789 $ 5,585,789
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 58
CONCORD COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------ -------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 30,
1994 1995 1996 JUNE 30, 1997
------------ ------------ ------------ 1996 ----------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License revenues............ $ 3,416,229 $ 3,443,040 $ 7,844,523 $ 2,981,941 $6,889,982
Service revenues............ 648,533 911,964 1,162,242 487,555 811,403
----------- ----------- ----------- ----------- ----------
Total revenues......... 4,064,762 4,355,004 9,006,765 3,469,496 7,701,385
Cost of Revenues................. 1,940,632 1,163,863 1,956,889 931,736 1,279,495
----------- ----------- ----------- ----------- ----------
Gross profit........... 2,124,130 3,191,141 7,049,876 2,537,760 6,421,890
----------- ----------- ----------- ----------- ----------
Operating Expenses:
Research and development.... 2,373,858 2,360,287 3,933,483 1,849,803 2,126,665
Sales and marketing......... 3,391,321 3,694,198 7,039,662 3,055,962 4,319,816
General and
administrative............ 750,879 1,000,228 1,176,938 491,883 899,932
----------- ----------- ----------- ----------- ----------
Total operating
expenses............. 6,516,058 7,054,713 12,150,083 5,397,648 7,346,413
----------- ----------- ----------- ----------- ----------
Operating loss......... (4,391,928) (3,863,572) (5,100,207) (2,859,888) (924,523)
----------- ----------- ----------- ----------- ----------
Other Income (Expense):
Interest income............. 47,086 48,015 79,832 63,653 --
Interest expense............ (2,027) -- (48,564) (11,164) (42,886)
Other....................... (47,370) 31,877 14,076 12,357 992
----------- ----------- ----------- ----------- ----------
Total other income
(expense)............ (2,311) 79,892 45,344 64,846 (41,894)
----------- ----------- ----------- ----------- ----------
Loss from continuing
operations........... (4,394,239) (3,783,680) (5,054,863) (2,795,042) (966,417)
Income from Disposition of
Discontinued Operations........ 117,593 -- -- -- --
----------- ----------- ----------- ----------- ----------
Net loss............... $ (4,276,646) $ (3,783,680) $ (5,054,863) $ (2,795,042) $ (966,417)
=========== =========== =========== =========== ==========
Pro Forma Net Loss per Common and
Common Equivalent Share
(Unaudited).................... $ (0.52) $ (0.29) $ (0.10)
=========== =========== ==========
Pro Forma Weighted Average Number
of Common and Common Equivalent
Shares Outstanding
(Unaudited).................... 9,767,993 9,767,585 9,774,910
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 59
CONCORD COMMUNICATIONS, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------------------------------------
SERIES A SERIES A-1 SERIES B
----------------------- --------------------- -----------------------
NUMBER REDEMPTION NUMBER REDEMPTION NUMBER REDEMPTION
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE TOTAL
---------- ----------- --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.......... 1,216,856 $ 5,010,682 35,248 $ 149,994 -- $ -- $ 5,160,676
Issuance of preferred stock, net
of issuance costs of $38,286... 489,376 1,998,882 822 1,118 -- -- 2,000,000
Accretion of dividends on
preferred stock................ -- 355,976 -- 9,945 -- -- 365,921
Exercise of stock options........ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------ -------- --------- ---------- -----------
BALANCE, DECEMBER 31, 1994........ 1,706,232 7,365,540 36,070 161,057 -- -- 7,526,597
Issuance of preferred stock and
common stock, net of issuance
costs of $98,813............... 234,631 957,292 -- -- 4,460,789 4,550,000 5,507,292
Accretion of dividends on
preferred stock................ -- 570,807 -- 8,342 -- 2,617 581,766
Exercise of stock options........ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------ -------- --------- ---------- -----------
BALANCE, DECEMBER 30, 1995........ 1,940,863 8,893,639 36,070 169,399 4,460,789 4,552,617 13,615,655
Accretion of dividends on
preferred stock................ -- 533,867 -- 9,707 -- 318,500 862,074
Exercise of stock options........ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------ -------- --------- ---------- -----------
BALANCE, DECEMBER 28, 1996........ 1,940,863 9,427,506 36,070 179,106 4,460,789 4,871,117 14,477,729
Accretion of dividends on
preferred stock................ -- 277,156 -- 5,151 -- 159,250 441,557
Exercise of stock options........ -- -- -- -- -- -- --
Deferred compensation related to
grants of stock options........ -- -- -- -- -- -- --
Amortization of deferred
compensation related to grants
of stock options............... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------ -------- --------- ---------- -----------
BALANCE, JUNE 30, 1997............ 1,940,863 9,704,662 36,070 184,257 4,460,789 5,030,367 14,919,286
Pro forma conversion of redeemable
convertible preferred stock to
common stock (unaudited)......... (1,940,863) (9,704,662) (36,070) (184,257) (4,460,789) (5,030,367) (14,919,286)
--------- ---------- ------ -------- --------- ---------- -----------
PRO FORMA BALANCE, JUNE 30, 1997
(UNAUDITED)...................... -- $ -- -- $ -- -- $ -- $ --
========= ========== ====== ======== ========= ========== ===========
<CAPTION>
STOCKHOLDERS' DEFICIT
---------------------------------------------------------------------------
COMMON STOCK
-------------------- ADDITIONAL
NUMBER $.01 PAID-IN DEFERRED ACCUMULATED
OF SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT TOTAL
--------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.......... 667,049 $ 6,670 $18,154,900 $ -- $(18,215,010) $ (53,440)
Issuance of preferred stock, net
of issuance costs of $38,286... -- -- (38,286) -- -- (38,286)
Accretion of dividends on
preferred stock................ -- -- -- -- (365,921) (365,921)
Exercise of stock options........ 15,438 154 18,371 -- -- 18,525
Net loss......................... -- -- -- -- (4,276,646) (4,276,646)
--------- ------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1994........ 682,487 6,824 18,134,985 -- (22,857,577) (4,715,768)
Issuance of preferred stock and
common stock, net of issuance
costs of $98,813............... 71,180 712 (50,451) -- -- (49,739)
Accretion of dividends on
preferred stock................ -- -- -- -- (581,766) (581,766)
Exercise of stock options........ 6,678 67 4,798 -- -- 4,865
Net loss......................... -- -- -- -- (3,783,680) (3,783,680)
--------- ------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 30, 1995........ 760,345 7,603 18,089,332 -- (27,223,023) (9,126,088)
Accretion of dividends on
preferred stock................ -- -- -- -- (862,074) (862,074)
Exercise of stock options........ 84,137 842 7,713 -- -- 8,555
Net loss......................... -- -- -- -- (5,054,863) (5,054,863)
--------- ------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 28, 1996........ 844,482 8,445 18,097,045 -- (33,139,960) (15,034,470)
Accretion of dividends on
preferred stock................ -- -- -- -- (441,557) (441,557)
Exercise of stock options........ 64,983 650 104,848 -- -- 105,498
Deferred compensation related to
grants of stock options........ -- -- 149,875 (149,875) -- --
Amortization of deferred
compensation related to grants
of stock options............... -- -- -- 9,367 -- 9,367
Net loss......................... -- -- -- -- (966,417) (966,417)
--------- ------- ----------- --------- ------------ ------------
BALANCE, JUNE 30, 1997............ 909,465 9,095 18,351,768 (140,508) (34,547,934) (16,327,579)
Pro forma conversion of redeemable
convertible preferred stock to
common stock (unaudited)......... 8,108,258 81,082 14,838,204 -- -- 14,919,286
--------- ------- ----------- --------- ------------ ------------
PRO FORMA BALANCE, JUNE 30, 1997
(UNAUDITED)...................... 9,017,723 $90,177 $33,189,972 $ (140,508) $(34,547,934) $ (1,408,293)
========= ======= =========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 60
CONCORD COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------ -------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 30,
1994 1995 1996 JUNE 30, 1997
------------ ------------ ------------ 1996 ----------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Continuing operations --
Net loss............................................. $(4,394,239) $(3,783,680) $(5,054,863) $(2,795,042) $ (966,417)
Adjustments to reconcile net loss to net cash (used
in) provided by continuing operations --
Depreciation and amortization...................... 320,883 335,837 409,484 212,312 234,853
Changes in current assets and liabilities --
Accounts receivable............................. (482,954) 147,562 (1,254,453) (918,018) 572,075
Prepaid expenses and other current assets....... 325,897 159,387 (8,472) 62,250 55,717
Accounts payable................................ (271,817) 598,989 373,464 (297,488) (26,517)
Accrued expenses................................ 121,311 369,333 1,646,087 700,018 (287,917)
Deferred revenue................................ 125,220 92,648 957,625 576,209 885,687
----------- ----------- ----------- ----------- ----------
Net cash (used in) provided by continuing
operations................................... (4,255,699) (2,079,924) (2,931,128) (2,459,759) 467,481
----------- ----------- ----------- ----------- ----------
Discontinued operations................................ 117,593 -- -- -- --
----------- ----------- ----------- ----------- ----------
Net cash (used in) provided by operating
activities................................... (4,138,106) (2,079,924) (2,931,128) (2,459,759) 467,481
----------- ----------- ----------- ----------- ----------
Cash Flows from Investing Activities:
Purchases of equipment and improvements................ (448,524) (604,838) (734,571) (377,055) (353,816)
----------- ----------- ----------- ----------- ----------
Cash Flows from Financing Activities:
Proceeds from bank borrowings.......................... -- -- 924,502 637,140 298,788
Repayments of borrowings............................... -- -- -- -- (83,223)
Proceeds from issuance of preferred and common stock... 1,961,714 5,457,553 -- -- --
Proceeds from exercise of stock options................ 18,525 4,865 8,555 173 105,498
Deferred financing costs............................... -- -- -- -- (225,897)
----------- ----------- ----------- ----------- ----------
Net cash provided by financing activities..... 1,980,239 5,462,418 933,057 637,313 95,166
----------- ----------- ----------- ----------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents..... (2,606,391) 2,777,656 (2,732,642) (2,199,501) 208,831
Cash and Cash Equivalents, beginning of period........... 4,225,273 1,618,882 4,396,538 4,396,538 1,663,896
----------- ----------- ----------- ----------- ----------
Cash and Cash Equivalents, end of period................. $ 1,618,882 $ 4,396,538 $ 1,663,896 $ 2,197,037 $1,872,727
=========== =========== =========== =========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest................................. $ -- $ -- $ 48,564 $ 11,164 $ 42,886
=========== =========== =========== =========== ==========
Supplemental Disclosure of Noncash Transactions:
Accretion of dividends on preferred stock.............. $ 365,921 $ 581,766 $ 862,074 $ 431,038 $ 441,557
=========== =========== =========== =========== ==========
Deferred compensation related to grants of stock
options.............................................. $ -- $ -- $ -- $ -- $ 149,875
=========== =========== =========== =========== ==========
Purchase of equipment through issuance of debt......... $ -- $ -- $ -- $ -- $ 66,231
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 61
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Concord Communications, Inc. (the Company) is primarily engaged in the
development and sale of high-technology automated network reporting software to
companies principally in the United States.
The Company is subject to the risks associated with emerging,
technology-oriented companies. Primary among these risks are competition from
substitute products, the ability to successfully develop and market its current
and future products, and the ability to obtain additional financing to fund
operations. Management believes that the Company's current cash resources, along
with the line of credit described in Note 3, will be sufficient to fund
operations for at least the next year.
(a) Fiscal Year-End
Through fiscal 1996, the Company's fiscal year was the 52- or 53-week
period ended on the Saturday closest to December 31. References to 1994, 1995
and 1996 are for the 52-week periods ended December 31, 1994, December 30, 1995
and December 28, 1996, respectively. Beginning in 1997, the Company has changed
to a calendar year-end.
(b) Cash and Cash Equivalents
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified its cash equivalents as held-to-maturity
and recorded them at amortized cost, which approximates market value. The
Company considers cash and highly liquid investments, purchased with an original
maturity of 90 days or less, to be cash and cash equivalents. Cash equivalents
consist principally of time deposits and money market mutual funds at December
30, 1995, December 28, 1996 and June 30, 1997.
(c) Revenue Recognition
Revenue from software product sales is recognized upon shipment of the
product to customers. In cases where significant unfulfilled vendor obligations
remain upon shipment, the related revenue is deferred until such obligations are
fulfilled. Revenue from postcontract customer support and other related services
is recognized ratably as the obligations are fulfilled or when the related
services are performed. The deferred revenue balance at December 30, 1995
relates to prepayments on software maintenance contracts, which is recognized
ratably as it is earned. The deferred revenue balance at December 28, 1996 and
June 30, 1997 consists of prepayments on software maintenance contracts and
shipments to customers of software products for which certain significant vendor
obligations remain.
(d) Equipment and Improvements
Equipment and improvements are recorded at cost. Depreciation is provided
for on a straight-line basis over the useful lives of the assets, which are
estimated to be three to five years for all assets except leasehold
improvements, which are amortized over the life of the lease.
(e) Use of Estimates 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.
F-7
<PAGE> 62
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(f) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains its cash and cash equivalent
securities with established financial institutions. The Company does not believe
it has accounts receivable collection risk in excess of existing reserves. For
the year ended December 31, 1994, one customer accounted for approximately 16%
of revenue. For the years ended December 30, 1995 and December 28, 1996 and for
the six months ended June 30, 1996 and 1997, no individual customer accounted
for more than 10% of revenue.
(g) Software Development Costs
SFAS No. 86, Accounting for the Costs of Computer Software To Be Sold,
Leased or Otherwise Marketed, requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. The Company believes that once technological feasibility of a
software product has been established, the additional development costs incurred
to bring the product to a commercially acceptable level are not significant.
There were no capitalized software development costs at December 30, 1995,
December 28, 1996 and June 30, 1997.
(h) Unaudited Pro Forma Presentation
Under the terms of the Company's agreements with the holders of the
redeemable convertible preferred stock (See Note 5), all of such preferred stock
will be converted automatically into shares of common stock upon the closing of
the Company's proposed initial public offering. The unaudited pro forma
information at June 30, 1997 reflects the conversion of the Series A, Series A-1
and Series B preferred stock into 8,108,258 shares of common stock as if the
conversion occurred on June 30, 1997.
(i) Pro Forma Net Loss per Common and Common Equivalent Share (Unaudited)
Unaudited pro forma net loss per common and common equivalent share for the
year ended December 28, 1996 and for the six-month periods ended June 30, 1996
and 1997, was based on the weighted average number of common and common
equivalent shares outstanding during the period, computed in accordance with the
treasury stock method. The unaudited pro forma weighted average number of common
shares assumes that all series of redeemable convertible preferred stock had
been converted to common stock as of the original issuance dates and that common
stock options issued subsequent to June 30, 1996 have been outstanding for all
periods presented, computed in accordance with the treasury stock method.
Historical net loss per share data have not been presented, as such information
is not considered to be relevant or meaningful.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for fiscal years
ending after December 15, 1997, and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ending December
31, 1997. The Company believes that the adoption of SFAS No. 128 will not have a
material effect on its financial statements.
(j) Interim Financial Statements
The accompanying statements of operations and cash flows for the six months
ended June 30, 1996 are unaudited but, in the opinion of management, include all
adjustments (consisting of normal, recurring
F-8
<PAGE> 63
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
adjustments) necessary for a fair presentation for results of this interim
period. The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of results to be expected for the entire year.
(2) DISCONTINUED OPERATIONS
During fiscal 1992, the Company discontinued its MAP/OSI business segment.
This disposition was substantially completed during 1992 and 1993. Income from
discontinued operations in 1994 relates to the final disposition of the
remaining MAP/OSI assets. No tax provision was recorded for the results of
continuing or discontinuing operations because of the Company's overall net
operating loss carryforward position.
(3) LINE OF CREDIT AND LONG-TERM DEBT
During 1996, the Company entered into an agreement for an equipment line of
credit in the amount of $1,000,000 (the Equipment Line) with a bank. The
Equipment Line, as amended, bears interest at the bank's prime rate (8.50% at
June 30, 1997) plus 2% and is collateralized by substantially all of the
Company's assets. As of December 28, 1996, the outstanding borrowings under the
Equipment Line amounted to $924,502. In 1997, the Company received additional
advances of $74,185 through March 25, 1997, at which time the total amount of
$998,687 due under the Equipment Line was converted to a term loan payable in 36
even monthly payments of principal plus interest through March 25, 2000. As of
June 30, 1997, the principal balance on the term loan payable was $915,463.
On April 3, 1997, the Company entered into an agreement for a revolving
working capital line of credit (the Working Capital Line) with the bank that
also holds the Company's term loan payable. Under the agreement, the Company can
borrow up to the lesser of $2,500,000 or 90% of eligible accounts receivable, as
defined, minus the principal amount outstanding under the term loan payable.
Interest on outstanding borrowings is payable monthly and accrues at a rate of
prime plus 2%. The Working Capital Line is collateralized by substantially all
assets of the Company (except for those assets that serve as collateral under
the equipment term loans described below) and requires compliance with certain
financial covenants, including the maintenance of minimum levels of tangible net
worth, profitability and revenues, as defined. Under the agreement, the bank has
agreed to ease the requirement of certain financial covenants following the
completion of a qualified public offering, as defined. As of June 30, 1997, no
borrowings have been made by the Company under the Working Capital Line and
$842,133 is available for future borrowings.
On June 9, 1997, the Company entered into an agreement with another bank to
allow the Company to draw one or more loans (the Equipment Term Loans), up to
$1,000,000, for the purchases of qualifying equipment and financing of
qualifying software/engineering costs, as defined. Interest on the Equipment
Term Loans is due and payable monthly in arrears at the prime rate (8.50% at
June 30, 1997) plus 0.75%. Borrowings under the Equipment Term Loans are
permitted through December 31, 1997, at which time the outstanding principal is
due and payable in 36 even, consecutive monthly installments beginning January
30, 1998 through December 29, 2000. The Equipment Term Loans are secured by the
equipment acquired. In addition, the Company is required to comply with certain
financial covenants, which include, among other items, minimum levels of capital
base, liquidity and profitability. At June 30, 1997, the principal under the
Equipment Term Loans was $224,603 and the Company was in compliance with the
terms of the agreement.
F-9
<PAGE> 64
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
At June 30, 1997 the Company has certain other debt of approximately
$66,000 payable through 2002. Aggregate maturities of long-term debt as of June
30, 1997 are as follows:
<TABLE>
<S> <C>
Period Ending December 31,
1997 (six months)..................................... $ 171,996
1998.................................................. 419,714
1999.................................................. 420,951
2000.................................................. 172,656
2001.................................................. 16,062
2002.................................................. 4,919
----------
$1,206,298
==========
</TABLE>
(4) STOCKHOLDERS' DEFICIT
In December 1994, the Company's Board of Directors approved a one-for-two
reverse stock split of its preferred and common stock. Subsequently, the Company
paid a stock dividend to its existing Series A and Series A-1 preferred
stockholders at the rate of 0.8823537 shares for each share of preferred stock
owned. In December 1995, the Company's Board of Directors approved a
one-for-three reverse stock split of its preferred and common stock. The stock
splits and stock dividend have been retroactively reflected in the accompanying
financial statements and notes for all periods presented.
On , 1997, the Company amended its certificate of incorporation
to authorize a 1-for-2 reverse stock split of the Company's common stock and
increase the number of authorized shares of common stock to 50,000,000. All
share and per share amounts of common stock for all periods presented have been
retroactively adjusted to reflect the stock split.
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company's Board of Directors has authorized 10,000,000 shares of
preferred stock, $.01 par value: 1,965,373 shares are designated as Series A,
212,044 shares are designated as Series A-1, 4,479,613 shares are designated as
Series B and 3,342,970 shares are undesignated. The rights, preferences and
privileges of the Series A, Series A-1 and Series B (collectively the Preferred
Stock) are as follows:
Dividends
Preferred stockholders are entitled to a 7% cumulative annual dividend. The
dividend accrues whether or not declared.
Voting Rights
Preferred stockholders are entitled to full voting rights based on the
number of common equivalent shares held.
Conversion
The Preferred Stock is convertible to common stock, at any time, at the
stockholder's option. The Preferred Stock automatically converts to common stock
upon the closing of an initial public offering that meets certain criteria, as
defined. The Series A preferred stock is convertible at the rate of 1.86:1, and
the Series A-1 and Series B preferred stock are convertible at the rate of 1:1,
subject to adjustment for certain dilutive events, as defined. Upon the
completion of the proposed initial public offering, all outstanding shares of
the Preferred Stock will convert into 8,108,258 shares of common stock.
F-10
<PAGE> 65
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
Right of First Refusal
Preferred stockholders hold a right of first refusal on any subsequent
sales of Preferred Stock or common stock.
Liquidation
Preferred stockholders hold a liquidation preference over common
stockholders. Upon liquidation of the Company, preferred stockholders are
entitled to receive $4.08, $4.08 and $1.02 per share for Series A, Series A-1,
and Series B stock, respectively, plus the greater of accrued and unpaid
dividends or the pro rata portion of remaining assets to be liquidated, based on
common equivalent shares held. The liquidation preference of the Preferred Stock
at June 30, 1997 is the same as its redemption price.
Redemption
Beginning on December 28, 2000, the Company is required to redeem the
Preferred Stock. The redemption price is payable in three annual installments.
The redemption price per share is the original investment plus accrued and
unpaid dividends.
(6) STOCK OPTION PLANS
In 1995, the Company's Board of Directors (the Board) approved the 1995
Stock Plan (the Plan), which provides for the granting of incentive stock
options (ISOs) and nonqualified stock options. Prior to the adoption of the
Plan, the Board granted options under the 1982 Employee Incentive Stock Option
Plan, the 1986 Nonqualified Stock Option Plan and the 1986 Stock Plan.
Under the Plan, as amended, the Company may issue options to purchase up to
2,445,429 shares of common stock. ISOs may be granted at an exercise price not
less than the fair market value per share of common stock on the date of grant,
as determined by the Board. The price per share relating to each nonqualified
option granted under the Plan shall not be less than the lesser of (i) the book
value per share of common stock as of the end of the Company's fiscal year
immediately preceding the date of grant or (ii) 50% of the fair market value per
share of common stock on the date of grant. Vesting of the options is determined
by the Board, and the options expire 8 years from the date of grant. An employee
may convert his or her unexercised ISOs into nonqualified options at any time
prior to the expiration of such ISOs.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which requires the measurement of
the fair value of stock options or warrants to be included in the statement of
operations or disclosed in the notes to the financial statements. As permitted
by SFAS No. 123, the Company will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25 and
has elected the disclosure-only alternative under SFAS No. 123 for options
granted using the Black-Scholes option pricing model prescribed by SFAS No. 123.
The weighted average assumptions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS
DECEMBER 30, DECEMBER 28, ENDED JUNE 30,
1995 1996 1997
------------ ------------ --------------
<S> <C> <C> <C>
Risk-free interest rate.............. 6.5% 6.3% 5.1%
Expected dividend yield.............. -- -- --
Expected lives....................... 7 years 7 years 7 years
Expected volatility.................. 80% 80% 80%
</TABLE>
F-11
<PAGE> 66
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net loss and pro forma net loss per common and common
equivalent share would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED JUNE
DECEMBER 30, DECEMBER 28, 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net loss
As reported................................... $ (3,783,680) $ (5,054,863) $ (966,417)
=========== =========== ===========
Pro forma..................................... $ (3,812,217) $ (5,105,339) $ (1,103,599)
=========== =========== ===========
Pro forma net loss per common and common
equivalent share
As reported................................... $ (0.52) $ (0.10)
=========== ===========
Pro forma..................................... $ (0.52) $ (0.11)
=========== ===========
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
may not be representative of that to be expected in future years.
The following table summarizes information about options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PER SHARE OUTSTANDING PER SHARE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .10 - .40 1,485,231 6.6 $ .11 516,581 $ .10
.90 - 1.90 422,375 7.4 1.51 -- --
4.10 230,650 7.7 4.10 -- --
2,138,256
</TABLE>
F-12
<PAGE> 67
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
The following schedule summarizes the activity under the stock option plans
for the three-year period ended December 28, 1996 and the six months ended June
30, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF PRICE PER PRICE
SHARES SHARE PER SHARE
--------- ------------ ----------------
<S> <C> <C> <C>
Outstanding at January 1, 1994............... 101,998 $ 1.20 $ 1.20
Granted................................. 157,389 1.20 1.20
Exercised............................... (15,438) 1.20 1.20
Terminated.............................. (23,620) 1.20 1.20
--------- ------------- ------
Outstanding at December 31, 1994............. 220,329 1.20 1.20
Granted................................. 540,399 .60 .60
Exercised............................... (6,678) .60 - 1.20 .73
Terminated.............................. (328,028) .60 - 1.20 1.00
--------- ------------- ------
Outstanding at December 30, 1995............. 426,022 .60 .60
Granted................................. 1,881,259 .10 - 1.90 .22
Exercised............................... (84,137) .10 - .60 .10
Terminated.............................. (518,802) .10 - .60 .51
--------- ------------- ------
Outstanding at December 28, 1996............. 1,704,342 .10 - 1.90 .23
Granted................................. 511,397 1.90 - 4.10 2.91
Exercised............................... (64,983) .10 - 1.90 1.62
Terminated.............................. (12,500) .10 - 4.10 2.23
--------- ------------- ------
Outstanding at June 30, 1997................. 2,138,256 $ .10 - 4.10 $ .82
========= ============== ======
Exercisable at June 30, 1997................. 516,581 $ .10 $ .10
========= ============== ======
</TABLE>
In 1997, the Company granted an option to purchase 136,250 shares of common
stock at an exercise price of $1.90 per share to an officer of the Company. At
the date of grant, the estimated fair value per share of the Company's common
stock exceeded the exercise price of the options, and accordingly, the Company
has recorded deferred compensation of $149,875 related to this difference at the
date of grant. For the six months ended June 30, 1997, the Company has recorded
compensation expense of $9,367 related to these options grants.
The exercise price of all other options outstanding represents the fair
market value per share of common stock as of the date of grant, as determined by
the Board.
Following the completion of the proposed initial public offering, and
subject to shareholder approval, the Company expects to adopt the 1997 Stock
Plan (which will replace the 1995 Stock Plan), the 1997 Employee Stock Purchase
Plan and the 1997 Nonemployee Director Stock Option Plan, for which the Company
will reserve 750,000, 375,000 and 95,000 shares of common stock, respectively,
for future issuance.
(7) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This standard requires, among other things,
recognition of future tax effects, measured by enacted tax rates, attributable
to deductible temporary differences between the financial statement and income
tax bases of assets and liabilities.
F-13
<PAGE> 68
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
The approximate income tax effects of these temporary differences are as
follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net operating loss and federal tax credit
carryforwards............................ $ 10,898,000 $ 12,291,000 $ 12,442,000
Reserves not yet deductible for tax
purposes................................. 84,000 282,000 340,000
Depreciation............................... 98,000 145,000 145,000
Deferred revenue........................... 43,000 43,000 43,000
Capitalized research and development
expenses................................. 916,000 1,276,000 1,442,000
Valuation allowance........................ (12,039,000) (14,037,000) (14,412,000)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</TABLE>
The Company has available net operating loss carryforwards of approximately
$27,000,000 and federal research and development tax credit carryforwards of
approximately $1,500,000 as of December 28, 1996 to reduce future income tax
liabilities. These carryforwards are subject to review and possible adjustment
by the appropriate taxing authorities and expire from 1997 through 2012 as
follows:
<TABLE>
<CAPTION>
RESEARCH AND
NET OPERATING LOSS DEVELOPMENT TAX
FISCAL YEAR CARRYFORWARDS CREDIT CARRYFORWARDS
------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
1997........................................... $ 122,000 $ --
1998........................................... 326,000 --
1999........................................... 5,483,000 --
2000........................................... 3,659,000 --
2001........................................... 2,870,000 1,252,000
2002-2006...................................... 1,369,000 150,000
2007-2012...................................... 13,171,000 98,000
----------- ----------
$ 27,000,000 $ 1,500,000
=========== ==========
</TABLE>
The Company has recorded a 100% valuation allowance against the net
deferred tax asset as of December 30, 1995, December 28, 1996 and June 30, 1997,
as the Company believes that it is more likely than not that it will not be able
to realize this asset. The increase in the valuation allowance during these
periods primarily relates to the Company's operating results.
Pursuant to the Tax Reform Act of 1986, the utilization of net operating
loss carryforwards for tax purposes may be subject to an annual limitation if a
cumulative change of ownership of more than 50% occurs over a three-year period.
As a result of the Company's recent preferred stock financings, such a change in
ownership has occurred. Also, following the completion of the proposed initial
public offering, the Company expects that another ownership change will occur.
As a result of these ownership changes, the utilization of $17,000,000 of the
Company's net operating loss carryforwards will be limited to approximately
$325,000 per year. The utilization of the remaining $10,000,000 of net operating
loss carryforwards will be limited to approximately $5,000,000 per year.
F-14
<PAGE> 69
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(8) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases facilities under certain operating leases that expire
through June 2002. The approximate future minimum rental payments under these
leases, as amended, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
---------------------------------------------------- ----------
<S> <C>
1997 (six months)................................. $ 222,000
1998.............................................. 444,000
1999.............................................. 504,000
2000.............................................. 564,000
2001.............................................. 575,000
Thereafter........................................ 293,000
----------
$2,602,000
==========
</TABLE>
Rental expense was approximately $238,000, $234,000, $244,000, $134,000 and
$197,000 for the years ended December 31, 1994, December 30, 1995 and December
28, 1996 and the six months ended June 30, 1996, and 1997, respectively.
(b) Royalties
The Company has entered into several software license agreements that
provide the Company with exclusive worldwide licenses to distribute or utilize
certain patented computer software. The Company is required to pay royalties on
all related sales. Under one software license agreement, the Company is
obligated to make minimum quarterly royalty payments through 1999. The minimum
payments are noncancelable and nonrefundable, but any minimum payments in excess
of actual license sales in the period may be used as a credit against future
royalty fees. The minimum royalty payments under this agreement are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
---------------------------------------------------- ----------
<S> <C>
1997 (six months)................................. $ 220,500
1998.............................................. 490,000
1999.............................................. 450,000
----------
$1,160,500
==========
</TABLE>
Royalty expense under royalty agreements was $76,000, $101,000, $735,000,
$228,000 and $356,000 for fiscal 1994, 1995 and 1996 and for the six months
ended June 30, 1996 and 1997, respectively.
(c) Legal Proceedings
From time to time, the Company may be exposed to litigation relating to its
products and operations. The Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company's financial conditions or results of operations.
F-15
<PAGE> 70
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(9) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 30,
1995 1996 1997
------------ ------------ ----------
<S> <C> <C> <C>
Payroll and payroll-related..................... $219,778 $ 537,959 $ 304,982
Royalties....................................... 50,508 213,360 165,764
Commissions..................................... 64,929 255,519 187,262
Customer deposits............................... -- 382,075 582,948
Other........................................... 343,625 936,014 796,054
-------- ---------- ----------
$678,840 $2,324,927 $2,037,010
======== ========== ==========
</TABLE>
(10) EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan under Section 401(k) of the
Internal Revenue Code covering all eligible employees, as defined. The Plan
allows for employees to defer a portion of their salary up to 15% of pretax
compensation. While the Company has the discretion to make contributions to the
plan, no such contributions were made in 1994, 1995, 1996 or the six-month
periods ended June 30, 1996 and 1997.
(11) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Revenues by geographic destination and as a percentage of total revenues
are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR JUNE 30,
GEOGRAPHIC AREA BY ---------------------------------------- -------------------------
DESTINATION 1994 1995 1996 1996 1997
- ----------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
North America................ $3,785,898 $3,965,078 $8,042,984 $3,193,020 $6,993,961
Europe....................... 83,704 218,559 914,314 249,468 613,037
Asia......................... 105,200 156,144 49,467 27,008 60,545
Other........................ 89,960 15,223 -- -- 33,842
---------- ---------- ---------- ---------- ----------
$4,064,762 $4,355,004 $9,006,765 $3,469,496 $7,701,385
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR JUNE 30,
GEOGRAPHIC AREA BY ------------------------------ -----------------
DESTINATION 1994 1995 1996 1996 1997
- ------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
North America............................. 93% 91% 89% 92% 91%
Europe.................................... 2 5 10 7 8
Asia...................................... 3 4 1 1 1
Other..................................... 2 -- -- -- --
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
F-16
<PAGE> 71
CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(12) VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts
receivable reserve account:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended--
December 31, 1994........................... $ 20,000 $ -- $ -- $ 20,000
December 30, 1995........................... 20,000 110,000 -- 130,000
December 28, 1996........................... 130,000 135,000 (54,884) 210,116
Six months ended--
June 30, 1997............................... 210,116 70,000 -- 280,116
</TABLE>
F-17
<PAGE> 72
OUTSIDE FRONT COVER
Graphic: Concord Communications, Inc. logo.
INSIDE FRONT COVER
The graphic heading reads "NETWORK HEALTH" in bold face. Directly beneath the
heading is the phrase "Automated performance analysis and reporting solutions"
in bold face.
On the center of the page is a picture of a personal computer representing the
Company's network console, which manages the operation of the Company's Network
Health product family. In the middle of the Computer's display is a picture of
the Company's Network Health product as sold at retail. Surrounding the personal
computer are the four different products included in the Network Health product
family. Each graphic portrays the environment applicable to the product
depicted. Starting at the bottom left hand corner and proceeding clockwise, the
four products depicted are as follows: (i) Network Health -Router/Switch; (ii)
Network Health - LAN/WAN, Frame Relay; (iii) Network Health - Traffic
Accountant; and (iv) Network Health - Server.
Beneath the graphic is the text: "Measure the Effectiveness of your IT
investment" in bold and italics.
GATE FOLD
The graphic heading reads "NETWORK HEALTH." Directly underneath the heading is
the phrase "Automated performance analysis and reporting solutions" on two
lines.
To the left of the heading is a column of graphics and text running down the
left-most one-sixth of the gatefold. In the column are four pictures depicting
the three major user groups of the Company's products: (i) Large Enterprise
Users; (ii) Telecommunications Providers; and (iii) Internet Service Providers.
To the right of the column is a picture of a personal computer representing the
Company's network console, which manages the operation of the Company's Network
Health product family. In the middle of the Computer's display is a picture of
the Company's Network Health product as sold at retail. Surrounding the personal
computer at each corner are four different reports generated by the Company's
product. Starting at the bottom left-hand corner and proceeding clockwise are
the following reports: (i) an Internet-based report; (ii) a "Bandwidth
Utilization" report; (iii) an "Exceptions Detail Report;" and (iv) a report
indicating "Network Traffic by Department."
To the right of the personal computer is a column listing the benefits provided
by the Network Health product family. The list is a summary of the benefits
listed in "Business - The Concord Solution" on page 25 of the Prospectus.
Beneath the center graphic is the Concord Communications, Inc. logo.
INSIDE BACK COVER
Blank
OUTSIDE BACK COVER
Concord Communications, Inc. logo.
<PAGE> 73
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company 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 shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such offer or solicitation
would be 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 or that the information contained
herein is correct as of any time subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 17
Business.............................. 24
Management............................ 34
Principal and Selling Stockholders.... 42
Certain Transactions.................. 45
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 53
Additional Information................ 53
Index to Financial Statements......... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters, and with respect to their unsold allotments or
subscriptions.
======================================================
======================================================
2,900,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
WESSELS, ARNOLD & HENDERSON
, 1997
======================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC registration fee................................................ $ 12,178
NASD filing fee..................................................... 50,000
Nasdaq National Market listing fee.................................. 4,502
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees)................... *
Transfer agent and registrar fees and expenses...................... *
Miscellaneous....................................................... *
--------
Total..................................................... $ *
========
</TABLE>
- ---------------
* To be filed by Amendment.
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Articles of Organization of the Company and the Restated
By-Laws provide for indemnification of the Company's directors and officers
unless such indemnification is prohibited by the Massachusetts Business
Corporation Law. The Massachusetts Business Corporation Law generally permits
indemnification of the Company's directors and officers for liabilities and
expenses that they may incur in such capacities, except with respect to any
matter that the indemnified person shall have been adjudicated in any proceeding
not to have acted in good faith in the reasonable belief that his or her action
was in the best interest of the Company. Reference is made to the Company's
corporate charters filed as Exhibit 3.01 and 3.02 and Restated By-Laws filed as
Exhibit 3.03.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.01 hereto.
Pursuant to an agreement between Charles River Partnership VII Limited
Partnership and Mr. Burnes, Charles River Partnership VII has agreed to
indemnify Mr. Burnes against any liability incurred in his capacity as a
director of the Company.
The Company expects to enter into indemnification agreements with its
directors and officers and to obtain directors and officers liability insurance
for the benefit of its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Act:
(a) Issuances of Capital Stock.
In December 1994, the Company issued and sold an aggregate of 1,470,595
shares (without giving effect to a one-for-three reverse stock split in December
1995) of its Series A Convertible Preferred Stock at a price per share of $1.36
to 13 investors in a private financing for $2,000,009.20 in cash.
In February 1995 and March 1995, the Company issued and sold an aggregate
of 703,892 shares (without giving effect to a one-for-three reverse stock split
in December 1995) of its Series A Convertible Preferred Stock at a price per
share of $1.36 and 427,080 shares (without giving effect to a one-for-three
reverse stock
II-1
<PAGE> 75
split in December 1995) of Common Stock at a price per share of $.10 to an
aggregate of four investors in a private financing for $1,000,001.12 in cash.
In December 1995 and January 1996, the Company issued and sold an aggregate
of 4,460,789 shares of its Series B Convertible Preferred Stock at a price per
share of $1.02 to 15 investors in a private financing for $4,550,004.78 in cash.
In December 1995 certain holders of Series A Convertible Preferred Stock
exchanged 36,070 shares of such stock for an equal number of shares of Series
A-1 Convertible Preferred Stock of the Company.
(b) Certain Grants and Exercises of Stock Options.
Pursuant to the 1995 Stock Plan, the Company has as of June 30, 1997 issued
options to purchase an aggregate of 2,392,652 shares of Common Stock,
exercisable at a weighted average exercise price of $0.79 per share. As of June
30, 1997, the Company had issued 148,839 shares of Common Stock pursuant to the
exercise of options under the 1995 Stock Plan, at a weighted average exercise
price of $0.77 per share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase Common Stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement
3.01 Form of Restated Articles of Organization of the Company (to be filed on the
effective date of this Registration Statement)
3.02 Form of Restated Articles of Organization of the Company (to be filed on the
closing of the offering)
3.03 Form of Restated By-laws of the Company
*4.01 Specimen Certificate for shares of the Company's Common Stock
*5.01 Legal Opinion of Testa, Hurwitz & Thibeault, LLP
10.01 Working Capital Loan Agreement between the Company and Silicon Valley Bank dated
April 3, 1997
10.02 Revolving Promissory Note made by the Company in favor of Silicon Valley Bank
10.03 Equipment Line of Credit Letter Agreement between the Company and Fleet Bank
dated as of June 9, 1997
10.04 1995 Stock Plan of the Company
10.05 1997 Stock Plan of the Company
10.06 1997 Employee Stock Purchase Plan of the Company
10.07 1997 Non-Employee Director Stock Option Plan of the Company
10.08 The Profit Sharing/401(K) Plan of the Company
10.09 Lease Agreement between the Company and John Hancock Mutual Life Insurance
Company dated March 17, 1994, as amended on March 25, 1997
10.10 First Amendment to Lease Agreement between the Company and John Hancock Mutual
Life Insurance Company dated March 25, 1997
10.11 Form of Indemnification Agreement for directors and officers of the Company
10.12 Restated Common Stock Registration Rights Agreement between the Company and
certain investors dated August 7, 1986
10.13 Amended and Restated Registration Rights Agreement between the Company and
certain investors dated December 28, 1995
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
10.14 Management Change in Control Agreement between the Company and John A. Blaeser
dated as of August 7, 1997
10.15 Management Change in Control Agreement between the Company and Kevin J. Conklin
dated as of July 23, 1997
10.16 Management Change in Control Agreement between the Company and Ferdinand Engel
dated as of July 23, 1997
10.17 Management Change in Control Agreement between the Company and Gary E. Haroian
dated as of July 23, 1997
10.18 Management Change in Control Agreement between the Company and Daniel D.
Phillips, Jr. dated as of July 23, 1997
10.19 Stock Option Agreement dated January 1, 1996 between the Company and John A.
Blaeser
10.20 Stock Option Agreement dated January 1, 1996 between the Company and John A.
Blaeser
10.21 Letter Agreement between the Company and Silicon Valley Bank dated March 25,
1996 together with the Loan Modification Agreement dated November 14, 1996
11.01 Statement re: Computation of Per Share Earnings
23.01 Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.01)
23.02 Consent of Arthur Andersen LLP
24.01 Power of Attorney (contained on page II-4)
27.01 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted or
have been provided for in the footnotes to the Financial Statements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser; (2) that for purposes
of determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 77
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 Marlboro, Massachusetts on August 8,
1997.
CONCORD COMMUNICATIONS, INC.
By: /s/ JOHN A. BLAESER
------------------------------------
JOHN A. BLAESER
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Concord Communications, Inc.,
hereby severally constitute and appoint John A. Blaeser, Gary E. Haroian and
Edwin L. Miller Jr., and each of them singly, our true and lawful attorneys,
with full power to them and each of them singly, to sign for us in our names in
the capacities indicated below, any registration statement related to the
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933 (a "462(b) Registration Statement"), any and all
amendments and exhibits to this registration statement or any 462(b)
Registration Statement, and any and all applications and other documents to be
filed with the Securities and Exchange Commission pertaining to the registration
of the securities covered hereby or thereby, and generally to do all things in
our names and on our behalf in such capacities to enable Concord Communications,
Inc. to comply with the provisions of the Securities Act of 1933 and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------------------ --------------------------------- ----------------
<C> <S> <C>
/s/ JOHN A. BLAESER Chief Executive Officer, August 8, 1997
- ------------------------------------------ President and Director (Principal
JOHN A. BLAESER Executive Officer)
/s/ GARY E. HAROIAN Vice President, Finance and August 8, 1997
- ------------------------------------------ Administration, Chief Financial
GARY E. HAROIAN Officer, Clerk and Treasurer
(Principal Financial and
Accounting Officer)
/s/ FREDERICK W.W. BOLANDER Director August 8, 1997
- ------------------------------------------
FREDERICK W.W. BOLANDER
/s/ RICHARD M. BURNES, JR. Director August 8, 1997
- ------------------------------------------
RICHARD M. BURNES, JR.
/s/ ROBERT C. HAWK Director August 8, 1997
- ------------------------------------------
ROBERT C. HAWK
/s/ JOHN ROBERT HELD Director August 8, 1997
- ------------------------------------------
JOHN ROBERT HELD
/s/ DEEPAK KAMRA Director August 8, 1997
- ------------------------------------------
DEEPAK KAMRA
/s/ ROBERT M. WADSWORTH Director August 8, 1997
- ------------------------------------------
ROBERT M. WADSWORTH
</TABLE>
II-4
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT PAGE
- ----------- --------------------------------------------------------------------------------- ----
<C> <S> <C>
1.01 Form of Underwriting Agreement
3.01 Form of Restated Articles of Organization of the Company (to be filed on the
effective date of this Registration Statement)
3.02 Form of Restated Articles of Organization of the Company (to be filed on the
closing of the offering)
3.03 Form of Restated By-laws of the Company
*4.01 Specimen Certificate for shares of the Company's Common Stock
*5.01 Legal Opinion of Testa, Hurwitz & Thibeault, LLP
10.01 Working Capital Loan Agreement between the Company and Silicon Valley Bank dated
April 3, 1997
10.02 Revolving Promissory Note made by the Company in favor of Silicon Valley Bank
10.03 Equipment Line of Credit Letter Agreement between the Company and Fleet Bank
dated as of June 9, 1997
10.04 1995 Stock Plan of the Company
10.05 1997 Stock Plan of the Company
10.06 1997 Employee Stock Purchase Plan of the Company
10.07 1997 Non-Employee Director Stock Option Plan of the Company
10.08 The Profit Sharing/401(K) Plan of the Company
10.09 Lease Agreement between the Company and John Hancock Mutual Life Insurance
Company dated March 17, 1994, as amended on March 25, 1997
10.10 First Amendment to Lease Agreement between the Company and John Hancock Mutual
Life Insurance Company dated March 25, 1997
10.11 Form of Indemnification Agreement for directors and officers of the Company
10.12 Restated Common Stock Registration Rights Agreement between the Company and
certain investors dated August 7, 1986
10.13 Amended and Restated Registration Rights Agreement between the Company and
certain investors dated December 28, 1995
10.14 Management Change in Control Agreement between the Company and John A. Blaeser
dated as of August 7, 1997
10.15 Management Change in Control Agreement between the Company and Kevin J. Conklin
dated as of July 23, 1997
10.16 Management Change in Control Agreement between the Company and Ferdinand Engel
dated as of July 23, 1997
10.17 Management Change in Control Agreement between the Company and Gary E. Haroian
dated as of July 23, 1997
10.18 Management Change in Control Agreement between the Company and Daniel D.
Phillips, Jr. dated as of July 23, 1997
10.19 Stock Option Agreement dated January 1, 1996 between the Company and John A.
Blaeser
10.20 Stock Option Agreement dated January 1, 1996 between the Company and John A.
Blaeser
10.21 Letter Agreement between the Company and Silicon Valley Bank dated March 25, 1996
together with the Loan Modification Agreement dated November 14, 1996
11.01 Statement re: Computation of Per Share Earnings
23.01 Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.01)
23.02 Consent of Arthur Andersen LLP
24.01 Power of Attorney (contained on page II-4)
27.01 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
II-5
<PAGE> 1
Exhibit 1.01
[_______________] SHARES
CONCORD COMMUNICATIONS, INC.
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
DATED [________], 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES ...............................................2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................2
Compliance With Registration Requirements.....................................2
Offering Materials Furnished To Underwriters..................................3
Distribution Of Offering Material By The Company..............................3
The Underwriting Agreement....................................................3
Authorization Of The Common Shares............................................3
No Applicable Registration Or Other Similar Rights............................3
No Material Adverse Change....................................................3
Independent Accountants.......................................................4
Preparation Of The Financial Statements.......................................4
Incorporation And Good Standing Of The Company ...............................4
Capitalization And Other Capital Stock Matters................................4
Stock Exchange Listing........................................................5
Non-Contravention Of Existing Instruments; No Further Authorizations Or
Approvals Required........................................................5
No Material Actions Or Proceedings............................................5
Intellectual Property Rights..................................................5
All Necessary Permits, Etc....................................................6
Title To Properties...........................................................6
Tax Law Compliance............................................................6
Company Not An Investment Company.............................................6
Insurance.....................................................................6
No Price Stabilization Or Manipulation........................................6
Related Party Transactions....................................................7
No Unlawful Contributions Or Other Payments...................................7
Company's Accounting System...................................................7
Compliance With Environmental Laws............................................7
Periodic Review Of Costs Of Environmental Compliance..........................8
ERISA Compliance..............................................................8
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS....................8
The Underwriting Agreement....................................................8
The Custody Agreement And Power Of Attorney...................................9
Title To Common Shares To Be Sold; All Authorizations Obtained................9
Delivery Of The Common Shares To Be Sold......................................9
Non-Contravention; No Further Authorizations Or Approvals Required............9
No Registration Or Other Similar Rights.......................................9
No Further Consents, Etc.....................................................10
Disclosure Made By Such Selling Shareholder In The Prospectus................10
No Price Stabilization Or Manipulation.......................................10
Confirmation Of Company Representations And Warranties.......................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES.................................10
The Firm Common Shares.......................................................10
The First Closing Date.......................................................11
The Optional Common Shares; The Second Closing Date..........................11
Public Offering Of The Common Shares.........................................12
Payment For The Common Shares................................................12
Delivery Of The Common Shares................................................12
Delivery Of Prospectus To The Underwriters...................................13
SECTION 3. ADDITIONAL COVENANTS.........................................................13
A. COVENANTS OF THE COMPANY.....................................................13
Representatives' Review Of Proposed Amendments And Supplements...............13
Securities Act Compliance....................................................13
Amendments And Supplements To The Prospectus And Other Securities Act
Matters...................................................................13
Copies Of Any Amendments And Supplements To The Prospectus...................14
Blue Sky Compliance..........................................................14
Use Of Proceeds..............................................................14
Transfer Agent...............................................................14
Earnings Statement...........................................................14
Periodic Reporting Obligations...............................................14
Agreement Not To Offer Or Sell Additional Securities.........................15
Future Reports To The Representatives........................................15
B. COVENANTS OF THE SELLING SHAREHOLDERS........................................15
Agreement Not To Offer Or Sell Additional Securities.........................15
Delivery Of Forms W-8 And W-9................................................15
SECTION 4. PAYMENT OF EXPENSES..........................................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS............................16
Accountants' Comfort Letter..................................................17
Compliance With Registration Requirements; No Stop Order, No Objection
From NASD.................................................................17
No Material Adverse Change Or Ratings Agency Change..........................18
Opinion Of Counsel For The Company...........................................18
Opinion Of Counsel For The Underwriters......................................18
Officers' Certificate........................................................18
Bring-Down Comfort Letter....................................................18
Opinion Of Counsel For The Selling Shareholders..............................18
Selling Shareholders' Certificate............................................19
Selling Shareholders' Documents..............................................19
Lock-Up Agreement From Certain Shareholders Of The Company ..................19
Additional Documents.........................................................19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES......................................19
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT..............................................20
SECTION 8. INDEMNIFICATION..............................................................20
Indemnification Of The Underwriters..........................................20
Indemnification Of The Company, Its Directors And Officers...................21
Notifications And Other Indemnification Procedures...........................22
Settlements..................................................................22
SECTION 9. CONTRIBUTION.................................................................23
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS...........................24
SECTION 11. TERMINATION OF THIS AGREEMENT................................................25
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY..........................25
SECTION 13. NOTICES......................................................................25
SECTION 14. SUCCESSORS...................................................................26
SECTION 15. PARTIAL UNENFORCEABILITY.....................................................26
SECTION 16. GOVERNING LAW PROVISIONS.....................................................26
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL AND
DELIVER COMMON SHARES.....................................................27
SECTION 18. GENERAL PROVISIONS...........................................................28
</TABLE>
iii
<PAGE> 5
UNDERWRITING AGREEMENT
[ ], 1997
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY, LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Concord Communications, Inc., a Massachusetts corporation
(the "Company"), proposes to issue and sell to the several underwriters named in
SCHEDULE A attached hereto (the "Underwriters") an aggregate of [ ] shares
of its Common Stock, par value $.01 per share (the "Common Stock"); and the
shareholders of the Company named in SCHEDULE B attached hereto (collectively,
the "Selling Shareholders") severally propose to sell to the Underwriters an
aggregate of [ ] shares of Common Stock. The [ ] shares of Common
Stock to be sold by the Company and the [ ] shares of Common Stock to be
sold by the Selling Shareholders are collectively called the "Firm Common
Shares". [In addition, the Company has granted to the Underwriters an option to
purchase up to an additional [ ] shares (the "Optional Common Shares") of
Common Stock, as provided in Section 2.] [In addition, the Selling Shareholders
have severally granted to the Underwriters an option to purchase up to an
additional [ ] shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2, each Selling Shareholder selling up to the amount set
forth opposite such Selling Shareholder's name in SCHEDULE B.] [In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional [ ] shares of Common Stock and the Selling Shareholders have
severally granted to the Underwriters an option to purchase up to an additional
[ ] shares of Common Stock, each Selling Shareholder selling up to the
amount set forth opposite such Selling Shareholder's name in SCHEDULE B, all as
provided in Section 2. The additional [ ] shares to be sold by the Company
and the additional [ ] shares to be sold by the Selling Shareholders
pursuant to such option are collectively called the "Optional Common Shares".]
The Firm Common Shares and, if and to the extent such option is exercised, the
Optional Common Shares are collectively called the "Common Shares". Montgomery
Securities, Robertson, Stephens & Company, LLC and Wessels, Arnold &
Henderson, L.L.C. have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
<PAGE> 6
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[ ]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of Montgomery Securities, elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [ ], 1997 (such preliminary prospectus is called
the "Rule 434 preliminary prospectus"), together with the applicable term sheet
(the "Term Sheet") prepared and filed by the Company with the Commission under
Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, the copy filed by
electronic
2
<PAGE> 7
transmission pursuant to EDGAR (except as may be permitted by Regulation
S-T under the Securities Act), was identical in all material respects to
the copy delivered to the Underwriters for use in connection with the offer
and sale of the Common Shares. Each of the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendment thereto, at
the time it became effective and at all subsequent times until the
Prospectus is no longer required by law to be delivered in connection with
sales by an Underwriter or dealer, complied and will comply in all material
respects with the Securities Act and did not and will not contain any
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. The Prospectus, as amended or supplemented, as of its date
and at all subsequent times, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations and
warranties set forth in the two immediately preceding sentences do not
apply to statements in or omissions from the Registration Statement, any
Rule 462(b) Registration Statement, or any post-effective amendment
thereto, or the Prospectus, or any amendments or supplements thereto, made
in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives
expressly for use therein. There are no contracts or other documents
required to be described in the Prospectus or to be filed as exhibits to
the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each Representative one complete manually signed copy of the
Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as each
Representative has reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company
has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification and contribution hereunder may be limited by applicable
law and except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
3
<PAGE> 8
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are
no persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement [, other than the
Selling Shareholders with respect to the Common Shares included in the
Registration Statement], except for such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in
the Prospectus, subsequent to the respective dates as of which information
is given in the Prospectus: (i) there has been no material adverse change,
or any development that could reasonably be expected to result in a
material adverse change, in the condition, financial or otherwise, or in
the earnings, business, properties, results of operations or prospects
(insofar as reasonably foreseeable), whether or not arising from
transactions in the ordinary course of business, of the Company (any such
change is called a "Material Adverse Change"); (ii) the Company has not
incurred any material liability or obligation, indirect, direct or
contingent, other than in the ordinary course of business nor entered into
any material transaction or agreement other than in the ordinary course of
business; and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of capital stock or
repurchase or redemption by the Company of any class of capital stock.
(h) Independent Accountants. Arthur Andersen LLP, who have
expressed their opinion with respect to the financial statements of the
Company and supporting schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus (which financial
statements, schedules and related notes thereto are referred to as the
"Financial Statements"), are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The Financial
Statements present fairly the consolidated financial position of the
Company as of and at the dates indicated and the results of its operations
and cash flows for the periods specified. The supporting schedules included
in the Registration Statement present fairly the information required to be
stated therein. Such Financial Statements have been prepared in conformity
with generally accepted accounting principles as applied in the United
States applied on a consistent basis throughout the periods involved,
except as may be expressly stated in the related notes thereto. No other
financial statements or supporting schedules are required to be included in
the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Selected Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis
4
<PAGE> 9
consistent with that of the audited financial statements contained in the
Registration Statement.
(j) Incorporation and Good Standing of the Company. The Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of Massachusetts and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement. The Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change. The Company has no subsidiaries.
(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" (other than for
subsequent issuances, if any, pursuant to employee benefit plans described
in the Prospectus or upon exercise of outstanding options or warrants
described in the Prospectus). The Common Stock (including the Common
Shares) conforms in all material respects to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Shareholders) have been duly authorized and validly issued, are fully paid
and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal or
other similar rights to subscribe for or purchase securities of the
Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company other than those accurately
described in the Prospectus. The description of the Company's stock
option, stock purchase, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved
for listing on the Nasdaq National Market, subject only to official notice
of issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. The Company is not in violation of
its charter or by-laws nor is it in default (nor, with the giving of notice
or lapse of time, would the Company be in default) (a "Default") under any
indenture, mortgage, loan or credit agreement, note, contract, franchise,
lease or other instrument to which the Company is a party or by which it
may be bound (including, without limitation, the Company's working capital
line of credit with Silicon Valley Bank, as lender), or to which any of the
property or assets of the Company is subject (each, an "Existing
Instrument"), except for such
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Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of
the charter or by-laws of the Company, (ii) will not conflict with or
constitute a breach of, or Default or a Debt Repayment Triggering Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company pursuant
to, or require the consent of any other party to, any Existing Instrument,
except for such conflicts, breaches, Defaults, liens, charges or
encumbrances as would not, individually or in the aggregate, result in a
Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable
to the Company. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect and except
for such additional steps as may be required under the Securities Act,
applicable state securities or blue sky laws and from the National
Association of Securities Dealers, Inc. (the "NASD") and the Nasdaq
National Market. As used herein, a "Debt Repayment Triggering Event" means
any event or condition which gives, or with the giving of notice or lapse
of time would give, the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company.
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company, (ii)
which has as the subject thereof any officer or director of, or property
owned or leased by, the Company or (iii) relating to environmental or
discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined
adversely to the Company and (B) any such action, suit or proceeding, if so
determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company exists or, to the best of the Company's knowledge,
is threatened or imminent.
(o) Intellectual Property Rights. The Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct its
business as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
The Company has not received any notice of infringement or conflict with
asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a
Material Adverse Change.
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(p) All Necessary Permits, etc. The Company possesses such valid
and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct its business, and the Company has not received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could result in a Material Adverse Change.
(q) Title to Properties. Except as described in the Prospectus,
the Company has good and marketable title to all the properties and assets
reflected as owned in the Financial Statements (or elsewhere in the
Prospectus), in each case free and clear of any security interests,
mortgages, liens, encumbrances, equities, claims and other defects, except
such as do not materially and adversely affect the value of such property
and do not materially interfere with the use made or proposed to be made of
such property by the Company. The real property, improvements, equipment
and personal property held under lease by the Company are held under valid
and enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company.
(r) Tax Law Compliance. The Company has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
all taxes required to be paid by it and, if due and payable, any related or
similar assessment, fine or penalty levied against it, except for
assessments, fines or penalties contested in good faith for which adequate
reserves have been taken on the Financial Statements. The Company has made
adequate charges, accruals and reserves in the applicable Financial
Statements in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the
Company has not been finally determined.
(s) Company Not an "Investment Company." The Company has been
advised of the rules and requirements under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Company is not, and
after receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(t) Insurance. The Company is insured by recognized, financially
sound and reputable institutions with policies in such amounts and with
such deductibles and covering such risks as are generally deemed adequate
and customary for its business including, but not limited to, policies
covering real and personal property owned or leased by the Company against
theft, damage, destruction, and acts of vandalism. The Company has no
reason to believe that it will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain
comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change.
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<PAGE> 12
(u) No Price Stabilization or Manipulation. The Company has not
taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or any
other person required to be described in the Prospectus which have not been
described as required.
(w) No Unlawful Contributions or Other Payments. Neither the
Company nor, to the best of the Company's knowledge, any employee or agent
of the Company, has made any contribution or other payment to any official
of, or candidate for, any federal, state or foreign office in violation of
any law or of the character required to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system
of accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(y) Compliance with Laws. Except as would not, individually or
in the aggregate, result in a Material Adverse Change, the Company is
conducting its business in compliance with all, and is not in violation of
any, applicable laws, rules and regulations of the jurisdictions in which
it is conducting its business, including, without limitation, federal,
state, local or foreign laws and regulations relating to environmental
matters.
(z) ERISA Compliance. The Company and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, or its
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the Company,
any member of any group of organizations described in Sections
414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and
the regulations and published interpretations thereunder (the "Code") of
which the Company or such subsidiary is a member. No "reportable event"
(as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by
the Company or any of its ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under
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<PAGE> 13
ERISA). Neither the Company nor any of its ERISA Affiliates has incurred
or reasonably expects to incur any liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "employee benefit
plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each
"employee benefit plan" established or maintained by the Company or any of
its ERISA Affiliates that is intended to be qualified under Section 401(a)
of the Code is so qualified and nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
Selling Shareholder severally and not jointly represents, warrants and covenants
to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable against such Selling Shareholder in accordance
with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Shareholder and [the Company], as
custodian (the "Custodian"), relating to the deposit of the Common Shares
to be sold by such Selling Shareholder (the "Custody "Agreement") and (ii)
Power of Attorney appointing certain individuals named therein as such
Selling Shareholder's attorneys-in-fact (each, an "Attorney-in-Fact") to
the extent set forth therein relating to the transactions contemplated
hereby and by the Prospectus (the "Power of Attorney"), of such Selling
Shareholder has been duly authorized, executed and delivered by such
Selling Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as rights to
indemnification and contribution thereunder may be limited by applicable
law and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(c) Title to Common Shares to be Sold; All Authorizations
Obtained. Such Selling Shareholder has, and on the First Closing Date and
the Second Closing Date (as defined below) will have, good and valid title
to all of the Common Shares which may be sold by such Selling Shareholder
pursuant to this Agreement on such date and the legal right and power, and
all authorizations and approvals required by law and under its charter or
by-laws, partnership agreement, trust agreement or other organizational
documents to enter into this Agreement and its Custody Agreement
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<PAGE> 14
and Power of Attorney, to sell, transfer and deliver all of the Common
Shares which may be sold by such Selling Shareholder pursuant to this
Agreement and to comply with its other obligations hereunder and
thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the
Common Shares which are sold by such Selling Shareholder pursuant to this
Agreement will pass good and valid title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to, the charter or
by-laws, partnership agreement, trust agreement or other organizational
documents of such Selling Shareholder or any other agreement or instrument
to which such Selling Shareholder is a party or by which it is bound or
under which it is entitled to any right or benefit, any provision of
applicable law or any judgment, order, decree or regulation applicable to
such Selling Shareholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Shareholder. No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority
or agency, is required for the consummation by such Selling Shareholder of
the transactions contemplated in this Agreement, except such as have been
obtained or made and are in full force and except for additional steps as
may be required under the Securities Act, applicable state securities or
blue sky laws and from the NASD and the Nasdaq National Market.
(f) No Registration or Other Similar Rights. Such Selling
Shareholder does not have any registration or other similar rights to have
any equity or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale."
(g) No Further Consents, etc. Except for the (i) exercise by such
Selling Shareholder of certain registration rights pursuant to the
Registration Rights Agreement dated as of [ ] (which registration rights
have been duly exercised pursuant thereto), (ii) consent of such Selling
Shareholder to the respective number of Common Shares to be sold by all of
the Selling Shareholders pursuant to this Agreement and (iii) waiver by
certain other holders of Common Stock of certain registration rights
[pursuant to such Registration Rights Agreement], no consent, approval or
waiver is required under any instrument or agreement to which such Selling
Shareholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Common Shares which may be sold
by such Selling Shareholder under this Agreement or the consummation by
such Selling Shareholder of any of the other transactions contemplated
hereby.
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<PAGE> 15
(h) Disclosure Made by Such Selling Shareholder in the
Prospectus. All information furnished by or on behalf of such Selling
Shareholder in writing expressly for use in the Registration Statement and
Prospectus is, and on the First Closing Date and the Second Closing Date
will be, true, correct, and complete in all material respects, and does
not, and on the First Closing Date and the Second Closing Date will not,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading. Such
Selling Shareholder confirms as accurate the number of shares of Common
Stock set forth opposite such Selling Shareholder's name in the Prospectus
under the caption "Principal and Selling Stockholders" (both prior to and
after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling
Shareholder has not taken and will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) The Firm Common Shares. Upon the terms herein set forth, (i)
the Company agrees to issue and sell to the several Underwriters an
aggregate of [ ] Firm Common Shares and (ii) the Selling Shareholders
agree to sell to the several Underwriters an aggregate of [ ] Firm Common
Shares, each Selling Shareholder selling the number of Firm Common Shares
set forth opposite such Selling Shareholder's name on SCHEDULE B. On the
basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company
and the Selling Shareholders the respective number of Firm Common Shares
set forth opposite their names on SCHEDULE A. The purchase price per Firm
Common Share to be paid by the several Underwriters to the Company and the
Selling Shareholders shall be $[ ] per share.
(b) The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor
shall be made at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., One Financial Center, Boston, Massachusetts (or such other
place as may be agreed to by the Company and the Representatives) at 9:00
a.m. Boston time, on [ ], 1997, or such other time and date not later
than 1:30 p.m. Boston time, on [ ], 1997, as the Representatives shall
designate by notice to the Company (the time and date of
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<PAGE> 16
such closing are called the "First Closing Date"). The Company and the
Selling Shareholders hereby acknowledge that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any
determination by the Company, the Selling Shareholders or the
Representatives to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of
Section 10.
(c) The Optional Common Shares; the Second Closing Date. In
addition, on the basis of the representations, warranties and agreements
herein contained, and upon the terms but subject to the conditions herein
set forth, [the Company] [the Selling Shareholders] [the Company and the
Selling Shareholders] hereby grant[s] an option to the several Underwriters
to purchase, severally and not jointly, up to an aggregate of [ ]
Optional Common Shares from [the Company] [the Selling Shareholders] [the
Company and the Selling Shareholders] at the purchase price per share to be
paid by the Underwriters for the Firm Common Shares. The option granted
hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm
Common Shares. The option granted hereunder may be exercised at any time
(but not more than once) upon notice by the Representatives to [the
Company], [the Selling Shareholders (with a copy to the Company)] [the
Company and the Selling Shareholders], which notice may be given at any
time within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered
and (iii) the time, date and place at which such certificates will be
delivered (which time and date may be simultaneous with, but not earlier
than, the First Closing Date; and in such case the term "First Closing
Date" shall refer to the time and date of delivery of certificates for the
Firm Common Shares and the Optional Common Shares). Such time and date of
delivery, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not
be earlier than three nor later than five full business days after delivery
of such notice of exercise. If any Optional Common Shares are to be
purchased, [(a)] each Underwriter agrees, severally and not jointly, to
purchase the number of Optional Common Shares (subject to such adjustments
to eliminate fractional shares as the Representatives may determine) that
bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on SCHEDULE A
opposite the name of such Underwriter bears to the total number of Firm
Common Shares [and (b) [each Selling Shareholder][the Company and each
Selling Shareholder] agree[s], severally and not jointly, to sell the
number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Optional Common Shares to be sold as the
number of Optional Common Shares set forth in SCHEDULE B opposite the name
of such Selling Shareholder [(or, in the case of the Company, as the number
of Optional Common Shares to be sold by the Company as set forth in the
paragraph "Introductory" of this Agreement)] bears to the total number of
Optional Common Shares]. The Representatives may cancel the option at
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<PAGE> 17
any time prior to its expiration by giving written notice of such
cancellation to [the Company] [the Selling Shareholders (with a copy to the
Company)] [the Company and the Selling Shareholders].
(d) Public Offering of the Common Shares. The Representatives
hereby advise the Company [and the Selling Shareholders] that the
Underwriters intend to offer for sale to the public, as described in the
Prospectus, their respective portions of the Common Shares as soon after
this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Common Shares. Payment for the Common Shares
to be sold by the Company shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares
to be sold by the Selling Shareholders shall be made at the First Closing
Date (and, if applicable, at the Second Closing Date) by wire transfer of
immediately available funds to the order of the Custodian.
It is understood that the Representatives have been
authorized, for their own accounts and the accounts of the several
Underwriters, to accept delivery of and receipt for, and make payment of
the purchase price for, the Firm Common Shares and any Optional Common
Shares the Underwriters have agreed to purchase. Montgomery Securities,
individually and not as the Representative of the Underwriters, may (but
shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by
the Representative by the First Closing Date or the Second Closing Date, as
the case may be, for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from any of its obligations under this
Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay
all stock transfer taxes, stamp duties and other similar taxes, if any,
payable upon the sale or delivery of the Common Shares to be sold by such
Selling Shareholder to the several Underwriters, or otherwise in connection
with the performance of such Selling Shareholder's obligations hereunder
and (ii) the Custodian is authorized to deduct for such payment any such
amounts from the proceeds to such Selling Shareholder hereunder and to hold
such amounts for the account of such Selling Shareholder with the Custodian
under the Custody Agreement.
(f) Delivery of the Common Shares. The Company [and the Selling
Shareholders] shall deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters certificates
for the Firm Common Shares [to be sold by them] at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company [and the
Selling Shareholders] shall also deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters, certificates
for the Optional Common Shares the Underwriters have agreed to
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<PAGE> 18
purchase [from them] at the First Closing Date or the Second Closing Date,
as the case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor.
The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall
have requested at least two full business days prior to the First Closing
Date (or the Second Closing Date, as the case may be) and shall be made
available for inspection on the business day preceding the First Closing
Date (or the Second Closing Date, as the case may be) at a location in New
York City as the Representative may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is
a further condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than
12:00 p.m. on the second business day following the date the Common Shares
are released by the Underwriters for sale to the public, the Company shall
deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants
and agrees with each Underwriter as follows:
(a) Representative's Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending on
the later of the First Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law
to be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under
Rule 462(b) under the Securities Act) or the Prospectus, the Company shall
furnish to the Representatives for review a copy of each such proposed
amendment or supplement, and the Company shall not file any such proposed
amendment or supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this Agreement,
the Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which it is listed for trading or included or
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<PAGE> 19
designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter any
such stop order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment.
Additionally, the Company agrees that it shall comply with the provisions
of Rules 424(b), 430A and 434, as applicable, under the Securities Act and
will use its reasonable efforts to confirm that any filings made by the
Company under such Rule 424(b) were received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if in the opinion of the Representatives
or counsel for the Underwriters it is otherwise necessary to amend or
supplement the Prospectus to comply with law, the Company agrees to
promptly prepare (subject to Section 3(A)(a) hereof), file with the
Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the statements
in the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus.
The Company agrees to furnish the Representatives, without charge, during
the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
state securities or blue sky laws or Canadian provincial securities laws of
those jurisdictions reasonably designated by the Representatives, shall
comply with such laws and shall continue such qualifications, registrations
and exemptions in effect so long as required for the distribution of the
Common Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The Company
will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under
the caption "Use of Proceeds" in the Prospectus.
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(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, but in any event
not later than 45 days after the end of the Company's first quarter ending
after one year following the "effective date of the Registration Statement"
(as defined in Rule 158(c) of the Rules and Regulations), the Company will
make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering a period of
twelve consecutive months beginning after the effective date of the
Registration Statement that satisfies the provisions of Section 11(a) of
the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act. Additionally, the Company
shall file with the Commission all reports on Form SR as may be required
under Rule 463 under the Securities Act.
(j) Agreement Not To Offer or Sell Additional Securities. During
the period of 180 days following the date of the Prospectus, the Company
will not, without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery Securities),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement
under the Securities Act in respect of, any shares of Common Stock, options
or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock
(other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock purchase, stock
bonus or other stock plan or arrangement described in the Prospectus, and
the Company may file registration statements on Form S-8 (or any successor
form) with respect to its 1997 Stock Plan, and, commencing on the date
which is 30 days after the First Closing Date, may file registration
statements on Form S-8 (or any successor form) with respect to its 1995
Stock Plan.
(k) Future Reports to the Representatives. During the period of
five years hereafter the Company will furnish to the Representatives at
Montgomery Securities, Two International Place, Boston, MA 02110 Attention:
M. Benjamin Howe; Robertson, Stephens & Company, LLC, 555 California
Street, San Francisco, CA 94104 Attention: Paul Scherer; and Wessels,
Arnold & Henderson, L.L.C., 601 Second Avenue South, Minneapolis, MN 55402,
Attention: Bryson D. Hollimon: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such
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fiscal year and statements of income, stockholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report
on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of
any report or communication of the Company mailed generally to holders of
its capital stock.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities.
Such Selling Shareholder will not, without the prior written consent of
Montgomery Securities (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under Securities Exchange Act of 1934, as
amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date
hereof and continuing through the close of trading on the date 180 days
after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the
Representatives prior to the First Closing Date a properly completed and
executed United States Treasury Department Form W-8 (if the Selling
Shareholder is a non-United States person) or Form W-9 (if the Selling
Shareholder is a United States person).
Montgomery Securities, on behalf of the several Underwriters, may,
in its sole discretion, waive in writing the performance by the Company or any
Selling Shareholder of any one or more of the foregoing covenants or extend the
time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of the
Company's and the Selling Shareholders' obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the
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Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the state securities or blue sky laws or
the provincial securities laws of Canada, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with listing the Common Stock on the Nasdaq National Market, and (ix)
all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
The Company further agrees with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of the obligations of the Selling Shareholders under this Agreement which are
not otherwise specifically provided for herein, including but not limited to (i)
fees and expenses of counsel and other advisors for such Selling Shareholders,
(ii) fees and expenses of the Custodian and (iii) expenses and taxes incident to
the sale and delivery of the Common Shares to be sold by such Selling
Shareholders to the Underwriters hereunder (which taxes, if any, may be deducted
by the Custodian under the provisions of Section 2 of this Agreement); provided,
however, to the extent, if at all, that any Selling Shareholder engages special
counsel to represent it in connection with the offering contemplated by this
Agreement, the fees and expenses of such counsel shall be borne by such Selling
Shareholder.
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Shareholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Shareholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Arthur Andersen LLP, independent
public or certified public accountants for the Company, a letter dated the
date hereof addressed to the
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<PAGE> 23
Underwriters, in form and substance satisfactory to the Representative,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to
Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain
financial information contained in the Registration Statement and the
Prospectus (and the Representatives shall have received additional
conformed copies of such accountants' letter for each of the several
Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act and obtained the
Representative's consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period
required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second
Closing Date, in the judgment of the Representatives there shall not have
occurred any Material Adverse Change nor shall any event have occurred or
development have arisen which, in the judgment of the Representatives, is
likely to result in a Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Testa, Hurwitz & Thibeault, LLP, counsel
for the Company, dated as of such Closing Date, in form and substance
satisfactory to the Representatives (and the Representatives shall have
received an additional [ ] conformed copies of such counsel's legal
opinion for each of the several Underwriters).
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<PAGE> 24
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., counsel for the Underwriters, dated as of such Closing Date,
in form and substance satisfactory to the Representatives (and the
Representatives shall have received an additional [ ] conformed copies of
such counsel's legal opinion for each of the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and
further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any
Material Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received from
Arthur Andersen LLP, independent public or certified public accountants for
the Company, a letter dated such date, in form and substance satisfactory
to the Representatives, to the effect that they reaffirm the statements
made in the letter furnished by them pursuant to subsection (a) of this
Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days prior
to the First Closing Date or Second Closing Date, as the case may be (and
the Representatives shall have received an additional [ ] conformed
copies of such accountants' letter for each of the several Underwriters).
(h) Opinion of Counsel for the Selling Shareholders. On each of
the First Closing Date and the Second Closing Date the Representatives
shall have received the favorable opinion of counsel for the Selling
Shareholders (which counsel shall be reasonably satisfactory to the
Representatives), dated as of such Closing Date, in form and substance
satisfactory to the Representatives (and the Representatives shall have
received an additional [ ] conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(i) Selling Shareholders' Certificate. On each of the First
Closing Date and the Second Closing Date the Representative shall received
a written certificate
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<PAGE> 25
executed by the Attorney-in-Fact of each Selling Shareholder, dated as of
such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such
Selling Shareholder set forth in Section 1(B) of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Shareholder on and as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to such Closing Date.
(j) Selling Shareholders' Documents. On the date hereof, the
Company and the Selling Shareholders shall have furnished to the
Representatives copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Shareholders and such further information,
certificates and documents as the Representatives may reasonably request.
(k) Lock-Up Agreement from Certain Shareholders of the Company.
On the date hereof, the Company shall have furnished to the Representatives
an agreement in the form of EXHIBIT A attached hereto from each director,
officer and each beneficial owner of at least shares of Common
Stock (as defined and determined according to Rule 13d-3 under the Exchange
Act), and such agreement shall be in full force and effect on each of the
First Closing Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representative pursuant to Section 5, clause
(iv) of the first sentence of Section 11 or Section 17, or if the sale to the
Underwriters of the Common Shares on the First Closing Date is not consummated
because of any refusal, inability or failure on the part of the Company or the
Selling Shareholders to perform any agreement
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herein or to comply with any provision hereof, the Company agrees to reimburse
the Representatives and the other Underwriters (or such Underwriters as have
terminated this Agreement with respect to themselves), severally, upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement
shall not become effective until the later of (i) the execution of this
Agreement by the parties hereto and (ii) notification by the Commission to the
Company and the Representatives of the effectiveness of the Registration
Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Shareholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. Subject to the
provisions of this Section 8, the Company and each of the Selling
Shareholders, jointly and severally, agree to 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 and the
Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of the Company), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based (i) upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, or
any amendment thereto, including any information deemed to be a part
thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading;
or (ii) upon any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations
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and warranties of the Company or the Selling Shareholders contained
herein; or (iv) in whole or in part upon any failure of the Company or the
Selling Shareholders to perform their respective obligations hereunder or
under law; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by Montgomery Securities) as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of
or based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to the Company or the Selling Shareholders by the
Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Common Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale
of the Common Shares to such person, and if the Prospectus (as so amended
or supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or expense; and provided, further that the
liability of each Selling Shareholder under the foregoing indemnity
agreement shall be limited to an amount equal to the initial public
offering price of the Common Shares sold by such Selling Shareholder, less
the underwriting discount, as set forth on the front cover page of the
Prospectus. Notwithstanding the foregoing, the indemnity agreement set
forth in this Section 8(a) with respect to the Selling Shareholders shall
apply only to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon (i) any untrue statement or alleged
untrue statement made in reliance upon and in conformity with written
information furnished to the Company by such Selling Shareholder expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or amendment or supplement thereto) or (ii) any untrue
statement or alleged untrue statement in the Registration Statement, any
preliminary prospectus or the Prospectus as the case may be, of which such
Selling Shareholder had actual knowledge (for the purposes of this
sentence, it is assumed that each Selling Shareholder has in good faith
reviewed such Registration Statement, Preliminary Prospectus or
Prospectus (or amendment or supplement thereto)). The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities
that the Company and the Selling Shareholders may otherwise have.
(b) Indemnification of the Company, its Directors and Officers.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Shareholders and each
person, if any, who controls the Company or any Selling Shareholder within
the meaning of the Securities Act or the Exchange Act, against any loss,
claim, damage, liability or expense, as incurred, to
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which the Company, or any such director, officer, Selling Shareholder or
controlling person may become subject, under the Securities Act, the
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter),
insofar as such loss, claim, damage, liability or expense (or actions in
respect thereof as contemplated below) arises out of or is based upon any
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is based upon 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, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company or the Selling Shareholders by the Representative expressly for use
therein; and to reimburse the Company, or any such director, officer,
Selling Shareholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, Selling
Shareholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The Company and each of the Selling
Shareholders, hereby acknowledge that the only written information that the
Underwriters have furnished to the Company or the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the
statements set forth (A) as the last paragraph on the inside front cover
page of the Prospectus concerning stabilization by the Underwriters and (B)
in the table in the first paragraph and as the second and seventh
paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained
in this Section 8 or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect, jointly
with all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any
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such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that a conflict
may arise between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to assume
the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (Montgomery Securities in the
case of Section 8(b) and Section 9), representing the indemnified parties
who are parties to such action) or (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement
of the action, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(c) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
30 days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such settlement.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the entry
of judgment in any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for
in Section 8 is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an
25
<PAGE> 30
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement 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 Shareholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Shareholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Shareholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were 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 account of the equitable considerations referred to in this
Section 9.
26
<PAGE> 31
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(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 pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse
to purchase Common Shares that it or they have agreed to purchase hereunder on
such date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on SCHEDULE A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representative with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Common Shares and the aggregate number of Common Shares with respect
to which such default occurs exceeds 10% of the aggregate number of Common
Shares to be purchased on such date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares are not
made within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 8 and Section 9 shall at all times be effective and shall survive
such termination. In any such case either the Representatives or the Company
shall have the right to postpone the First Closing Date or the Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any
27
<PAGE> 32
action taken under this Section 10 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date, this Agreement may be terminated by the Representatives by notice
given to the Company and the Selling Shareholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the
United States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment
of the Representatives is material and adverse and makes it impracticable to
market the Common Shares in the manner and on the terms described in the
Prospectus or to enforce contracts for the sale of securities; (iv) in the
judgment of the Representatives there shall have occurred any Material Adverse
Change or any event shall have occurred or development shall have arisen which,
in the judgment of the Representatives, is likely to result in a Material
Adverse Change. Any termination pursuant to this Section 11 shall be without
liability on the part of (a) the Company or the Selling Shareholders to any
Underwriter, except that the Company and the Selling Shareholders shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company or the
Selling Shareholders, or (c) of any party hereto to any other party except that
the provisions of Section 8 and Section 9 shall at all times be effective and
shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers, of the Selling
Shareholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Shareholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
28
<PAGE> 33
SECTION. 13 NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representative:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Concord Communications, Inc.
33 Boston Post Road West
Marlboro, Massachusetts 01752
Facsimile: (508) 481-9772
Attention: John Blaeser, President
If to the Selling Shareholders:
Concord Communications, Inc.
33 Boston Post Road West
Marlboro, Massachusetts 01752
Facsimile: (508) 481-9772
Attention: Gary Haroian, Chief Financial Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of
29
<PAGE> 34
the Common Shares as such from any of the Underwriters merely by reason of such
purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. (A) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located in the
City and County of San Francisco (collectively, the "Specified Courts"), and
each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS
TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling Shareholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Shareholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representative to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Shareholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Representatives to the Company and the Selling Shareholders, to
postpone the First Closing Date or the Second Closing
30
<PAGE> 35
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
31
<PAGE> 36
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
CONCORD COMMUNICATIONS, INC.
By:__________________________
John Blaeser
President
SELLING SHAREHOLDERS
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY, LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
Acting as Representatives of the several Underwriters named in the attached
SCHEDULE A.
By: MONTGOMERY SECURITIES
By:__________________________________
Richard A. Smith
Authorized Signatory
32
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------
<S> <C>
Montgomery Securities ................................ [ ]
Robertson, Stephens & Company LLC ................... [ ]
Wessels, Arnold & Henderson, L.L.C.................... [ ]
[ ] ............................................. [ ]
[ ] ............................................. [ ]
[ ]
Total.............................................
</TABLE>
33
<PAGE> 38
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM
SELLING SHAREHOLDER FIRM NUMBER OF
- ------------------- COMMON OPTIONAL COMMON
SHARES SHARES
TO BE SOLD TO BE SOLD
---------- ----------
<S> <C> <C>
Selling Shareholder #1
[address]
Attention: [ ] .......................... [ ] [ ]
Selling Shareholder #2
[address]
Attention: [ ] .......................... [ ] [ ]
Total: .................................. [ ] [ ]
</TABLE>
B-1
<PAGE> 39
EXHIBIT A
Montgomery Securities
Robertson, Stephens & Company, LLC
Wessels, Arnold & Henderson, L.L.C.
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: CONCORD COMMUNICATIONS, INC. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
(other than with respect to shares of Common Stock held by the undersigned which
are being registered and sold in the Offering) the undersigned will not, without
the prior written consent of Montgomery Securities (which consent may be
withheld in its sole discretion), directly or indirectly, sell, offer, contract
or grant any option to sell (including without limitation any short sale),
pledge, transfer, establish an open "put equivalent position" within the meaning
of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by
the undersigned, or publicly announce the undersigned's intention to do any of
the foregoing, for a period commencing on the date hereof and continuing through
the close of trading on the date 180 days after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
A-1
<PAGE> 40
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
THIS AGREEMENT is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
Dated: , 1997
________________________________
Printed Name of Holder
By:_____________________________
Signature
________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
A-2
<PAGE> 1
Exhibit 3.01
[Form of Restated Articles of Organization to be filed on the Effective Date]
FEDERAL IDENTIFICATION
NO. 04-2710876
-------------------
- --------
Examiner THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
- --------
Name We, JOHN A. BLAESER , *President,
Approved ------------------------------------------------
and GARY E. HAROIAN , *Clerk,
----------------------------------------------------
of CONCORD COMMUNICATIONS, INC. ,
----------------------------------------------------------------
(Exact name of corporation)
located at 33 BOSTON POST ROAD WEST, MARLBORO, MA 01752 ,
--------------------------------------------------------
(Street address of corporation in Massachusetts)
do hereby certify that the following Restatement of the Articles of
Organization was duly adopted at a meeting held on ____________, 1997
by a vote of the directors/or:
Common Equivalent Stock shares outstanding,
shares of and Common Stock of
--- --------------------- -----------
(type, class & series, if any)
shares of Series A Preferred of shares outstanding,
--- --------------------- -----------
(type, class & series, if any)
shares of Series A-1 Preferred of shares outstanding, and
--- --------------------- -----------
(type, class & series, if any)
shares of Series B Preferred of shares outstanding,
--- ---------------------- -----------
(type, class & series, if any)
C [ ]
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon: / **being at least two-thirds of each type,
class or series outstanding and entitled to vote thereon and of each type,
P [ ] class or series of stock whose rights are adversely affected thereby:
M [ ] ARTICLE I
The name of the corporation is:
R.A. [ ] Concord Communications, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
To develop, market and support automated, software-based performance
- ---- analysis and reporting solutions for management of computer networks and in
P.C. general to carry on any and all purposes permitted to a corporation
organized under the provisions of Massachusetts General Laws, Chapter 156B.
*Delete the inapplicable words. **Delete the inapplicable clause.
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON OF SEPARATE 8 1/2 X 11 SHEETS
OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE
ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING
EACH ADDITION IS CLEARLY INDICATED.
<PAGE> 2
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common: Common: 50,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 1,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Continuation Sheets 4.1 through 4.17 which are attached hereto and
incorporated herein by reference.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Continuation Sheets 6.1 through 6.7 which are attached hereto and
incorporated herein by reference.
**If there are no provisions state "None".
NOTE: THE PRECEDING SIX (6) ARTICLES ARE CONSIDERED TO BE PERMANENT AND MAY ONLY
BE CHANGED BY FILING APPROPRIATE ARTICLES OF AMENDMENT.
<PAGE> 3
CONTINUATION SHEET 4.1
- ----------------------
CONCORD COMMUNICATIONS, INC.
Restated Articles of Organization
---------------------------------
ARTICLE IV
----------
PREFERRED STOCK
1. NUMBER OF SHARES. The series of Preferred Stock designated and
known as "Series A Convertible Preferred Stock" shall consist of 1,965,373
shares, the series of Preferred Stock designated and known as "Series A-1
Convertible Preferred Stock" shall consist of 212,044 shares, and the series of
Preferred Stock designated and known as "Series B Convertible Preferred Stock"
shall consist of 4,479,613 shares. The Series A Convertible Preferred Stock, the
Series A-1 Convertible Preferred Stock and the Series B Convertible Preferred
Stock being referred to herein as the Preferred Stock.
2. VOTING.
2A. GENERAL. Except as may be otherwise provided in these
terms of the Preferred Stock or by law, the Preferred Stock shall vote together
with all other classes and series of stock of the Corporation as a single class
on all actions to be taken by the stockholders of the Corporation. Each share of
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible.
2B. BOARD SIZE. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class, increase the
maximum number of directors constituting the Board of Directors to a number in
excess of seven (7).
2C. BOARD SEATS. The holders of the Preferred Stock, voting as
a separate class, shall be entitled to elect three (3) directors of the
Corporation. The holders of the Common Stock, voting as a separate class, shall
be entitled to elect three (3) directors of the Corporation, one of whom shall
be the chief executive officer of the Corporation. The holders of the Preferred
Stock and the Common Stock, voting together as a single class, shall be entitled
to elect any additional directors of the Corporation. Notwithstanding the
foregoing or anything else to the contrary provided in the Articles of
Organization if the Corporation fails or refuses, for any reason or for no
reason, to redeem on any Redemption Date (as defined in paragraph 8) all of the
shares of Preferred Stock required to be redeemed on such Redemption Date in
accordance with the terms and provisions of paragraph 8, the holders of the
Preferred Stock, voting as a separate series, shall be entitled to elect a
majority of the directors of the Corporation, PROVIDED, HOWEVER,
<PAGE> 4
CONTINUATION SHEET 4.2
- ----------------------
that at such time as the Corporation shall thereafter comply with the
requirements of paragraph 8 (notwithstanding the original failure or refusal to
redeem), the Board of Directors of the Corporation shall thereafter be elected
in accordance with the provisions of the first, second and third sentences of
this paragraph 2C, subject to any subsequent failure or refusal by the
Corporation to comply with the requirements of paragraph 8. At any meeting held
for the purpose of electing directors, the presence in person or by proxy of the
holders of a majority of the shares of Preferred Stock then outstanding shall
constitute a quorum of the Preferred Stock the election of directors to be
elected solely by the holders of the Preferred Stock or jointly by the holders
of the Preferred Stock and the Common Stock. At any meeting held for the purpose
of electing directors, the presence in person or by proxy of the holders of a
majority of the shares of Common Stock then outstanding shall constitute a
quorum of the Common Stock for the election of directors to be elected solely by
the holders of the Common or jointly by the holders of the Preferred Stock and
the Common Stock. A vacancy in any directorship elected by the holders of the
Preferred Stock shall be filled only by vote or written consent of the holders
of the Preferred Stock, a vacancy in any directorship elected by the holders of
the Common Stock shall be filled only by vote or written consent of the holders
of the Common Stock and a vacancy in the directorship elected jointly by the
holders of the Preferred Stock and the Common Stock shall be filled only by vote
or written consent of the Preferred Stock and the Common Stock as provided
above.
3. DIVIDENDS. Subject to the provisions of Section 6C hereof, the
holders of the Preferred Stock shall be entitled to receive, out of funds
legally available therefor, when and if declared by the Board of Directors,
quarterly dividends at the rate per annum of seven percent (7%) (the "Accruing
Dividends"). Accruing Dividends shall accrue from day to day, whether or not
earned or declared, and shall be cumulative.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Preferred Stock shall first be entitled, before any distribution or payment is
made upon any stock ranking on liquidation junior to the Preferred Stock, to be
paid an amount equal to $4.08 per share with respect to the Series A and Series
A-1 Convertible Preferred Stock and $1.02 per share with respect to the Series B
Convertible Preferred Stock plus, in the case of each share, an amount equal to
the greater of (i) all Accruing Dividends unpaid thereon (whether or not
declared) and any other dividends declared but unpaid thereon, computed to the
date payment thereof is made available, or (ii) the amount which would be
payable with respect to such Preferred Stock if such Preferred Stock were
converted into Common Stock on the basis set forth in paragraph 6 hereof, such
amount payable with respect to one share of Preferred Stock being sometimes
referred to as the "Liquidation Preference Payment" and with respect to all
shares of Preferred Stock being sometimes referred to as the "Liquidation
Preference Payments". If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Preferred Stock shall be insufficient to permit payment in
full to the holders of Preferred Stock of the Liquidation Preference Payments,
then the entire assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Preferred Stock, so that each holder
receives that portion of the assets available for distribution as the
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CONTINUATION SHEET 4.3
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Liquidation Preference Payments with respect to such holder's Preferred Stock
bears to the aggregate Liquidation Preference Payments of all Preferred Stock
outstanding. Written notice of such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by telecopier or telex, not less than 20 days prior to the
payment date stated therein, to the holders of record of Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the
records of the Corporation. The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof (other than a merger to reincorporate the Corporation in a different
jurisdiction), and the sale, lease, abandonment, transfer or other disposition
by the Corporation of all or substantially all its assets, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of the provisions of this paragraph 4. For purposes hereof, the Common Stock
shall rank on liquidation junior to the Preferred Stock.
5. RESTRICTIONS.
5 A. At any time when shares of Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the
Articles of Organization, and in addition to any other vote required by law or
the Articles of Organization, without the approval of the holders of at least a
majority of the then outstanding shares of Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, the Corporation will not:
(a) Create or authorize the creation of any
additional class or series of shares of stock unless the same ranks junior to
the Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Preferred Stock or increase the authorized amount of any additional class
or series of shares of stock unless the same ranks junior to the Preferred Stock
as to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, or create or authorize any obligation or security
convertible into shares of Preferred Stock or into shares of any other class or
series of stock unless the same ranks junior to the Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Articles of Organization or by merger, consolidation
or otherwise, PROVIDED, HOWEVER, that no approval of the Preferred Stock shall
be required for the creation of any series of Preferred Stock required pursuant
to the provisions of paragraph 7 hereof;
(b) Consent to any liquidation, dissolution or
winding up of the Corporation or consolidate or merge into or with any other
entity or entities or sell, lease, pledge, abandon, transfer or otherwise
dispose of all or substantially all its assets, or acquire a majority of the
stock or assets of any other corporation or entity;
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CONTINUATION SHEET 4.4
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(c) Amend, alter or repeal its Articles of
Organization or By-laws;
(d) Purchase or set aside any sums for the purchase
of, or pay any dividend or make any distribution on, any shares of stock other
than the Preferred Stock, except for dividends or other distributions payable on
the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common Stock from former employees of the
Corporation (or other persons formerly providing services to the Corporation)
who acquired such shares directly from the Corporation, if each such purchase is
made pursuant to contractual rights held by the Corporation relating to the
termination of employment of such former employee (or other such person formerly
providing services to the Corporation) and the purchase price does not exceed
the original issue price paid by such former employee to the Corporation for
such shares;
(e) Redeem or otherwise acquire any shares of
Preferred Stock except as expressly authorized in paragraph 8 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Preferred
Stock on the basis of the aggregate number of outstanding shares of Preferred
Stock then held by each such holder; or
(f) Register any of its shares of Common Stock
pursuant to the provisions of the Securities Act of 1933, as amended.
5B. At any time when shares of Series A Preferred Stock
are outstanding, except where the vote or written consent of the holders of a
greater number of shares of Series A Convertible Preferred Stock of the
Corporation is required by law or by the Articles of Organization, and in
addition to any other vote required by law or the Articles of Organization,
without the written consent of the holders of at least a majority in interest of
the then outstanding shares of Series A Convertible Preferred Stock given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a series, the Corporation will not increase the authorized number
of shares of Series A Convertible Preferred Stock or in any manner amend, alter
or change the designations or the powers, preferences or rights, privileges or
restrictions of the Series A Convertible Preferred Stock in a manner which would
affect the holders of the Series A Convertible Preferred Stock but would not
similarly affect all holders of the Preferred Stock.
5C. At any time when shares of Series A-1 Convertible
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Series A-1 Convertible Preferred
Stock of the Corporation is required by law or by the Articles of Organization,
and in addition to any other vote required by law or the Articles of
Organization, without the written consent of the holders of at least a majority
in interest of the then outstanding shares of Series A-1 Preferred Stock given
in writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a series, the Corporation will not increase the authorized number
of shares of Series A-1 Convertible Preferred Stock or in any manner amend,
alter or change the designations or the powers, preferences or rights,
privileges or restrictions of the Series A-1 Convertible Preferred Stock in a
manner which would affect the
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<PAGE> 7
CONTINUATION SHEET 4.5
- ----------------------
holders of the Series A-1 Convertible Preferred Stock but would not similarly
affect all holders of the Preferred Stock.
5.D At any time when shares of Series B Convertible Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Series B Convertible Preferred Stock of the
Corporation is required by law or by the Articles of Organization, and in
addition to any other vote required by law or the Articles of Organization,
without the written consent of the holders of at least two-thirds in interest of
the then outstanding shares of Series B Convertible Preferred Stock given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a series, the Corporation will not increase the authorized number
of shares of the Series B Convertible Preferred Stock or in any manner amend,
alter or change the designations or the powers, preferences or rights,
privileges or restrictions of the Series B Convertible Preferred Stock in a
manner which would affect the holders of the Series B Convertible Preferred
Stock but would not similarly affect all holders of Preferred Stock.
6. CONVERSIONS. The holders of shares of Preferred Stock shall
have the following conversion rights:
6A. RIGHT TO CONVERT. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Preferred Stock shall
have the right, at its option at any time, to convert any such shares of
Preferred Stock (except that upon any liquidation of the Corporation the right
of conversion shall terminate at the close of business on the business day fixed
for payment of the amount distributable on the Preferred Stock) into such number
of fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Preferred Stock so to be converted by $4.08
with respect to the Series A and A-1 Convertible Preferred Stock and by $1.02
with respect to the Series B Convertible Preferred Stock and (ii) dividing the
result by the conversion price of $2.192698374 per share with respect to the
Series A Convertible Preferred Stock, $4.08 per share with respect to the Series
A-1 Convertible Preferred Stock and $1.02 per share with respect to the Series B
Convertible Preferred Stock or, in case an adjustment of such price has taken
place pursuant to the further provisions of this paragraph 6, then by the
conversion price as last adjusted and in effect at the date any share or shares
of Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "Series A Conversion Price" with respect
to the Series A Convertible Preferred Stock, the "Series A-1 Conversion Price"
with respect to the Series A-1 Convertible Preferred Stock, and the "Series B
Conversion Price" with respect to the Series B Convertible Preferred Stock, and
collectively as the "Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Preferred Stock) at any time during its usual business hours on the date
set forth in such notice, together with a statement of the name or names (with
address) in which the certificate or certificates for shares of Common Stock
shall be issued.
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<PAGE> 8
CONTINUATION SHEET 4.6
- ----------------------
6B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Preferred Stock. To the extent permitted by law, such conversion shall
be deemed to have been effected and the Conversion Price shall be determined as
of the close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates for such
share or shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares of Preferred Stock shall cease, and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
6C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. At the
time of each conversion, the Corporation shall pay in cash an amount equal to
all dividends, excluding Accruing Dividends, accrued and unpaid on the shares of
Preferred Stock surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in subparagraph 6B. In case the
number of shares of Preferred Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined in good faith
by the Board of Directors of the Corporation.
6D. ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON STOCK. Except
as provided in subparagraph 6E, if and whenever after December 28, 1995 the
Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1)
through 6D(7), deemed to have issued or sold (including the issuance or sale of
any additional shares of Series B Convertible Preferred Stock after December 28,
1995 pursuant to Section 1.03 of the Series B Convertible Preferred Stock
Purchase Agreement dated December 28, 1995), any shares of Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price shall be reduced to the price determined by dividing
(i) an amount equal to the sum of (a) the number of shares of Common Stock
(including shares of Common Stock issuable upon conversion of Convertible
Securities) outstanding immediately prior to such issue or sale multiplied by
the then existing Conversion Price and (b) the consideration, if any, received
by the Corporation upon
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<PAGE> 9
CONTINUATION SHEET 4.7
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such issue or sale, by (ii) the total number of shares of Common Stock
(including shares of Common Stock issuable upon conversion of Convertible
Securities) outstanding immediately after such issue or sale. The Series A-1
Conversion Price shall not be subject to adjustment pursuant to this
subparagraph 6D.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any warrants or other rights to subscribe for
or to purchase, or any options for the purchase of, Common Stock or any
stock or security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called
"Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Conversion Price in effect immediately prior to
the time of the granting of such Options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall
be deemed to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities
and thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph 6D(3), no adjustment of the Conversion Price
shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
6D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or by assumption
in a merger or otherwise) or sell any Convertible Securities, whether or
not the rights to exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if
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<PAGE> 10
CONTINUATION SHEET 4.8
- ----------------------
any, payable to the Corporation upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (a) except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any Options to
purchase any such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other
provisions of this subparagraph 6D, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
6D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 6D(1)
or 6D(2), or the rate at which Convertible Securities referred to in
subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for
Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced; and on the termination of any such Option or any such right to
convert or exchange such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be increased to the Conversion
Price which would have been in effect at the time of such termination
had such Option or Convertible Securities, to the extent outstanding
immediately prior to such termination, never been issued.
6D(4) STOCK DIVIDENDS. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
6D(5) CONSIDERATION FOR STOCK. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction therefrom
of any expenses incurred or any underwriting commissions or concessions
paid
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<PAGE> 11
CONTINUATION SHEET 4.9
- ----------------------
or allowed by the Corporation in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be
deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Corporation, without deduction
of any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Corporation in connection therewith. In case any
Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have
been issued for such consideration as determined in good faith by the
Board of Directors of the Corporation.
6D(6) RECORD DATE. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the case may
be.
6D(7) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purpose of this subparagraph 6D.
6E. CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the issuance from and
after the date of filing of these terms of the Series A Convertible Preferred
Stock of (i) up to an aggregate of 3,056,787 shares (appropriately adjusted to
reflect the occurrence of any event described in subparagraph 6F) of Common
Stock to directors, officers, employees or consultants of the Corporation in
connection with their service to the Corporation, or (ii) the issuance of
securities of the Corporation solely in consideration for the acquisition
(whether by merger or otherwise) by the Corporation or any of its subsidiaries
of all or substantially all of the stock or assets of any other entity.
6F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
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<PAGE> 12
CONTINUATION SHEET 4.10
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6F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Preferred Stock, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
6H. [Reserved].
6I. NOTICE OF ADJUSTMENT. Upon any adjustment of the
Conversion Price pursuant to which the Conversion Price shall be adjusted by an
amount equal to or greater than $.05, then and in each such case the Corporation
shall give written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, telecopier or telex, addressed to
each holder of shares of Preferred Stock obtaining the benefit of such
adjustment at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6J. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(2) the Corporation shall offer for subscription PRO RATA to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer or other
disposition of all or substantially all of the assets of the
Corporation; or
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CONTINUATION SHEET 4.11
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(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
6K. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time to
time take all such action as may be requisite to assure that the par value per
share of the Common Stock is at all times equal to or less than the lowest
Conversion Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirement of any national securities exchange upon which the Common Stock may
be listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of the Preferred Stock
would exceed the total number of shares of Common Stock then authorized by the
Articles of Organization.
6L. NO REISSUANCE OF PREFERRED STOCK. Shares of Preferred
Stock which are converted into shares of Common Stock as provided herein shall
not be reissued.
6M. ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any
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<PAGE> 14
CONTINUATION SHEET 4.12
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certificate in a name other than that of the holder of the Preferred Stock which
is being converted.
6N. CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
6O. DEFINITION OF COMMON STOCK. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, par value $.01 per share, as constituted on the date of filing of
these terms of the Preferred Stock, and shall also include any capital stock of
any class of the Corporation thereafter authorized which shall neither be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Preferred Stock shall include only
shares designated as Common Stock of the Corporation on the date of filing of
this instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6P. MANDATORY CONVERSION. (a) If at any time the Corporation
shall effect a firm commitment underwritten public offering of shares of Common
Stock in which (i) the aggregate price paid for such shares by the public shall
be at least $15,000,000 and (ii) the price paid by the public for such shares
shall be at least $8.16 per share (appropriately adjusted to reflect the
occurrence of any event described in subparagraph 6F), then effective upon the
closing of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Preferred Stock shall automatically convert
to shares of Common Stock on the basis set forth in this paragraph 6. Holders of
shares of Preferred Stock so converted may deliver to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to such holders) during its usual
business hours, the certificate or certificates for the shares so converted. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled, together with any payment in lieu
of fractional shares to which such holder may be entitled pursuant to
subparagraph 6C. Until such time as a holder of shares of Preferred Stock shall
surrender his or its certificates therefor as provided above, such certificates
shall be deemed to represent the shares of Common Stock to which such holder
shall be entitled upon the surrender thereof.
(b) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock on the basis set forth in this paragraph 6
if the Corporation shall consummate a "Qualified Acquisition", as defined below,
such conversion to be deemed effective immediately prior to the consummation
thereof, PROVIDED, HOWEVER, that at least ten (10) days prior to any such
conversion hereunder, the Corporation shall notify the holders of the Preferred
Stock of any
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<PAGE> 15
CONTINUATION SHEET 4.13
- -----------------------
such proposed conversion, including with such notice the terms thereof, and the
holders of not less than a majority of the outstanding Preferred Stock may elect
to cause the Corporation to redeem all of the outstanding Preferred Stock at the
applicable Redemption Price as defined in paragraph 8B upon the consummation of
such Qualified Acquisition. A "Qualified Acquisition" shall mean any merger,
consolidation or sale of substantially all of the Corporation's assets in which
the amount payable with respect to each share of the Corporation's Common Stock
(assuming for purposes of such computation the conversion, prior to such merger,
consolidation or distribution, of all outstanding shares of Preferred Stock) is
in excess of $6.12 per share (appropriately adjusted to reflect the occurrence
of any event described in subparagraph 6F).
7. SPECIAL MANDATORY CONVERSION.
7A. If any holder of shares of Series A Convertible
Preferred Stock is entitled to exercise a right of first refusal granted
pursuant to Article V of the Series B Convertible Preferred Stock Purchase
Agreement dated December 28, 1995 (the "Series B Purchase Agreement") between
the Corporation and the Purchasers listed in Schedule I attached thereto (the
"Right of First Refusal") with respect to any equity financing of the
Corporation which would result in the reduction of such holder's Conversion
Price (the "Equity Financing") and (i) the Equity Financing has been approved by
fifty-one percent (51%) in interest of the holders of shares of Preferred Stock,
(ii) the Corporation has fully complied in all respects with its contractual
obligations pursuant to such Right of First Refusal and (iii) the provisions of
such Right of First Refusal have not been waived at the request of the
Corporation by such holder, if such holder (a "Non-Participating Holder") (a)
does not exercise such holder's Right of First Refusal to acquire his Special
Proportionate Percentage (as hereinafter defined) of the Allocated Offered
Securities (as hereinafter defined) offered to the holders of the Preferred
Stock in such Equity Financing (a "Mandatory Offering"), or (b) was not entitled
to exercise a right of first refusal pursuant to Article V of the Series B
Purchase Agreement due to the failure of such holder to purchase the full amount
of any securities offered to such holder in any prior financing consummated by
the Corporation, all of such holder's shares of Preferred Stock shall
automatically and without further action on the part of such holder be converted
effective subject to and concurrently with the consummation of the Mandatory
Offering (the "Mandatory Offering Date") as follows: each share of Preferred
Stock held by such Non-Participating Holder shall be converted into one share of
one or more newly created series of Preferred Stock (having such number of
shares as the Board of Directors may by resolution fix) which such series shall
be identical in all respects to the series of Preferred Stock held by such
Non-Participating Holder, except that the Conversion Price of such series shall
be fixed immediately prior to the Mandatory Offering Date and shall be subject
to no further adjustments in a manner similar to that provided in subparagraph
6D. The Board of Directors shall take all necessary actions to designate such
new series. Upon such conversion, the shares of Preferred Stock so converted
shall be cancelled and not subject to reissuance. As used in this paragraph 7,
the following terms shall have the following respective meanings:
(1) "Allocated Offered Securities" shall mean that
portion of the gross amount of Offered Securities which has expressly been
allocated for purchase by the holders of
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<PAGE> 16
CONTINUATION SHEET 4.14
- -----------------------
the Preferred Stock as a group, which allocation has been expressly approved by
fifty-one percent (51%) in interest of the holders of the shares of Preferred
Stock (as contemplated by clause (i) of this paragraph 7A, it being understood
that the amount of Allocated Offered Securities may be less (but in no event
greater) than the amount of Offered Securities which the Corporation is
otherwise required to offer to the holders of Preferred Stock pursuant to such
holders' Right of First Refusal; "Offered Securities" shall mean the amount of
securities which the corporation is required to offer to the Preferred
Shareholders (as defined in the Series B Purchase Agreement) pursuant to Article
V of the Series B Purchase Agreement; and
(2) "Special Proportionate Percentage" shall mean as
to a holder of Preferred Stock, that percentage figure which expresses the ratio
which (x) the number of shares of outstanding Common Stock then owned by such
holder bears to (y) the aggregate number of shares of outstanding Common Stock
then owned by all holders of shares of Preferred Stock to whom the Corporation
is required to offer the Offered Securities. For purposes solely of the
computation required for determination of the Special Proportionate Percentage,
the holders of outstanding Preferred Stock shall be treated as having converted
all such outstanding Preferred Stock into shares of Common Stock at the rate at
which such securities are convertible into Common Stock in effect at the time of
such Equity Financing, and shall be treated as having exercised all rights then
owned by them to purchase shares of Common Stock.
7B. The holder of any shares of Preferred Stock converted
pursuant to Paragraph 7A hereof, shall deliver to the Corporation during regular
business hours at the office of any transfer agent of the Corporation for the
Preferred Stock, or at such other place as may be designated by the Corporation,
the certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to the Corporation. As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of full shares of
the new series of Preferred Stock to which such holder is entitled. The person
in whose name the certificate for such new series of Preferred Stock is to be
issued shall be deemed to have become a stockholder of record on the Mandatory
Offering Date unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open.
7C. In the event that at any time the Special Mandatory
Conversion set forth in this paragraph 7 shall not be effective as to all shares
of the Preferred Stock then outstanding, the Board of Directors shall take all
necessary actions to designate one or more new series of Preferred Stock (having
such distinctive designations and number of shares as the Board of Directors may
by resolution fix) on each such subsequent occasion that (i) any Equity
Financing occurs, and (ii) any holder of Preferred Stock does not by exercise of
such holder's Right of First Refusal acquire his Special Proportionate
Percentage of the Allocated Offered Securities then so offered to the holders of
the Preferred Stock. Each share of such Non-Participating Holder's shares of
Preferred Stock shall be converted into one share of such newly-created series
of Preferred Stock concurrently with the consummation of the subject Mandatory
Offering. Each new series of Preferred Stock shall be identical in all respects,
except with respect to the
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<PAGE> 17
CONTINUATION SHEET 4.15
- -----------------------
respective conversion price then in effect, to the new series of Preferred Stock
created pursuant to the provisions of Paragraph 7A. Except as otherwise required
by applicable law, any new series of Preferred Stock created pursuant to
Paragraph 7A or 7C hereof shall vote together with the series of Preferred Stock
from which it was converted on all matters as a single series.
8. REDEMPTION. The shares of Preferred Stock shall be redeemed as
follows:
8A. MANDATORY REDEMPTION. On December 28, 2000, and on each of
the next two anniversaries thereafter (the "Redemption Dates", and each a
"Redemption Date"), the Corporation shall redeem any outstanding shares of
Preferred Stock on a pro rata basis with respect to each series of Preferred
Stock according to the percentages listed below:
Percentage of Shares of
Series A Convertible
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
December 28, 2000 33-1/3% of all the shares of Series A Convertible
Preferred Stock Outstanding on December 28, 2000
December 28, 2001 50% of all the shares of Series A Convertible
Preferred Stock outstanding on December 28, 2001
December 28, 2002 100% of all the shares of Series A Convertible
Preferred Stock outstanding on December 28, 2002
8B. REDEMPTION PRICE AND PAYMENT. The shares of Preferred
Stock to be redeemed on any Redemption Date shall be redeemed by paying for each
share in cash an amount equal to $4.08 per share with respect to the Series A
and Series A-1 Convertible Preferred Stock and $1.02 per share with respect to
the Series B Convertible Preferred Stock plus, in the case of each share, an
amount equal to all dividends, including Accruing Dividends, unpaid thereon,
computed to such Redemption Date, such amount being referred to as the
"Redemption Price". Such payment shall be made in full on the applicable
Redemption Date to the holders entitled thereto.
8C. REDEMPTION MECHANICS. At least 20 but not more than 30
days prior to each Redemption Date, written notice (the "Redemption Notice")
shall be given by the Corporation by delivery in person, certified or registered
mail, return receipt requested, telecopier
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<PAGE> 18
CONTINUATION SHEET 4.16
- -----------------------
or telex, to each holder of record (at the close of business on the business day
next preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
Redemption Price, such Redemption Date, the number of shares of Preferred Stock
to be redeemed from such holder (computed on a pro rata basis in accordance with
the number of such shares of each series held by all holders thereof) and the
place where said Redemption Price shall be payable. The Redemption Notice shall
be addressed to each holder at his address as shown by the records of the
Corporation. From and after the close of business on a Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of shares of Preferred Stock (except the right to receive the
Redemption Price) shall cease with respect to the shares to be redeemed on such
Redemption Date, and such shares shall not thereafter be transferred on the
books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Preferred Stock on a Redemption Date are insufficient to redeem the
total number of shares of Preferred Stock to be redeemed on such Redemption
Date, the holders of such shares shall share ratably in any funds legally
available for redemption of such shares according to the respective amounts
which would be payable to them if the full number of shares to be redeemed on
such Redemption Date were actually redeemed. The shares of Preferred Stock
required to be redeemed but not so redeemed shall remain outstanding and
entitled to all rights and preferences provided herein. At any time thereafter
when additional funds of the Corporation are legally available for the
redemption of such shares of Preferred Stock, such funds will be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of such shares,
or such portion thereof for which funds are then legally available, on the basis
set forth above.
8D. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this paragraph 8 or otherwise
acquired by the Corporation in any manner whatsoever shall be cancelled and
shall not under any circumstances be reissued; and the Corporation may from time
to time take such appropriate corporate action as may be necessary to reduce
accordingly the number of authorized shares of Preferred Stock.
9. AMENDMENTS. No provision of these terms of the Preferred Stock
may be amended, modified or waived without the written consent or affirmative
vote of the holders of at least two-thirds of the then outstanding shares of
Preferred Stock.
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<PAGE> 19
CONTINUATION SHEET 4.17
- -----------------------
COMMON STOCK
1. After the requirements with respect to preferential dividends on the
Preferred Stock shall have been met and after the Corporation shall have
complied with all the requirements, if any, with respect to the setting aside of
sums as sinking funds or redemption or purchase accounts, then and not otherwise
the holders of Common Stock shall be entitled to receive such dividends as may
be declared from time to time by the Board of Directors.
2. After distribution in full of the preferential amount to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding
up of the Corporation, the holders of the Common Stock shall be entitled to
receive all the remaining assets of the Corporation, tangible or intangible, of
whatever kind available for distribution to the stockholders ratably in
proportion to the number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law or the provisions of
these Restated Articles, or by the Board of Directors pursuant to authority
granted in these Restated Articles, each holder of Common Stock shall have one
vote in respect of each share of stock held by him in all matters voted upon by
the stockholders.
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<PAGE> 20
CONTINUATION SHEET 6.1
- ----------------------
CONCORD COMMUNICATIONS, INC.
Restated Articles of Organization
---------------------------------
ARTICLE VI
----------
Other provisions for the conduct and regulation of the business and
affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders, are as follows:
A. BOARD OF DIRECTORS.
1. NUMBER, ELECTION AND QUALIFICATION. A Board of
Directors shall be elected by the stockholders at the annual meeting. The number
of directors shall be fixed by the stockholders (except as that number may be
enlarged by the Board of Directors acting pursuant to Section 3 of this
Article), but shall be not less than three, except that whenever there shall be
only two stockholders the number of directors shall be not less than two and
whenever there shall be only one stockholder or prior to the issuance of any
stock, there shall be at least one director, and shall be not more than
thirteen. Notwithstanding the foregoing provisions, at any time that the
corporation has a class of equity securities registered under the Securities
Exchange Act of 1934, as amended, (the "Exchange Act"), then:
(i) The number of directors shall be fixed only
by vote of the Board of Directors.
(ii) The directors of the corporation shall be
classified with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible; the term of office of
those of the first class ("Class I Directors") to continue until the first
annual meeting following the date the corporation first has a class of equity
securities registered under the Exchange Act and until their successors are duly
elected and qualified; the term of office of those of the second class ("Class
II Directors") to continue until the second annual meeting following the date
the corporation first has a class of equity securities registered under the
Exchange Act and until their successors are duly elected and qualified; and the
term of office of those of the third class ("Class III Directors") to continue
until the third annual meeting following the date the corporation first has a
class of equity securities registered under the Exchange Act and until their
successors are duly elected and qualified. At each annual meeting of the
corporation, the successors to the class of directors whose term expires at that
meeting shall be elected to hold office for a term continuing until the annual
meeting held in the third year following the year of their election and until
their successors are duly elected and qualified. If the authorized number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of an incumbent director.
<PAGE> 21
CONTINUATION SHEET 6.2
- ----------------------
2. VACANCIES. Vacancies and newly-created directorships,
whether resulting from an increase in the size of the Board of Directors, from
the death resignation, disqualification or removal of a director or otherwise,
shall be filled solely by the affirmative vote a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the immediately preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or the new directorship was created and
until such director's successor shall have been elected and qualified.
3. ENLARGEMENT OF THE BOARD. The Board of Directors may only
be enlarged by the vote of a majority of the directors then in office.
4. TENURE. Except as otherwise provided by law, these Restated
Articles of Organization or the By-laws, directors shall hold office until the
third year following the year of their election and until their successors are
duly elected and qualified. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President,
Clerk or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
5. REMOVAL. Any director elected by the stockholders, or by
the Board of Directors to fill a vacancy, may be removed only for cause by a
vote of a majority of directors then in office or by the stockholders, after
reasonable notice and opportunity to be heard before the annual meeting of
stockholders at which his or her removal is considered and by the affirmative
vote of the holders of at least eighty percent (80%) of the combined voting
power of the shares of capital stock of the Corporation outstanding and entitled
to vote for the election of directors.
For purposes of the foregoing paragraph, "cause", with respect
to the removal of any director, shall mean only (1) conviction of a felony, (2)
declaration of unsound mind by order of court, (3) gross dereliction of duty,
(4) commission of an action involving moral turpitude, or (5) commission of an
action which constitutes intentional misconduct or a knowing violation of law if
such action in either event results in improper substantial personal benefit and
a material injury to the Corporation.
6. AMENDMENT. Notwithstanding any other provision of these
Restated Articles of Organization, or any provision of law which might otherwise
permit a lesser vote or no vote, the affirmative vote of the holders of at least
eighty percent (80%) of the combined voting power of the shares of capital stock
of the corporation outstanding and entitled to vote for the election of
directors shall be required to alter, amend or repeal this Article VI, Part A.
B. LIABILITY OF DIRECTORS.
The corporation eliminates the personal liability of each director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that, to the extent provided by
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<PAGE> 22
CONTINUATION SHEET 6.3
- ----------------------
applicable law, this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 61 or 62 or successor provisions of the Massachusetts Business
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision shall not eliminate or limit the
liability of a director of the corporation for any act or omission occurring
prior to the date on which this provision becomes effective. No amendment to or
repeal of this provision shall apply to or have any effect on the liability or
alleged liability of any director for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
C. INDEMNIFICATION.
1. ACTIONS, SUITS AND PROCEEDINGS. The corporation shall
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the corporation, or
is or was serving, or has agreed to serve, at the request of the corporation, as
a director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan of the corporation
(all such persons being referred to hereafter as an "Indemnitee"), or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, unless such indemnification is prohibited by the Business
Corporation Law of the Commonwealth of Massachusetts. Notwithstanding anything
to the contrary in this Article, except as set forth in Section 5 below, the
corporation shall not indemnify an Indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
corporation.
2. SETTLEMENTS. The right to indemnification conferred in this
Article shall include the right to be paid by the corporation for amounts paid
in settlement of any such action, suit or proceeding and any appeal therefrom,
and all expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless and to the extent
it is determined pursuant to Section 5 below that the Indemnitee did not act in
good faith in the reasonable belief that his action was in the best interests of
the corporation or, to the extent such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
3. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent
to his right to be indemnified, the Indemnitee must notify the corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be
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<PAGE> 23
CONTINUATION SHEET 6.4
- ----------------------
sought. With respect to any action, suit, proceeding or investigation of which
the corporation is so notified, the corporation will be entitled to participate
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the corporation to the Indemnitee of its election so to assume such
defense, the corporation shall not be liable to the Indemnitee for any legal or
other expenses subsequently incurred by the Indemnitee in connection with the
such claim, other than as provided below in this Section 3. The Indemnitee shall
have the right to employ his own counsel in connection with such claim, but the
fees and expenses of such counsel incurred after notice from the corporation of
its assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the corporation, except
as otherwise expressly provided by this Article. The corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
4. ADVANCE OF EXPENSES. Subject to the provisions of Section 5
below, in the event that the corporation does not assume the defense pursuant to
Section 3 of this Article of any action, suit, proceeding or investigation of
which the corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the corporation in advance of the final disposition of such matter,
PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the corporation as authorized in
this Article. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
5. PROCEDURE FOR INDEMNIFICATION. In order to obtain
indemnification or advancement of expenses pursuant to Section 1, 2 or 4 of this
Article, the Indemnitee shall submit to the corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within sixty days after receipt by the corporation of
the written request of the Indemnitee, unless the corporation determines, by
clear and convincing evidence, within such sixty-day period that the Indemnitee
did not meet the applicable standard of conduct set forth in Section 1 or 2, as
the case may be. Such determination shall be made in each instance by (a) a
majority vote of a quorum of the directors of the corporation, (b) a majority
vote of a quorum of
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<PAGE> 24
CONTINUATION SHEET 6.5
- ----------------------
the outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may be regular legal counsel to the
corporation), or (d) a court of competent jurisdiction.
6. REMEDIES. The right to indemnification or advances as
granted by this Article shall be enforceable by the Indemnitee in any court of
competent jurisdiction if the corporation denies such request, in whole or in
part, or if no disposition thereof is made within the sixty-day period referred
to above in Section 5. Unless otherwise provided by law, the burden of proving
that the Indemnitee is not entitled to indemnification or advancement of
expenses under this Article shall be on the corporation. Neither the failure of
the corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the corporation pursuant to Section 5 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met such applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the corporation.
7. SUBSEQUENT AMENDMENT. No amendment, termination or repeal
of this Article or of the relevant provisions of Chapter 156B of the
Massachusetts General Laws or any other applicable laws shall affect or diminish
in any way the rights of any Indemnitee to indemnification under the provisions
hereof with respect to any action, suit, proceeding or investigation arising out
of or relating to any actions, transactions or facts occurring prior to the
final adoption of such amendment, termination or repeal.
8. OTHER RIGHTS. The indemnification and advancement of
expenses provided by this Article shall not be deemed exclusive of any other
rights to which an Indemnitee seeking indemnification or advancement of expenses
may be entitled under any law (common or statutory), agreement or vote of
stockholders or directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the corporation or other persons serving the corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
9. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under
any provision of this Article to indemnification by the corporation for some or
a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and
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<PAGE> 25
CONTINUATION SHEET 6.6
- ----------------------
reasonably incurred by him or on his behalf in connection with any action, suit,
proceeding or investigation and any appeal therefrom but not, however, for the
total amount thereof, the corporation shall nevertheless indemnify the
Indemnitee for the portion of such expenses (including attorneys' fees),
judgments, fines or amounts paid in settlement to which the Indemnitee is
entitled.
10. INSURANCE. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another organization or employee benefit plan
against any expense, liability or loss incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under
Chapter 156B of the Massachusetts General Laws.
11. MERGER OR CONSOLIDATION. If the corporation is merged into
or consolidated with another corporation and the corporation is not the
surviving corporation, the surviving corporation shall assume the obligations of
the corporation under this Article with respect to any action, suit, proceeding
or investigation arising out of or relating to any actions, transactions or
facts occurring prior to the date of such merger or consolidation.
12. SAVINGS CLAUSE. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
13. SUBSEQUENT LEGISLATION. If the Massachusetts General Laws
are amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws, as so amended.
D. LOCATION OF STOCKHOLDERS' MEETINGS.
Meetings of the stockholders of the corporation may be held anywhere in
the United States.
E. AMENDMENT OF BY-LAWS.
The directors of the corporation may make, amend or repeal the By-laws
in whole or in part, except with respect to any provision thereof which by law
or the By-laws requires action by the stockholders.
F. ISSUANCE OF SHARES.
- 6 -
<PAGE> 26
CONTINUATION SHEET 6.7
- ----------------------
The whole or any part of the authorized but unissued shares of capital
stock of the corporation may be issued at any time or from time to time by the
Board of Directors without further action by the stockholders.
G. CORPORATION AS PARTNER.
The corporation may become a partner in any business.
H. CERTAIN ACTIONS BY MAJORITY VOTE.
The corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon (or if there are two or more classes of stock entitled
to vote as separate classes, then by vote of a majority of each such class of
stock outstanding) may (i) authorize any amendment to these Restated Articles of
Organization, (ii) authorize the sale, lease or exchange of all or substantially
all of the corporation's property and assets, including its goodwill and (iii)
approve a merger or consolidation of the corporation with or into any other
corporation, provided that such amendment, sale, lease, exchange, merger or
consolidation shall have been approved by the Board of Directors or by a vote of
two-thirds of the stock outstanding and entitled to vote thereon (or if there
are two or more classes of stock entitled to vote as separate classes, then by
vote of a majority of each such class of stock outstanding).
- 7 -
<PAGE> 27
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE
ARTICLES OF ORGANIZATION.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is: 33 Boston Post Road West,
Marlboro, MA 01752
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President:
Treasurer:
Clerk: SEE CONTINUATION SHEET 8.1
Directors:
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is: N/A
**We further certify that the foregoing Restated Articles of Organization affect
no amendments to the Articles of Organization of the corporation as heretofore
amended, except amendments to the following articles. Briefly describe
amendments below:
SIGNED UNDER THE PENALTIES OF PERJURY, this day of , 1997,
JOHN A. BLAESER , *President,
---------------------------------------------------
GARY E. HAROIAN , *Clerk.
---------------------------------------------------
*Delete the inapplicable words. **If there are no amendments, state `None'.
<PAGE> 28
CONTINUATION SHEET 8.1
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
PRESIDENT: John Blaeser 21 Georgetown Road 33 Boston Post Road West
Boxford, MA 01921 Suite 400
Marlboro, MA 01752
TREASURER: Gary Haroian 31 Tammer Lane 33 Boston Post Road West
Hopkinton, MA 01742 Suite 400
Marlboro, MA 01752
CLERK: Gary Haroian 31 Tammer Lane 33 Boston Post Road West
Hopkinton, MA 01742 Suite 400
Marlboro, MA 01752
DIRECTORS: John Blaeser 21 Georgetown Road 33 Boston Post Road West
Boxford, MA 01921 Suite 400
Marlboro, MA 01752
Rick Burnes 17 Pinkey Street Charles River Ventures
Boston, MA 02114 Bay Colony Corporate
Center
1000 Winter Street,
Ste. 3300
Waltham, MA 02154
Rob Wadsworth 27 Bogostow Circle Hancock Venture Partners
Millis, MA 02054 One Financial Center
44th Floor
Boston, MA 02111
Rick Bolander 1910 North Burling #A Apex Investment Partners
Chicago, IL 60614 233 South Wacker Drive
Suite 9600
Chicago, IL 60606
Deepak Kamra 75 Redwood Way Canaan Partners
Atherton, CA 94027 2884 Sand Hill Road,
Suite 115
Menlo Park, CA 94025
Rob Held 116 Bear Hill Road 116 Bear Hill Road
Bolton, MA 01740 Bolton, MA 01740
Robert Hawk 7585 S. Biscay U.S. West Multimedia Comm.
Aurora, CO 80016 9785 Maroon Circle,
Ste. 400
Englewood, CO 80112
</TABLE>
<PAGE> 29
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
===============================================
I hereby approve the within Restated Articles
of Organization and, the filing fee in the
amount of $ having been paid, said
articles are deemed to have been filed with
me this day of 19__.
Effective date:
----------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
LOUIS J. MARETT, ESQ.
-----------------------------------------------------
TESTA, HURWITZ & THIBEAULT, LLP
-----------------------------------------------------
HIGH STREET TOWER
-----------------------------------------------------
125 HIGH STREET
-----------------------------------------------------
BOSTON, MA 02110
-----------------------------------------------------
TELEPHONE: (617) 248-7000
-----------------------------------------------------
<PAGE> 1
Exhibit 3.02
[Form of Restated Articles of Organization to be filed on Closing Date]
FEDERAL IDENTIFICATION
NO. 04-2710876
-------------------
- --------
Examiner THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
- --------
Name We, JOHN A. BLAESER , *President,
Approved ------------------------------------------------
and GARY E. HAROIAN , *Clerk,
----------------------------------------------------
of CONCORD COMMUNICATIONS, INC. ,
----------------------------------------------------------------
(Exact name of corporation)
located at 33 BOSTON POST ROAD WEST, MARLBORO, MA 01752 ,
--------------------------------------------------------
(Street address of corporation in Massachusetts)
do hereby certify that the following Restatement of the Articles of
Organization was duly adopted at a meeting held on ____________, 1997
by a vote of the directors/or:
Common Equivalent Stock shares outstanding,
shares of and Common Stock of
--- --------------------- -----------
(type, class & series, if any)
shares of Series A Preferred of shares outstanding,
--- --------------------- -----------
(type, class & series, if any)
shares of Series A-1 Preferred of shares outstanding, and
--- --------------------- -----------
(type, class & series, if any)
shares of Series B Preferred of shares outstanding,
--- ---------------------- -----------
(type, class & series, if any)
C [ ]
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon: / **being at least two-thirds of each type,
class or series outstanding and entitled to vote thereon and of each type,
P [ ] class or series of stock whose rights are adversely affected thereby:
M [ ] ARTICLE I
The name of the corporation is:
R.A. [ ] Concord Communications, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
To develop, market and support automated, software-based performance
- ---- analysis and reporting solutions for management of computer networks and in
P.C. general to carry on any and all purposes permitted to a corporation
organized under the provisions of Massachusetts General Laws, Chapter 156B.
*Delete the inapplicable words. **Delete the inapplicable clause.
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON OF SEPARATE 8 1/2 X 11 SHEETS
OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE
ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING
EACH ADDITION IS CLEARLY INDICATED.
<PAGE> 2
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common: Common: 50,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 1,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Continuation Sheets 4.1 through 4.3 which are attached hereto and
incorporated herein by reference.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Continuation Sheets 6.1 through 6.7 which are attached hereto and
incorporated herein by reference.
**If there are no provisions state "None".
NOTE: THE PRECEDING SIX (6) ARTICLES ARE CONSIDERED TO BE PERMANENT AND MAY ONLY
BE CHANGED BY FILING APPROPRIATE ARTICLES OF AMENDMENT.
<PAGE> 3
CONTINUATION SHEET 4.1
- ----------------------
CONCORD COMMUNICATIONS, INC.
Restated Articles of Organization
---------------------------------
ARTICLE IV
----------
The following is a statement of the designations, preferences, voting
powers, qualifications, and special or relative rights and privileges in respect
of the authorized capital stock of the Corporation.
The shares of Common Stock, par value $.01 per share, authorized under
these Restated Articles of Organization shall be designated the "Common Stock."
The shares of Preferred Stock authorized under these Restated Articles of
Organization shall be designated the "Preferred Stock."
A. Issuance of Preferred Stock in Series.
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors may
determine. Each series shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes. Except as to the
relative preferences, powers, qualifications, rights and privileges referred to
in paragraph B below, in respect of any or all of which there may be variations
between different series, all shares of Preferred Stock shall be identical.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purpose of voting by classes.
B. Authority to Establish Variations Between Series of Preferred
Stock.
The Board of Directors is expressly authorized, subject to the
limitations prescribed by law and the provisions of these Restated Articles of
Organization, to provide by adopting a vote or votes, a certificate of which
shall be filed in accordance with the Business Corporation Law of the
Commonwealth of Massachusetts, for the issue of the Preferred Stock in one or
more series, each with such designations, preferences, voting powers,
qualifications, special or relative rights and privileges as shall be stated in
the vote or votes creating such series. The authority of the Board of Directors
with respect to each such series shall include without limitation of the
foregoing the right to determine and fix:
(1) the distinctive designation of such series and the number of
shares to constitute such series;
(2) the rate at which dividends on the shares of such series shall
be declared and paid, or set aside for payment, whether dividends at the rate so
determined shall be cumulative, and whether the shares of such series shall be
entitled to any participating or other dividends in addition to dividends at the
rate so determined, and if so on what terms;
<PAGE> 4
CONTINUATION SHEET 4.2
- ----------------------
(3) the right, if any, of the corporation to redeem shares of the
particular series and, if redeemable, the price, terms and manner of such
redemption;
(4) the special and relative rights and preferences, if any, and
the amount or amounts per share, which the shares of such series shall be
entitled to receive upon any voluntary or involuntary liquidation, dissolution
or winding up of the corporation;
(5) the terms and conditions, if any, upon which shares of such
series shall be convertible into, or exchangeable for, shares of stock of any
other class or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(6) the obligation, if any, of the corporation to retire or
purchase shares of such series pursuant to a sinking fund or fund of a similar
nature or otherwise, and the terms and conditions of such obligation;
(7) voting rights, if any;
(8) limitations, if any, on the issuance of additional shares of
such series or any shares of any other series of Preferred Stock; and
(9) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors may deem
advisable and are not inconsistent with law and the provisions of these
Articles.
C. Statement of Voting Powers, Qualifications, Special or
Relative Rights and Privileges in Respect of Shares of Common Stock.
After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of paragraph B above)
shall have been met and after the corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as sinking funds
or redemption or purchase accounts (fixed in accordance with the provisions of
said paragraph B), then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to time by the
Board of Directors.
After distribution in full of the preferential amount (fixed in
accordance with the provisions of said paragraph B) to be distributed to the
holders of Preferred Stock in the event of voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding up of the corporation,
the holders of the Common Stock shall be entitled to receive all the remaining
assets of the corporation, tangible and intangible, of whatever kind available
for distribution to the stockholders ratably in proportion to the number of
shares of Common Stock held by them respectively.
- 2 -
<PAGE> 5
CONTINUATION SHEET 4.3
- ----------------------
Except as may otherwise be required by law or the provision of these
Restated Articles of Organization, or by the Board of Directors pursuant to
authority granted in these Restated Articles of Organization, each holder of
Common Stock shall have one vote in respect of each share of stock held by him
in all matters voted upon by the stockholders.
- 3 -
<PAGE> 6
CONTINUATION SHEET 6.1
- ----------------------
CONCORD COMMUNICATIONS, INC.
Restated Articles of Organization
---------------------------------
ARTICLE VI
----------
Other provisions for the conduct and regulation of the business and
affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders, are as follows:
A. BOARD OF DIRECTORS.
1. NUMBER, ELECTION AND QUALIFICATION. The number of directors
shall be fixed only by vote of the Board of Directors.
The directors of the corporation shall be classified with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible; the term of office of those of the first class
("Class I Directors") to continue until the first annual meeting following the
date the corporation first has a class of equity securities registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and until their successors
are duly elected and qualified; the term of office of those of the second class
("Class II Directors") to continue until the second annual meeting following the
date the corporation first has a class of equity securities registered under the
Exchange Act and until their successors are duly elected and qualified; and the
term of office of those of the third class ("Class III Directors") to continue
until the third annual meeting following the date the corporation first has a
class of equity securities registered under the Exchange Act and until their
successors are duly elected and qualified. At each annual meeting of the
corporation, the successors to the class of directors whose term expires at that
meeting shall be elected to hold office for a term continuing until the annual
meeting held in the third year following the year of their election and until
their successors are duly elected and qualified. If the authorized number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of an incumbent director.
2. VACANCIES. Vacancies and newly-created directorships,
whether resulting from an increase in the size of the Board of Directors, from
the death resignation, disqualification or removal of a director or otherwise,
shall be filled solely by the affirmative vote a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the immediately preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or the new directorship was created and
until such director's successor shall have been elected and qualified.
3. ENLARGEMENT OF THE BOARD. The Board of Directors may only
be enlarged by the vote of a majority of the directors then in office.
<PAGE> 7
CONTINUATION SHEET 6.2
- ----------------------
4. TENURE. Except as otherwise provided by law, these Restated
Articles of Organization or the By-laws, directors shall hold office until the
third year following the year of their election and until their successors are
duly elected and qualified. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President,
Clerk or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
5. REMOVAL. Any director elected by the stockholders, or by
the Board of Directors to fill a vacancy, may be removed only for cause by a
vote of a majority of directors then in office or by the stockholders, after
reasonable notice and opportunity to be heard before the annual meeting of
stockholders at which his or her removal is considered and by the affirmative
vote of the holders of at least eighty percent (80%) of the combined voting
power of the shares of capital stock of the Corporation outstanding and entitled
to vote for the election of directors.
For purposes of the foregoing paragraph, "cause", with respect
to the removal of any director, shall mean only (1) conviction of a felony, (2)
declaration of unsound mind by order of court, (3) gross dereliction of duty,
(4) commission of an action involving moral turpitude, or (5) commission of an
action which constitutes intentional misconduct or a knowing violation of law if
such action in either event results in improper substantial personal benefit and
a material injury to the Corporation.
6. AMENDMENT. Notwithstanding any other provision of these
Restated Articles of Organization, or any provision of law which might otherwise
permit a lesser vote or no vote, the affirmative vote of the holders of at least
eighty percent (80%) of the combined voting power of the shares of capital stock
of the corporation outstanding and entitled to vote for the election of
directors shall be required to alter, amend or repeal this Article VI, Part A.
B. LIABILITY OF DIRECTORS.
The corporation eliminates the personal liability of each director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that, to the extent provided by applicable law, this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 61 or 62 or
successor provisions of the Massachusetts Business Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
This provision shall not eliminate or limit the liability of a director of the
corporation for any act or omission occurring prior to the date on which this
provision becomes effective. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
- 2 -
<PAGE> 8
CONTINUATION SHEET 6.3
- ----------------------
C. INDEMNIFICATION.
1. ACTIONS, SUITS AND PROCEEDINGS. The corporation shall
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the corporation, or
is or was serving, or has agreed to serve, at the request of the corporation, as
a director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan of the corporation
(all such persons being referred to hereafter as an "Indemnitee"), or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, unless such indemnification is prohibited by the Business
Corporation Law of the Commonwealth of Massachusetts. Notwithstanding anything
to the contrary in this Article, except as set forth in Section 5 below, the
corporation shall not indemnify an Indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
corporation.
2. SETTLEMENTS. The right to indemnification conferred in this
Article shall include the right to be paid by the corporation for amounts paid
in settlement of any such action, suit or proceeding and any appeal therefrom,
and all expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless and to the extent
it is determined pursuant to Section 5 below that the Indemnitee did not act in
good faith in the reasonable belief that his action was in the best interests of
the corporation or, to the extent such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
3. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent
to his right to be indemnified, the Indemnitee must notify the corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the corporation is so
notified, the corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
corporation to the Indemnitee of its election so to assume such defense, the
corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the such
claim, other than as provided below in this Section 3. The Indemnitee shall have
the right to employ his own counsel in connection with such claim, but the fees
and expenses of such counsel incurred after notice from the corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a
- 3 -
<PAGE> 9
CONTINUATION SHEET 6.4
- ----------------------
conflict of interest or position on any significant issue
between the corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the corporation, except
as otherwise expressly provided by this Article. The corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
4. ADVANCE OF EXPENSES. Subject to the provisions of Section 5
below, in the event that the corporation does not assume the defense pursuant to
Section 3 of this Article of any action, suit, proceeding or investigation of
which the corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the corporation in advance of the final disposition of such matter,
PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the corporation as authorized in
this Article. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
5. PROCEDURE FOR INDEMNIFICATION. In order to obtain
indemnification or advancement of expenses pursuant to Section 1, 2 or 4 of this
Article, the Indemnitee shall submit to the corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within sixty days after receipt by the corporation of
the written request of the Indemnitee, unless the corporation determines, by
clear and convincing evidence, within such sixty-day period that the Indemnitee
did not meet the applicable standard of conduct set forth in Section 1 or 2, as
the case may be. Such determination shall be made in each instance by (a) a
majority vote of a quorum of the directors of the corporation, (b) a majority
vote of a quorum of the outstanding shares of stock of all classes entitled to
vote for directors, voting as a single class, which quorum shall consist of
stockholders who are not at that time parties to the action, suit or proceeding
in question, (c) independent legal counsel (who may be regular legal counsel to
the corporation), or (d) a court of competent jurisdiction.
6. REMEDIES. The right to indemnification or advances as
granted by this Article shall be enforceable by the Indemnitee in any court of
competent jurisdiction if the corporation denies such request, in whole or in
part, or if no disposition thereof is made within the sixty-day period referred
to above in Section 5. Unless otherwise provided by law, the burden of proving
that the Indemnitee is not entitled to indemnification or advancement of
expenses under this Article shall be on the corporation. Neither the failure of
the corporation to
- 4 -
<PAGE> 10
CONTINUATION SHEET 6.5
- ----------------------
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
corporation pursuant to Section 5 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met such applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the corporation.
7. SUBSEQUENT AMENDMENT. No amendment, termination or repeal
of this Article or of the relevant provisions of Chapter 156B of the
Massachusetts General Laws or any other applicable laws shall affect or diminish
in any way the rights of any Indemnitee to indemnification under the provisions
hereof with respect to any action, suit, proceeding or investigation arising out
of or relating to any actions, transactions or facts occurring prior to the
final adoption of such amendment, termination or repeal.
8. OTHER RIGHTS. The indemnification and advancement of
expenses provided by this Article shall not be deemed exclusive of any other
rights to which an Indemnitee seeking indemnification or advancement of expenses
may be entitled under any law (common or statutory), agreement or vote of
stockholders or directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the corporation or other persons serving the corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
9. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under
any provision of this Article to indemnification by the corporation for some or
a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and any
appeal therefrom but not, however, for the total amount thereof, the corporation
shall nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
10. INSURANCE. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another organization or employee benefit plan
against any expense, liability or loss incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation
- 5 -
<PAGE> 11
CONTINUATION SHEET 6.6
- ----------------------
would have the power to indemnify such person against such expense, liability or
loss under Chapter 156B of the Massachusetts General Laws.
11. MERGER OR CONSOLIDATION. If the corporation is merged into
or consolidated with another corporation and the corporation is not the
surviving corporation, the surviving corporation shall assume the obligations of
the corporation under this Article with respect to any action, suit, proceeding
or investigation arising out of or relating to any actions, transactions or
facts occurring prior to the date of such merger or consolidation.
12. SAVINGS CLAUSE. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
13. SUBSEQUENT LEGISLATION. If the Massachusetts General Laws
are amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws, as so amended.
D. LOCATION OF STOCKHOLDERS' MEETINGS.
Meetings of the stockholders of the corporation may be held anywhere in
the United States.
E. AMENDMENT OF BY-LAWS.
The directors of the corporation may make, amend or repeal the By-laws
in whole or in part, except with respect to any provision thereof which by law
or the By-laws requires action by the stockholders.
F. ISSUANCE OF SHARES.
The whole or any part of the authorized but unissued shares of capital
stock of the corporation may be issued at any time or from time to time by the
Board of Directors without further action by the stockholders.
G. CORPORATION AS PARTNER.
The corporation may become a partner in any business.
H. CERTAIN ACTIONS BY MAJORITY VOTE.
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<PAGE> 12
CONTINUATION SHEET 6.7
- ----------------------
The corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon (or if there are two or more classes of stock entitled
to vote as separate classes, then by vote of a majority of each such class of
stock outstanding) may (i) authorize any amendment to these Restated Articles of
Organization, (ii) authorize the sale, lease or exchange of all or substantially
all of the corporation's property and assets, including its goodwill and (iii)
approve a merger or consolidation of the corporation with or into any other
corporation, provided that such amendment, sale, lease, exchange, merger or
consolidation shall have been approved by the Board of Directors or by a vote of
two-thirds of the stock outstanding and entitled to vote thereon (or if there
are two or more classes of stock entitled to vote as separate classes, then by
vote of a majority of each such class of stock outstanding).
- 7 -
<PAGE> 13
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE
ARTICLES OF ORGANIZATION.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is: 33 Boston Post Road West,
Marlboro, MA 01752
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President:
Treasurer:
Clerk: SEE CONTINUATION SHEET 8.1
Directors:
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is: N/A
**We further certify that the foregoing Restated Articles of Organization affect
no amendments to the Articles of Organization of the corporation as heretofore
amended, except amendments to the following articles. Briefly describe
amendments below:
SIGNED UNDER THE PENALTIES OF PERJURY, this day of , 1997,
JOHN A. BLAESER , *President,
---------------------------------------------------
GARY E. HAROIAN , *Clerk.
---------------------------------------------------
*Delete the inapplicable words. **If there are no amendments, state `None'.
<PAGE> 14
CONTINUATION SHEET 8.1
- ----------------------
<TABLE>
<CAPTION>
NAME RESIDENTIAL POST OFFICE ADDRESS
ADDRESS
<S> <C> <C> <C>
PRESIDENT: John Blaeser 21 Georgetown Road 33 Boston Post Road West
Boxford, MA 01921 Suite 400
Marlboro, MA 01752
TREASURER: Gary Haroian 31 Tammer Lane 33 Boston Post Road West
Hopkinton, MA 01742 Suite 400
Marlboro, MA 01752
CLERK: Gary Haroian 31 Tammer Lane 33 Boston Post Road West
Hopkinton, MA 01742 Suite 400
Marlboro, MA 01752
DIRECTORS: John Blaeser 21 Georgetown Road 33 Boston Post Road West
Boxford, MA 01921 Suite 400
Marlboro, MA 01752
Rick Burnes 17 Pinkey Street Charles River Ventures
Boston, MA 02114 Bay Colony Corporate Center
1000 Winter Street, Ste. 3300
Waltham, MA 02154
Rob Wadsworth 27 Bogostow Circle Hancock Venture Partners
Millis, MA 02054 One Financial Center
44th Floor
Boston, MA 02111
Rick Bolander 1910 North Burling #A Apex Investment Partners
Chicago, IL 60614 233 South Wacker Drive
Suite 9600
Chicago, IL 60606
Deepak Kamra 75 Redwood Way Canaan Partners
Atherton, CA 94027 2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025
Rob Held 116 Bear Hill Road 116 Bear Hill Road
Bolton, MA 01740 Bolton, MA 01740
Robert Hawk 7585 S. Biscay U.S. West Multimedia Comm.
Aurora, CO 80016 9785 Maroon Circle, Ste. 400
Englewood, CO 80112
</TABLE>
<PAGE> 15
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
===============================================
I hereby approve the within Restated Articles
of Organization and, the filing fee in the
amount of $ having been paid, said
articles are deemed to have been filed with
me this day of 19__.
Effective date:
----------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
LOUIS J. MARETT, ESQ.
-----------------------------------------------------
TESTA, HURWITZ & THIBEAULT, LLP
-----------------------------------------------------
HIGH STREET TOWER
-----------------------------------------------------
125 HIGH STREET
-----------------------------------------------------
BOSTON, MA 02110
-----------------------------------------------------
TELEPHONE: (617) 248-7000
-----------------------------------------------------
<PAGE> 1
Exhibit 3.03
CONCORD COMMUNICATIONS, INC.
FORM OF RESTATED BY-LAWS
ARTICLE I
STOCKHOLDERS
1. ANNUAL MEETING. The annual meeting of stockholders shall be held on the
date and at the time fixed, from time to time, by the directors, provided that
the date so fixed is within six months of the end of the fiscal year of the
corporation. The purposes for which the annual meeting is to be held, in
addition to those prescribed by law, by the Articles of Organization or by these
By-Laws, may be specified by the Directors or the President. In the event an
annual meeting has not been held on the date fixed in these By-Laws, a special
meeting in lieu of the annual meeting may be held with all the force and effect
of an annual meeting.
2. SPECIAL MEETINGS. Special meetings of stockholders may be called by the
President or by the Directors. Upon written application of one or more
stockholders who hold at least 10% of the capital stock entitled to vote at a
meeting, a special meeting shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer.
Notwithstanding the immediately preceding sentence, if the corporation has a
class of voting stock registered under the Securities Exchange Act of 1934, as
amended, upon written application of one or more stockholders who hold at least
40% in interest of the capital stock entitled to vote at a meeting, a special
meeting shall be called by the Clerk, or in case of the death, absence,
incapacity or refusal of the Clerk, by any other officer.
3. PLACE OF MEETINGS. All meetings of stockholders shall be held at the
principal office of the corporation unless a different place (within or without
Massachusetts, but within the United States) is fixed by the Directors or the
President and stated in the notice of the meeting.
<PAGE> 2
-2-
4. NOTICE OF MEETINGS. A written notice of the place, date and hour of all
meetings of stockholders stating the purpose of the meeting shall be given by
the Clerk or an Assistant Clerk or by the person calling the meeting at least
seven days before the meeting unless such longer period is required by law to
each stockholder entitled to vote thereat and to each stockholder who under the
law, under the Articles of Organization or under these By-Laws, is entitled to
such notice, by leaving such notice with him or at his residence or usual place
of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears in the records of the corporation.
Whenever notice of a meeting is required to be given a stockholder under any
provision of the Massachusetts Business Corporation Law or of the Articles of
Organization or these By-Laws, a written waiver thereof, executed before or
after the meeting by such stockholder or his attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.
5. NOTICE OF STOCKHOLDER BUSINESS. The following provisions of this Section
5 shall apply to the conduct of business at any meeting of the stockholders (as
used in this Section 5, the term annual meeting shall include a special meeting
in lieu of annual meeting).
(a) At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in paragraph (b) of this
Section 5, who shall be entitled to vote at such meeting and who complies with
the notice procedures set forth in paragraph (b) of this Section 5.
(b) For business to be properly brought before any meeting of the
stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this
By-law, the stockholder must have
<PAGE> 3
-3-
given timely notice thereof in writing to the Clerk of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation: (i) in the case of any
annual meeting, not less than 60 days nor more than 90 days prior to the date
specified in Section 1 above for such annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if a special meeting in lieu of annual meeting of
stockholders is to be held on a date prior to the date specified in Section 1
above, and if less than seventy days' notice or prior public disclosure of the
date of such special meeting in lieu of annual meeting is given or made, notice
by the stockholder to be timely must be so delivered or received not later than
the close of business on the tenth day following the earlier of the date on
which notice of the date of such special meeting in lieu of annual meeting was
mailed or the day on which public disclosure was made of the date of such
special meeting in lieu of annual meeting; and (ii) in the case of a special
meeting (other than a special meeting in lieu of an annual meeting), not later
than the tenth day following the earlier of the day on which notice of the date
of the scheduled meeting was mailed or the day on which public disclosure was
made of the date of the scheduled meeting. A stockholder's notice to the Clerk
shall set forth as to each matter the stockholder proposes to bring before the
meeting, (i) a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, and the name and address of
any other stockholders or beneficial owners known by such stockholder to be
supporting such proposal, (iii) the class and number of shares of the
corporation which are owned beneficially
<PAGE> 4
-4-
and of record by such stockholder of record, by the beneficial owner, if any, on
whose behalf the proposal is made and by any other stockholders or beneficial
owners known by such stockholder of record and/or of the beneficial owner, if
any, on whose behalf the proposal is made, in such proposed business and any
material interest of any other stockholders or beneficial owners known by such
stockholder to be supporting such proposal in such proposed business, to the
extent known by such stockholder.
(c) Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in these By-Laws. The person presiding at the meeting shall, if the facts
warrant, determine that business was not properly brought before the meeting and
in accordance with the procedures prescribed by these By-laws, and if he should
so determine, he shall so declare at the meeting and any such business not
properly brought before the meeting shall not be transacted.
(d) This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, Directors and committees of
the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless properly brought before the meeting
as herein provided.
(e) Notwithstanding the foregoing provisions of this Section 5 to the
contrary, a stockholder shall comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended (or any successor provision), and
the rules and regulations thereunder with respect to the matters set forth in
this Section 5.
6. QUORUM. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum, but a
lesser number may adjourn any meeting from time to time without further notice;
except that, if two or more classes of stock are
<PAGE> 5
-5-
outstanding and entitled to vote as separate classes, then in the case of each
such class, a quorum shall consist of the holders of a majority in interest of
the stock of that class issued, outstanding and entitled to vote.
7. VOTING AND PROXIES. Each stockholder shall have one vote for each share
of stock entitled to vote owned by him and a proportionate vote for a fractional
share, unless otherwise provided by the Articles of Organization in the case
that the corporation has two or more classes or series of stock. Capital stock
shall not be voted if any installment of the subscription therefor has been duly
demanded in accordance with the law of the Commonwealth of Massachusetts and is
overdue and unpaid. Stockholders may vote either in person or by written proxy
dated not more than six months before the meeting named therein. Proxies shall
be filed with the clerk of the meeting, or of any adjournment thereof, before
being voted. Except as otherwise limited therein, proxies shall entitle the
persons named therein to vote at any adjournment of such meeting but shall not
be valid after final adjournment of such meeting. A proxy with respect to stock
held in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger.
8. ACTION AT MEETING. When a quorum is present, the holders of a majority
of the stock present or represented and voting on a matter (or if there are two
or more classes of stock entitled to vote as separate classes, then in the case
of each such class, the holders of a majority of the stock of that class present
or represented and voting on a matter), except where a larger vote is required
by law, the Articles of Organization or these By-Laws, shall decide any matter
to
<PAGE> 6
-6-
be voted on by the stockholders. Any election of directors or officers by the
stockholders shall be determined by a plurality of the votes cast by
stockholders entitled to vote at the election. Any such elections shall be by
ballot if so requested by any stockholder entitled to vote thereon. The
corporation shall not directly or indirectly vote any share of its own stock.
9. ACTION WITHOUT MEETING. Any action required or permitted to be taken at
any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consent shall be treated for all purposes as a vote at a meeting.
ARTICLE II
DIRECTORS
1. POWERS. The business of the corporation shall be managed by a Board of
Directors who may exercise all the powers of the corporation except as otherwise
provided by law, by the Articles of Organization or by these By-Laws. In the
event of vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
2. NUMBER; ELECTION AND QUALIFICATION; TENURE; REMOVAL. The number of
Directors, the provisions governing their election and qualification, their
tenure and removal shall be as provided by law and as set forth in the Articles
of Organization.
3. MEETINGS. Regular meetings of the Directors may be held without call or
notice at such places and at such times as the Directors may from time to time
determine, provided that any Director who is absent when such determination is
made shall be given notice of the
<PAGE> 7
-7-
determination. A regular meeting of the Directors may be held without a call or
notice at the same place as the annual meeting of stockholders.
Special meetings of the Directors may be held at any time and place
designated in a call by the President or two or more Directors.
4. TELEPHONE CONFERENCE MEETINGS. Members of the Board of Directors may
participate in a meeting of the board by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
5. NOTICE OF MEETINGS. Notice of all special meetings of the Directors
shall be given to each Director by the Secretary, or Assistant Secretary, or if
there be no Secretary or Assistant Secretary, by the Clerk, or Assistant Clerk,
or in case of the death, absence, incapacity or refusal of such persons, by the
officer or one of the Directors calling the meeting. Notice shall be given to
each Director in person or by telephone or by telegram sent to his business or
home address at least twenty-four hours in advance of the meeting, or by written
notice mailed to his business or home address at least forty-eight hours in
advance of the meeting. Notice of a meeting need not be given to any Director if
a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Director who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him. A notice or waiver of notice of a Directors' meeting need not
specify the purposes of the meeting.
6. QUORUM. At any meeting of the Directors, a majority of the Directors
then in office shall constitute a quorum. Less than a quorum may adjourn any
meeting from time to time without further notice.
<PAGE> 8
-8-
7. ACTION AT MEETING. At any meeting of the Directors at which a quorum is
present, a majority of the Directors present may take any action on behalf of
the Board except to the extent that a larger number is required by law or the
Articles of Organization or these By-Laws.
8. ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Directors may be taken without a meeting, if all the Directors
consent to the action in writing and the written consents are filed with the
records of the meetings of Directors. Such consents shall be treated for all
purposes as a vote at a meeting.
9. COMMITTEES. The Directors may, by vote of a majority of the Directors
then in office, elect from their number an executive or other committees and may
by like vote delegate thereto some or all of their powers except those which by
law, the Articles of Organization or these By-Laws they are prohibited from
delegating to such committee. Except as the Directors may otherwise determine,
any such committee may make rules for the conduct of its business, but UNLESS
otherwise provided by the Directors or in such rules, its business shall be
conducted as nearly as may be in the same manner as is provided by these By-Laws
for the Directors.
ARTICLE III
OFFICERS
1. ENUMERATION. The officers of the corporation shall consist of a
President, a Treasurer, a Clerk, and such other officers, including a Chairman
of the Board of Directors, one or more Vice Presidents, Assistant Treasurers,
Assistant Clerks, Secretary and Assistant Secretaries as the Directors may
determine.
2. ELECTION. The President, Treasurer and Clerk shall be elected annually
by the Directors at their first meeting following the annual meeting of
stockholders. Other officers may be chosen by the Directors at such meeting or
at any other meeting.
<PAGE> 9
-9-
3. QUALIFICATION. The President may, but need not be, a Director. No
officer need be a stockholder. Any two or more offices may be held by the same
person, provided that the President and Clerk shall not be the same person. The
Clerk shall be a resident of Massachusetts unless the corporation has a resident
agent appointed for the purpose of service of process. Any officer may be
required by the Directors to give bond for the faithful performance of his
duties to the corporation in such amount and with such sureties as the Directors
may determine.
4. TENURE. Except as otherwise provided by law, by the Articles of
Organization or by these By-Laws, the President, Treasurer and Clerk shall hold
office until the first meeting of the Directors following the next annual
meeting of stockholders and until their successors are chosen and qualified; and
all other officers shall hold office until the first meeting of the Directors
following the next annual meeting of stockholders and until their successors are
chosen and qualified, unless a shorter term is specified in the vote choosing or
appointing them. Any officer may resign by delivering his written resignation to
the corporation at its principal office or to the President, Clerk or Secretary,
and such resignation shall be effective upon receipt unless it is specified to
be effective at some other time or upon the happening of some other event.
5. REMOVAL. The Directors may remove any officer with or without cause by
vote of a majority of the Directors then in office; provided, that an officer
may be removed for cause only after a reasonable notice and opportunity to be
heard before the Board of Directors.
6. PRESIDENT, CHAIRMAN OF THE BOARD, AND VICE-PRESIDENT. The President
shall, unless otherwise provided by the Directors, be the chief executive
officer of the corporation and shall, subject to the direction of the Directors,
have general supervision and control of its business. Unless otherwise provided
by the Directors he shall preside, when present, at all meetings of
<PAGE> 10
-10-
stockholders and, unless a Chairman of the Board has been elected and is
present, of the Directors.
If a Chairman of the Board of Directors is elected he shall preside at all
meetings of the Board of Directors at which he is present. The Chairman shall
have such other powers as the Directors may from time to time designate.
Any Vice-President shall have such powers as the Directors may from time to
time designate.
7. TREASURER AND ASSISTANT TREASURER. The Treasurer shall, subject to the
direction of the Directors, have general charge of the financial affairs of the
corporation and shall cause accurate books of account to be kept. He shall have
custody of all funds, securities, and valuable documents of the corporation,
except as the Directors may otherwise provide.
Any Assistant Treasurer shall have such powers as the Directors may from
time to time designate.
8. CLERK AND ASSISTANT CLERKS. The Clerk shall record all proceedings of
the stockholders in a book to be kept therefor. Unless a transfer agent is
appointed, the Clerk shall keep or cause to be kept in Massachusetts, at the
principal office of the corporation or at his office, the stock and transfer
records of the corporation, in which are contained the names of all stockholders
and the record address and the amount of stock held by each.
In case a Secretary is not elected, the Clerk shall record all proceedings
of the Directors in a book to be kept therefor.
In the absence of the Clerk from any meeting of the stockholders, an
Assistant Clerk, if one be elected, otherwise a Temporary Clerk designated by
the person presiding at the meeting,
<PAGE> 11
-11-
shall perform the duties of the Clerk. Any Assistant Clerk shall have such
additional powers as the Directors may from time to time designate.
9. SECRETARY AND ASSISTANT SECRETARIES. If a Secretary is elected, he shall
keep a record of the meetings of the Directors and in his absence, an Assistant
Secretary, if one be elected, otherwise a Temporary Secretary designated by the
person presiding at the meeting, shall keep a record of the meetings of the
Directors.
Any Assistant Secretary shall have such additional powers as the Directors
may from time to time designate.
10. OTHER POWERS AND DUTIES. Each officer shall, subject to these By-Laws,
have in addition to the duties and powers specifically set forth in these
By-Laws, such duties and powers as are customarily incident to his office, and
such duties and powers as the Directors may from time to time designate.
<PAGE> 12
-12-
ARTICLE IV
CAPITAL STOCK
1. CERTIFICATES OF STOCK. Subject to the provisions of Section 2 below,
each stockholder shall be entitled to a certificate of the capital stock of the
corporation in such form as may be prescribed from time to time by the
Directors. The certificate shall be signed by the President or a Vice-President,
and by the Treasurer or an Assistant Treasurer; provided, however, such
signatures may be facsimiles if the certificate is signed by a transfer agent,
or by a registrar, other than a Director, officer or employee of the
corporation. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer at the time of its issue.
Every certificate issued for shares of stock at a time when such shares are
subject to any restriction on transfer pursuant to the Articles of Organization,
these By-Laws or any agreement to which the corporation is a party shall have
the restriction noted conspicuously on the certificate and shall also set forth
on the face or back of the certificate either the full text of the restriction
or a statement of the existence of such restriction and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge. Every stock certificate issued by the
corporation at a time when it is authorized to issue more than one class or
series of stock shall set forth upon the face or back of the certificate either
the full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series, if any, authorized to be
issued, as set forth in the Articles of Organization, or a statement of the
existence of such preferences, powers, qualifications, and
<PAGE> 13
-13-
rights, and a statement that the corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
2. STOCKHOLDER OPEN ACCOUNTS. The corporation may maintain or cause to be
maintained stockholder open accounts in which may be recorded all stockholders'
ownership of stock and all changes therein. Certificates need not be issued for
shares so recorded in a stockholder open account unless requested by the
stockholder.
3. TRANSFERS. Subject to the restrictions, if any, stated or noted on the
stock certificates, shares of stock may be transferred in the records of the
corporation by the surrender to the corporation or its transfer agent of the
certificate therefor, properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the corporation or its
transfer agent may reasonably require. When such stock certificates are thus
properly surrendered to the corporation or its transfer agent, the corporation
or transfer agent shall cause the records of the corporation to reflect the
transfer of the shares of stock. Except as may be otherwise required by law, by
the Articles of Organization or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown in its records as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereof, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
4. RECORD DATE. The Directors may fix in advance a time which shall be not
more than sixty (60) days before the date of any meeting of stockholders or the
date for the payment of
<PAGE> 14
-14-
any dividend or the making of any distribution to stockholders or the last day
on which the consent or dissent of stockholders may be effectively expressed for
any purpose, as the record date for determining the stockholders having the
right to notice of and to vote at such meeting and any adjournment thereof or
the right to receive such dividend or distribution or the right to give such
consent or dissent. In such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books of the
corporation after the record date. Without fixing such record date the Directors
may for any of such purposes close the transfer books for all or any part of
such period.
If no record date is fixed and the transfer books are not closed, the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss, mutilation or
destruction of a certificate of stock, a duplicate certificate may be issued in
place thereof, upon such terms and conditions as the Directors may prescribe.
6. ISSUE OF CAPITAL STOCK. The whole or any part of the then authorized but
unissued shares of each class of stock may be issued at any time or from time to
time by the Board of Directors without action by the stockholders.
7. REACQUISITION OF STOCK. Shares of stock previously issued which have
been reacquired by the corporation, may be restored to the status of authorized
but unissued shares by vote of the Board of Directors, without amendment of the
Articles of Organization.
<PAGE> 15
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ARTICLE V
PROVISIONS RELATIVE TO DIRECTORS,
OFFICERS, STOCKHOLDERS AND EMPLOYEES
1. CERTAIN CONTRACTS AND TRANSACTIONS. In the absence of fraud or bad
faith, no contract or transaction by this corporation shall be void, voidable or
in any way affected by reason of the fact that the contract or transaction is
(a) with one or more of its officers, Directors, stockholders or employees, (b)
with a person who is in any way interested in this corporation, or (c) with a
corporation, organization or other concern in which an officer, Director,
stockholder or employee of this corporation is an officer, director,
stockholder, employee or in any way interested. The provisions of this section
shall apply notwithstanding the fact that the presence of a Director or
stockholder, with whom a contract or transaction is made or entered into or who
is an officer, director, stockholder or employee of a corporation, organization
or other concern with which a contract or transaction is made or entered into or
who is in any way interested in such contract or transaction, was necessary to
constitute a quorum at the meeting of the Directors (or any authorized committee
thereof) or stockholders at which such contract or transaction was authorized
and/or that the vote of such Director or stockholder was necessary for the
adoption of such contract or transaction, provided that if said interest was
material, it shall have been known or disclosed to the Directors or stockholders
voting at said meeting on said contract or transaction. A general notice to any
person voting on said contract or transaction that an officer, Director,
stockholder or employee has a material interest in any corporation, organization
or other concern shall be sufficient disclosure as to such officer, Director,
stockholder or employee with respect to all contracts and transactions with such
corporation, organization or other concern. This section shall be subject to
amendment or repeal only by action of the stockholders.
<PAGE> 16
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2. INDEMNIFICATION. Each Director, officer, employee and other agent of the
corporation, and any person who, at the request of the corporation, serves as a
director, officer, employee or other agent of another organization in which the
corporation directly or indirectly owns shares or of which it is a creditor
shall be indemnified by the corporation against any cost, expense (including
attorneys' fees), judgment, liability and/or amount paid in settlement
reasonably incurred by or imposed upon him in connection with any action, suit
or proceeding (including any proceeding before any administrative or legislative
body or agency), to which he may be made a party or otherwise involved or with
which he shall be threatened, by reason of his being, or related to his status
as a director, officer, employee or other agent of the corporation or of any
other organization in which the corporation directly or indirectly owns shares
or of which the corporation is a creditor, which other organization he serves or
has served as director, officer, employee or other agent at the request of the
corporation (whether or not he continues to be an officer, Director, employee or
other agent of the corporation or such other organization at the time such
action, suit or proceeding is brought or threatened), unless such
indemnification is prohibited by the Business Corporation Law of the
Commonwealth of Massachusetts. The foregoing right of indemnification shall be
in addition to any rights to which any such person may otherwise be entitled and
shall inure to the benefit of the executors or administrators of each such
person. The corporation may pay the expenses incurred by any such person in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit, or proceeding, upon receipt of an undertaking
by such person to repay such payment if it is determined that such person is not
entitled to indemnification hereunder. This section shall be subject to
amendment or
<PAGE> 17
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repeal only by action of the stockholders, and any such amendment or repeal
shall not affect the rights arising hereunder prior to the effective date of the
amendment or repeal.
ARTICLE VI
MISCELLANEOUS PROVISIONS
1. FISCAL YEAR. Except as from time to time otherwise determined by the
Directors, the fiscal year of the corporation shall be the calendar year ending
December 31. Following any change in the fiscal year previously adopted, a
certificate of such change, signed under the penalties of perjury by the Clerk
or an Assistant Clerk, shall be filed forthwith with the state secretary.
2. SEAL. The seal of this corporation shall, subject to alteration by the
Directors, bear its name, the word "Massachusetts," and the year of its
incorporation.
3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or the Treasurer
except as the Directors may generally or in particular cases otherwise
determine.
4. VOTING OF SECURITIES. Except as the Directors may otherwise designate,
the President or Treasurer may waive notice of, and appoint any person or
persons to act as proxy or attorney-in-fact for this corporation (with or
without power of substitution) at any meeting of stockholders or shareholders of
any other corporation or organization, the securities of which may be held by
this corporation.
5. CORPORATE RECORDS. The original, or attested copies, of the Articles of
Organization, By-Laws and records of all meetings of incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record
<PAGE> 18
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address and the amount of stock held by each, shall be kept in Massachusetts at
the principal office of the corporation or at an office of its transfer agent or
of the Clerk or of its resident agent. Said copies and records need not all be
kept in the same office. They shall be available at all reasonable times to the
inspection of any stockholder for any proper purpose but not to secure a list of
stockholders or other information for the purpose of selling said list or
information or copies thereof or of using the same for a purpose other than in
the interest of the applicant, as a stockholder, relative to the affairs of the
corporation.
6. ARTICLES OF ORGANIZATION. All references in these By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
7. AMENDMENTS. These By-Laws, to the extent provided in these By-Laws, may
be amended or repealed, in whole or in part, and new By-Laws adopted either (a)
by the stockholders at any meeting of the stockholders by the affirmative vote
of the holders of at least a majority in interest of the capital stock present
and entitled to vote, provided that notice of the proposed amendment or repeal
or of the proposed making of new By-Laws shall have been given in the notice of
such meeting, or (b) if so authorized by the Articles of Organization, by the
Board of Directors at any meeting of the Board by the affirmative vote of a
majority of the Directors then in office, but no amendment or repeal of a By-law
shall be voted by the Board of Directors and no new By-law shall be made by the
Board of Directors which alters the provisions of these By-Laws with respect to
removal of Directors, or the election of committees by Directors and the
delegation of powers thereto, nor shall the Board of Directors make, amend or
repeal any provision of the By-Laws which by law, the Articles of Organization
or the By-Laws requires action by the stockholders. Not later than the time of
giving notice of the meeting of
<PAGE> 19
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stockholders next following the making, amending, or repealing by the Directors
of any By-law, notice thereof stating the substance of such change shall be
given to all stockholders entitled to vote on amending the By-Laws. Any By-law
or amendment of a By-law made by the Board of Directors may be amended or
repealed by the stockholders by affirmative vote as above provided in this
Section 7.
8. 1987 MASSACHUSETTS CONTROL SHARE ACQUISITION ACT. The 1987 Massachusetts
Control Share Acquisition Act, Chapter 110D of the Massachusetts General Laws,
as it may be amended from time to time, shall not apply to the corporation.
<PAGE> 1
Exhibit 10.01
LOAN AND SECURITY AGREEMENT
$2,500,000 WORKING CAPITAL LINE
PROVIDED BY
SILICON VALLEY BANK
TO
CONCORD COMMUNICATIONS, INC.
LOAN MODIFICATION AGREEMENT
$1,000,000 EQUIPMENT LINE
APRIL 3, 1997
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of April 3, 1997, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name Silicon Valley East
("Bank"), and CONCORD COMMUNICATIONS, INC., a Massachusetts corporation with its
principal place of business at 33 Boston Post Road West, Marlboro, MA 01752
("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods (including, without limitation, the licensing
of software and other technology) or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed Revolving
Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding involving
Borrower or guarantor, if any) whether or not suit is brought.
<PAGE> 3
-2-
"Borrower's Books" means all of Borrower's books and records including,
without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to NINETY percent (90%) of Eligible
Accounts as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which banks in the State of California are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached hereto.
"Committed Revolving Line" means a credit extension of up to TWO MILLION
FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($2,500,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Advance or any other extension of credit by
Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that should,
in accordance with GAAP, be included as current assets on the consolidated
balance sheet of Borrower and its Subsidiaries as at such date.
<PAGE> 4
-3-
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary course
of Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.4; PROVIDED, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank in writing, Eligible
Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety (90)
days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to an account debtor, including Affiliates, whose
total obligations to Borrower exceed twenty-five percent (25%) of all Accounts,
to the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not have its
principal place of business in the United States or Canada;
(e) Accounts with respect to which the account debtor is a federal, state,
or local governmental entity or any department, agency, or instrumentality
thereof;
(f) Accounts with respect to which Borrower is liable to the account
debtor, but only to the extent of any amounts owing to the account debtor
(sometimes referred to as "contra" accounts, e.g. accounts payable, customer
deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment, or with
respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an Affiliate,
officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its sole
discretion,
<PAGE> 5
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that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Eligible Inventory" means that portion of Borrower's Inventory that is
located at Borrower's principal place of business or such other locations as are
permitted under Section 7.10 and that complies with the representations and
warranties set forth in Section 5.5.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
<PAGE> 6
-5-
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other present or future agreement entered into
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time. "Material
Adverse Effect" means a material adverse effect on (i) the business operations
or condition (financial or otherwise) of Borrower and its Subsidiaries taken as
a whole or (ii) the ability of Borrower to repay the Obligations or otherwise
perform its obligations under the Loan Documents.
"Maturity Date" means the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit of which it is a beneficiary, notes, drafts, instruments, securities,
documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Payment Date" means the twenty-fifth (25th) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement
or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
<PAGE> 7
-6-
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof, (ii) commercial
paper maturing no more than one (1) year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) certificates of
deposit maturing no more than one (1) year from the date of investment therein
issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule or
arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings and as to which adequate reserves are maintained on Borrower's
Books in accordance with GAAP, PROVIDED the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or any
of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such equipment at the time of its
acquisition, PROVIDED that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary pursuant to an
equipment lease in the ordinary course of business (including proceeds thereof
and accessions thereto) incurred solely for the purpose of financing the lease
of such Equipment (including Liens pursuant to leases permitted pursuant to
Section 7.1 and Liens arising from UCC financing statements regarding leases
permitted by this Agreement).
(e) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clauses (a)
through (d) above, PROVIDED that any extension, renewal or replacement Lien
shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced
does not increase.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
<PAGE> 8
-7-
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
"Qualified Public Offering" means Bank's receipt of Borrower's financial
statements showing that Borrower has received at least FIFTEEN MILLION Dollars
($15,000,000) in an initial distribution to the public of shares of Borrower's
capital stock pursuant to a registration statement filed under the Securities
Act of 1933, as amended, or a successor statute.
"Quick Assets" means, as of any applicable date, the consolidated cash,
cash equivalents, accounts receivable and investments with maturities of fewer
than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means April 2, 1998.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation, partnership,
company association, joint venture, or any other business entity of which more
than fifty percent (50%) of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by such Person or one or more Affiliates
of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries MINUS without duplication, (i) the
sum of any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, AND (ii) Total
Liabilities.
"Total Liabilities" means as of any applicable date, any date as of which
the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/
<PAGE> 9
-8-
"includes" shall always be read as meaning "including (or includes) without
limitation", when used herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 ADVANCES. Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Advances made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Advances at rates in accordance
with the terms hereof.
2.1.1 REVOLVING ADVANCES.
------------------
(a) Subject to and upon the terms and conditions of this Agreement, Bank
agrees to make Advances to Borrower in an aggregate outstanding amount not to
exceed (i) the Committed Revolving Line or the Borrowing Base, whichever is
less, minus (ii) the principal amount of all outstanding advances under that
certain Letter Agreement dated March 25, 1996 between Borrower and Bank.
Subject to the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1 may be repaid and reborrowed at any time during
the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
EXHIBIT B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages
or loss suffered by Bank as a result of such reliance. Bank will credit the
amount of Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1, of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the sum of (x) TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) plus (y) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess; PROVIDED, HOWEVER, that for at least TEN (10) consecutive days per
calendar month, the amount of Obligations owed by Borrower to Bank pursuant to
Section 2.1.1, of this Agreement shall not exceed the lesser of (a) the
Committed Revolving Line or (b) the Borrowing Base.
<PAGE> 10
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2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
------------------------------------------
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof, at a per annum rate
equal to TWO (2.0) percentage points above the Prime Rate; PROVIDED, HOWEVER,
that effective the first day of the month following a Qualified Public Offering,
the interest rate will decrease to the Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and after the
occurrence of an Event of Default, at a rate equal to five (5) percentage points
above the interest rate applicable immediately prior to the occurrence of the
Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on each Payment
Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number 700241676 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to TWELVE THOUSAND FIVE HUNDRED
Dollars ($12,500), which fee shall be due on the Closing Date and shall be fully
earned and non-refundable;
<PAGE> 11
-10-
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees and
out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each
appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents, provided that such audits
won't be more than twice a year except in the Event of Default;
(c) BANK EXPENSES. Upon demand from Bank, including, without limitation,
upon the date hereof, all Bank Expenses incurred through the date hereof,
including reasonable attorneys' fees and expenses, and, after the date hereof,
all Bank Expenses, including reasonable attorneys' fees and expenses, as and
when they become due.
6. ADDITIONAL COSTS. In case any law, regulation, treaty or official
directive or the interpretation of application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the
overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in
or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its performance
under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Bank's business of making credit extensions generally, Bank shall notify
Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in
cost, reduction in income or additional expense as and when such cost, reduction
or expense is incurred or determined, upon presentation by Bank of a statement
of the amount and setting forth Bank's calculation thereof, all in reasonable
detail, which statement shall be deemed true and correct absent manifest error.
2.7 TERM. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Revolving Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
2.8 MODIFICATION OF MARCH 25, 1996 LOAN DOCUMENTS.
---------------------------------------------
<PAGE> 12
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(a) DELETION OF FINANCIAL COVENANTS. Paragraphs "b", "c", "d" and "e" under
the subheading "AFFIRMATIVE COVENANTS" in that certain Letter Agreement dated
March 25, 1996 between Borrower and Bank, as amended, are hereby deleted in
their entirety. That Letter Agreement, the Commercial Security Agreement dated
March 25, 1996 and the Promissory Note dated March 25, 1996, as the same may
have been amended from time to time (together the "1996 Loan Documents"), are
hereby amended wherever necessary to reflect the changes described in this
Section 2.8.
(b) RELEASE OF SECURITY INTEREST UPON IPO. The 1996 Loan Documents are
amended to provide that effective the first day of the month following a
Qualified Public Offering, Bank shall release its security interest created by
the 1996 Loan Documents except to the extent of specific equipment financed by
Bank pursuant to that certain Letter Agreement dated March 25, 1996 between
Borrower and Bank, as amended.
(c) WAIVER OF PRIOR DEFAULT. Bank hereby waives Borrower's defaults, prior
to or existing as of the date of this Agreement, of the covenants set forth
under the subheading "AFFIRMATIVE COVENANTS" in that certain Letter Agreement
dated March 25, 1996.
3. CONDITIONS OF LOANS
-------------------
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank to make
the initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, the following:
(a) this Agreement and the Revolving Promissory Note each duly executed by
Borrower;
(b) a certificate of the Clerk of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement;
(c) payment of the fees and Bank Expenses then due specified in Section 2.5
hereof;
(d) such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be true
and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made
at and as of each such date, and no Event of Default shall have occurred and
be continuing, or would result from such
<PAGE> 13
-12-
Advance. The making of each Advance shall be deemed to be a representation
and warranty by Borrower on the date of such Advance as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents; PROVIDED, HOWEVER, that effective the first
day of the month following a Qualified Public Offering, Bank shall release its
security interest in the Collateral except to the extent of specific equipment
financed by Bank pursuant to that certain Letter Agreement dated March 25, 1996
between Borrower and Bank, as amended. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any deposit account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
<PAGE> 14
-13-
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.9 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company controlled by an
<PAGE> 15
-14-
"investment company" within the meaning of the Investment Company Act of
1940. Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations G, T and U of the Board
of Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 SUBSIDIARIES. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 FULL DISCLOSURE. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
<PAGE> 16
-15-
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver to
Bank:
(a) as soon as available, but in any event, prior to a Qualified Public
Offering, within twenty five (25) days after the end of each month, and after
a Qualified Public Offering within twenty five (25) days after the end of each
quarter unless required more frequently by the Bank while any Credit Extension
is outstanding, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during such period, in a
form and certified by an officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within ninety (90) days after
the end of Borrower's fiscal year, audited consolidated financial statements
of Borrower prepared in accordance with GAAP, consistently applied, together
with an unqualified opinion on such financial statements of an independent
certified public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders
or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($1 00,000) or more prior to a Qualified Public Offering or that could result
in damages or costs to Borrower or any Subsidiary of Two Hundred Fifty
Thousand Dollars ($250,000) or more after a Qualified Public Offering;
(e) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
<PAGE> 17
-16-
Prior to a Qualified Public Offering, within three (3) business days after
the end of each week, and after a Qualified Public Offering, within twenty five
(25) days after the end of each quarter unless required more frequently by the
Bank while any Credit Extension is outstanding, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer in substantially the
form of EXHIBIT C hereto, together with aged listings of accounts receivable and
accounts payable.
Prior to a Qualified Public Offering, within twenty five (25) days after
the end of each month, and after a Qualified Public Offering, within twenty five
(25) days after the end of each quarter unless required more frequently by the
Bank while any Credit Extension is outstanding, Borrower shall deliver to Bank
with the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in substantially the form of EXHIBIT D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
If Borrower does not receive at least THREE MILLION DOLLARS ($3,000,000) in
new equity or subordinated debt prior to September 30, 1997, then Bank shall
have the right to require additional collateral monitoring in a manner and
frequency acceptable to Bank.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 INSURANCE.
---------
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, sprinklers, and all other hazards and risks, and
in such amounts, as
<PAGE> 18
-17-
ordinarily insured against by other owners in similar businesses conducted in
the locations where Borrower's business is conducted on the date hereof.
Borrower shall also maintain insurance relating to Borrower's ownership and use
of the Collateral in amounts and of a type that are customary to businesses
similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 QUICK RATIO. As of the last day of each calendar quarter following a
Qualified Public Offering, Borrower shall maintain a ratio of Quick Assets to
Current Liabilities of at least 2.0 to 1.0.
6.9 TANGIBLE NET WORTH. Borrower shall receive at least THREE MILLION
DOLLARS ($3,000,000) in new equity or subordinated debt prior to January 1,
1998. As of the last day of each calendar quarter following a Qualified Public
Offering, Borrower shall maintain a Tangible Net Worth of not less than TEN
MILLION Dollars ($10,000,000).
6.10 PROFITABILITY. Until a Qualified Public Offering, Borrower shall not
incur net losses greater than (i) ONE MILLION THREE HUNDRED THOUSAND Dollars
($1,300,000) for the fiscal quarter ended March 31, 1997, (ii) NINE HUNDRED
THOUSAND Dollars ($900,000) for the fiscal quarter ended June 30, 1997, and
(iii) TWO HUNDRED FIFTY THOUSAND Dollars ($250,000) for the fiscal quarter ended
September 30, 1997, and Borrower shall be profitable for each fiscal quarter
thereafter.
6.11 MINIMUM REVENUES. Until a Qualified Public Offering, Borrower shall
maintain revenues of at least (i) THREE MILLION Dollars ($3,000,000) for the
fiscal quarter ended March 31, 1997, (ii) THREE MILLION FIVE HUNDRED THOUSAND
Dollars ($3,500,000) for the fiscal quarter ended June 30, 1997, and (iii) FOUR
MILLION Dollars ($4,000,000) for the fiscal quarter ended September 30, 1997.
6.12 FURTHER ASSURANCES. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
<PAGE> 19
-18-
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business, or (iv) of worn-out or
obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership, other than pursuant to the equity
financing or the IPO referred to in Sections 6.9 and 2.8(b), respectively, of
this Agreement, or management. Borrower will not, without at least thirty (30)
days prior written notification to Bank, relocate its chief executive office or
add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock other than dividends payable solely in capital stock of Borrower.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
<PAGE> 20
-19-
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgment.
7.10 SUBORDINATED DEBT. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11 INVENTORY. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations.
8.2 COVENANT DEFAULT.
----------------
(a) If Borrower fails to perform any obligation under Sections 6.3, 6.6,
6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any
<PAGE> 21
-20-
of the Loan Documents, or in any other present or future agreement between
Borrower and Bank and as to any default under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure such
default within ten (10) days after the occurrence thereof; provided, however,
that if the default cannot by its nature be cured within the ten (10) day period
or cannot after diligent attempts by Borrower be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional reasonable period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a Material Adverse Effect,
or (ii) is a material impairment of the prospect of repayment of any portion of
the Obligations, or (iii) is a material impairment of the value or priority of
Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) prior to a Qualified Public Offering or in an amount in excess of Two
Hundred Fifty Thousand Dollars ($250,000) after a Qualified Public Offering or
that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
<PAGE> 22
-21-
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following in accordance with
applicable law, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable (provided
that upon the occurrence of an Event of Default described in Section 8.5 all
Obligations shall become immediately due and payable without any action by
Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
(d) Without notice to or demand upon Borrower, make such payments and do
such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held by Bank;
<PAGE> 23
-22-
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to the Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both, by way
of one or more contracts or transactions, for cash or on terms, in such manner
and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order if deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any private
sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
<PAGE> 24
-23-
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral not in the possession of the bank
or its agent shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank which Borrower may in any way be liable.
10. NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower Concord Communications, Inc.
33 Boston Post Road West
<PAGE> 25
-24-
Marlboro, MA 01752
ATTN: Gary Haroian, CFO
FAX. (508) 481-9772
If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
Attn: David B. Fischer
FAX: (617) 431-9906
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
-----------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
<PAGE> 26
-25-
12.2 INDEMNIFICATION. Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
CONCORD COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /S/ GARY HAROIAN By: /S/ PAMELA J. LOWE
--------------------- ----------------------
Gary Haroian, CFO Pamela J. Lowe, VP
<PAGE> 27
-26-
SILICON VALLEY BANK
By: /S/ PAT HUGHES
---------------------
Title: AVP
---------------------
(Signed in Santa Clara County,
California)
<PAGE> 28
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE> 29
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE
----------------------------------------------------
FOR SAME DAY PROCESSING IS 3:00 P.M, P.S.T.
-------------------------------------------
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________
FAX #: (408) __________ TIME: _______________
FROM: __________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE: _________________________________________________________________________
FROM ACCOUNT # ____________________ TO ACCOUNT # _______________________________
________________________________________________________________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- --------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_________________________________
PRINCIPAL PAYMENT (ONLY) $_________________________________
INTEREST PAYMENT (ONLY) $_________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________________________
OTHER INSTRUCTIONS:
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of April 3, 1997 are true, correct and complete in all
material respects as of the date of the telephone request for and Advance
confirmed by this Advance Request; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
________________________________________________________________________________
BANK USE ONLY:
TELEPHONE REQUEST.
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
______________________________
Authorized Requester
______________________________
Authorized Signature (Bank)
Phone # ________________
________________________________________________________________________________
<PAGE> 30
EXHIBIT C
---------
BORROWING BASE CERTIFICATE
--------------------------
Borrower: Concord Communications, Inc. Lender: Silicon Valley Bank
33 Boston Post Road West 3003 Tasman Drive
Marlboro, MA 01752 Santa Clara, CA 95054
Commitment Amount: $2,500,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $ _______
2. Additions (please explain on reverse) $ _______
3. TOTAL ACCOUNTS RECEIVABLE $ _______
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $ _______
5. Balance of 50% over 90 day accounts $ _______
6. Concentration Limits $ _______
7. Ineligible Foreign Accounts $ _______
8. Governmental Accounts $ _______
9. Contra Accounts $ _______
10. Promotion or Demo Accounts $ _______
11. Intercompany/Employee Accounts $ _______
12. Other (please explain on reverse) $ _______
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $ _______
14. Eligible Accounts (#3 - #13) $ _______
15. LOAN VALUE OF ACCOUNTS (90% of #14) $ _______
BALANCES
16. Maximum Loan Amount $2,500,000
17. Total Funds Available (Lesser of #16 or
(#l3 plus #15) $ _______
18. Present balance owing on Line of Credit $ _______
19. Outstanding under Sublimits ( ) $ _______
20. RESERVE POSITIVE (#17 minus #18 and #19) $ _______
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated as of April 3, 1997, as may be amended from time to
time, between the undersigned and Silicon Valley Bank.
COMMENTS: __________________________________________
BANK USE ONLY
Received By: __________________________
CONCORD COMMUNICATIONS, INC. Date: _________________________________
Reviewed By: __________________________
Compliance Status: Yes / No
__________________________________________
By; ________________________________
Authorized Signer
<PAGE> 31
EXHIBIT D
---------
COMPLIANCE CERTIFICATE
----------------------
Borrower: Concord Communications, Inc. Lender: Silicon Valley Bank
33 Boston Post Road West 3003 Tasman Drive
Marlboro, MA 01752 Santa Clara, CA 95054
The undersigned authorized officer of CONCORD COMMUNICATIONS, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated as of April 3, 1997 between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
___________ of all required conditions and terms except as noted below and (ii)
all representations and warranties of Borrower stated in the Agreement are true,
accurate and complete in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principals (GAAP) and are consistent from one period to the
next except as explained in an accompanying letter or footnotes. The Officer
further expressly acknowledges Borrower may not request any borrowings at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that such compliance is determined not just at the
date this certificate is delivered.
Please indicate compliance status by circling Yes/No under Complies column
_______________________________________________________________________________'
Reporting Covenant Required Complies
Financial statements pre IPO+ Monthly within 25 days Yes No
Financial statements post IPO+ Quarterly within 25 days unless required Yes No
more frequently by Bank while Credit
Extensions are outstanding
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings pre IPO+ Weekly within 3 business days Yes No
A/R & A/P Agings post IPO+ Quarterly within 25 days unless required Yes No
more frequently by Bank while Credit
Extensions are outstanding
A/R Audit Prior to initial Advance Yes No
________________________________________________________________________________
________________________________________________________________________________
Financial Covenants Required Actual Complies
- ------------------- -------- ------ --------
MAINTAIN ON A QUARTERLY BASIS:
MinimumQuick Ratio post IPO only+ 2.0:1.0 _____:1.0 Yes No
Minimum new equity or subordinated
debt prior to 1/l/98 $3,000,000 $________ Yes No
Minimum TNW post IPO+ $10,000,000 $________ Yes No
Profitability - max loss QE 3/31/97 pre
IPO only+ ($1,300,000) $________ Yes No
Profitability - max loss QE 6/30/97 pre
IPO only+ ($ 900,000) $________ Yes No
Profitability - max loss QE 9/30/97 pre
IPO only+ ($250,000) $________ Yes No
Profitability - min profit after 9/30/97
pre IPO only+ $1.00 $________ Yes No
Minimum revenues QE 3/31/97. pre IPO
only+ $3,000,000 $________ Yes No
Minimum revenues QE 6/30/97 pre IPO
only+ $3,500,000 $________ Yes No
Minimum revenues QE 9/30/97 pre IPO
only+ $4,000,000 $________ Yes No
________________________________________________________________________________
+ IPO of at least $15,000,000.
<PAGE> 32
-5-
COMPLIANCE CERTIFICATE
----------------------
PAGE 2
------
Comments Regarding Exceptions:
Sincerely,
__________________________________ ___________________________________
Signature
BANK USE ONLY
___________________________________ Received By: ___________________
TITLE Dated: _________________________
Reviewed BY: ___________________
___________________________________ Compliance Status: Yes / No
DATE ___________________________________
<PAGE> 1
Exhibit 10.02
REVOLVING PROMISSORY NOTE
$2,500,000 Marlboro, Massachusetts
April 3, 1997
FOR VALUE RECEIVED, the undersigned, CONCORD COMMUNICATIONS, INC., a
Massachusetts corporation (the "Borrower"), promises to pay to the order of
Silicon Valley Bank, a California-chartered bank ("Bank"), at such place as the
holder hereof may designate, in lawful money of the United States of America,
the aggregate unpaid principal amount of all advances ("Advances") made by Bank
to Borrower in accordance with the terms of the Loan and Security agreement
between Borrower and Bank of even date herewith, as amended from time to time
(the "Loan agreement"), up to a maximum principal amount of TWO MILLION FIVE
HUNDRED THOUSAND AND NO/100THS Dollars ($2,500,000), until paid in full.
Borrower shall also pay interest on the aggregate unpaid principal amount of
such Advances at the rates and in accordance with the terms of the Loan
Agreement. The entire principal amount and all accrued interest shall be due and
payable on April 2, 1998.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives the presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
<PAGE> 2
-2-
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
CONCORD COMMUNICATIONS, INC.
By: /s/ Gary Haroian
------------------------------------
Gary Haroian, CFO
ATTEST: /s/ Ellen C. Blanchard
-----------------------------------
Notary Public
<PAGE> 1
Exhibit 10.03
CONCORD COMMUNICATIONS, INC.
33 Boston Post Road West
Marlborough, MA 01752
June 9, 1997
Fleet National Bank
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings between
Concord Communications, Inc., a Massachusetts corporation (the "Borrower") and
Fleet National Bank (the "Bank") with respect to Term Loans (hereinafter
defined) to be made by the Bank to the Borrower. In consideration of the mutual
promises contained herein and in the other documents referred to below, and for
other good and valuable consideration, receipt and sufficiency of which are
hereby acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1 REFERENCES TO DOCUMENTS. Reference is made to (i) that certain $
1,000,000 face principal amount promissory note (the "Term Note") of even date
herewith made by the Borrower and payable to the order of the Bank, and (ii)
that certain Security Agreement of even date herewith from the Borrower to the
Bank (the "Security Agreement").
1.2. The BORROWING; TERM NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make one or more loans (the "Term Loans")
to the Borrower, as the Borrower may request, on any Business Day prior to the
first to occur of (i) December 31, 1997 or (ii) the earlier termination of the
within-described term loan facility pursuant to (section) 5.2 or (section)6.7.
A Term Loan shall be made, not more than once per calendar quarter (except that
more than one Term Loan may be made in any calendar quarter provided that each
additional Term Loan in any one calendar quarter is in an amount of at least
$250,000), in order to finance costs of Qualifying Equipment acquired by the
Borrower within the 90 days preceding the request for such Term Loan and/or
Qualifying Software/Engineering Costs incurred by the Borrower within the 90
days preceding such request, each such Term Loan to be in such amount as may be
requested by the Borrower; provided that (i) no Term Loan will be made after
December 31, 1997; (ii) the aggregate original principal amounts of all Term
Loans will not exceed $1,000,000; and (iii) no Term Loan will be in an amount
in excess of the sum of (1) 90% of the invoiced actual costs of the property
constituting the items of Qualifying Equipment with respect to which such Term
Loan is made (excluding taxes, shipping, software, installation charges,
training fees and other "soft costs"), PLUS (2) 90% of the Qualifying
Software/Engineering Costs with respect to which such Term Loan is made
(provided that the Qualifying Software/Engineering Costs which can be used to
support Term Loans may not exceed $300,000 in the aggregate). Prior to the
making of
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each Term Loan, and as a precondition thereto, the Borrower will provide the
Bank with: (i) invoices supporting the costs of the relevant Qualifying
Equipment (and, if relevant, invoices supporting the Qualifying
Software/Engineering Costs); (ii) such evidence as the Bank may reasonably
require showing that the Qualifying Equipment (and any software the purchase of
which is included within Qualifying Software/Engineering Costs) has been
delivered to and installed at the Borrower's Marlborough, MA premises, has
become fully operational, has been paid for by the Borrower and is owned by the
Borrower free of all liens and interests of any other Person (other than the
security interest of the Bank pursuant to the Security Agreement); (iii)
supplements to the Security Agreement and related Uniform Commercial Code
financing statements reflecting the relevant Qualifying Equipment with respect
to which such Term Loan is being made and partial releases from Silicon Valley
Bank relating to such Qualifying Equipment (all of the foregoing to be in form
and substance satisfactory to the Bank); and (iv) evidence satisfactory to the
Bank that the Qualifying Equipment is fully insured against casualty loss, with
insurance naming the Bank as secured party and first loss payee. The Term Loans
will be evidenced by the Term Note. Interest on the Term Loans shall be payable
at the times and at the rate provided for in the Term Note. Overdue principal of
any Term Loan and, to the extent permitted by law, overdue interest shall bear
interest at a fluctuating rate per annum which at all times shall be equal to
the sum of (i) two (2%) percent per annum plus (ii) the per annum rate otherwise
payable under the Term Note (but in no event in excess of the maximum rate from
time to time permitted by then applicable law), compounded monthly and payable
on demand. The Borrower hereby irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to the Term Note or on the books of the Bank,
at or following the time of making each Term Loan and of receiving any payment
of principal, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the Term Loans. The amount so noted shall
constitute presumptive evidence as to the amount owed by the Borrower with
respect to principal of the Term Loans. Failure of the Bank to make any such
notation shall not, however, affect any obligation of the Borrower or any right
of the Bank hereunder or under the Term Note.
1.3. PRINCIPAL REPAYMENT OF TERM LOANS. The Borrower shall repay
principal of the Term Loans in 36 equal consecutive monthly installments,
commencing on January 30, 1998 and continuing on the last Business Day of each
month thereafter. Each such monthly installment of principal shall be in an
amount equal to 1/36th of the aggregate principal amount of the Term Loans
outstanding at the close of business on December 31, 1997. In any event, the
then outstanding principal balance of the Term Loans and all interest then
accrued but unpaid thereon shall be due and payable in full on the December 29,
2000. The Borrower may prepay, at any time or from time to time, without premium
or penalty, the whole or any portion of any Term Loan; provided that each such
principal prepayment shall be accompanied by payment of all interest under the
Term Note accrued but unpaid to the date of payment. Any partial prepayment of
principal of the Term Loans will be applied to installments of principal of the
Term Loans thereafter coming due in inverse order of normal maturity. Amounts
repaid or prepaid with respect to the Term Loans are not available for
reborrowing.
1.4. ADVANCES AND PAYMENTS. The proceeds of all Term Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of
<PAGE> 3
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each Term Loan will be used by the Borrower solely for acquisition of Qualifying
Equipment and/or for payment of Qualifying Software/Engineering Costs.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums due,
from time to time, under this letter agreement and/or the Term Note; and will
thereafter notify the Borrower of the amount so charged. The failure of the Bank
so to charge any account or to give any such notice shall not affect the
obligation of the Borrower to pay interest, principal or other sums as provided
herein or in the Term Note.
Whenever any payment to be made to the Bank hereunder or under the Term
Note shall be stated to be due on a day which is not a Business Day, such
payment may be made on the next succeeding Business Day, and interest payable on
each such date shall include the amount thereof which shall accrue during the
period of such extension of time. All payments by the Borrower hereunder and/or
in respect of the Term Note shall be made net of any impositions or taxes and
without deduction, set-off or counterclaim, notwithstanding any claim which the
Borrower may now or at any time hereafter have against the Bank. All payments of
interest, principal and any other sum payable hereunder and/or under the Term
Note shall be made to the Bank, in immediately available funds, at its office at
75 State Street, Boston, MA 02109 or to such other address as the Bank may from
time to time direct. All payments received by the Bank after 2:00 p.m. on any
day shall be deemed received as of the next succeeding Business Day. All monies
received by the Bank shall be applied first to fees, charges, costs and expenses
payable to the Bank under this letter agreement, the Term Note and/or any of the
other Loan Documents, next to interest then accrued on account of any Term Loans
and only thereafter to principal of the Term Loans. All interest and fees
payable hereunder and/or under the Term Note shall be calculated on the basis of
a 360-day year for the actual number of days elapsed.
1.5. CONDITIONS TO ADVANCE. Prior to the making of the initial Term
Loan, the Borrower shall deliver to the Bank duly executed copies of this letter
agreement, the Security Agreement, the Term Note and the documents and other
items listed on the Closing Agenda delivered herewith by the Bank to the
Borrower, all of which, as well as all legal matters incident to the
transactions contemplated hereby, shall be satisfactory in form and substance to
the Bank and its counsel.
Without limiting the foregoing, any Term Loan (including the initial
Term Loan) is subject to the further conditions precedent that on the date on
which such Term Loan is made (and after giving effect thereto):
(a) All statements, representations and warranties of the Borrower
made in this letter agreement (other than in Subsection 2. 1 (b) below) and/or
in the Security Agreement shall continue to be correct in all material respects
as of the date of such Term Loan.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the date of such Term Loan.
<PAGE> 4
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(c) No event which constitutes, or which with notice or lapse of
time or both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the
financial condition of the Borrower from that disclosed in the financial
statements then most recently furnished to the Bank.
Each request by the Borrower for any Term Loan, and each acceptance by
the Borrower of the proceeds of any Term Loan, will be deemed a representation
and warranty by the Borrower that at the date of such Term Loan and after giving
effect thereto all of the conditions set forth in the foregoing clauses (a)-(d)
of this sec.1.5 will be satisfied.
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this letter agreement and to make Term Loans hereunder, the Borrower
warrants and represents to the Bank as follows:
(a) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts. The
Borrower has full corporate power to own its property and conduct its business
as now conducted and as proposed to be conducted, to grant the security
interests contemplated by the Security Agreement and to enter into and perform
this letter agreement and the other Loan Documents. The Borrower is duly
qualified to do business and in good standing in each other jurisdiction in
which the Borrower maintains any plant, office, warehouse or other facility and
in each other jurisdiction where the failure so to qualify could (singly or in
the aggregate with all other such failures) have a material adverse effect on
the financial condition, business or prospects of the Borrower, all such
jurisdictions being listed on item 2.1(a) of the attached Disclosure Schedule.
At the date hereof, the Borrower has no Subsidiaries, except as shown on said
item 2. 1 (a) of the attached Disclosure Schedule. The Borrower is not a member
of any partnership or joint venture.
(b) At the date of this letter agreement, all of the outstanding
shares of capital stock of the Borrower is owned, of record and/or beneficially,
as set forth on item 2.1(b) of the attached Disclosure Schedule. The provisions
of sec.1.5 above will not be deemed to require the updating of the
representation made in the immediately preceding sentence.
(c) The execution, delivery and performance by the Borrower of
this letter agreement and each of the other Loan Documents have been duly
authorized by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require as a prerequisite to
effectiveness any filing (other than filings under the Uniform
Commercial Code), registration, consent or approval under, any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award recently in effect having applicability to the
Borrower;
<PAGE> 5
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(ii) violate any provision of the charter or by-laws of
the Borrower, or result in a breach of or constitute a default or
require any waiver or consent under any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which the Borrower or any of its
properties may be bound or affected or require any other consent of any
Person; or
(iii) result in, or require, the creation or imposition of
any lien, security interest or other encumbrance (other than in favor
of the Bank), upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents
delivered herewith has been duly executed and delivered by the Borrower and each
is a legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its respective terms.
(e) Except as described on item 2. 1 (e) of the attached
Disclosure Schedule, there are no actions, suits, proceedings or investigations
pending or, to the knowledge of the Borrower, threatened by or against the
Borrower or any Subsidiary before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any action taken or to be taken in connection with the
transactions contemplated hereby or thereby or which in any single case or in
the aggregate may result in any material adverse change in the business,
prospects, condition, affairs or operations of the Borrower or any Subsidiary.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Neither the Borrower nor any Subsidiary of the
Borrower is in material violation of any term of any mortgage, indenture or
judgment, decree or order, or any other material instrument, contract or
agreement to which it is a party or by which any of its property is bound.
(g) The Borrower has filed (and has caused each of its
Subsidiaries to file) all federal, foreign, state and local tax returns, reports
and estimates required to be filed by the Borrower and/or by any such
Subsidiary. All such filed returns, reports and estimates are proper and
accurate and the Borrower or the relevant Subsidiary has paid all taxes,
assessments, impositions, fees and other governmental charges required to be
paid in respect of the periods covered by such returns, reports or estimates. No
deficiencies for any tax, assessment or governmental charge have been asserted
or assessed, and the Borrower knows of no material tax liability or basis
therefor.
(h) The Borrower is in compliance (and each Subsidiary of the
Borrower is in compliance) with all requirements of law, federal, foreign, state
and local, and all requirements of all governmental bodies or agencies having
jurisdiction over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, failure to comply with any of which
could (singly or in the aggregate with all other such failures) have a material
adverse
<PAGE> 6
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effect upon the assets, business, financial condition or prospects of the
Borrower or any such Subsidiary. Without limiting the foregoing, the Borrower
has all of the material franchises, licenses, leases, permits, certificates and
authorizations needed for the conduct of its business and the use of its
properties and all premises occupied by it, as now conducted, owned and used and
as proposed to be conducted, owned and used.
(i) The audited financial statements of the Borrower and Subsidiaries
as at December 31, 1996 and the management-generated unaudited statements of the
Borrower and Subsidiaries as at March 31, 1997, each heretofore delivered to the
Bank, are complete and accurate and fairly present the financial condition of
the Borrower and Subsidiaries as at the respective dates thereof and for the
periods covered thereby, except that the management-generated statements do not
have footnotes and thus do not present the information which would normally be
contained in footnotes to financial statements and are subject to normal
year-end adjustments, which shall not be material. Neither the Borrower nor any
of the Borrower's Subsidiaries has any liability, contingent or otherwise, not
disclosed in the aforesaid financial statements or in any notes thereto that
could materially affect the financial condition of the Borrower. Since December
31, 1996, there has been no material adverse development in the business,
condition or prospects of the Borrower, and the Borrower has not entered into
any material transaction other than in the ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at 33 Boston Post Road West, Marlborough, MA 01752 (the
"Premises"). None of the Collateral will be kept at any other address. Item
2.1(j) of the attached Disclosure Schedule sets forth the names and addresses of
all record owners of the Premises.
(k) The Borrower owns or has a valid right to use all of the material
patents, licenses, copyrights, trademarks, trade names and franchises now being
used or necessary to conduct its business. The conduct of the Borrower's
business as now operated does not conflict with valid patents, licenses,
copyrights, trademarks, trade names or franchises of others in any manner that
could materially adversely affect the business or assets or condition, financial
or otherwise, of the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which
materially limits or restricts that person's right to engage in the type of
business activity conducted or proposed to be conducted by the Borrower or which
grants to anyone other than the Borrower any rights in any inventions or other
ideas susceptible to legal protection developed or conceived by any such officer
or key employee.
(m) The Borrower is not a party to any contract or agreement which now
has or, as far as can be foreseen by the Borrower at the date hereof, may have a
material adverse effect on the financial condition, business, prospects or
properties of the Borrower.
<PAGE> 7
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III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or all or any portion of any Term
Loan or any of the other Obligations shall be outstanding:
3.1. LEGAL EXISTENCE; QUALIFICATION; COMPLIANCE. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will qualify to do business and will remain qualified and in good
standing (and the Borrower will cause each Subsidiary of the Borrower to qualify
and remain qualified and in good standing) in each other jurisdiction where the
Borrower or such Subsidiary, as the case may be, maintains any plant, office,
warehouse or other facility and in each other jurisdiction where the failure so
to qualify could (singly or in the aggregate with all other such failures) have
a material adverse effect on the financial condition, business or prospects of
the Borrower or any such Subsidiary. The Borrower will comply (and will cause
each Subsidiary of the Borrower to comply) with its charter documents and
by-laws. The Borrower will comply with (and will cause each Subsidiary of the
Borrower to comply with) all applicable laws, rules and regulations (including,
without limitation, ERISA and those relating to environmental protection) other
than (i) laws, rules or regulations the validity or applicability of which the
Borrower or such Subsidiary shall be contesting in good faith by appropriate
proceedings and as to which adequate reserves are maintained and (ii) those
laws, rules and regulations the failure to comply with any of which could not
(singly or in the aggregate) have a material adverse effect on the financial
condition, business or prospects of the Borrower and its Subsidiaries taken as a
whole.
3.2. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets used in its business in good working order and
condition, making all necessary repairs thereto and replacements thereof. The
Borrower will maintain all such insurance as may be required under the Security
Agreement and will also maintain, with financially sound and reputable insurers,
insurance with respect to its property and business against such liabilities,
casualties and contingencies and of such types and in such amounts as shall be
reasonably satisfactory to the Bank from time to time and in any event all such
insurance as may from time to time be customary for companies conducting a
business similar to that of the Borrower in similar locales.
3.3. PAYMENT OF TAXES AND CHARGES. The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation taxes, assessments, charges or
levies relating to real and personal property, franchises, income, unemployment,
old age benefits, withholding, or sales or use, prior to the date on which
penalties would attach thereto, and all lawful claims (whether for any of the
foregoing or otherwise) which, if unpaid, might give rise to a lien upon any
property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good faith and by appropriate proceedings and for
which the Borrower has established and is maintaining adequate reserves. The
Borrower will pay, and will cause each of its Subsidiaries to
<PAGE> 8
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pay, in a timely manner, all material lease obligations, material trade debt,
material purchase money obligations and material equipment lease obligations;
provided that the Borrower will not be deemed to be required by this sentence to
pay any such lease obligations, trade debt, purchase money obligations or
equipment lease obligations (other than any Indebtedness to the Bank) if the
Borrower is contesting same in good faith, so long as, in each such case,
adequate reserves have been established and are maintained and the Borrower's
nonpayment is not jeopardizing any assets or rights material to the Borrower's
business. The Borrower will perform and fulfill all material covenants and
agreements under any material leases of real estate, material agreements
relating to purchase money debt, material equipment leases and other material
contracts; provided that the Borrower will not be deemed to be required by this
sentence to perform or fulfill any such covenants or agreements (other than
agreements with the Bank) if the Borrower is contesting same in good faith, so
long as, in each such case, adequate reserves have been established and are
maintained and the Borrower's nonperformance is not jeopardizing any assets or
rights material to the Borrower's business. The Borrower will maintain in full
force and effect, and comply with the terms and conditions of, all permits,
permissions and licenses necessary or desirable for its business.
3.4. ACCOUNTS. The Borrower will maintain an operating account with
the Bank.
3.5. CONDUCT OF BUSINESS. The Borrower will conduct, in the
ordinary course, the business in which it is presently engaged. The Borrower
will not, without the prior written consent of the Bank, directly or indirectly
(itself or through any Subsidiary) enter into any other unrelated lines of
business, businesses or ventures.
3.6. REPORTING REQUIREMENTS. The Borrower will furnish to the Bank
(or cause to be furnished to the Bank):
(i) Within 90 days after the end of each fiscal year of
the Borrower, a copy of the annual audit report for such fiscal year
for the Borrower, including therein consolidated and consolidating
balance sheets of the Borrower and Subsidiaries as at the end of such
fiscal year and related consolidated and consolidating statements of
income, stockholders' equity and cash flow for the fiscal year then
ended. The annual consolidated financial statements shall be certified
by independent public accountants selected by the Borrower and
reasonably acceptable to the Bank, such certification to be in such
form as is generally recognized as "unqualified".
(ii) Within 45 days after the end of each fiscal quarter
of the Borrower, consolidated and consolidating balance sheets of the
Borrower and Subsidiaries and related consolidated and consolidating
statements of income and cash flow, unaudited but complete and accurate
and prepared in accordance with generally accepted accounting
principles consistently applied fairly presenting the financial
condition of the Borrower and Subsidiaries as at the dates thereof and
for the periods covered thereby (except that such quarterly statements
need not contain footnotes) and certified as accurate by the chief
financial officer of the Borrower, such balance sheets to be as at the
end of such fiscal quarter and such statements of income and cash flow
to be for such fiscal quarter
<PAGE> 9
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and for the year to date, in each case together with a comparison to
budget and a comparison to the results for the corresponding fiscal
period of the immediately prior fiscal year.
(iii) At the time of delivery of each annual or quarterly
financial statement of the Borrower, a certificate executed by the
chief financial officer of the Borrower stating that he or she has
reviewed this letter agreement and the other Loan Documents and has no
knowledge of any default by the Borrower in the performance or
observance of any of the provisions of this letter agreement or of any
of the other Loan Documents or, if he or she has such knowledge,
specifying each such default and the nature thereof. Each financial
statement given as at the end of any fiscal quarter of the Borrower
will also set forth the calculations necessary to evidence compliance
with (sections) 3.7-3.10.
(iv) Promptly after receipt, a copy of all audits or
reports submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any letter of comments directed by such accountants to
the management of the Borrower.
(v) As soon as possible and in any event within five days
after the occurrence of any Default or Event of Default, the statement
of the Borrower setting forth details of each such Default or Event of
Default and the action which the Borrower proposes to take with respect
thereto.
(vi) Promptly after the commencement thereof, notice of
all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, to which the Borrower or any Subsidiary of the
Borrower is a party.
(vii) Promptly upon filing any registration statement or
listing application, a copy of same.
(viii) If the Borrower at any time has a class of securities
which is publicly traded, a copy of each periodic or current report of
the Borrower filed with the SEC or any successor agency and each annual
report, proxy statement and other communication sent by the Borrower to
shareholders or other securityholders generally, such copy to be
provided to the Bank promptly upon such filing with the SEC or such
communication with shareholders or securityholders, as the case may be.
(ix) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which would have a
material adverse effect on the Borrower or its business, properties,
assets, Subsidiaries or condition, financial or otherwise.
<PAGE> 10
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(x) Promptly upon request, such other information respecting
the financial condition, operations, receivables, inventory, machinery
or equipment of the Borrower or any Subsidiary as the Bank may from
time to time reasonably request.
3.7. CAPITAL BASE. The Borrower will maintain, as at the end of
each fiscal quarter (commencing with December 31, 1997), a consolidated Capital
Base of not less than the then-effective Capital Base Requirement. As used
herein, the "Capital Base Requirement" will be $5,000,000 as at December 31,
1997; and as at the last day of each fiscal quarter of the Borrower thereafter
(beginning with March 31, 1998) the Capital Base Requirement will be deemed to
become an amount equal to the sum of: (i) that Capital Base Requirement which
had been in effect on the last day of the immediately preceding fiscal quarter,
PLUS (ii) 75% of the proceeds of any equity securities sold by the Borrower
during the fiscal quarter then ended and 75% of the proceeds of any Subordinated
Debt issued by the Borrower and/or its Subsidiaries during such fiscal quarter
(nothing contained herein being deemed to approve the issuance of any such
Subordinated Debt), PLUS (iii) 75% of the consolidated Net Income of the
Borrower and Subsidiaries during said fiscal quarter then ended (but without
giving effect to any Net Income which is less than zero for any fiscal quarter).
3.8. LIQUIDITY. The Borrower will maintain as at the end of each
fiscal quarter of Borrower (commencing with December 31, 1997), a ratio of (x)
the Net Quick Assets of the Borrower and its Subsidiaries on a consolidated
basis to (y) the Adjusted Current Liabilities of the Borrower and its
Subsidiaries on a consolidated basis, which ratio shall be not less than 1.5 to
1.
3.9. LEVERAGE RATIO. The Borrower will maintain as at the last day
of each fiscal quarter of the Borrower (commencing with December 31, 1997) on a
consolidated basis a Leverage Ratio of not more than 1.0 to 1. As used herein,
"Leverage Ratio" means the ratio of (x) Adjusted Senior Debt of the Borrower and
Subsidiaries to (y) Capital Base of the Borrower.
3.10. PROFITABILITY. The Borrower's results for its fiscal quarter
ended March 31, 1997 will not show a consolidated quarterly Operating Loss in
excess of $1,500,000. The Borrower will not incur a consolidated quarterly
Operating Loss in excess of $750,000 for its fiscal quarter ending June 30,
1997, nor a consolidated quarterly Operating Loss in excess of $250,000 for its
fiscal quarter ending September 30, 1997. The Borrower will achieve an Operating
Profit of at least $ 1.00 for its fiscal quarter ending December 31, 1997 and
for each fiscal quarter thereafter.
3.11. BOOKS AND RECORDS. The Borrower will maintain (and will cause
each of its Subsidiaries to maintain) complete and accurate books, records and
accounts which will at all times accurately and fairly reflect all of its
transactions in accordance with generally accepted accounting principles
consistently applied. The Borrower will, at any reasonable time and from time to
time upon reasonable prior notice and during normal business hours (and at any
time and without any necessity for notice following the occurrence of an Event
of Default), permit the Bank, and any agents or representatives thereof, to
examine and make copies of and take abstracts from the records and books of
account of, and visit the properties of the Borrower and any of its
Subsidiaries, and to discuss its affairs, finances and accounts with its
officers, directors
<PAGE> 11
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and/or independent accountants, all of whom are hereby authorized and directed
to cooperate with the Bank in carrying out the intent of this (section) 3.11.
Each financial statement of the Borrower hereafter delivered pursuant to this
letter agreement will be complete and accurate and will fairly present the
financial condition of the Borrower as at the date thereof and for the periods
covered thereby.
3.12. LANDLORD'S WAIVER. Prior to the making of the first Term Loan,
the Borrower will obtain, and will thereafter maintain in effect at all times,
waivers from the owners of all premises in which any Collateral is located, such
waivers to be in form and substance satisfactory to the Bank.
3.13. SUBORDINATION. Prior to the making of the first Term Loan, the
Borrower will obtain, and will thereafter maintain in effect at all times,
subordination agreements in form and substance satisfactory to the Bank
providing for full subordination of all of the obligations (if any) of the
Borrower listed on item 4.1 of the attached Disclosure Schedule, other than
capitalized leases.
3.14. ADDITIONAL EQUITY. During the period May 1, 1997- January 31,
1998, the Borrower will receive not less than $7,000,000 as the proceeds of new
equity capital sold by the Borrower. Prior to the making of the first Term Loan,
the Borrower will demonstrate to the Bank that it has received written
commitments (in form and substance reasonably satisfactory to the Bank) for the
purchase of such equity capital by Persons reasonably satisfactory to the Bank.
IV. NEGATIVE COVENANTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or all or any portion of any Term
Loan or any of the other Obligations shall be outstanding:
4.1. INDEBTEDNESS. The Borrower will not create, incur, assume or
suffer to exist any Indebtedness (nor allow any of its Subsidiaries to create,
incur, assume or suffer to exist any Indebtedness) except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Term Note;
(ii) Indebtedness of the Borrower or any Subsidiary for
taxes, assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or for purchase money Indebtedness
with respect to fixed assets) incurred upon customary terms in the ordinary
course of business;
(iv) purchase money Indebtedness (including, without
limitation, Indebtedness in respect of capitalized equipment leases) owed to
equipment vendors and/or lessors for
<PAGE> 12
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equipment purchased or leased by the Borrower subsequent to the date of this
letter agreement for use in the Borrower's business, provided that the total of
Indebtedness permitted under this clause (iv) plus presently-existing equipment
financing (and renewals and replacements) permitted under clause (v) of this
(section) 4.1 will not exceed $1,000,000 in the aggregate outstanding at any one
time;
(v) other Indebtedness (not described in any of clauses
(i)-(iv) above) existing at the date hereof, but only to the extent set forth on
item 4.1 of the attached Disclosure Schedule and any renewals or refinancing
thereof so long as (A) the principal amount of such Indebtedness is not
increased and (B) the sum of (1) the equipment financing permitted under this
clause (v) plus (2) new financing permitted pursuant to clause (iv) above does
not exceeded $ 1,000,000 in the aggregate; and
(vi) any guaranties or other contingent liabilities
expressly permitted pursuant to section 4.3.
4.2. LIENS. The Borrower will not create, incur, assume or suffer
to exist (nor allow any of its Subsidiaries to create, incur, assume or suffer
to exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter acquired, except that
the foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges
or levies on property of the Borrower or any of its Subsidiaries if the same
shall not at the time be delinquent or thereafter can be paid without interest
or penalty or are being contested in good faith and by appropriate proceedings
and as to which adequate reserves are maintained;
(ii) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar Liens arising in the
ordinary course of business for sums not yet due or which are being contested in
good faith and by appropriate proceedings which serve as a matter of law to stay
the enforcement thereof and as to which adequate reserves are maintained;
(iii) pledges or deposits under workmen's compensation
laws, unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors
securing purchase money Indebtedness to the extent permitted by clause (iv) of
(section) 4.1; provided that no such Lien will extend to any property of the
Borrower other than the specific items of equipment financed; or
(vi) other Liens existing at the date hereof, but only to
the extent and with the relative priorities set forth on item 4.2 of the
attached Disclosure Schedule and any renewals and
<PAGE> 13
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extensions thereof, provided that no such renewal or extension will encumber
property of the Borrower not so encumbered at the date of this letter agreement.
Without limitation of the foregoing, the Borrower covenants and agrees
that it will not enter into (and represents and warrants that it is not now a
party to or subject to) any agreement or understanding with any Person other
than the Bank which could prohibit or restrict in any manner the right of the
Borrower to grant Liens on its assets to the Bank.
4.3. GUARANTIES. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, and (ii) guaranties
existing at the date hereof and described on item 4.3 of the attached Disclosure
Schedule.
4.4. DIVIDENDS. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock.
4.5. LOANS AND ADVANCES. The Borrower will not make (and will not
permit any Subsidiary to make) any loans or advances to any Person, including,
without limitation, the Borrower's directors, officers and employees, except
advances to such directors, officers or employees with respect to expenses
incurred by them in the ordinary Course of their duties and advances against
salary, all of which loans and advances will not exceed, in the aggregate,
$100,000 outstanding at any one time.
4.6. INVESTMENTS. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase any stock or securities of any
Person (nor will the Borrower permit any of its Subsidiaries to invest in,
purchase or hold any such stock or securities) except: (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof, (ii) other investment grade debt securities;
(iii) mutual funds, the assets of which are primarily invested in items of the
kind described in the foregoing clauses (i) and (ii) of this 4.6; (iv) deposits
with or certificates of deposit issued by the Bank and any other obligations of
the Bank or the Bank's parent; (v) deposits in any other bank organized in the
United States having capital in excess of $100,000,000; and (vi) investments in
any Subsidiaries now existing or hereafter created by the Borrower pursuant to
4.7 below; provided that in any event the Tangible Net Worth of the Borrower
alone (exclusive of its investment in Subsidiaries and any debt owed by any
Subsidiary to the Borrower) will not be less than 90% of the consolidated
Tangible Net Worth of the Borrower and Subsidiaries.
<PAGE> 14
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4.7. SUBSIDIARIES; ACQUISITIONS. The Borrower will not, without the
prior written consent of the Bank, form or acquire any Subsidiary (other than
overseas sales and marketing Subsidiaries) or make any other acquisition of the
stock of any other Person or of all or substantially all of the assets of any
other Person.
The Borrower will not become a partner in any partnership.
4.8. MERGER. The Borrower will not, without the prior written consent
of the Bank, merge or consolidate with any Person, or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than (i) sale of inventory in the ordinary course, or (ii)
sale or other disposition of items of used equipment which are not included
within the Collateral.
4.9. AFFILIATE TRANSACTIONS. The Borrower will not, without prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms-length transaction with any Person not an
affiliate; provided that nothing in this (section) 4.9 shall be deemed to
restrict the payment of salary or other similar payments to any officer or
director of the Borrower at a level consistent with the salary and other
payments being paid at the date of this letter agreement and heretofore
disclosed in writing to the Bank, nor to prevent the hiring of additional
officers at a salary level consistent with industry practice, nor to prevent
reasonable periodic increases in salary. For the purposes of this letter
agreement, "affiliate" means any Person which, directly or indirectly, controls
or is controlled by or is under common control with the Borrower; any officer
or director or former officer or director of the Borrower; any Person owning of
record or beneficially, directly or indirectly, 5% or more of any class of
capital stock of the Borrower or 5% or more of any class of capital stock or
other equity interest having voting power (under ordinary circumstances) of any
of the other Persons described above; and any member of the immediate family of
any of the foregoing. "Control" means possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of any
Person, whether through ownership of voting equity, by contract or otherwise
4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its
corporate name or legal structure, nor will the Borrower change its chief
executive offices or principal place of business from the address described in
(section) 2.1(j) above, nor will the Borrower remove any books or records from
such address, nor will the Borrower keep any Collateral at any location other
than the Premises without, in each instance, giving the Bank at least 30 days'
prior written notice and providing all such financing statements, certificates
and other documentation as the Bank may request in order to maintain the
perfection and priority of the security interests granted or intended to be
granted pursuant to the Security Agreement. The Borrower will not change its
fiscal year or methods of financial reporting unless, in each instance, prior
written notice of such change is given to the Bank and prior to such change the
Borrower enters into amendments to this letter agreement in form and substance
reasonably satisfactory to the Bank in order to preserve unimpaired the rights
of the Bank and the obligations of the Borrower hereunder.
<PAGE> 15
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4.11. HAZARDOUS WASTE. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, 21 E
or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any potential or known release
or threat of release of any hazardous material or oil at or from any site or
vessel owned, occupied or operated by the Borrower or any Subsidiary of the
Borrower, and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, in reasonable quantities, as long as in any case the Borrower
or the Subsidiary concerned (as the case may be) has obtained and maintains in
effect any necessary governmental permits, licenses and approvals, complies with
all requirements of applicable federal, state and local law relating to such
use, storage or transportation, follows the protective and safe procedures that
a prudent businessperson conducting a business the same as or similar to that of
the Borrower or such Subsidiary (as the case may be) would follow, and disposes
of such materials (not consumed in the ordinary course) only through licensed
providers of hazardous waste removal services.
4.12. NO MARGIN STOCK. No proceeds of any Term Loan shall be used
directly or indirectly to purchase or carry any margin security.
4.13. SUBORDINATED DEBT. The Borrower will not directly or indirectly
make any optional or voluntary prepayment or purchase of Subordinated Debt or
modify, alter or add any provisions with respect to payment of Subordinated
Debt. In any event, the Borrower will not make any payment of any principal of
or interest on any Subordinated Debt at any time when there exists, or if there
would result therefrom, any Default or Event of Default hereunder.
V. DEFAULT AND REMEDIES
5.1. EVENTS OF DEFAULT. The occurrence of any one of the following
events shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Term Note on or before the date when due; or
<PAGE> 16
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(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Term Loan shall at any time prove to have been incorrect in any material respect
when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of (sections) 3.1, 3.3, 3.6, 3.7, 3.8, 3.9 or
3.10 or any provision of Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; or
(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured with respect
to any Subordinated Debt of the Borrower or with respect to any instrument
evidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or
any such Subordinated Debt shall not have been paid when due, whether by
acceleration or otherwise, or shall have been declared to be due and payable
prior to its stated maturity, or any event or circumstance shall occur which
permits, or with the lapse of time or the giving of notice or both would permit,
the acceleration of the maturity of any Subordinated Debt by the holder or
holders thereof; or
(g) Any default shall exist and remain unwaived or uncured with respect
to any other Indebtedness of the Borrower or any Subsidiary of the Borrower for
borrowed money or representing the deferred purchase price of the property in
excess of $100,000 in aggregate principal amount or with respect to any
instrument evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $100,000 in aggregate
principal amount shall not have been paid when due, whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity, or any event or circumstance shall occur which permits, or with the
lapse of time or the giving of notice or both would permit, the acceleration of
the maturity of any such Indebtedness by the holder of holders thereof, or
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary
of the Borrower shall become insolvent or bankrupt or shall cease paying its
debts as they mature or shall make an assignment for the benefit of creditors,
or a trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
<PAGE> 17
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(i) Any attachment, execution or similar process shall be issued or
levied against any property of the Borrower or any Subsidiary and such
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within 10 days after its issue or levy; or
(j) Any final uninsured judgment in excess of $100,000 shall be
entered against the Borrower or any Subsidiary of the Borrower by any court of
competent jurisdiction; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which,
in each case, in the reasonable opinion of the Bank may have a material adverse
effect upon the financial condition of the Borrower or any such Subsidiary; or
(1) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(m) The security interest and liens of the Bank in and on any of the
Collateral covered or intended to be covered by the Security Agreement shall for
any reason (other than written release by the Bank) not be fully perfected liens
and security interests; or
(n) If, at any time, more than 50% of any class of voting stock of the
Borrower shall be held, of record and/or beneficially, by any Person or by any
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder) other than any Person listed on item 5. 1 (n) of the
attached Disclosure Schedule or a group consisting of such Persons; or
(o) If John A. Blaeser shall be any reason cease to be an executive
officer of the Borrower actively involved in the management of the Borrower; or
(p) If any prospective purchaser of equity, as described in (section)
3.14 above, shall fail to purchase such equity as required under its respective
commitment or any such commitment shall terminate for any reason without a
purchase of the equity covered by such commitment; or
(q) There shall occur any other material adverse change in the
conditions (financial or otherwise), operations, properties, assets, liabilities
or earnings of the Borrower.
5.2. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event
of Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
<PAGE> 18
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(a) Declare the entire unpaid principal amount of the Term Note then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the arrangements for Term Loans provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Security
Agreement, under the Term Note and under each and any other agreement with the
Bank; and exercise all other rights and remedies which the Bank may have under
applicable law.
5.3. SET-OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at anytime held or owing by the Bank or any affiliate thereof
to or for the credit or the account of the Borrower against and on account of
the obligations and liabilities of the Borrower to the Bank under this letter
agreement or otherwise, irrespective of whether or not the Bank shall have made
any demand hereunder and without regard for the availability or adequacy of
other collateral. As security for the Obligations, the Borrower grants to the
Bank a security interest with respect to all its deposits and all securities or
other property in the possession of the Bank or any affiliate of the Bank from
time to time, and, upon the occurrence of any Event of Default, the Bank may
exercise all rights and remedies of a secured party under the Uniform Commercial
Code.
VI. MISCELLANEOUS
6.1. COSTS AND EXPENSES. The Borrower agrees to pay, on demand and
delivery of a Bank Certificate therefor, all costs and expenses (including,
without limitation, reasonable legal fees) reasonably incurred by the Bank in
connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Term Note and all other instruments and
documents to be delivered in connection with any Term Loan and any amendments or
modifications of any of the foregoing, as well as the costs and expenses
(including, without limitation, the reasonable fees and expenses of legal
counsel) reasonably incurred by the Bank in connection with preserving,
enforcing or exercising, upon default, any rights or remedies under this letter
agreement, the Security Agreement, the Term Note and all other instruments and
documents delivered or to be delivered hereunder or in connection herewith, all
whether or not legal action is instituted. In addition, the Borrower shall be
obligated to pay any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this letter agreement,
the Security Agreement, the Term Note and all other instruments and documents to
be delivered in connection with any Obligation. Any fees,
<PAGE> 19
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expenses or other charges which the Bank is entitled to receive from the
Borrower under this Section shall bear interest from the date of any demand
therefor until the date when paid at a rate per annum equal to 2% per annum plus
the per annum rate otherwise payable under the Term Note (but in no event in
excess of the maximum rate permitted by then applicable law).
6.2. CAPITAL ADEQUACY. If the Bank shall have determined that the
adoption or phase-in after the date hereof of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such entity regarding
capital adequacy (whether or not having the force of law) has or would have the
effect of reducing the return on the Bank's capital with respect to the Term
Loans and/or the within-described term loan facilities to a level below that
which the Bank could have achieved (taking into consideration the Bank's
policies with respect to capital adequacy immediately before such adoption,
phase-in, change or compliance and assuming that the Bank's capital was then
fully utilized) but for such adoption, phase-in, change or compliance by any
amount deemed by the Bank to be material: (i) the Bank shall promptly after, its
determination of such occurrence give notice thereof to the Borrower; and (ii)
the Borrower shall pay forthwith to the Bank as an additional fee such amount as
the Bank certifies to be the amount that will compensate it for such reduction
with respect to the Term Loans and/or the within-described term loan facilities.
A certificate of the Bank claiming compensation under this Section
shall be conclusive in the absence of manifest error. Such certificate shall set
forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall reduce any
obligation of the Borrower to the Bank under this Section.
6.3. FACILITY FEE. With respect to the Term Loans, the Borrower is
paying to the Bank, at the date of execution and delivery of this letter
agreement a non-refundable facility fee in the amount of $7,500. The fee
described in this Section is in addition to any balances and fees required by
the Bank or any of its affiliates in connection with any other services now or
hereafter made available to the Borrower.
6.4. OTHER AGREEMENTS. The provisions of this letter agreement are not
in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in
<PAGE> 20
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any respect be limited by or be deemed in limitation of any inconsistent or
additional provisions contained in any of the other Loan Documents or any such
other agreement.
6.5. GOVERNING LAW. This letter agreement and the Term Note shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
Concord Communications, Inc.
33 Boston Post Road West
Marlborough, MA 01752
Attention: Gary Haroian, Chief Financial Officer
If to the Bank:
Fleet National Bank
High Technology Group
75 State Street
Boston, MA 02109
Attention: Kimberly Martone, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid.
6.7. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participations in this letter agreement, the Term Loans and/or the Term Note.
The Borrower may terminate this letter agreement and the financing arrangements
made herein by giving written notice of such termination to the Bank provided
that no such termination will release or waive any of the Bank's rights or
remedies or any of the Borrower's obligations under this letter agreement or any
of the other Loan Documents unless and until the Borrower has paid in full the
Term Loans and all interest thereon and all fees and charges payable in
connection therewith.
<PAGE> 21
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6.8. CONSENT TO JURISDICTION. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the Term
Note. The Borrower irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought it such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this (section) 6.8 or as other-wise
permitted by law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this (section) 6.8 either (i) by mailing a copy thereof by registered or
certified mail, postage prepaid, return receipt requested, to it at its
address set forth in (section) 6.4 (as such address may be changed from time to
time pursuant to said (section) 6.4) or (ii) by serving a copy thereof upon it
at its address set forth in (section) 6.6 (as such address may be changed from
time to time pursuant to said (section) 6.6).
6.9. SEVERABILITY. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
VII. DEFINED TERMS
7.1. DEFINITIONS. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Adjusted Current Liabilities" - As determined at any time, all Current
Liabilities of the Borrower and/or any Subsidiary of the Borrower then
outstanding, other than any such Current Liabilities which constitute
discretionary reserves (meaning, for this purpose, only that those amounts
reserved by the Borrower on its balance sheet which are in excess of the amounts
required to be so reserved in accordance with generally accepted accounting
principles) or the current portion of Deferred Revenue.
"Adjusted Senior Debt" - As determined at any time, all Indebtedness of
the Borrower and/or any Subsidiary of the Borrower then outstanding, other than
(i) any such Indebtedness which constitutes Subordinated Debt, and (ii) any such
Indebtedness which constitutes Deferred Revenue.
<PAGE> 22
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"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible
Net Worth of the Borrower and Subsidiaries then existing, PLUS (ii) the
principal amount of Subordinated Debt of the Borrower then outstanding (nothing
contained herein being deemed to authorize the incurrence of any such
Subordinated Debt).
"Cash-Equivalents" Each of the following:(i) readily marketable direct
obligations of, or obligations guarantied by, the United States of America or
any agency thereof and entitled to the full faith and credit of the United
States of America, (ii) demand deposits with the Bank or with any other
commercial bank chartered by the United States or by any state and having
undivided capital and surplus of not less than $1,000,000,000, or (iii)
interests in mutual funds, substantially all of the assets of which shall be
governmental obligations of the type described in clause (i) of this sentence.
"Collateral" - All property now or hereafter owned by the Borrower or
in which the Borrower now or hereafter has any interest which is now or
hereafter described as "Collateral" in the Security Agreement.
"Current Liabilities" - As to any Person, all liabilities of such
Person which are properly shown as current liabilities on a balance sheet of
such Person prepared in accordance with generally accepted accounting principles
consistently applied, including, without limitation, all capitalized lease
payments and fixed payments and prepayments of, and sinking fund payments with
respect to, Indebtedness required to be made within one year from the date of
determination.
"Default" - Any event or circumstance which, with the passage of time
or the giving of notice or both, could become an Event of Default under this
letter agreement.
"Deferred Revenue" - Any liabilities of the Borrower and/or any
Subsidiary which represent sums actually received by the Borrower or such
Subsidiary under a software maintenance contract and which, in accordance with
generally accepted accounting principles, are properly shown as "deferred
revenue" on a balance sheet of the Borrower prepared consistently with the
Borrower's audited balance sheet as at December 31, 1995.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally accepted
accounting principles would be included as liabilities upon such Person's
balance sheet at the date as of which Indebtedness, is to be determined, and
shall also include guaranties, endorsements (other than for collection in the
ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of
<PAGE> 23
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others, including any agreement, contingent or otherwise, to furnish funds
through the purchase of goods, supplies or services for the purpose of payment
of the obligations of others.
"Loan Documents" - Each of this letter agreement, the Term Note, the
Security Agreement and each other instrument, document or agreement evidencing,
securing, guaranteeing or relating in any way to any of the Term Loans, all
whether now existing or hereafter arising or entered into.
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined n accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, Cash Equivalents, readily-marketable securities and Receivables (less an
allowance for bad debt consistent with the Borrower's prior experience).
"Obligations" - All Indebtedness, covenants, agreements, liabilities
and obligations, now existing or hereafter arising, made by the Borrower with or
for the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"Operating Profit" - For any fiscal period, the consolidated Net Income
(or, if applicable, the consolidated Net Loss, expressed as a negative number)
of the Borrower and Subsidiaries for such fiscal period, PLUS, without
duplication of any item (i) all federal and state income taxes (but not taxes in
the nature of an AD VALOREM property tax or a sales or excise tax) paid or
accrued with respect to such fiscal period and actually deducted on the
consolidated books of the Borrower for the purposes of computation of
consolidated Net Income (or consolidated Net Loss, as the case may be) for the
fiscal period involved, and (ii) the amount of the provision for depreciation
and/or amortization recognized by the Borrower and actually deducted on the
consolidated books of the Borrower for the purposes of computation of
consolidated Net Income (or consolidated Net Loss, as the case may be) for the
fiscal period involved. If for any fiscal period the result of the calculation
described in the immediately preceding sentence is a negative number, such
result shall be referred to as the "Operating Loss" for such fiscal period.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" - An individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Premises" - As defined in Subsection 2.10).
"Qualifying Equipment" - Equipment (including furniture and fixtures,
but not including prepackaged software) purchased by the Borrower after January
1, 1997 for use in the Borrower's business which meets all of the following
criteria: (i) such equipment consists of one of the items
<PAGE> 24
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shown on the Equipment List heretofore delivered by the Borrower to the Bank or
has otherwise been approved by the Bank for use in supporting a Term Loan, (ii)
each item of such equipment has been delivered to and installed at the Premises
and has become fully operational, (iii) the Borrower has paid in full for each
item of such equipment and holds title to same, free of all interests and claims
of any other Person (other than the security interest of the Bank), and (iv) the
Bank has a fully perfected first security interest in such equipment.
"Qualifying Software/Engineering Costs" - Amounts (not in excess of
$300,000 in the aggregate) incurred and paid by the Borrower to third parties on
or after January 1, 1997 representing the costs of software and/or engineering
relating to the installation and/or operation of any of the Qualifying
Equipment.
"Receivables" - As to any Person, all of such Person's present and
future accounts receivable for goods. sold or for services rendered.
"SEC" - The Securities and Exchange Commission or any successor
thereto.
"Subordinated Debt" - Any Indebtedness of the Borrower which is
expressly subordinated, pursuant to a subordination agreement in form and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person, (ii) any
minority interests in Subsidiaries and (iii) any assets representing amounts due
from any officer or employee of such Person or from any Subsidiary of such
Person) minus the total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense, capitalized software costs and experimental and
development expenses).
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
<PAGE> 25
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This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
CONCORD COMMUNICATIONS, INC.
By: /s/ Gary E. Haroian
-------------------------------
Name: Gary E. Haroian
Title: Vice President, CFO
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Kimberly Marks
------------------------------
Its Vice President
By: /s/ Thomas W. Daires
------------------------------
Its Senior Vice President
<PAGE> 1
Exhibit 10.04
CONCORD COMMUNICATIONS, INC.
1995 STOCK PLAN
---------------
1. PURPOSE. This 1995 Stock Plan (the "Plan') is intended to
provide incentives (a) to the employees of Concord Communications, Inc. (the
"Company'), its parent (if any) and any present or future subsidiaries of the
Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options which qualify
as "incentive stock options" under Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code") granted hereunder ("ISO" or "ISOs"); (b) to
directors, employees and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-qualified Option"
or "Non Qualified Options"); (c) to directors, employees and consultants of the
Company and Related Corporations by providing them with awards of stock in the
Company ("Awards"); and (d) to directors, employees and consultants of the
Company and Related Corporations by providing them with opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereinafter individually as an "Option"
and collectively as "Options." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 425 of the Code.
l.A. OLD PLAN TERMINATED. Henceforth, the Company shall make no
grants under the Company's 1986 Stock Plan. Such Plan shall, however, continue
to govern all Options granted and outstanding thereunder.
2. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered
by the Board of Directors of the Company (the "Board"). The Board may appoint a
Stock Plan Committee (the "Committee") of two or more of its members to
administer this Plan. No member of the Committee, while a member, shall be
eligible to participate in this Plan. Subject to ratification of the grant of
each Option or Award and of the authorization of each Purchase by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee, if so appointed, shall have the authority to (i) determine the
employees of the Company and Related Corporations (from among the class of
employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) to whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options or
Awards may be granted or Purchases made; (iii) determine the option price of
shares subject to each Option, which price [with respect to ISOs] shall not be
less than the minimum specified in paragraph 6, and the purchase price of shares
subject to each Purchase; (iv) determine whether each Option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time
or times when each Option shall become exercisable and the duration of the
exercise period; (vi) determine whether restrictions such as repurchase options
are to be imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any, and (vii) interpret the Plan and prescribe
<PAGE> 2
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and rescind rules and regulations relating to it. If the Committee determines to
issue a Non-Qualified Option, it shall take whatever actions it deems necessary
under Section 422 of the Code and the regulations promulgated thereunder to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Option,
Award or authorization for any Purchase granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option, Award
or authorization for Purchase granted under it.
(b) The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
(c) Notwithstanding the provisions of paragraph 2(a), no
Option, Award or authorization to make a Purchase shall be granted to any person
who is, at the time of the proposed grant, a member of the Board, unless such
grant has been approved by a majority vote of the disinterested members of the
Board. All grants of Options, Awards and authorizations to make Purchases to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Members of the
Board who are either (i) eligible for Options, Awards or authorizations to make
Purchases pursuant to the Plan or (ii) have been granted Options, Awards or
authorizations to make Purchases may vote on any matters affecting the
administration of the Plan or the grant of any Options, Awards or authorizations
to make Purchases pursuant to the Plan, except that no such members shall act
upon the granting to himself of Options, Awards or authorizations to make
Purchases, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to him of Options, Awards or authorizations to make Purchases.
(d) Notwithstanding any other provision of this paragraph 2,
in the event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any grants to directors of Options made at any time from the effective
date of such registration until six months after the termination of such
registration shall be made only by the Board; provided, however, that if a
majority of the Board is eligible to participate in the Plan or in any other
stock option or other stock plan of the Company or any of its affiliates, or has
been so eligible at any time within the preceding year, any grant to directors
of Options must be made by, or only in accordance with the recommendation of, a
Committee consisting of three or more persons, who may but need not be directors
or employees of the Company, appointed by the Board but having full authority to
act in the matter, none of whom is eligible to participate in this Plan or any
other stock option or
<PAGE> 3
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other stock plan of the Company or any of its affiliates, or has been eligible
at any time within the preceding year. The requirements imposed by the preceding
sentence shall also apply with respect to grants to officers who are not also
directors. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any
employee of the Company or any Related Corporation. Those directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any director (whether or not an employee), employee or consultant of
the Company or any Related Corporation. The Committee may take into
consideration a recipient's individual circumstances in determining whether to
grant an ISO, a Non-Qualified Option or an authorization to make a Purchase.
Granting of any Option, Award or authorization to make a Purchase to any
individual or entity shall neither entitle that individual or entity to, nor
disqualify him from, participation in any other grant of Options, Awards or
authorizations to make Purchases.
4. STOCK. The stock subject to Options, Awards and Purchases shall
be authorized but unissued shares of Common Stock of the Company, par value $.0l
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 4,113,573, subject to adjustment as provided in
paragraph 13. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, or if the Company shall reacquire any unvested shares issued pursuant to
Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Options, Awards and authorizations to make Purchases under the Plan.
5. GRANTING OF OPTIONS, AWARDS AND AUTHORIZATIONS TO MAKE
PURCHASES. Options, Awards and authorizations to make Purchases may be granted
under the Plan at any time after December 5, 1995 and prior to December 4, 2005.
The date of grant of an Option, Award or authorization to make a Purchase under
the Plan will be the date specified by the Committee at the time it grants the
Option, Award or authorization to make a Purchase; provided, however, that such
date shall not be prior to the date on which the Committee makes the grant. The
Committee shall have the right, with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16.
6. Minimum Option Price: Iso Limitations.
-------------------------------------
A. The price per share specified in the agreement relating
to each Non-Qualified Option granted under the Plan shall in no event be less
than the lesser of (i) the book value per share of Common Stock as of the end of
the fiscal year of the Company immediately preceding the date of such grant, or
(ii) 50 percent of the fair market value per share of Common Stock on the date
of such grant.
<PAGE> 4
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B. The price per share specified in the agreement relating
to each ISO granted under the Plan shall not be less than the fair market value
per share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement relating to
such ISO shall not be less than 110 percent of the fair market value of Common
Stock on the date of grant.
C. In no event shall the aggregate fair market value
(determined at the time the option is granted) of Common Stock for which
incentive stock options granted to any employee are exercisable for the first
time by such employee during any calendar year (under all stock option plans of
the Company and any Related Corporation) exceed $100,000.
D. If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
stock is traded, if such Stock is then traded on a national securities exchange;
or (ii) the last reported sale price (on that date) of the Common Stock on the
NASDAQ National Market List, if the Common Stock is not then traded on a
national securities exchange; or (iii) the dosing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market list. However, if the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
<PAGE> 5
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B. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
C. Each Option or installment may be exercised at any time
or from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable.
D. The Committee shall have the right to accelerate the
date of exercise of any installment of any Option; provided that, subject to the
provisions of paragraph 21, the Committee shall not accelerate the exercise date
of any installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-qualified Option pursuant to paragraph 16) if
such acceleration would violate the annual vesting limitation contained in
Section 422(b)(7) of the code, as amended, which provides generally that the
aggregate fair market value (determined at the time the option is granted) of
the stock with respect to which ISOs granted to any employee are exercisable for
the first time by such employee during any calendar year (under au plans of the
Company and any Related Corporation) shall not exceed $100,000.
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be
employed by the company and all Related Corporations other than by reason of
death or disability as defined in paragraph 10, no further installments of his
ISOs shall become exercisable, and his ISOs shall terminate after the passage of
60 days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereon have been converted into Non-Qualified
Options pursuant to paragraph 16. Leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the Company or
any Related Corporation to continue the employment of the employee after the
approved period of absence. Employment shall also be considered as continuing
uninterrupted during any other bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Option, Award or
authorization to make a Purchase the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time. In
granting any Non-Qualified Option, the Committee may specify that such
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination or cancellation provisions as the
Committee may determine.
10. DEATH; DISABILITY; DISSOLUTION. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason of his death, any
ISO of his may be exercised, to the extent of the number of shares with respect
to which he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the ISO by
<PAGE> 6
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will or by the laws of descent and distribution, at any time prior to the
earlier of the ISO's specified expiration date or 180 days from the date of the
optionee's death.
If an ISO optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise
any ISO held by him on the date of termination of employment, to the extent of
the number of shares with respect to which he could have exercised it on that
date, at any time prior to the earlier of the ISO's specified expiration date or
180 days from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor statute.
In granting any Non-Qualified Option, the Committee may specify that
such Non-Qualified Option shall be subject to the restrictions set forth herein
with respect to ISOs, or to such other termination and cancellation provisions
as the Committee may determine.
11. ASSIGNABILITY. No Option shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution, and
during the lifetime of the optionee each Option shall be exercisable only by
him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and all action
necessary or advisable from time to time to carry out the terms of such
instruments.
13. ADJUSTMENTS. Upon the happening of any of the following
described events, an optionee's rights with respect to Options granted to him
hereunder, and the recipient's rights with respect to Common Stock acquired
pursuant to a Purchase or Award hereunder, shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written agreement
between the recipient and the Company relating to such Option, Purchase or
Award.
A. In the event shares of Common Stock shall be subdivided
or combined into a greater or smaller number of shares or if, upon a merger,
consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of Common Stock shall be
exchanged for other securities of the Company or of another corporation, each
optionee shall be entitled, subject to the conditions herein stated, to purchase
such number of shares of common stock or amount of other securities of the
Company or such other corporation as were exchangeable for the number of shares
of Common Stock which such optionee would have been entitled to purchase except
for such action, and appropriate
<PAGE> 7
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adjustments shall be made in the purchase price per share to reflect such
subdivision, combination, or exchange; and
B. In the event the Company shall issue any of its shares
as a stock dividend upon or with respect to the shares of stock of the class
which shall at the time be subject to option hereunder, each optionee upon
exercising an Option shall be entitled to receive (for the purchase price paid
upon such exercise) the shares as to which he is exercising his Option and, in
addition thereto (at no additional cost), such number of shares of the class or
classes in which such stock dividend or dividends were declared or paid, and
such amount of cash in lieu of fractional shares, as he would have received if
he had been the holder of the shares as to which he is exercising his Option at
all times between the date of grant of such Option and the date of its exercise.
C. If any person or entity owning restricted Common Stock
obtained by exercise of an Option or by a Purchase or Award made hereunder
receives new or additional or different shares or securities ("New Securities")
in connection with a corporate transaction described in subparagraph A above or
a stock dividend described in subparagraph B above as a result of owning such
restricted Common Stock, such New Securities shall be subject to all of the
conditions and restrictions applicable to the restricted Common Stock with
respect to which such New Securities were issued.
D. Notwithstanding the foregoing, any adjustments made
pursuant to subparagraphs A or B with respect to ISOs shall be made only after
the Committee, after consulting with counsel for the Company, determines whether
such adjustments would constitute a "modification" of such ISOs as that term is
defined in Section 424 of the Code, or would cause any adverse tax consequences
for the holders of such ISOs. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
E. No fractional shares shall actually be issued under the
Plan. Any fractional shares which, but for this subparagraph E, would have been
issued to an optionee pursuant to an Option, shall be deemed to have been issued
and immediately sold to the Company for their fair market value, and the
optionee shall receive from the Company cash in lieu of such fractional shares.
F. Upon the happening of any of the foregoing events
described in subparagraphs A or B above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Options, Awards or
authorizations to make Purchases which previously have been or subsequently may
be granted under the Plan shall also be appropriately adjusted to reflect the
events described in such subparagraphs. The Committee shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Option being
exercised and specify the number of shares as to which such
<PAGE> 8
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Option is being exercised, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having
fair market value equal as of the date of the exercise to the cash exercise
price of the Option, or (c) at the discretion of the Committee, by delivery of
the optionee's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b) or (c) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of an Option shall not have the rights of a shareholder
with respect to the shares covered by his Option until the date of issuance of a
stock certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board
on December 5, 1995, subject to approval of the Plan by the holders of a
majority of the outstanding shares of the Company at the next meeting of
stockholders. The Plan shall expire on December 4, 2005 (except as to Options
outstanding on that date). Subject to the provisions of paragraph 5 above,
Options, Awards and authorizations to make Purchases may be granted under the
Plan prior to the date of stockholder approval of the Plan. If the approval of
stockholders is not obtained by December 4, 1996, any grants of ISOs under the
Plan made prior to that date will be rescinded. The Board may terminate or amend
the Plan in any respect at any time, except that, without the approval of such
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(b) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
provided in the fourth sentence of this paragraph 15 or in paragraph 21, in no
event may action of the Board or stockholders alter or impair the rights of an
optionee, purchaser or Award recipient, without his consent, under any Option,
Award or authorization to make a Purchase previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS: TERMINATION OF
ISOs. The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-
<PAGE> 9
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Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action. The Committee, with the
consent of the optionee, may also terminate any portion of any ISO that has not
been exercised at the time of such termination.
17. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of shares pursuant to Options granted and Purchases authorized under
the Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. The Company, in
accordance with Section 3402(a) of the Code, may, upon exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, or the making of a Disqualifying
Disposition (as defined in paragraph 20) require the optionee exercising such
Option, Award recipient or purchaser to pay additional withholding taxes in
respect of the amount that is considered compensation includible in such
person's gross income. The Committee in its discretion may condition (i) the
exercise of an Option, (ii) the grant of an Award, (iii) the making of a
Purchase of Common Stock for less than its fair market value, or (iv) the
vesting of restricted Common Stock acquired by exercising an Option, making a
Purchase or receiving an Award, on the purchaser's or recipient's payment of
such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee
who receives ISOs shall agree to notify the Company in writing immediately after
the employee makes a disqualifying disposition of any Common Stock received
pursuant to the exercise of an ISO (a "Disqualifying Disposition").
Disqualifying Disposition means any disposition (including any sale) of such
stock before the later of (a) two years after the employee was granted the ISO
under which he acquired such stock, or (b) one year after the employee acquired
such stock by exercising such ISO. If the employee has died before such stock is
sold, these holding period requirements do not apply and no Disqualifying
Disposition will thereafter occur.
21. CHANGE IN CONTROL. In the event that the Company becomes a party
to a merger, consolidation, reorganization or similar corporate transaction in
which the Company is not, in effect, the acquiring corporation, or which is not
solely a consolidation with the Company's parent, or shall determine to
liquidate or dissolve, the Committee in its discretion may take one or more of
the following actions: (i) provide for the acceleration and/or termination of
any time period relating to the exercise of the Options, (ii) provide for the
purchase of the Options, upon the optionee's request, for the amount in cash
that could have been received upon the exercise of the Options and sale of the
shares obtained thereby, (iii) adjust the terms of the Options in a manner
determined by the Committee, (iv) cause the Options to be assumed, or new rights
<PAGE> 10
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substituted therefor, by another entity or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
22. GOVERNING LAWS; CONSTRUCTION. The validity and construction of
the Plan and the instruments evidencing Options, Awards and Purchases shall be
governed by the laws of The Commonwealth of Massachusetts. In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
<PAGE> 11
Amendment No. 1 to
1995 Stock Option Plan of
CONCORD COMMUNICATIONS, INC.
Section 4 of the 1995 Stock Option Plan is hereby amended by deleting the number
4,113,573 and substituting the number 6,113,573 in place thereof.
<PAGE> 1
Exhibit 10.05
CONCORD COMMUNICATIONS, INC.
1997 STOCK PLAN
---------------
1. PURPOSE; TERMINATION OF PRIOR PLAN. The purpose of the 1997
Stock Plan (the "Plan") is to encourage key employees of Concord Communications,
Inc. (the "Company") and of any present or future parent or subsidiary of the
Company (collectively, "Related Corporations") and other individuals who render
services to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code. The Company's 1995 Stock Plan (the "1995 Stock Plan") is terminated
effective as of [____________ ___, 1997] and henceforth, the Company shall make
no grants under the 1995 Stock Plan. The 1995 Stock Plan shall, however,
continue to govern all options, awards and other grants granted and outstanding
under the 1995 Stock Plan.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall
be administered by the Board of Directors of the Company (the
"Board") or, subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), by a committee appointed by
the Board of two or more of its members (the "Committee").
Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable state
law), and subject to the terms of the Plan, the Committee
shall have the authority to (i) determine to whom (from among
the class of employees eligible under paragraph 3 to receive
ISOs) ISOs shall be granted, and to whom (from among the class
of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make
Purchases) Non-Qualified Options, Awards and authorizations to
make Purchases may be granted; (ii) determine the time or
times at which Options or Awards shall be granted or Purchases
made; (iii) determine the purchase price of shares subject to
each Option or Purchase, which prices shall not be less than
the minimum price specified in paragraph 6; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified
Option; (v) determine (subject to paragraph 7) the time or
times when each Option shall become exercisable and the
duration of the exercise period; (vi) determine whether
restrictions such as repurchase options are to be imposed on
shares subject to Options, Awards and Purchases and the nature
of
<PAGE> 2
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such restrictions, if any; and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If
the Committee determines to issue a Non-Qualified Option, it
shall take whatever actions it deems necessary, under Section
422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under it
shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. No
member of the Board or of the Committee shall be liable for
any action or determination made in good faith with respect to
the Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of
its members as its chairman, and shall hold meetings at such
time and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of a majority of
the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the
members of the Committee (if consistent with applicable state
law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS.
Notwithstanding the provisions of paragraph 2.A., no Stock
Rights shall be granted to any person who is, at the time of
the proposed grant, a member of the Board unless such grant is
approved by a majority vote of the disinterested members of
the Board. All grants of Stock Rights to members of the Board
shall in all respects be made in accordance with the
provisions of this Plan applicable to other eligible persons.
Members of the Board who either (i) are eligible to receive
grants of Stock Rights pursuant to the Plan or (ii) have been
granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act
upon the granting to himself or herself of Stock Rights, but
any such member may be counted in determining the existence of
a quorum at any meeting of the Board during which action is
taken with respect to the granting to such member of Stock
Rights. Notwithstanding any other provision of this paragraph
2, in the event the Company registers any class of any equity
security pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), any grants to
members of the Board of Options made at any time from the
effective date of such registration until six months after the
termination of such registration shall be made only by the
Board; provided, however, that if a majority of the Board is
eligible to participate in the Plan or in any other stock
option or other stock plan of the Company or any of its
affiliates, or has been so eligible at any time within
<PAGE> 3
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the preceding year, any grant to directors of Options must be
made by, or only in accordance with the recommendation of, a
Committee consisting of three or more persons, who may but
need not be members of the Board or employees of the Company,
appointed by the Board but having full authority to act in the
matter, none of whom is eligible to participate in this Plan
or any other stock option or other stock plan of the Company
or any of its affiliates, or has been eligible at any time
within the preceding year. The requirements imposed by the
preceding sentence shall also apply with respect to grants to
officers who are not also members of the Board. Once
appointed, the Committee shall continue to serve until
otherwise directed by the Board.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its
discretion, may take such action as may be necessary to ensure
that Stock Rights granted under the Plan qualify as "qualified
performance-based compensation" within the meaning of Section
162(m) of the Code and applicable regulations promulgated
thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the
following (i) if the Board determines that Stock Rights
granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Stock Rights to
constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as
defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Non-Qualified Options with an
exercise price less than the fair market value per share of
Common Stock are granted under the Plan and the Board
determines that such Options should constitute
Performance-Based Compensation, such options shall be made
exercisable only upon the attainment of a pre-established,
objective performance goal established by the Committee, and
such grant shall be submitted for, and shall be contingent
upon shareholder approval and (iii) Stock Rights granted under
the Plan may be subject to such other terms and conditions as
are necessary for compensation recognized in connection with
the exercise or disposition of such Stock Right or the
disposition of Common Stock acquired pursuant to such Stock
Right, to constitute Performance-Based Compensation.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not also an employee) or consultant of the
Company or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify such individual or entity
from, participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized
but unissued shares of Common Stock of the Company, par value $.01 per share
(the "Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares
<PAGE> 4
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which may be issued pursuant to the Plan is 750,000, subject to adjustment as
provided in paragraph 13. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the unpurchased shares of Common Stock subject to such Option shall
again be available for grants of Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 70% of the aggregate number of
shares of Common Stock which may be issued pursuant to the Plan during any
fiscal year of the Company. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under
the Plan at any time on or after [MONTH/DAY], 1997 and prior to [_______, 2007].
The date of grant of a Stock Right under the Plan will be the date specified by
the Committee at the time it grants the Stock Right; provided, however, that
such date shall not be prior to the date on which the Committee acts to approve
the grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND
PURCHASES. Subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), the exercise price per share
specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock
granted in any Award or authorized as a Purchase, under the
Plan may be less than the fair market value of the Common
Stock of the Company on the date of grant; provided that, in
no event shall such exercise price or such purchase price be
less than the lesser of (i) the book value per share of Common
Stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant, or (ii) 50
percent of the fair market value per share of Common Stock on
the date of such grant.
B. PRICE FOR ISOS. The exercise price per share
specified in the agreement relating to each ISO granted under
the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case
of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common
Stock on the date of grant. For purposes of determining stock
ownership under this paragraph, the rules of Section 424(d) of
the Code shall apply.
<PAGE> 5
- 5 -
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each
eligible employee may be granted Options treated as ISOs only
to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related
Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to
stock having a fair market value (determined at the time the
ISOs were granted) in excess of $100,000. The Company intends
to designate any Options granted in excess of such limitation
as Non-Qualified Options, and the Company shall issue separate
certificates to the optionee with respect to Options that are
Non-Qualified Options and Options that are ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the
time an Option is granted under the Plan, the Company's Common
Stock is publicly traded, "fair market value" shall be
determined as of the date of grant or, if the prices or quotes
discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are
available prior to the date of grant and shall mean (i) the
average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then traded
on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by
an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq
National Market. If the Common Stock is not publicly traded at
the time an Option is granted under the Plan, "fair market
value" shall mean the fair value of the Common Stock as
determined by the Committee after taking into consideration
all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
<PAGE> 6
- 6 -
A. VESTING. The Option shall either be fully
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment
becomes exercisable, it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may
be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to
which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have
the right to accelerate the date that any installment of any
Option becomes exercisable; provided that the Committee shall
not, without the consent of an optionee, accelerate the
permitted exercise date of any installment of any Option
granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate after the passage of 60
days from the date of termination of his or her employment, but in no event
later than on the specified expiration dates of such ISOs, except to the extent
that such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. For purposes of this paragraph
9, a leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the employee after the approved period of absence.
Employment shall also be considered as continuing uninterrupted during any other
bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute or by contract. A bona fide leave of
absence with the written approval of the Committee shall not be considered an
interruption of employment under this paragraph 9, provided that such written
approval contractually obligates the Company or any Related Corporation to
continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
<PAGE> 7
- 7 -
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his or
her death, any ISO owned by such optionee may be exercised, to
the extent otherwise exercisable on the date of death, by the
estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the earlier of (i) the
specified expiration date of the ISO or (ii) 180 days from the
date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason
of his or her disability, such optionee shall have the right
to exercise any ISO held by him or her on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, at any time
prior to the earlier of (i) the specified expiration date of
the ISO or (ii) 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability"
as defined in Section 22(e)(3) of the Code or any successor
statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution, and
during the lifetime of the optionee shall be exercisable only by such optionee.
Stock Rights other than ISOs shall be transferable to the extent set forth in
the agreement relating to such Stock Right.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to such optionee
hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
Common Stock shall be subdivided or combined into a greater or
smaller number of shares
<PAGE> 8
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or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon the exercise of
Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in
the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger or
other reorganization in which the holders of the outstanding
voting stock of the Company immediately preceding the
consummation of such event, shall, immediately following such
event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity, or in the
event of a sale of all or substantially all of the Company's
assets or otherwise (each, an "Acquisition"), the Committee
may take one or more of the following actions: (i) provide for
the acceleration and/or termination of any time period
relating to the exercise of the Options, (ii) provide for the
purchase of the Options, upon the optionee's request, for the
amount in cash that could have been received upon the exercise
of the Options and sale of the shares obtained thereby, (iii)
adjust the terms of the Options in a manner determined by the
Committee, (iv) cause the Options to be assumed, or new rights
substituted therefor, by another entity or (v) make such other
provision as the Committee may consider equitable and in the
best interests of the Company.
C. RECAPITALIZATION OR REORGANIZATION. In the event
of a recapitalization or reorganization of the Company (other
than a transaction described in subparagraph B above) pursuant
to which securities of the Company or of another corporation
are issued with respect to the outstanding shares of Common
Stock, an optionee upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had
exercised such Option prior to such recapitalization or
reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs A, B
or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from
making such adjustments.
E. RESTRICTED SECURITIES. If any person or entity
owning restricted Common Stock obtained by exercise of an
Option made hereunder receives new or additional or different
shares or securities ("New Securities") in connection
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with a transaction described in subparagraphs A, B or C above,
as a result of owning such restricted Common Stock, such New
Securities shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with
respect to which such New Securities were issued.
F. ISSUANCES OF SECURITIES. Except as expressly
provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of
the Company.
G. FRACTIONAL SHARES. No fractional shares shall be
issued under the Plan. Any fractional shares which, but for
this subparagraph G, would have been issued to an optionee
pursuant to an Option, shall be deemed to have been issued and
immediately sold to the Company for their fair market value,
and the optionee shall receive from the Company cash in lieu
of such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the
events described in subparagraphs A, B or C above, the class
and aggregate number of shares set forth in paragraph 4 hereof
that are subject to Stock Rights which previously have been or
subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such
subparagraphs. The Committee shall determine the specific
adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the optionee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the
<PAGE> 10
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date of issuance of a stock certificate to such holder for such shares. Except
as expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
July 22, 1997, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to [SAME MONTH AND DAY], 1998, any grants
of ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire at the end of the day on ________ __, 2007 (except as to Options
outstanding on that date). Subject to the provisions of paragraph 5 above,
Options may be granted under the Plan prior to the date of stockholder approval
of the Plan. The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to paragraph 13); (b)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (c) the provisions of paragraph 6(B) regarding the exercise price
at which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without such grantee's consent, under any Stock Right previously
granted to such grantee.
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
conversion.
<PAGE> 11
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17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold, or may require the grantee to pay,
additional withholding taxes in respect of amounts that constitute compensation
includible in gross income. The Committee in its discretion may condition (i)
the exercise of an Option, (ii) the transfer of a Non-Qualified Stock Option,
(iii) the grant of an Award, (iv) the making of a Purchase of Common Stock for
less than its fair market value, or (v) the vesting or transferability of
restricted stock or securities acquired by exercising an Option, on the
grantee's making satisfactory arrangement for such withholding. Such arrangement
may include payment by the grantee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by the grantee's
delivery of previously held shares of Common Stock or the withholding from the
shares of Common Stock otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of such withholding
taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares. Government regulations may impose reporting or
other obligations on the Company with respect to the Plan. For example, the
Company may be required to send tax information statements to employees and
former employees that exercise ISOs under the Plan, and the Company may be
required to file tax information returns reporting the income received by
grantees of Options in connection with the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the
Commonwealth of Massachusetts, or the laws of any jurisdiction in which the
Company or its successors in interest may be organized.
<PAGE> 1
Exhibit 10.06
CONCORD COMMUNICATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1 - PURPOSE.
This 1997 Employee Stock Purchase Plan (the "Plan") is intended to
encourage stock ownership by all eligible employees of CONCORD COMMUNICATIONS,
INC. (the "Company"), a Massachusetts corporation, and its participating
subsidiaries (as defined in Article 17) so that they may share in the growth of
the Company by acquiring or increasing their proprietary interest in the
Company. The Plan is designed to encourage eligible employees to remain in the
employ of the Company and its participating subsidiaries. The Plan is intended
to constitute an "employee stock purchase plan" within the meaning of Section
423(b) of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE 2 - ADMINISTRATION OF THE PLAN.
The Plan may be administered by the Compensation Committee of the Board of
Directors or a committee appointed by the Board of Directors of the Company (the
"Committee"). The Committee shall consist of not less than two members of the
Company's Board of Directors. The Board of Directors may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board of Directors. The
Committee may select one of its members as Chairman, and shall hold meetings at
such times and places as it may determine. Acts by a majority of the Committee,
or acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
ARTICLE 3 - ELIGIBLE EMPLOYEES.
All employees of the Company or any of its participating subsidiaries whose
customary employment is more than 20 hours per week and for more than five
months in any calendar year and who have completed more than 180 days of
employment with the Company on or
<PAGE> 2
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before the first day of any Payment Period (as defined in Article 5) shall be
eligible to receive options under the Plan to purchase common stock of the
Company, and all eligible employees shall have the same rights and privileges
hereunder. Persons who are eligible employees on the first business day of any
Payment Period shall receive their options as of such day. Persons who become
eligible employees after any date on which options are granted under the Plan
shall be granted options on the first day of the next succeeding Payment Period
on which options are granted to eligible employees under the Plan. In no event,
however, may an employee be granted an option if such employee, immediately
after the option was granted, would be treated as owning stock possessing five
percent or more of the total combined voting power or value of all classes of
stock of the Company or of any parent corporation or subsidiary corporation, as
the terms "parent corporation" and "subsidiary corporation" are defined in
Section 424(e) and (f) of the Code. For purposes of determining stock ownership
under this paragraph, the rules of Section 424(d) of the Code shall apply, and
stock which the employee may purchase under outstanding options shall be treated
as stock owned by the employee.
ARTICLE 4 - STOCK SUBJECT TO THE PLAN.
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued common stock, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company, including
shares purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is three hundred seventy-five thousand (375,000),
subject to adjustment as provided in Article 12. If any option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part,
the unpurchased shares subject thereto shall again be available under the Plan.
ARTICLE 5 - PAYMENT PERIOD AND STOCK OPTIONS.
The first Payment Period during which payroll deductions will be
accumulated under the Plan shall commence on the date that the Common Stock of
the Company first begins trading on the public market and shall end on June 30,
1998. For the remainder of the duration of the Plan, Payment Periods shall
consist of the six-month periods commencing on January 1 and July 1,
respectively, and ending on June 30 and December 31, respectively of each
calendar year.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of 20,000 shares, on condition that
such employee remains eligible to participate in the Plan throughout the
remainder of such Payment Period. The participant shall be entitled to exercise
the option so granted only to the extent of the participant's accumulated
payroll deductions on the last day of such Payment Period. If the participant's
accumulated payroll deductions on the last day of the Payment Period would
enable the participant to purchase more than 20,000 shares except for the 20,000
share limitation, the excess of the amount of the accumulated payroll deductions
over the aggregate purchase price of the 20,000 shares shall be promptly
refunded to the participant by the Company, without interest. The Option Price
per share for each Payment
<PAGE> 3
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Period shall be the lesser of (i) 85% of the average market price of the Common
Stock on the first business day of the Payment Period and (ii) 85% of the
average market price of the Common Stock on the last business day of the Payment
Period, in either event rounded up to avoid fractions of a dollar other than
1/4, 1/2 and 3/4 to the nearest cent (the "Option Price"). The foregoing
limitation on the number of shares subject to option and the Option Price shall
be subject to adjustment as provided in Article 12.
For purposes of the Plan, the term "average market price" on any date means
(i) the average (on that date) of the high and low prices of the Common Stock on
the principal national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the average of the closing bid and asked prices last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market;
or (iv) if the Common Stock is not publicly traded, the fair market value of the
Common Stock as determined by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation, recent sale
and offer prices of the Common Stock in private transactions negotiated at arm's
length.
For purposes of the Plan, the term "business day" means a day on which
there is trading on the NASDAQ National Market or the aforementioned national
securities exchange, whichever is applicable pursuant to the preceding
paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or
legal holiday in the Commonwealth of Massachusetts.
No employee shall be granted an option which permits the employee's right
to purchase stock under the Plan, and under all other Section 423(b) employee
stock purchase plans of the Company and any parent or subsidiary corporations,
to accrue at a rate which exceeds $25,000 of fair market value of such stock
(determined on the date or dates that options on such stock were granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the Code. If the participant's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable the participant to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the shares actually purchased shall be promptly
refunded to the participant by the Company, without interest.
ARTICLE 6 - EXERCISE OF OPTION.
Each eligible employee who continues to be a participant in the Plan on the
last day of a Payment Period shall be deemed to have exercised his or her option
on such date and shall be deemed to have purchased from the Company such number
of full shares of Common Stock reserved for the purpose of the Plan as the
participant's accumulated payroll deductions on such date will pay for at the
Option Price, subject to the 20,000 share limit of the option and the Section
423(b)(8) limitation described in Article 5. If the individual is not a
participant on the last day of a Payment Period, then he or she shall not be
entitled to exercise his or her option and
<PAGE> 4
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the amount of his or her payroll deduction shall be refundable, without
interest. Only full shares of Common Stock may be purchased under the Plan.
Unused payroll deductions remaining in a participant's account at the end of a
Payment Period by reason of the inability to purchase a fractional share shall
be carried forward to the next Payment Period.
ARTICLE 7 - AUTHORIZATION FOR ENTERING THE PLAN.
An employee may elect to enter the Plan by filling out, signing and
delivering to the Company an authorization:
A. Stating the percentage to be deducted regularly from the
employee's pay;
B. Authorizing the purchase of stock for the employee in each
Payment Period in accordance with the terms of the Plan; and
C. Specifying the exact name or names in which stock purchased for
the employee is to be issued as provided under Article 11 hereof.
Such authorization must be received by the Company at least ten days before the
first day of the next succeeding Payment Period and shall take effect only if
the employee is an eligible employee on the first business day of such Payment
Period.
Unless a participant files a new authorization or withdraws from the Plan,
the deductions and purchases under the authorization the participant has on file
under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.
The Company will accumulate and hold for each participant's account the
amounts deducted from his or her pay. No interest will be paid on these amounts.
ARTICLE 8 - MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS.
An employee may authorize payroll deductions in an amount (expressed as a
whole percentage) not less than one percent (1%) but not more than ten percent
(10%) of the employee's total compensation, including base pay or salary and any
overtime, bonuses or commissions.
ARTICLE 9 - CHANGE IN PAYROLL DEDUCTIONS.
Deductions may not be increased or decreased during a Payment Period.
However, a participant may withdraw in full from the Plan, in which event the
Company will promptly refund (without interest) the entire balance of the
employee's deductions not previously used to purchase stock under the Plan.
ARTICLE 10 - WITHDRAWAL FROM THE PLAN.
<PAGE> 5
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A participant may withdraw from the Plan (in whole but not in part) at any
time prior to the last day of a Payment Period by delivering a withdrawal notice
to the Company.
To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten days before the first day of the next Payment
Period in which he or she wishes to participate. The employee's re-entry into
the Plan becomes effective at the beginning of such Payment Period, provided
that he or she is an eligible employee on the first business day of the Payment
Period.
ARTICLE 11 - ISSUANCE OF STOCK.
Certificates for stock issued to participants shall be delivered as soon as
practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan shall be issued only in the name of the
participant, or if the participant's authorization so specifies, in the name of
the participant and another person of legal age as joint tenants with rights of
survivorship.
ARTICLE 12 - ADJUSTMENTS.
Upon the happening of any of the following described events, a
participant's rights to options granted under the Plan shall be adjusted as
hereinafter provided:
A. In the event that the shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if, upon a
reorganization, split-up, liquidation, recapitalization or the like of the
Company, the shares of Common Stock shall be exchanged for other securities
of the Company, each participant shall be entitled, subject to the
conditions herein stated, to purchase such number of shares of Common Stock
or amount of other securities of the Company as were exchangeable for the
number of shares of Common Stock that such participant would have been
entitled to purchase except for such action, and appropriate adjustments
shall be made in the purchase price per share to reflect such subdivision,
combination or exchange; and
B. In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which
shall at the time be subject to options hereunder, each participant upon
exercising such an option shall be entitled to receive (for the purchase
price paid upon such exercise) the shares as to which the participant is
exercising his or her option and, in addition thereto (at no additional
cost), such number of shares of the class or classes in which such stock
dividend or dividends were declared or paid, and such amount of cash in lieu
of fractional shares, as is equal to the number of shares thereof and the
amount of cash in lieu of fractional shares, respectively, which the
participant would have received if the participant had been the holder of
the shares as to which the participant is exercising his or her option at
all times between the date of the granting of such option and the date of
its exercise.
<PAGE> 6
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Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are subject to options
which have been or may be granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjusted to
reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
after the Committee, based on advice of counsel for the Company, determines
whether such adjustments would constitute a "modification" (as that term is
defined in Section 424 of the Code). If the Committee determines that such
adjustments would constitute a modification, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to options then outstanding under the Plan, either (i) make
appropriate provision for the continuation of such options by arranging for the
substitution on an equitable basis for the shares then subject to such options
either (a) the consideration payable with respect to the outstanding shares of
the Common Stock in connection with the Acquisition, (b) shares of stock of the
successor corporation, or a parent or subsidiary of such corporation, or (c)
such other securities as the Successor Board deems appropriate, the fair market
value of which shall not materially exceed the fair market value of the shares
of Common Stock subject to such options immediately preceding the Acquisition;
or (ii) terminate each participant's options in exchange for a cash payment
equal to the excess of (a) the fair market value on the date of the Acquisition,
of the number of shares of Common Stock that the participant's accumulated
payroll deductions as of the date of the Acquisition could purchase, at an
option price determined with reference only to the first business day of the
applicable Payment Period and subject to the 20,000 share, Code Section
423(b)(8) and fractional-share limitations on the amount of stock a participant
would be entitled to purchase, over (b) the result of multiplying such number of
shares by such option price.
The Committee or Successor Board shall determine the adjustments to be made
under this Article 12, and its determination shall be conclusive.
ARTICLE 13 - NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS.
An option granted under the Plan may not be transferred or assigned to, or
availed by, any other person other than by will or the laws of descent and
distribution and may be exercised only by the employee during the employee's
lifetime.
ARTICLE 14 - TERMINATION OF EMPLOYEE'S RIGHTS.
Whenever a participant ceases to be an eligible employee because of
retirement, voluntary or involuntary termination, resignation, layoff,
discharge, death or for any other reason, his or her rights under the Plan shall
immediately terminate, and the Company shall promptly refund, without interest,
the entire balance of his or her payroll deduction account under the Plan.
Notwithstanding the foregoing, eligible employment shall be treated as
<PAGE> 7
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continuing intact while a participant is on military leave, sick leave or other
bona fide leave of absence, for up to 90 days, or for so long as the
participant's right to re-employment is guaranteed either by statute or by
contract, if longer than 90 days.
If a participant's payroll deductions are interrupted by any legal process,
a withdrawal notice will be considered as having been received from the
participant on the day the interruption occurs.
ARTICLE 15 - TERMINATION AND AMENDMENTS TO PLAN.
The Plan may be terminated at any time by the Company's Board of Directors
but such termination shall not affect options then outstanding under the Plan.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If at
any time shares of stock reserved for the purpose of the Plan remain available
for purchase but not in sufficient number to satisfy all then unfilled purchase
requirements, the available shares shall be apportioned among participants in
proportion to the amount of payroll deductions accumulated on behalf of each
participant that would otherwise be used to purchase stock, and the Plan shall
terminate. Upon such termination or any other termination of the Plan, all
payroll deductions not used to purchase stock will be refunded, without
interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) increase the number of shares that may be
issued under the Plan; (ii) change the class of employees eligible to receive
options under the Plan, if such action would be treated as the adoption of a new
plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under
the Securities Exchange Act of 1934 to become inapplicable to the Plan.
ARTICLE 16 - LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN.
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his or her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities laws and
subject to any restrictions imposed under Article 21 to ensure that tax
withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY
MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
ARTICLE 17 - PARTICIPATING SUBSIDIARIES.
The term "participating subsidiary" shall mean any present or future
subsidiary of the Company, as that term is defined in Section 424(f) of the
Code, which is designated from time to time by the Board of Directors to
participate in the Plan. The Board of Directors shall have the power to make
such designation before or after the Plan is approved by the stockholders.
<PAGE> 8
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ARTICLE 18 - OPTIONEES NOT STOCKHOLDERS.
Neither the granting of an option to an employee nor the deductions from
his or her pay shall constitute such employee a stockholder of the shares
covered by an option until such shares have been actually purchased by the
employee.
ARTICLE 19 - APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock pursuant
to options granted under the Plan will be used for general corporate purposes.
ARTICLE 20 - NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
By electing to participate in the Plan, each participant agrees to notify
the Company in writing immediately after the participant transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Period in which such Common Stock was
acquired. Each participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.
ARTICLE 21 - WITHHOLDING OF ADDITIONAL INCOME TAXES.
By electing to participate in the Plan, each participant acknowledges that
the Company and its participating subsidiaries are required to withhold taxes
with respect to the amounts deducted from the participant's compensation and
accumulated for the benefit of the participant under the Plan, and each
participant agrees that the Company and its participating subsidiaries may
deduct additional amounts from the participant's compensation, when amounts are
added to the participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each participant further
acknowledges that when Common Stock is purchased under the Plan, the Company and
its participating subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each participant agrees that such
taxes may be withheld from compensation otherwise payable to such participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the participant under Article 7
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any participant, then, notwithstanding any other provision
of the Plan, the Company may withhold such taxes from the participant's
accumulated payroll deductions and apply the net amount to the purchase of
Common Stock, unless the participant pays to the Company, prior to the exercise
date, an amount sufficient to satisfy such withholding obligations. Each
participant further acknowledges that the Company and its participating
subsidiaries may be required to withhold taxes in connection with the
disposition of stock acquired under the Plan and agrees that the Company or any
participating subsidiary may take
<PAGE> 9
-9-
whatever action it considers appropriate to satisfy such withholding
requirements, including deducting from compensation otherwise payable to such
participant an amount sufficient to satisfy such withholding requirements or
conditioning any disposition of Common Stock by the participant upon the payment
to the Company or such subsidiary of an amount sufficient to satisfy such
withholding requirements.
ARTICLE 22 - GOVERNMENTAL REGULATIONS.
The Company's obligation to sell and deliver shares of Common Stock under
the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
identify shares of Common Stock issued under the Plan on its stock ownership
records and send tax information statements to employees and former employees
who transfer title to such shares.
ARTICLE 23 - GOVERNING LAW.
The validity and construction of the Plan shall be governed by the laws of
the Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of law thereof.
ARTICLE 24 - APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY.
The Plan was adopted by the Board of Directors on July 22, 1997 and was
approved by the stockholders of the Company on August __, 1997.
<PAGE> 1
Exhibit 10.07
CONCORD COMMUNICATIONS, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE. This Non-Qualified Stock Option Plan, to be known as the 1997
Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is intended
to promote the interests of CONCORD COMMUNICATIONS, INC. (hereinafter, the
"Company") by providing an inducement to obtain and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "Board").
2. AVAILABLE SHARES. The total number of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") for which options may be
granted under this Plan shall not exceed ninety-five thousand (95,000) shares,
subject to adjustment in accordance with Section 10 of this Plan; provided,
however, that such number of shares shall not be subject to adjustment by reason
of the stock split in the form of a stock dividend declared by the Board of the
Directors of the Company on August 7, 1997. Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under this Plan are
surrendered before exercise or lapse without exercise, in whole or in part, the
shares reserved therefor shall continue to be available under this Plan.
3. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. AUTOMATIC GRANT OF OPTIONS. Subject to the availability of shares under
this Plan, (a) each person who becomes a member of the Board on or after
October__, 1997 and who is not an employee or officer of the Company during the
term of the Plan (a "Non-Employee Director"), shall be automatically granted on
the date such person is first elected to the Board, without further action by
the Board, an option to purchase 7,500 shares of the Common Stock, and (b)
starting with the 1998 Annual Meeting of Stockholders of the Company, each
person who is a Non-Employee Director immediately following the final
adjournment of each Annual Meeting of Stockholders of the Company during the
term of this Plan shall be automatically granted on each such date an option to
purchase 1,875 shares of the Common Stock. The options to be granted under this
Section 4 shall be the only options ever to be granted at any time to such
member under this Plan. The number of shares covered by options granted under
this Section 4 shall be subject to adjustment in accordance with the provisions
of Section 10 of this Plan.
<PAGE> 2
-2-
5. OPTION PRICE. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of Section 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market List. However, if the Common Stock is not publicly traded at the
time an option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
6. PERIOD OF OPTION. Unless sooner terminated in accordance with the
provisions of Section 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
7. (a) VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS. Options
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable, in accordance with the following schedule, provided that the
optionee has continuously served as a member of the Board through such vesting
date:
<TABLE>
<CAPTION>
Percentage of Option
Shares for which
Option Will be Exercisable Date of Vesting
- -------------------------- ---------------
<S> <C>
25% one year from the date of grant
6.25% per quarter on the last day of the quarter
beginning the quarter ending immediately
following the date to occur which is one year
from the date of grant
</TABLE>
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.
<PAGE> 3
-3-
(b) Non-transferability. Any option granted pursuant to this Plan shall not
be assignable or transferable other than by will or the laws of descent and
distribution or pursuant to a domestic relations order and shall be exercisable
during the optionee's lifetime only by him or her.
8. TERMINATION OF OPTION RIGHTS.
(a) In the event an optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised portion of
options granted to such optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
optionee within 60 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 60 days have expired.
(b) In the event that an optionee ceases to be a member of the Board by
reason of his or her death or permanent disability, any option granted to such
optionee may be exercised, to the extent of the number of shares with respect to
which he or she could have exercised it on the date of death or permanent
disability, by the optionee (or by the optionee's personal representative, heir
or legatee, in the event of death) until the scheduled expiration date of the
option.
9. EXERCISE OF OPTIONS AND RESALE RESTRICTIONS.
(a) EXERCISE OF OPTION. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to the Chief Financial Officer at 33
Boston Post Road West, Marlboro, Massachusetts 01752, its principal executive
offices, stating the number of shares with respect to which the option is being
exercised, accompanied by payment in full for such shares. Payment may be (a) in
United States dollars in cash or by check, (b) in whole or in part in shares of
the Common Stock of the Company already owned by the person or persons
exercising the option or shares subject to the option being exercised (subject
to such restrictions and guidelines as the Board may adopt from time to time),
valued at fair market value determined in accordance with the provisions of
Section 5 or (c) consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise; provided, however,
that there shall be no such exercise at any one time as to fewer than one
hundred (100) shares or all of the remaining shares then purchasable by the
person or persons exercising the option, if fewer than one hundred (100) shares.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares acquired pursuant to
exercise of the option, shall register the optionee as the owner of such
<PAGE> 4
-4-
shares on the books of the Company and shall cause the fully executed
certificate(s) representing such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full. The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.
(b) RESALE RESTRICTIONS. Under no circumstances may shares acquired
pursuant to the exercise of options granted pursuant to this Plan be disposed of
on or prior to the date that is six months after the date such options were
granted.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER EVENTS. Upon the
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
(b) RECAPITALIZATION ADJUSTMENTS. In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the
corporate structure or shares of the Company, to the extent permitted by
Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the
number and kind of shares authorized by this Plan and in the number and kind
of shares covered by, and in the option price of outstanding options under
this Plan necessary to maintain the proportionate interest of the optionee
and preserve, without exceeding, the value of such option, shall be made.
Notwithstanding the foregoing, no such adjustment shall be made which would,
within the meaning of any applicable provisions of the Internal Revenue Code
of 1986, as amended, constitute a modification, extension or renewal of any
Option or a grant of additional benefits to the holder of an Option.
(c) ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
(d) ADJUSTMENTS. Upon the happening of any of the foregoing events, the
class and aggregate number of shares set forth in Sections 2 and 4 of this
Plan that are subject to options which previously have been or subsequently
may be granted under this Plan shall
<PAGE> 5
-5-
also be appropriately adjusted to reflect such events. The Board shall
determine the specific adjustments to be made under this Section 10 and its
determination shall be conclusive.
(e) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger or other reorganization in which
the holders of the outstanding voting stock of the Company immediately
preceding the consummation of such event, shall, immediately following such
event, hold, as a group, less than a majority of the voting securities of
the surviving or successor entity, or in the event of a sale of all or
substantially all of the Company's assets or otherwise (each, an
"Acquisition"), the vesting of all outstanding options issued pursuant
hereto will be accelerated so that all outstanding options are vested and
exercisable in full prior to the consummation of any such Acquisition. If
such options are not exercised prior to the consummation of such
Acquisition, and are not assumed or replaced by the successor entity, such
options will terminate.
11. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of
Sections 4 and 9 of this Plan, the Company shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The issuance of shares with respect to which the option has been
exercised is at the time of the issue of such shares effectively registered
under applicable Federal and state securities laws as now in force or
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that the issuance
of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange
upon which the Company's outstanding Common Stock is then listed.
12. LEGEND ON CERTIFICATES. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
13. REPRESENTATION OF OPTIONEE. If requested by the Company, the optionee
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
<PAGE> 6
-6-
14. OPTION AGREEMENT. Each option granted under the provisions of this Plan
shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
15. TERMINATION AND AMENDMENT OF PLAN. Options may no longer be granted
under this Plan ten (10) years after the Approval Date, and this Plan shall
terminate when all options granted or to be granted hereunder are no longer
outstanding. The Board may at any time terminate this Plan or make such
modification or amendment thereof as it deems advisable; provided, however, that
the Board may not, without approval of the stockholders, modify or amend this
Plan, without approval of the stockholders, if such approval is required by the
Federal securities laws or applicable regulatory authorities (at the time of any
such modification or amendment). Termination or any modification or amendment of
this Plan shall not, without consent of a participant, affect his or her rights
under an option previously granted to him or her.
16. WITHHOLDING OF INCOME TAXES. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
17. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.
18. GOVERNING LAW. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
Date Approved by Board of Directors of the Company: July 22, 1997
Date Approved by Stockholders of the Company: August __, 1997
<PAGE> 1
Exhibit 10.08
CORPORATEplan for Retirement 100(SM)
THE PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT NO. 10
------------------------------------
<PAGE> 2
CORPORATEplan for Retirement 100(SM)
PROFIT SHARING/401(K) PLAN
ARTICLE I ADOPTION AGREEMENT.................................................1
ARTICLE 2 DEFINITIONS........................................................1
2.01 DEFINITIONS...........................................................1
ARTICLE 3 PARTICIPATION.....................................................10
3.01 DATE OF PARTICIPATION................................................10
3.02 RESUMPTION OF PARTICIPATION FOLLOWING RE EMPLOYMENT..................11
3.03 CESSATION OR RESUMPTION OF PARTICIPATION FOLLOWING A CHANGE
IN STATUS...........................................................11
3.04 PARTICIPATION BY OWNER-EMPLOYEE; CONTROLLED BUSINESSES...............11
3.05 OMISSION OF ELIGIBLE EMPLOYEE........................................12
ARTICLE 4 CONTRIBUTIONS.....................................................12
4.01 DEFERRAL CONTRIBUTIONS...............................................12
4.02 ADDITIONAL LIMIT ON DEFERRAL CONTRIBUTIONS...........................14
4.03 MATCHING CONTRIBUTIONS...............................................17
4.04 LIMIT ON MATCHING CONTRIBUTIONS......................................17
4.05 SPECIAL RULES........................................................21
4.06 DISCRETIONARY EMPLOYER CONTRIBUTIONS.................................22
4.07 TIME OF MAKING EMPLOYER CONTRIBUTIONS................................22
4.08 RETURN OF EMPLOYER CONTRIBUTIONS.....................................22
4.09 EMPLOYEE CONTRIBUTIONS...............................................22
4.10 ROLLOVER CONTRIBUTIONS...............................................23
4.11 DEDUCTIBLE VOLUNTARY EMPLOYEE CONTRIBUTIONS..........................24
4.12 RESERVED.............................................................24
ARTICLE 5 PARTICIPANTS' ACCOUNTS............................................24
5.01 INDIVIDUAL ACCOUNTS..................................................24
5.02 VALUATION OF ACCOUNTS................................................24
5.03 CODE SECTION 415 LIMITATIONS.........................................24
ARTICLE 6 INVESTMENT OF CONTRIBUTIONS.......................................31
6.01 MANNER OF INVESTMENT.................................................31
6.02 INVESTMENT DECISIONS.................................................31
6.03 PARTICIPANT DIRECTIONS TO TRUSTEE....................................32
ARTICLE 7 RIGHT TO BENEFITS.................................................32
7.01 NORMAL OR EARLY RETIREMENT...........................................32
7.02 LATE RETIREMENT......................................................33
7.03 DISABILITY RETIREMENT................................................33
7.04 DEATH................................................................33
7.05 OTHER TERMINATION OF EMPLOYMENT......................................34
7.06 SEPARATE ACCOUNT.....................................................34
7.07 FORFEITURES..........................................................34
7.08 ADJUSTMENT FOR INVESTMENT EXPERIENCE.................................35
7.09 PARTICIPANT LOANS....................................................35
7.10 IN-SERVICE/HARDSHIP WITHDRAWALS......................................38
i
<PAGE> 3
7.11 PRIOR PLAN IN-SERVICE DISTRIBUTION RULES.............................39
ARTICLE 8 DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE.....40
8.01 DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES...........40
8.02 ANNUITY DISTRIBUTIONS................................................41
8.03 JOINT AND SURVIVOR ANNUITIES/PRE-RETIREMENT SURVIVOR ANNUITIES.......42
8.04 INSTALLMENT DISTRIBUTIONS............................................44
8.05 IMMEDIATE DISTRIBUTIONS..............................................46
8.06 DETERMINATION OF METHOD OF DISTRIBUTION..............................47
8.07 NOTICE TO TRUSTEE....................................................47
8.08 TIME OF DISTRIBUTION.................................................48
8.09 WHEREABOUTS OF PARTICIPANTS AND BENEFICIARIES........................49
ARTICLE 9 TOP-HEAVY PROVISIONS..............................................49
9.01 APPLICATION..........................................................49
9.02 DEFINITIONS..........................................................49
9.03 MINIMUM CONTRIBUTION.................................................52
9.04 ADJUSTMENT TO THE LIMITATION ON CONTRIBUTIONS AND BENEFITS...........53
9.05 MINIMUM VESTING......................................................53
ARTICLE 10 AMENDMENT AND TERMINATION........................................53
10.01 AMENDMENT BY EMPLOYER...............................................53
10.02 AMENDMENT BY PROTOTYPE SPONSOR.....................................54
10.03 AMENDMENTS AFFECTING VESTED AND/OR ACCRUED BENEFITS................55
10.04 RETROACTIVE AMENDMENTS..............................................55
10.05 TERMINATION.........................................................55
10.06 DISTRIBUTION UPON TERMINATION OF THE PLAN...........................56
10.07 MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS............56
ARTICLE 11 AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS
TO OR FROM OTHER QUALIFIED PLANS............................................56
11.01 AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN......................56
11.02 TRANSFER OF FUNDS FROM AN EXISTING PLAN.............................57
11.03 ACCEPTANCE OF ASSETS BY TRUSTEE.....................................58
11.04 TRANSFER OF ASSETS FROM TRUST.......................................58
ARTICLE 12 MISCELLANEOUS....................................................58
12.01 COMMUNICATION TO PARTICIPANTS.......................................58
12.02 LIMITATION OF RIGHTS................................................58
12.03 NONALIENABILITY OF BENEFITS AND QUALIFIED DOMESTIC RELATIONS ORDERS.59
12.04 FACILITY OF PAYMENT.................................................60
12.05 INFORMATION BETWEEN EMPLOYER AND TRUSTEE............................60
12.06 EFFECT OF FAILURE TO QUALIFY UNDER CODE.............................60
12.07 NOTICES.............................................................60
12.08 GOVERNING LAW.......................................................61
12.09 NON-DISCRIMINATION DATA SUBSTANTIATION..............................61
ARTICLE 13 PLAN ADMINISTRATION..............................................61
13.01 POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR....................61
13.02 NONDISCRIMINATORY EXERCISE OF AUTHORITY.............................62
13.03 CLAIMS AND REVIEW PROCEDURES........................................62
13.04 NAMED FIDUCIARY.....................................................63
13.05 COSTS OF ADMINISTRATION.............................................63
ii
<PAGE> 4
ARTICLE 14 TRUST AGREEMENT..................................................63
14.01 ACCEPTANCE OF TRUST RESPONSIBILITIES................................63
14.02 ESTABLISHMENT OF TRUST FUND.........................................63
14.03 EXCLUSIVE BENEFIT...................................................64
14.04 POWERS OF TRUSTEE...................................................64
14.05 ACCOUNTS............................................................65
14.06 APPROVING OF ACCOUNTS...............................................65
14.07 DISTRIBUTION FROM TRUST FUND........................................66
14.08 TRANSFER OF AMOUNTS FROM QUALIFIED PLAN.............................66
14.09 TRANSFER OF ASSETS FROM TRUST.......................................66
14.10 RESERVED............................................................67
14.11 VOTING; DELIVERY OF INFORMATION.....................................67
14.12 COMPENSATION AND EXPENSES OF TRUSTEE................................67
14.13 RELIANCE BY TRUSTEE ON OTHER PERSONS................................67
14.14 INDEMNIFICATION BY EMPLOYER.........................................68
14.15 CONSULTATION BY TRUSTEE WITH COUNSEL................................68
14.16 PERSONS DEALING WITH THE TRUSTEE....................................68
14.17 RESIGNATION OR REMOVAL OF TRUSTEE...................................68
14.18 FISCAL YEAR OF THE TRUST............................................69
14.19 DISCHARGE OF DUTIES BY FIDUCIARIES..................................69
14.20 AMENDMENT...........................................................69
14.21 PLAN TERMINATION....................................................69
14.22 PERMITTED REVERSION OF FUNDS TO EMPLOYER............................70
14.23 GOVERNING LAW.......................................................70
iii
<PAGE> 5
ARTICLE I ADOPTION AGREEMENT
ARTICLE 2 DEFINITIONS
2.01 DEFINITIONS
(a) Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
(1) "Account" means an account established on the books of the Trust
for the purpose of recording contributions made on behalf of a
Participant and any income, expenses, gains or losses incurred
thereon.
(2) "Administrator" means the Employer adopting this Plan, or other
person designated by the Employer in Section 1.01(c).
(3) "Adoption Agreement" means Article I under which the Employer
establishes and adopts, or amends, the Plan and Trust and designates
the optional provisions selected by the Employer, and the Trustee
accepts its responsibilities under Article 14. The provisions of the
Adoption Agreement shall be an integral part of the Plan.
(4) "Annuity Starting Date" means the first day of the first period
for which an amount is payable as an annuity or in any other form.
(5) "Beneficiary" means the person or persons entitled under Section
7.04 to receive benefits under the Plan upon the death of a
Participant, provided that for purposes of Section 7.04 such term
shall be applied in accordance with Section 401(a)(9) of the Code and
the regulations thereunder.
(6) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(7)"Compensation" shall mean:
(A) for purposes of Article 4 (Contributions) other than Section
4.02 (Additional Limit on Deferral Contributions) and Section
4.04 (Limit on Matching Contributions), Compensation as defined
in Section 5.03(e)(2) excluding any items elected by the Employer
in Section 1.04(a), reimbursements or other expense allowances,
fringe benefits (cash and non-cash), moving expenses, deferred
compensation and welfare benefits, but including amounts that are
not includable in the gross income of the Participant under a
salary reduction agreement by reason of the application of
Sections 125, 401(k), 402(h)(1)(B), or 403(b) of the Code; and
<PAGE> 6
(B) for purposes of Section 2.01(a)(16) (Highly Compensated
Employees), Section 4.02, Section 5.03 (Code Section 415
Limitations), and Section 9.03 (Top Heavy Plan Minimum
Contributions), Compensation as defined in Section 5.03(e)(2).
(C) for purposes of Section 4.02 (Additional Limit on Deferral
Contributions) and Section 4.04 (Limit on Matching
Contributions), the Employer may elect Compensation as defined in
Section 2.01(a)(7)(A) or Section 5.03(e) (2) excluding
reimbursements or other expense allowances, fringe benefits (cash
and non-cash), moving expenses, deferred compensation and welfare
benefits, but including amounts that are not includable in the
gross income of the Participant under a salary reduction
agreement by reason of the application of Section 125, 401(k),
402(h) or 403(b) of the Code.
Compensation shall generally be based on the amount actually paid to
the Participant during the Plan Year or, for purposes of Article 4
if so elected by the Employer in Section 1.04(b), during that
portion of the Plan Year during which the Employee is eligible to
participate. Notwithstanding the preceding sentence, Compensation
for purposes of Section 5.03 (Code Section 415 Limitations) shall be
based on the amount actually paid or made available to the
Participant during the Limitation Year. Compensation for the initial
Plan Year for a new Plan shall be based upon eligible Participant
Compensation, subject to Section 1.04(b), from the Effective Date
listed in Section 1.01(g)(1) through the end of the first Plan Year.
In the case of any Self-Employed Individual, Compensation shall mean
the Individual's Earned Income.
For Plan Year's beginning after December 31, 1988 and before January
1, 1994, the Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any
determination period shall not exceed $200,000. This limitation
shall be adjusted by the Secretary at the same time and in the same
manner as under Section 415(d) of the Code, except that the dollar
increase in effect on January 1 of any calendar year is effective
for years beginning in such calendar year and the first adjustment
to the $200,000 limitation is effected on January 1, 1990. If a Plan
determines Compensation on a period of time that contains fewer than
12 calendar months, then annual Compensation limit is amount equal
to the annual Compensation limit for the calendar year in which the
Compensation period begins multiplied by the ratio obtained by
dividing the number of full months in the period by 12.
In addition to other applicable limitations set forth in the plan,
and notwithstanding any other provision of the plan to the contrary,
for Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under the plan
shall not exceed the OBRA `93 annual Compensation limit. The OBRA
`93 annual Compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost-of-living in accordance with
Section 401(a)(17)(B) of the
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<PAGE> 7
Code. The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12
months, the OBRA `93 annual Compensation limit will be multiplied by
a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference
in this plan to the limitation under Section 401(a)(17) of the Code
shall mean the OBRA `93 annual Compensation limit set forth in this
provision. The annual Compensation limit applies for purposes of
applying the nondiscrimination rules under Sections 401(a)(4),
401(a)(5), 401(l), 401(k)(3), 401(m)(2), 403(b)(12), 404(a)(2) and
410(b)(2) of the Code.
If Compensation for any prior determination period is taken into
account in determining an Employees' benefits accruing in the
current plan year, the Compensation for that prior determination
period is subject to the OBRA `93 annual Compensation limit in
effect for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first
plan year beginning on or after January 1, 1994, the OBRA `93 annual
Compensation limit is $150,000.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for the
current determination period, the Compensation for such prior year
is subject to the applicable annual Compensation limit in effect for
that prior year. For this purpose, for years beginning before
January 1, 1990, the applicable annual Compensation limit is
$200,000.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before
the close of the year. If the $200,000 limitation is exceeded as a
result of the application of these rules, then the limitation shall
be prorated among the affected individuals in proportion to each
such individual's Compensation as determined under this Section
prior to the application of this limitation.
(8) "Earned Income" means the net earnings of a Self-Employed
Individual derived from the trade or business with respect to which
the Plan is established and for which the personal services of such
individual are a material income-providing factor, excluding any
items not included in gross income and the deductions allocated to
such items, except that for taxable years beginning after December
31, 1989 net earnings shall be determined with regard to the
deduction allowed under Section 164(f) of the Code, to the extent
applicable to the Employer. Net earnings shall be reduced by
contributions of the Employer to any qualified Plan, to the extent a
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<PAGE> 8
deduction is allowed to the Employer for such contributions under
Section 404 of the Code.
(9) "Eligibility Computation Period" means each 12-consecutive month
period beginning with the Employment Commencement Date and each
anniversary thereof or, in the case of an Employee who before
completing the eligibility requirements set forth in Section
1.03(a)(1) incurs a break in service for participation purposes and
thereafter returns to the employ of the Employer or Related
Employer, each 12-consecutive month period beginning with the first
day of re-employment and each anniversary thereof. A "break in
service for participation purposes" shall mean an Eligibility
Computation Period during which the Participant does not complete
more than 500 Hours of Service with the Employer.
(10) "Employee" means any Employee of the Employer, any
Self-Employed Individual or Owner-Employee. The Employer must
specify in Section 1.03(a)(3) any Employee, or class of Employees,
not eligible to participate in the Plan. If the Employer elects to
exclude collective bargaining Employees, the exclusion applies to
any Employee of the Employer included in a unit of Employees covered
by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between Employee representatives and
one or more employers unless the collective bargaining agreement
requires the Employee to be included within the Plan. The term
"Employee representatives" does not include any organization more
than half the members of which are owners, officers, or executives
of the Employer.
For purposes of the Plan, an individual shall be considered to
become an Employee on the date on which he first completes an Hour
of Service and he shall be considered to have ceased to be an
Employee on the date on which he last completes an Hour of Service.
The term also includes a Leased Employee, such that contributions or
benefits provided by the leasing organization which are attributable
to services performed for the Employer shall be treated as provided
by the Employer. Notwithstanding the above, a Leased Employee shall
not be considered an Employee if Leased Employees do not constitute
more than 20 percent of the Employer's non-highly compensated work
force (taking into account all Related Employers) and the Leased
Employee is covered by a money purchase pension Plan maintained by
the leasing organization which Plan provides (i) a non integrated
employer contribution rate of at least 10 percent of Compensation,
as defined for purposes of Section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction
agreement which are excludable from gross income under Section 125,
Section 402(a)(8), Section 402(h) or Section 403(b) of the Code,
(ii) full and immediate vesting, and (iii) immediate participation
by each Employee of the leasing organization.
(11) "Employer" means the employer named in Section 1.02(a) and any
Related Employers required by this Section 2.01(a)(11). If Article I
of the Employer's Plan is the Standardized Adoption Agreement, the
term "Employer" includes all Related
4
<PAGE> 9
Employers. If Article I of the Employer's Plan is the Non-
standardized Adoption Agreement, the term "Employer" includes those
Related Employers designated in Section 1.02(b).
(12) "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service.
(13) "ERISA" means the Employee Retirement Income Security Act of
1974, as from time to time amended.
(14) "Fidelity Fund" means any Registered Investment Company or
Managed Income Portfolio of the Fidelity Group Trust for Employee
Benefit Plans which is made available to Plans utilizing the
CORPORATEplan for Retirement 100SM Profit Sharing/401(k) Plan.
(15) "Fund Share" means the share, unit, or other evidence of
ownership in a Fidelity Fund.
(16) "Highly Compensated Employee" means both highly compensated
active Employees and highly compensated former Employees.
A highly compensated active Employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year: (i) received Compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section
415(d) of the Code); (ii) received Compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d) of the
Code) and was a member of the top-paid group for such year; or (iii)
was an officer of the Employer and received Compensation during such
year that is greater than 50 percent of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code. The term highly
compensated Employee also includes: (i) Employees who are both
described in the preceding sentence if the term "determination year"
is substituted for the term "look-back year" and the Employee is one
of the 100 Employees who received the most Compensation from the
Employer during the determination year; and (ii) Employees who are 5
percent owners at any time during the look-back year or
determination year. If no officer has satisfied the Compensation
requirement of (iii) above during either a determination year or
look-back year, the highest paid officer for such year shall be
treated as a highly compensated Employee. For this purpose, the
determination year shall be the Plan Year. The look-back year shall
be the twelve-month period immediately preceding the determination
year. The Employer may elect to make the look-back year calculation
for a determination on the basis of the calendar year ending with or
within the applicable determination year, as prescribed by Section
414(q) of the Code and the regulations issued thereunder. A highly
compensated former Employee includes any Employee who separated from
service (or was deemed to have separated) prior to the determination
year, performs no service for the Employer during the determination
year, and was a highly
5
<PAGE> 10
compensated active Employee for either the separation year or any
determination year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former
Employee or a highly compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of Compensation
paid by the Employer during such year, then the family member and
the 5 percent owner or top-ten highly compensated Employee shall be
aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single
Employee receiving Compensation and Plan contributions or benefits
equal to the sum of such Compensation and contributions or benefits
of the family member and 5 percent owner or top-ten highly
compensated Employee. For purposes of this Section, family member
includes the spouse, lineal ascendants and descendants of the
Employee or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a highly compensated Employee, including
the determinations of the number and identity of Employees in the
top-paid group, the top 100 Employees, the number of Employees
treated as officers and the Compensation that is considered, will be
made in accordance with Section 414(q) of the Code and the
regulations thereunder.
The determination of who is a highly compensated Employee may be
made pursuant to Internal Revenue Service Revenue Procedure 93-42,
"Data Substantiation Guidelines and Non-Discrimination Requirements,
of Section 401(a)(4), 410(b), and Related Code Sections" and
subsequent regulations.
(17) "Hour of Service" means, with respect to any Employee,
(A) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, for the performance of duties for
the Employer or a Related Employer, each such hour to be credited
to the Employee for the Eligibility Computation Period in which
the duties were performed;
(B) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by the Employer or Related Employer
(including payments made or due from a trust fund or insurer to
which the Employer contributes or pays premiums) on account of a
period of time during which no duties are performed (irrespective
of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity, disability, layoff, jury
duty, military duty, or leave of absence, each such hour to be
credited to the Employee for the Eligibility Computation Period
in which such period of time occurs, subject to the following
rules:
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<PAGE> 11
(i) No more than 501 Hours of Service shall be credited
under this paragraph (B) on account of any single continuous
period during which the Employee performs no duties;
(ii)Hours of Service shall not be credited under this
paragraph (B) for a payment which solely reimburses the
Employee for medically-related expenses, or which is made or
due under a Plan maintained solely for the purpose of
complying with applicable workmen's Compensation,
unemployment Compensation or disability insurance laws; and
(iii) If the period during which the Employee performs no
duties falls within two or more Eligibility Computation
Periods and if the payment made on account of such period is
not calculated on the basis of units of time, the Hours of
Service credited with respect to such period shall be
allocated between not more than the first two such
Eligibility Computation Periods on any reasonable basis
consistently applied with respect to similarly situated
Employees; and
(C) Each hour not counted under paragraph (A) or (B) for which
back pay, irrespective of mitigation of damages, has been either
awarded or agreed to be paid by the Employer or a Related
Employer, each such hour to be credited to the Employee for the
Eligibility Computation Period to which the award or agreement
pertains rather than the Eligibility Computation Period in which
the award agreement or payment is made.
For purposes of determining Hours of Service, Employees of the
Employer and of all Related Employers will be treated as employed by a
single employer. For purposes of paragraphs (B) and (C) above, Hours
of Service will be calculated in accordance with the provisions of
Section 2530.200b-2(b) of the Department of Labor regulations which
are incorporated herein by reference.
Solely for purposes of determining whether a break in service for
participation purposes has occurred in a computation period, an
individual who is absent from work for maternity or paternity reasons
shall receive credit for the hours of service which would otherwise
been credited to such individual but for such absence, or in any case
in which such hours cannot be determined, 8 hours of service per day
of such absence. For purposes of this paragraph, an absence from work
for maternity reasons means an absence (1) by reason of the pregnancy
of the individual, (2) by reason of a birth of a child of the
individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The hours of
service credited under this paragraph shall be credited (1) in the
computation period in which the absence begins if the crediting is
necessary to prevent a break in service in that period, or (2) in all
other cases, in the following computation period.
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<PAGE> 12
(18) "Leased Employee" means any individual who provides services to
the Employer or a Related Employer (the "recipient") but is not
otherwise an Employee of the recipient if (i) such services are
provided pursuant to an agreement between the recipient and any other
person (the "leasing organization"), (ii) such individual has
performed services for the recipient (or for the recipient and any
related persons within the meaning of Section 414(n)(6) of the Code)
on a substantially full-time basis for at least one year, and (iii)
such services are of a type historically performed by Employees in the
business field of the recipient.
(19) "Normal Retirement Age" means the normal retirement age specified
in Section 1.06(a) of the Adoption Agreement. If the Employer enforces
a mandatory retirement age, the Normal Retirement Age is the lesser of
that mandatory age or the age specified in Section 1.06(a).
(20) "Owner-Employee" means, if the Employer is a sole proprietorship,
the individual who is the sole proprietor, or if the Employer is a
partnership, a partner who owns more than 10 percent of either the
capital interest or the profits interest of the partnership.
(21) "Participant" means any Employee who participates in the Plan in
accordance with Article 3 hereof.
(22) "Plan" means the Plan established by the Employer in the form of
the prototype Plan as set forth herein as a new Plan or as an
amendment to an existing Plan, by executing the Adoption Agreement,
together with any and all amendments hereto.
(23) "Plan Year" means the 12-consecutive month period designated by
the Employer in Section 1.01(f).
(24) "Prototype Sponsor" means Fidelity Management and Research
Company, or its successor.
(25) "Registered Investment Company" means any one or more
corporations, partnerships or trusts registered under the Investment
Company Act of 1940 for which Fidelity Management and Research Company
serves as investment advisor.
(26) "Related Employer" means any employer other than the Employer
named in Section 1.02(a), if the Employer and such other employer are
members of a controlled group of corporations (as defined in Section
414(b) of the Code) or an affiliated service group (as defined in
Section 414(m)), or are trades or businesses (whether or not
incorporated) which are under common control (as defined in Section
414(c)), or such other employer is required to be aggregated with the
Employer pursuant to regulations issued under Section 414(o).
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<PAGE> 13
(27) "Self-Employed Individual" means an individual who has Earned
Income for the taxable year from the Employer or who would have had
Earned Income but for the fact that the trade or business had no net
profits for the taxable year.
(28) "Trust" means the trust created by the Employer in accordance
with the provisions of Section 14.01.
(29) "Trust Agreement" means the agreement between the Employer and
the Trustee, as set forth in Article 14, under which the assets of the
Plan are held, administered, and managed.
(30) "Trust Fund" means the property held in Trust by the Trustee for
the Accounts of the Participants and their Beneficiaries.
(31) "Trustee" means the Fidelity Management Trust Company, or its
successor.
(32) "Year of Service for Participation" means, with respect to any
Employee, an Eligibility Computation Period during which the Employee
has been credited with at least 1,000 Hours of Service. If the Plan
maintained by the Employer is the Plan of a predecessor employer, an
Employee's Years of Service for Participation shall include years of
service with such predecessor employer. In any case in which the Plan
maintained by the Employer is not the Plan maintained by a predecessor
employer, service for such predecessor shall be treated as service for
the Employer, to the extent provided in Section 1.08.
(33) "Years of Service for Vesting" means, with respect to any
Employee, the number of whole years of his periods of service with the
Employer or a Related Employer (the elapsed time method to compute
vesting service). An Employee will receive credit for the aggregate of
all time period(s) commencing with the Employee's Employment
Commencement Date and ending on the date a break in service begins. An
Employee will also receive credit for any period of severance of less
than 12 consecutive months. Fractional periods of a year will be
expressed in terms of days.
In the case of a Participant who has 5 consecutive 1-year breaks in
service, all years of service after such breaks in service will be
disregarded for the purpose of vesting the Employer-derived account
balance that accrued before such breaks, but both pre-break and
post-break service will count for the purposes of vesting the
Employer-derived account balance that accrues after such breaks. Both
accounts will share in the earnings and losses of the fund. In the
case of a Participant who does not have 5 consecutive 1-year breaks in
service, both the pre-break and post-break service will count in
vesting both the pre-break and post-break employer-derived account
balance. A break in service is a period of severance of at least 12
consecutive months. Period of severance is a continuous period of time
during which the Employee is not employed by the Employer. Such period
begins on the date the Employee retires,
9
<PAGE> 14
quits or is discharged, or if earlier, the 12 month anniversary of the
date on which the Employee was otherwise first absent from service.
In the case of an individual who is absent from work for maternity or
paternity reasons, the 12-consecutive month period beginning on the
first anniversary of the first date of such absence shall not
constitute a break in service. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means an absence
(1) by reason of the pregnancy of the individual, (2) by reason of the
birth of a child of the individual, (3) by reason of the placement of
a child with the individual in connection with the adoption of such
child by such individual, or (4) for purposes of caring for such child
for a period beginning immediately following such birth or placement.
If the Plan maintained by the Employer is the Plan of a predecessor
employer, an Employee's Years of Service for Vesting shall include
years of service with such predecessor employer. In any case in which
the Plan maintained by the Employer is not the Plan maintained by a
predecessor employer, service for such predecessor shall be treated as
service for the Employer to the extent provided in Section 1.08.
(b) Pronouns used in the Plan are in the masculine gender but include
the feminine gender unless the context clearly indicates otherwise.
ARTICLE 3 PARTICIPATION
3.01 DATE OF PARTICIPATION
All Employees in the eligible class (as defined in Section 1.03(a)(3)) who are
in the service of the Employer on the Effective Date will become Participants on
the date elected by the Employer in Section 1.03(c). Any other Employee will
become a Participant in the Plan as of the first Entry Date on which he first
satisfies the eligibility requirements set forth in Section 1.03(a). In the
event that an Employee who is not a member of an eligible class (as defined in
Section 1.03(a)(3)) becomes a member of an eligible class, the individual shall
participate immediately if such individual had already satisfied the eligibility
requirements and would have otherwise previously become a Participant.
If an eligibility requirement other than one Year of Service is elected in
1.03(a)(1), an Employee may not be required to complete a minimum number of
Hours of Service before becoming a Participant. An otherwise eligible Employee
subject to a minimum months of service requirement shall become a Participant on
the first Entry Date following his completion of the required number of
consecutive months of employment measured from his Employment Commencement Date
to the coinciding date in the applicable following month. For purposes of
determining consecutive months of service, the Related Employer and predecessor
employer rules contained in Sections 2.01(a)(17) and 2.01(a)(32) shall apply.
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<PAGE> 15
3.02 RESUMPTION OF PARTICIPATION FOLLOWING RE-EMPLOYMENT
If a Participant ceases to be an Employee and thereafter returns to the employ
of the Employer he will be treated as follows:
(a) he will again become a Participant on the first date on which he
completes an Hour of Service for the Employer following his
re-employment and is in the eligible class of Employees as defined in
Section 1.03(a)(3), and
(b) any distribution which he is receiving under the Plan will cease
except as otherwise required under Section 8.08.
3.03 CESSATION OR RESUMPTION OF PARTICIPATION FOLLOWING A CHANGE IN STATUS
If any Participant continues in the employ of the Employer or Related Employer
but ceases to be a member of an eligible class as defined in Section 1.03(a)(3),
the individual shall continue to be a Participant for most purposes until the
entire amount of his benefit is distributed; however, the individual shall not
be entitled to receive an allocation of contributions or forfeitures during the
period that he is not a member of the eligible class. Such Participant shall
continue to receive credit for service completed during the period for purposes
of determining his vested interest in his Accounts. In the event that the
individual subsequently again becomes a member of an eligible class of
Employees, the individual shall resume full participation immediately upon the
date of such change in status.
3.04 PARTICIPATION BY OWNER-EMPLOYEE; CONTROLLED BUSINESSES
If the Plan provides contributions or benefits for one or more Owner-employees
who control both the trade or business with respect to which the Plan is
established and one or more other trades or businesses, the Plan and any Plan
established with respect to such other trades or businesses must, when looked at
as a single Plan, satisfy Sections 401(a) and 401(d) of the Code with respect to
the Employees of this and all such other trades or businesses. If the Plan
provides contributions or benefits for one or more Owner-employees who control
one or more other trades or businesses, the Employees of each such other trade
or business must be included in a Plan which satisfies Sections 401(a) and
401(d) of the Code and which provides contributions and benefits not less
favorable dm provided for Owner-Employees under the Plan.
If an individual is covered as an Owner-Employee under the Plans of two or more
trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the Employees under the
Plan of the trades or businesses which are controlled must be as favorable as
those provided for him under the most favorable Plan of the trade or business
which is not controlled.
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<PAGE> 16
For purposes of this Section, an Owner-Employee, or two or more Owner-Employees,
shall be considered to control a trade or business if such Owner-Employee, or
such Owner-Employees together, (i) own the entire interest in an unincorporated
trade or business, or (ii) in the case of a partnership, own more than 50
percent of either the capital interest or the profits interest in such
partnership. For this purpose, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership controlled by such
Owner-Employee or such Owner-Employees.
3.05 OMISSION OF ELIGIBLE EMPLOYEE
If any Employee who should be included as a Participant in the Plan is
erroneously omitted and discovery of such omission is not made until after a
contribution by his Employer for the year has been made, the Employer shall make
a subsequent contribution, if necessary, so that the omitted Employee receives
the total amount which the said Employee would have received had he not been
omitted. For purposes of this Section 3.05, the term "contribution" shall not
include Deferral Contributions and Matching Contributions made pursuant to
Sections 4.01 and 4.03, respectively.
ARTICLE 4 CONTRIBUTIONS
4.01 DEFERRAL CONTRIBUTIONS
(a) DEFERRAL CONTRIBUTIONS. If so provided by the Employer in Section
1.05(b), each Participant may elect to execute a salary reduction
agreement with the Employer to reduce his Compensation by a specified
percentage not exceeding 15% per payroll period, subject to any
exceptions elected by the Employer in Section 1.05(b)(2) and equal to
a whole number multiple of one (1) percent. Such agreement shall
become effective on the first day of the first payroll period for
which the Employer can reasonably process the request. The Employer
shall make a Deferral Contribution on behalf of the Participant
corresponding to the amount of said reduction, subject to the
restrictions set forth below. Under no circumstances may a salary
reduction agreement be adopted retroactively.
(b) A Participant may elect to change or discontinue the percentage by
which his Compensation is reduced by notice to the Employer as
provided in Section 1.05(b)(1).
(c) No Participant shall be permitted to have Deferral Contributions
made under the Plan, or any other qualified Plan maintained by the
Employer, during the taxable year, in excess of the dollar limitation
contained in Section 402(g) of the Code in effect at the beginning of
such taxable year. A Participant may assign to the Plan any Excess
Deferrals made during the taxable year of the Participant by notifying
the Plan Administrator on or before March 15 following the taxable
year of the amount of the Excess Deferrals to be assigned to the Plan.
A Participant is deemed to notify the
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<PAGE> 17
Administrator of any Excess Deferrals that arise by taking into
account only those Deferral Contributions made to the Plan and any
other Plan of the Employer. Notwithstanding any other provision of the
Plan, Excess Deferrals, plus any income and minus any loss allocable
thereto, shall be distributed no later than April 15 to any
Participant to whose account Excess Deferrals were so assigned for the
preceding year and who claims Excess Deferrals for such taxable year.
A Participant is deemed to notify the Administrator of any Excess
Deferrals that arise by taking into account only those Deferred
Contributions made to this Plan and any other plans of the Employer.
"Excess Deferrals" shall mean those Deferral Contributions that are
includable in a Participant's gross income under Section 402(g) of the
Code to the extent such Participant's Deferral Contributions for a
taxable year exceed the dollar limitation under such Code section. For
purposes of determining Excess Deferrals, the term "Deferral
Contributions" shall include the sum of all Employer Contributions
made on behalf of such Participant pursuant to an election to defer
under any qualified CODA as described in Section 401(k) of the Code,
any simplified Employee pension cash or deferred arrangement as
described in Section 402(h)(1)(B) of the Code, any eligible deferred
Compensation Plan under Section 457, any Plan as described under
Section 501(c)(18) of the Code, and any Employer Contributions made on
the behalf of a Participant for the purchase of an annuity contract
under Section 403(b) of the Code pursuant to a salary reduction
agreement. Deferral Contributions shall not include any deferrals
properly distributed as excess annual additions. Excess Deferrals
shall be treated as annual additions under the Plan, unless such
amounts are distributed no later than the first April 15 following the
close of the Participant's taxable year. Deferral Contributions shall
not include any deferrals properly distributed as excess annual
additions.
Excess Deferrals shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess Deferrals
is (1) income or loss allocable to the Participant's Deferral
Contributions account for the taxable year multiplied by a fraction,
the numerator of which is such Participant's Excess Deferrals for the
year and the denominator is the Participant's account balance
attributable to Deferral Contributions without regard to any income or
loss occurring during such taxable year, or (2) such other amount
determined under any reasonable method, provided that such method is
used consistently for all Participants in calculating the
distributions required under this Section 4.01(c) and Sections 4.02(d)
and 4.04(d) for the Plan Year, and is used by the Plan in allocating
income or loss to Participants' accounts. Income or loss allocable to
the period between the end of the Plan Year and the date of
distribution shall be disregarded in determining income or loss.
(d) In order for the Plan to comply with the requirements of Sections
401(k), 402(g) and 415 of the Code and the regulations promulgated
thereunder, at any time in a Plan Year the Administrator may reduce
the rate of Deferral Contributions to be made on behalf of any
Participant, or class of Participants, for the remainder of that Plan
Year, or the Administrator may require that all Deferral Contributions
to be made on behalf of a Participant be discontinued for the
remainder of that Plan Year. Upon the close of the
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<PAGE> 18
Plan Year or such earlier date as the Administrator may determine, any
reduction or discontinuance in Deferral Contributions shall
automatically cease until the Administrator again determines that such
a reduction or discontinuance of Deferral Contributions is required.
4.02 ADDITIONAL LIMIT ON DEFERRAL CONTRIBUTIONS
(a) The Actual Deferral Percentage (hereinafter "ADP") for
Participants who are Highly Compensated Employees for each Plan Year
and the ADP for Participants who are Non-highly Compensated Employees
for the same Plan Year must satisfy one of the following tests:
(1) The ADP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ADP for Participants who
are Non-highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(2) The ADP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ADP for Participants who
are Non-highly Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the ADP for Participants who are
Highly Compensated Employees does not exceed the ADP for
Participants who are Non-highly Compensated Employees by more
than two (2) percentage points.
(b) The following special rules apply for the purposes of this
Section:
(1) The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Deferral
Contributions (and Qualified Discretionary Contributions if
treated as Deferral Contributions for purposes of the ADP test)
allocated to his or her accounts under two or more arrangements
described in Section 401(k) of the Code, that are maintained by
the Employer, shall be determined as if such Deferral
Contributions (and, if applicable, such Qualified Discretionary
Contributions) were made under a single arrangement. If a Highly
Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred
arrangements ending with or within the same calendar year shall
be treated as a single arrangement. Notwithstanding the
foregoing, certain Plans shall be treated as separate if
mandatorily disaggregated under regulations under Section 401(k)
of the Code.
(2) In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other Plans, or if one or more other
Plans satisfy the requirements of such Sections of the Code only
if aggregated with this Plan, then this Section shall be applied
by determining the ADP of Employees as if all such Plans were a
single Plan. For Plan Years beginning after
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<PAGE> 19
December 31, 1989, Plans may be aggregated in order to satisfy
section 401(k) of the Code only if they have the same Plan Year.
(3) For purposes of determining the ADP of a Participant who is a
5-percent owner or one of the ten most highly-paid Highly
Compensated Employees, the Deferral Contributions (and Qualified
Discretionary Contributions if treated as Deferral Contributions
for purposes of the ADP test) and Compensation of such
Participant shall include the Deferral Contributions (and, if
applicable, Qualified Discretionary Contributions) and
Compensation for the Plan Year of Family Members (as defined in
Section 414(q)(6) of the Code). Family Members, with respect to
such Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for Participants
who are Non-highly Compensated Employees and for Participants who
are Highly Compensated Employees.
(4) For purposes of determining the ADP test, Deferral
Contributions and Qualified Discretionary Contributions must be
made before the last day of the twelve-month period immediately
following the Plan Year to which contributions relate.
(5) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified
Discretionary Contributions used in such test.
(6) The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(c) The following definitions shall apply for purposes of this
Section:
(1) "Actual Deferral Percentage" shall mean, for a specified
group of Participants for a Plan Year, the average of the ratios
(calculated separately for each Participant in such group) of (1)
the amount of Employer contributions actually paid over to the
trust on behalf of such Participant for the Plan Year to (2) the
Participant's Compensation for such Plan Year. Employer
contributions on behalf of any Participant shall include: (1) any
Deferral Contributions made pursuant to the Participant's
deferral election, including Excess Deferrals of Highly
Compensated Employees, but excluding (a) Excess Deferrals of
Non-highly Compensated Employees that arise solely from Deferral
Contributions made under the Plan or Plans of the Employer and
(b) Deferral Contributions that are taken into account in the
Contribution Percentage test (provided the ADP test is satisfied
both with and without exclusion of these Deferral Contributions);
and (2) at the election of the Employer, Qualified Discretionary
Contributions. Matching Contributions, whether or not
non-forfeitable when made, shall not be considered as Employer
Contributions for purposes of this paragraph. For purposes of
computing Actual Deferral Percentages, an Employee who would be a
Participant but for the failure to make Deferral Contributions
shall be treated as a Participant on whose behalf no Deferral
Contributions are made.
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<PAGE> 20
(2) "Excess Contributions" shall mean, with respect to any Plan
Year, the excess of:
(a) The aggregate amount of Employer contributions actually
taken into account in computing the ADP of Highly
Compensated Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by
the ADP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of the ADPs,
beginning with the highest of such percentages).
(3) "Qualified Discretionary Contributions" shall mean
contributions made by the Employer as elected in Section
1.05(b)(3) and allocated to Participant accounts of Non-highly
Compensated Employees that such Participants may not elect to
receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in
accordance with the distribution provisions that are applicable
to Deferral Contributions. Participants shall not be required to
satisfy any hours of service or employment requirement in order
to receive an allocation of such contributions.
(d) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Contributions were
allocated for the preceding Plan Year. If such excess amounts are
distributed more than 2-1/2 months after the last day of the Plan Year
in which such excess amounts arose, a ten (10) percent excise tax will
be imposed on the employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees. Excess
Contributions of Participants who are subject to the family member
aggregation rules of Section 414(q)(6) of the Code shall be allocated
among the family members in proportion to the Deferral Contributions
(and amounts treated as Deferral Contributions) of each family member
that is combined to determine the combined ADP.
Excess Contributions shall be treated as annual additions under the
Plan. Excess Contributions shall be adjusted for any income or loss up
to the date of distribution. The income or loss allocable to Excess
Contributions is (1) income or loss allocable to the Participant's
Deferral. Contribution account (and if applicable, the Qualified
Discretionary Contribution account) for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess
Contributions for the year and the denominator is the Participant's
account balance attributable to Deferral Contributions without regard
to any income or loss occurring during such Plan Year, or (2) an
amount determined under any reasonable method, provided that such
method is used consistently for all Participants in calculating any
distributions required under Section 4.02(d) and Sections 4.01(c) and
4.04(d) for the Plan Year, and is used by the Plan in allocating
income or loss to the Participants' accounts. Income or loss allocable
to the period
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<PAGE> 21
between the end of the Plan Year and the date of distribution shall
be disregarded in determining income or loss.
Excess Contributions shall be distributed from the Participant's
Qualified Discretionary Contribution account only to the extent that
such Excess Contributions exceed the balance in the Participant's
Deferral Contributions account.
4.03 MATCHING CONTRIBUTIONS
If so provided by the Employer in Section 1.05(c), the Employer shall make a
Matching Contribution on behalf of each Participant who had Deferral
Contributions made on his behalf during the year in accordance with Section
1.05(c)(3). The amount of the Matching Contribution shall be determined in
accordance with Section 1.05(c)(1), subject to the limitations set forth in
Section 4.04 and Section 404 of the Code.
4.04 LIMIT ON MATCHING CONTRIBUTIONS
(a) The Average Contribution Percentage (hereinafter "ACP") for
Participants who are Highly Compensated Employees for each Plan Year
and the ACP for Participants who are Non-highly Compensated Employees
for the same Plan Year must satisfy one of the following tests:
(1) The ACP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ACP for Participants who
are Non-highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(2) The ACP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ACP for Participants who
are Non-highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the ACP for Participants who
are Highly Compensated Employees does not exceed the ACP for
Participants who are Non-highly Compensated Employees by more
than two (2) percentage points.
(b) The following special rules apply for purposes of this section:
(1) If one or more Highly Compensated Employees participate in
both a qualified cash or deferred arrangement described in
Section 401(k) of the Code (hereafter "CODA") and a Plan subject
to the ACP test maintained by the Employer and the sum of the ADP
and ACP of those Highly Compensated Employees subject to either
or both tests exceeds the Aggregate Limit, then the ACP of those
Highly Compensated Employees who also participate in a CODA will
be reduced (beginning with such Highly Compensated Employee whose
ACP is the highest) so that the limit is not exceeded. The amount
by which each Highly Compensated Employee's
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<PAGE> 22
Contribution Percentage Amounts is reduced shall be treated as an
Excess Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. Multiple use does not
occur if either the ADP or ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the ADP and ACP of
the Non-highly Compensated Employees.
(2) For purposes of this section, the Contribution Percentage for
any Participant who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to his
or her account under two or more Plans described in section
401(a) of the Code, or arrangements described in section 401(k)
of the Code that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage
Amounts was made under each Plan. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different Plan years, all cash or deferred
arrangements ending with or within the same calendar year shall
be treated as a single arrangement. Notwithstanding the
foregoing, certain Plans shall be treated as separate if
mandatorily disaggregated under regulations under Section 401(m)
of the Code.
(3) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other Plans, or if one or more other
Plans satisfy the requirements of such sections of the Code only
if aggregated with this Plan, then this section shall be applied
by determining the Contribution Percentage of Employees as if all
such Plans were a single Plan. For Plan years beginning after
December 31, 1989, Plans may be aggregated in order to satisfy
Section 401(m) of the Code only if they have the same Plan Year.
(4) For purposes of determining the Contribution percentage of a
Participant who is a five-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participant shall
include the Contribution Percentage Amounts and Compensation for
the Plan Year of Family Members (as defined in Section 414(q)(6)
of the Code). Family Members, with respect to Highly Compensated
Employees, shall be disregarded as separate Employees in
determining the Contribution Percentage both for Participants who
are Non-highly Compensated Employees and for Participants who are
Highly Compensated Employees.
(5) For purposes of determining the Contribution Percentage test,
Matching Contributions and Qualified Discretionary Contributions
will be considered made for a Plan Year if made no later than the
end of the twelve-month period beginning on the day after the
close of the Plan Year.
(6) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified
Discretionary Contributions used in such test.
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<PAGE> 23
(7) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of Treasury.
(c) The following definitions shall apply for purposes of this
Section:
(1) "Aggregate Limit" shall mean the greater of (A) or (B) where
(A) is the sum of (i) 125 percent of the greater of the ADP of
the Non-highly Compensated Employees for the Plan Year or the ACP
of Non-highly Compensated Employees under the Plan subject to
Section 401(m) of the Code for the Plan Year beginning with or
within the Plan Year of the CODA and (ii) the lesser of 200% or
two plus the lesser of such ADP or ACP and where (B) is the sum
of (i) 125 percent of the lesser of the ADP of the Non-highly
Compensated Employees for the Plan Year or the ACP of Non-highly
Compensated Employees under the Plan subject to Section 401(m) of
the Code for the Plan Year beginning with or within the Plan Year
of the CODA and (ii) the lesser of 200% or two plus the greater
of such ADP or ACP.
(2) "Average Contribution Percentage" or "ACP" shall mean the
average of the Contribution Percentages of the Eligible
Participants in a group.
(3) "Contribution Percentage" shall mean the ratio (expressed as
a percentage) of the Participant's Contribution Percentage
Amounts to the Participant's Compensation for the Plan Year.
(4) "Contribution Percentage Amounts" shall mean the sum of
Matching Contributions made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage
Amounts shall not include Matching Contributions that are
forfeited either to correct Excess Aggregate Contributions or
because the contributions to which they relate are Excess
Deferrals, Excess Contributions or Excess Aggregate
Contributions. If so elected by the Employer in Section
1.05(b)(3), the Employer may include Qualified Discretionary
Contributions in the Contribution Percentage Amounts. The
Employer also may elect to use Deferral Contributions in the
Contribution Percentage Amounts so long as the ADP test is met
before the Deferral Contributions are used in the ACP test and
continues to be met following the exclusion of those Deferral
Contributions that are used to meet the ACP test.
(5) "Deferral Contribution" shall mean any contribution made at
the election of the Participant pursuant to a salary reduction
agreement in accordance with Section 4.01(a).
(6) "Eligible Participant" shall mean any Employee who is
eligible to make an Employee Contribution, or a Deferral
Contribution (if the employer takes such contributions into
account in the calculation of the Contribution Percentage), or to
receive a Matching Contribution.
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<PAGE> 24
(7) Reserved
(8) "Matching Contribution" shall mean an Employer Contribution
made to this or any other defined contribution Plan on behalf of
a Participant on account of a Participant's Deferral
Contribution.
(9) "Excess Aggregate Contributions" shall mean, with respect to
any Plan Year, the excess of:
(A) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly Compensated
Employees for such Plan Year, over
(B) The maximum Contribution Percentage Amounts permitted by
the ACP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining
Excess Deferrals pursuant to Section 4.01 and then
determining Excess Contributions pursuant to Section 4.02.
(d) Notwithstanding any other provision of the Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited, if forfeitable, or if not forfeitable, distributed
no later than the last day of each Plan Year to Participants to whose
accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions of Participants
who are subject to the family member aggregation rules of Section
414(q)(6) of the Code shall be allocated among the family members in
proportion Matching Contributions of each family member that is
combined to determine the combined ACP. If such Excess Aggregate
Contributions are distributed more than 2 1/2 months after the last
day of the Plan Year in which such excess amounts arose, a ten (10)
percent excise tax will be imposed on the employer maintaining the
Plan with respect to those amounts. Excess Aggregate Contributions
shall be treated as annual additions under the Plan.
Excess Aggregate Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or loss allocable to
Excess Aggregate Contributions is (1) income or loss allocable to the
Participant's Matching Contribution account (if any, and if all
amounts therein are not used in the ADP test) and if applicable,
Qualified Non-elective Contribution account for the Plan Year
multiplied by a fraction, the numerator of which is such Participant's
Excess Aggregate Contributions for the year and the denominator is the
Participant's account balance(s) attributable to Contribution
Percentage Amounts without regard to income or loss occurring during
such Plan Year, or (2) such other amount determined under any
reasonable method, provided that such method is used consistently for
all Participants in calculating any distributions required
20
<PAGE> 25
under Section 4.04(d) and Sections 4.01(c) and 4.02(d) for the Plan
Year, and is used by the Plan in allocating income or loss to the
Participants' accounts. Income or loss allocable to the period between
the end of the Plan Year and the date of distribution shall be
disregarded in determining income or loss.
Excess Aggregate Contributions shall be forfeited, if forfeitable, or
distributed on a prorata basis from the Participant's Matching
Contribution Account and if applicable, the Participant's Deferral
Contributions Account or Qualified Discretionary Contribution Account
or both. Forfeitures of Excess Aggregate Contributions shall be
applied to reduce Employer contributions; the forfeitures shall be
held in the money market fund, if any, listed in Section 1.14(b)
pending such application.
4.05 SPECIAL RULES
Deferral Contributions and Qualified Discretionary Contributions and income
allocable to each are not distributable to a Participant or his or her
beneficiary or beneficiaries, in accordance with such Participant's or
beneficiary or beneficiaries election, earlier than upon separation from
service, death, or disability, except as otherwise provided in Section 7.10,
7.11 or 10.06. Such amounts may also be distributed, but after March 31, 1988 in
the form of a lump sum only, upon:
(a) Termination of the Plan without establishment of another defined
contribution Plan, other than an Employee stock ownership Plan (as
defined in Section 4975(e) or Section 409 of the Code) or a simplified
Employee pension Plan as defined in Section 408(k) of the Code.
(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section
409(d)(2) of the Code) used in a trade or business of such corporation
if such corporation continues to maintain this Plan after the
disposition, but only with respect to Employees who continue
employment with the corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section
409(d)(2) of the Code) if such corporation continues to maintain this
Plan, but only with respect to Employees who continue employment with
such subsidiary.
The Participant's accrued benefit derived from Deferral Contributions and
Qualified Discretionary Contributions is non-forfeitable. Separate accounts for
Deferral Contributions, Qualified Discretionary Contributions, and Matching
Contributions will be maintained for each Participant. Each account will be
credited with the applicable contributions and earnings thereon.
21
<PAGE> 26
4.06 DISCRETIONARY EMPLOYER CONTRIBUTIONS
If so provided by the Employer in Sections 1.05(a)(1), for the Plan Year in
which the Plan is adopted and for each Plan Year thereafter, the Employer may
make Discretionary Employer Contributions to the Trust in accordance with
Section 1.05 to be allocated among eligible Participants, in the ratio that each
Participant's Compensation bears to the total Compensation paid to all eligible
Participants for the Plan Year.
4.07 TIME OF MAKING EMPLOYER CONTRIBUTIONS
The Employer will pay its contribution for each Plan Year not later than the
time prescribed by law for filing the Employer's Federal income tax return for
the fiscal (or taxable) year with or within which such Plan Year ends (including
extensions thereof). The Trustee will have no authority to inquire into the
correctness of the amounts contributed and paid over to the Trustee, to
determine whether any contribution is payable under this Article 4, or to
enforce, by suit or otherwise, the Employer's obligation, if any, to make a
contribution to the Trustee.
4.08 RETURN OF EMPLOYER CONTRIBUTIONS
The Trustee shall, upon request by the Employer, return to the Employer the
amount (if any) determined under Section 14.22. Such amount shall be reduced by
amounts attributable thereto which have been credited to the Accounts of
Participants who have since received distributions from the Trust, except to the
extent such amounts continue to be credited to such Participants' Accounts at
the time the amount is returned to the Employer. Such amount shall also be
reduced by the losses of the Trust attributable thereto, if and to the extent
such losses exceed the gains and income attributable thereto, but will not be
increased by the gains and income of the Trust attributable thereto, if and to
the extent such gains and income exceed the losses attributable thereto. In no
event will the return of a contribution hereunder cause the balance of the
individual Account of any Participant to be reduced to less than the balance
which would have been credited to the Account had the mistaken amount not been
contributed.
4.09 EMPLOYEE CONTRIBUTIONS
The Employer shall not allow Participants to make any Employee Contributions to
the Plan. However, the Plan may accept a frozen Participant Employee
Contribution Account. For purposes of this Plan, "Employee Contributions" shall
mean any voluntary non-deductible contribution made to the Plan by or on behalf
of a Participant that is or was included in the Participant's gross income in
the year in which made and that is maintained under a separate account to which
applicable earnings and losses are allocated. A Participant shall have a fully
vested 100% nonforfeitable right to his Employee Contributions.
22
<PAGE> 27
4.10 ROLLOVER CONTRIBUTIONS
(a) ROLLOVER OF ELIGIBLE ROLLOVER DISTRIBUTIONS
(1) An Employee who is or was a distributee of an "eligible
rollover distribution" (as defined in Section 402(c)(4) of the
Code and the regulations issued thereunder) from a qualified Plan
or Section 403(b) annuity may directly transfer all or any
portion of such distribution to the Trust or transfer all or any
portion of such distribution to the Trust within sixty (60) days
of payment. The transfer shall be made in the form of cash or
allowable Fund Shares only.
(2) The Employer may refuse to accept rollover contributions or
instruct the Trustee not to accept rollover contributions under
the Plan.
(b) TREATMENT OF ROLLOVER AMOUNT.
(1) An Account will be established for the transferring Employee
under Article 5, the rollover amount will be credited to the
account and such amount will be subject to the terms of the Plan,
including Section 8.01, except as otherwise provided in this
Section 4.10.
(2) The rollover account will at all times be fully vested in and
nonforfeitable by the Employee.
(c) ENTRY INTO PLAN BY TRANSFERRING EMPLOYEE. Although an amount may
be transferred to the Trust Fund under this Section 4.10 by an
Employee who has not yet become a Participant in accordance with
Article 4, and such amount is subject to the terms of the Plan as
described in paragraph (b) above, the Employee will not become a
Participant entitled to share in Employer Contributions until he has
satisfied such requirements.
(d) MONITORING OF ROLLOVERS.
(1) The Administrator shall develop such procedures and require
such information from transferring Employees as it deems
necessary to insure that amounts transferred under this Section
4.10 meet the requirements for tax-free rollovers established by
such Section and by Section 402(c) of the Code. No such amount
may be transferred until approved by the Administrator.
(2) If a transfer made under this Section 4.10 is later
determined by the Administrator not to have met the requirements
of this Section or of the Code or Treasury regulations, the
Trustee shall, within a reasonable time after such determination
is made, and on instructions from the Administrator, distribute
to the Employee the amounts then held in the Trust attributable
to the transferred amount.
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4.11 DEDUCTIBLE VOLUNTARY EMPLOYEE CONTRIBUTIONS.
The Administrator will not accept deductible Employee contributions which are
made for a taxable year beginning after December 31, 1986. Contributions made
prior to that date will be maintained in a separate account which will be
nonforfeitable at all times and which will start in the gains and losses of the
trust in the same manner as described in Section 5.02. No part of the deductible
voluntary contribution account will be used to purchase life insurance. Subject
to Article 8, the Participant may withdraw any part of the deductible voluntary
contribution account upon request.
4.12 RESERVED
ARTICLE 5 PARTICIPANTS' ACCOUNTS
5.01 INDIVIDUAL ACCOUNTS
The Administrator will establish and maintain an Account for each Participant
which will reflect Employer and Employee Contributions made on behalf of the
Participant and earnings, expenses, gains and losses attributable thereto, and
investments made with amounts in the Participant's Account. The Administrator
will establish and maintain such other accounts and records as it decides in its
discretion to be reasonably required or appropriate in order to discharge its
duties under the Plan.
5.02 VALUATION OF ACCOUNTS
Participant Accounts will be valued at their fair market value at least annually
as of a date specified by the Administrator in accordance with a method
consistently followed and uniformly applied, and on such date earnings,
expenses, gains and losses on investments made with amounts in each
Participant's Account will be allocated to such Account. Participants will be
furnished statements of their Account values at least once each Plan Year.
5.03 CODE SECTION 415 LIMITATIONS
Notwithstanding any other provisions of the Plan:
Subsections (a)(1) through (a)(4)--(THESE SUBSECTIONS APPLY TO EMPLOYERS WHO DO
NOT MAINTAIN ANY QUALIFIED PLAN INCLUDING A WELFARE BENEFIT FUND, AN INDIVIDUAL
MEDICAL ACCOUNT, OR A SIMPLIFIED EMPLOYEE PENSION IN ADDITION TO THIS PLAN.)
24
<PAGE> 29
(a)(1) If the Participant does not participate in, and has never
participated in any other qualified Plan, Welfare Benefit Fund,
Individual Medical Account, or a simplified Employee pension, as
defined in section 408(k) of the Code, maintained by the Employer,
which provides an annual addition as defined in Section 5.03(e)(1),
the amount of Annual Additions to a Participant's Account for a
Limitation Year shall not exceed the lesser of the Maximum Permissible
Amount or any other limitation contained in this Plan. If the Employer
contribution that would otherwise be contributed or allocated to the
Participant's account would cause the annual additions for the
limitation year to exceed the maximum permissible amount, the amount
contributed or allocated will be reduced so that the annual additions
for the limitation year will equal the maximum permissible amount.
(a)(2) Prior to the determination of the Participant's actual
Compensation for a Limitation Year, the Maximum Permissible Amount may
be determined on the basis of a reasonable estimation of the
Participant's Compensation for such Limitation Year, uniformly
determined for all Participants similarly situated. Any Employer
contributions based on estimated annual Compensation shall be reduced
by any Excess Amounts carried over from prior years.
(a)(3) As soon as administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation
Year shall be determined on the basis of the Participant's actual
Compensation for such Limitation Year.
(a)(4) If, pursuant to subsection (a)(3) or as a result of the
allocation of forfeitures, or a reasonable error in determining the
total Elective Deferrals there is an Excess Amount with respect to a
Participant for a Limitation Year, such Excess Amount shall be
disposed of as follows:
(A) Any active Deferrals, to the extent they would reduce the
Excess Amount, will be returned to the Participant.
(B) If after the application of paragraph (A) an Excess amount
still exists and the Participant is in the service of the
Employer which is covered by the Plan at the end of the
Limitation Year, then such Excess Amount shall be reapplied to
reduce future Employer contributions under this Plan for the next
Limitation Year (and for each succeeding year, as necessary) for
such Participant, so that in each such Year the sum of actual
Employer contributions plus the reapplied amount shall equal the
amount of Employer contributions which would otherwise be made to
such Participant's Account.
(C) If after the application of paragraph (A) an Excess Amount
still exists and the Participant is not in the service of the
Employer which is covered by the Plan at the end of a Limitation
Year, then such Excess Amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce
future
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<PAGE> 30
Employer contributions for all remaining Participants in the next
Limitation Year and each succeeding Limitation Year if necessary.
(D) If a suspense account is in existence at any time during the
Limitation Year pursuant to this subsection, it will not
participate in the allocation of the Trust Fund's investment
gains and losses. All amounts in the suspense account must be
allocated to the Accounts of Participants before any Employer
contribution may be made for the Limitation Year. Except as
provided in paragraph (A), Excess Amounts may not be distributed
to Participants or former Participants.
Subsections (b)(1) through (b)(6)--(THESE SUBSECTIONS APPLY TO
EMPLOYERS WHO, IN ADDITION TO THIS PLAN, MAINTAIN ONE OR MORE
PLANS, ALL OF WHICH ARE QUALIFIED MASTER OR PROTOTYPE DEFINED
CONTRIBUTION PLANS, ANY WELFARE BENEFIT FUND, ANY INDIVIDUAL
MEDICAL ACCOUNT, OR ANY SIMPLIFIED EMPLOYEE PENSION.)
(b)(1) If, in addition to this Plan, the Participant is covered under
any other qualified defined contribution Plans (all of which are
qualified Master or Prototype Plans), Welfare Benefit Funds,
Individual Medical Accounts, or simplified Employee pension Plans,
maintained by the Employer, that provide an annual addition as defined
in Section 5.03(e)(1), the amount of Annual Additions to a
Participant's Account for a Limitation Year, shall not exceed the
lesser of:
(A) the Maximum Permissible Amount, reduced by the sum of any
Annual Additions to the Participant's accounts for the same
Limitation Year under such other qualified Master or Prototype
defined contribution Plans, and Welfare Benefit Funds, Individual
Medical Accounts, and simplified Employee pensions, or
(B) any other limitation contained in this Plan.
If the annual additions with respect to the Participant under other
qualified Master or Prototype defined contribution Plans Welfare
Benefit Funds, Individual Medical Accounts and simplified Employee
pensions maintained by the Employer are less than the maximum
permissible amount and the Employer contribution that would otherwise
be contributed or allocated to the Participant's Account under this
Plan would cause the annual additions for the limitation year to
exceed this limitation, the amount contributed or allocated will be
reduced so that the annual additions under all such Plans and funds
for the limitation year will equal the maximum permissible amount. If
the annual additions with respect to the Participant under such other
qualified Master or Prototype defined contribution Plans, Welfare
Benefit Funds, individual Medical Accounts and simplified Employee
pensions in the aggregate are equal to or greater than the maximum
permissible amount, no amount will be contributed or allocated to the
Participant's Account under this Plan for the limitation year.
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(b)(2) Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the amounts referred to in
(b)(1)(A) above may be determined on the basis of a reasonable
estimation of the Participant's Compensation for such Limitation Year,
uniformly determined for all Participants similarly situated. Any
Employer contribution based on estimated annual Compensation shall be
reduced by any Excess Amounts Carried over from prior years.
(b)(3) As soon as is administratively feasible after the end of the
Limitation Year, the amounts referred to in (b)(1)(A) shall be
determined on the basis of the Participant's actual Compensation for
such Limitation Year.
(b)(4) If a Participant's Annual Additions under this Plan and all
such other Plans result in an Excess Amount, such Excess Amount shall
be deemed to consist of the Annual Additions last allocated, except
that Annual Additions attributable to a simplified Employee pension
will be deemed to have been allocated first, followed by Annual
Additions to a Welfare Benefit Fund or Individual Medical Account
regardless of the actual allocation date.
(b)(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date
of another Plan, the Excess Amount attributed to this Plan will be the
product of:
(A) the total Excess Amount allocated as of such date (including
any amount which would have been allocated but for the
limitations of Section 415 of the Code), times
(B) the ratio of (i) the Annual Additions allocated to the
Participant as of such date under this Plan, divided by (ii) the
Annual Additions allocated as of such date under all qualified
defined contribution Plans (determined without regard to the
limitations of Section 415 of the Code).
(b)(6) Any Excess Amounts attributed to this Plan shall be disposed of
as provided in subsection (a)(4).
Subsection (c)--(THIS SUBSECTION APPLIES ONLY TO EMPLOYERS WHO, IN
ADDITION TO THIS PLAN, MAINTAIN ONE OR MORE QUALIFIED PLANS WHICH ARE
QUALIFIED DEFINED CONTRIBUTION PLANS OTHER THAN MASTER OR PROTOTYPE
PLANS.)
(c) If the Employer also maintains another Plan which is a qualified
defined contribution Plan other than a Master or Prototype Plan,
Annual Additions allocated under this Plan on behalf of any
Participant shall be limited in accordance with the provisions of
(b)(1) through (b)(6), as though the other Plan were a Master or
Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
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Subsection (d)--(THIS SUBSECTION APPLIES ONLY TO EMPLOYERS WHO, IN
ADDITION TO THIS PLAN, MAINTAIN OR AT ANY TIME MAINTAINED A QUALIFIED
DEFINED BENEFIT PLAN.)
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit Plan, the sum of any Participant's Defined Benefit
Fraction and Defined Contribution Fraction shall not exceed the
combined Plan limitation of 1.0 in any Limitation Year. The combined
Plan limitation will be met as provided by the Employer in the
Adoption Agreement.
SUBSECTIONS (E)(1) THROUGH (E)(9)--(DEFINITIONS.)
(e)(1) "Annual Additions" means the sum of the following amounts
credited to a Participant for a Limitation Year:
(A) all Employer contributions,
(B) all Employee contributions,
(C) all forfeitures,
(D) Amounts allocated, after March 31, 1984, to an Individual
Medical Account which is part of a pension or annuity Plan
maintained by the Employer are treated as Annual Additions to a
defined contribution Plan. Also, amounts derived from
contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate
account of a key Employee, as defined in Section 419A(d)(3) of
the Code, under a Welfare Benefit Fund maintained by the Employer
are treated as Annual Additions to a defined contribution Plan,
and
(E) Allocations under a simplified Employee pension.
For purposes of this Section 5.03, amounts reapplied to reduce
Employer contributions under subsection (a)(4) shall also be included
as Annual Additions.
(e)(2) "Compensation" means wages as defined in Section 3401(a) of the
Code and all other payments of Compensation to an Employee by the
employer (in the course of the employer's trade or business) for which
the employer is required to furnish the Employee a written statement
under Sections 6041(d) and 6051(a)(3) of the Code. Compensation must
be determined without regard to any rules under Section 3401(a) of the
Code that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2) of the Code.)
For any Self-Employed Individual Compensation will mean Earned Income.
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For limitation years beginning after December 31, 1991, for purposes
of applying the limitations of this article, Compensation for a
limitation year is the Compensation actually paid or made available
during such limitation year.
(e)(3) "Defined Benefit Fraction" means a fraction, the numerator of
which is the sum of the Participant's annual benefits (adjusted to an
actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified
joint and survivor annuity) under all the defined benefit Plans
(whether or not terminated) maintained by the Employer, each such
annual benefit computed on the assumptions that the Participant will
remain in employment until the normal retirement age under each such
Plan (or the Participant's current age, if later) and that all other
factors used to determine benefits under such Plan will remain
constant for all future Limitation Years, and the denominator of which
is the lesser of 125 percent of the dollar limitation determined for
the Limitation Year under Sections 415(b)(1)(A) and 415(d) of the Code
or 140 percent of the Participant's average Compensation for the 3
highest consecutive calendar years of service during which the
Participant was active in each such Plan, including any adjustments
under Section 415(b) of the Code. However, if the Participant was a
Participant as of the first day of the first Limitation Year beginning
after December 31, 1986 in one or more defined benefit Plans
maintained by the Employer which were in existence on May 6, 1986 then
the denominator of the Defined Benefit Fraction shall not be less than
125 percent of the Participant's total accrued benefit as of the close
of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the Plan after
May 5, 1986, under all such defined benefit Plans as met, individually
and in the aggregate, the requirements of Section 415 of the Code for
all Limitation Years beginning before January 1, 1987.
(e)(4) "Defined Contribution Fraction" means a fraction, the numerator
of which is the sum for the current and all prior limitation Years of
(A) all Annual Additions (if any) to the Participant's accounts under
each defined contribution Plan (whether or not terminated) maintained
by the Employer, and (B) all Annual Additions attributable to the
Participant's nondeductible Employee contributions to all defined
benefit Plans (whether or not terminated) maintained by the Employer,
and the Participant's Annual Additions attributable to all Welfare
Benefit Funds, Individual Medical Accounts, and simplified Employee
pensions, maintained by the Employer, and the denominator of which is
the sum of the maximum aggregate amounts for the current and all prior
Limitation Years during which the Participant was an Employee
(regardless of whether the Employer maintained a defined contribution
Plan in any such year).
The maximum aggregate amount in any Limitation Year is the lesser of
125 percent of the dollar limitation in effect under Section
415(c)(1)(A) of the Code for each such year or 35 percent of the
Participant's Compensation for each such year.
If the Participant was a Participant as of the first day of the first
Limitation Year beginning after December 31, 1986 in one or more
defined contribution Plans maintained by the Employer which were in
existence on May 6, 1986 then the numerator of the
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Defined Contribution Fraction shall be adjusted if the sum of this
fraction and the Defined Benefit Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment an amount equal to
the product of (i) the excess of the sum of the fractions over 1.0
times (ii) the denominator of this fraction will be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end
of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan made
after May 6, 1986, but using the Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1, 1987. The
annual addition for any limitation year beginning before January 1,
1987 shall not be recomputed to treat all Employee contributions as
annual additions.
(e)(5) "Employer" means the Employer and any Related Employer that
adopts this Plan. In the case of a group of employers which
constitutes a controlled group of corporations (as defined in Section
414(b) of the Code as modified by Section 415(h)) or which constitutes
trades or businesses (whether or not incorporated) which are under
common control (as defined in Section 414(c) of the Code as modified
by Section 415(h) of the Code) or which constitutes an affiliated
service group (as defined in Section 414(m)of the Code) and any other
entity required to be aggregated with the Employer pursuant to
regulations issued under Section 414(o) of the Code, all such
employers shall be considered a single employer for purposes of
applying the limitations of this Section 5.03.
(e)(6) "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(e)(7) "Individual Medical Account" means an individual medical
account as defined in Section 415(l)(2) of the Code.
(e)(8) "Limitation Year" means the Plan Year. All qualified Plans of
the Employer must use the same Limitation Year. If the Limitation Year
is amended to a different 12-consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year in
which the amendment is made.
(e)(9) "Master or Prototype Plan" means a Plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
(e)(10) "Maximum Permissible Amount" means for a Limitation Year with
respect to any Participant the lesser of (i) $30,000 or, if greater,
25 percent of the dollar limitation set forth in Section 415(b)(1) of
the Code, as in effect for the Limitation Year, or (ii) 25 percent of
the Participant's Compensation for the Limitation Year. If a short
Limitation Year is created because of an amendment changing the
Limitation Year to a different 12-consecutive month period, the
Maximum Permissible Amount will not exceed the limitation in
(e)(10)(i) multiplied by a fraction whose numerator is the number of
months in the short Limitation Year and whose denominator is 12.
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The Compensation limitation referred to in subsection (e)(10)(ii)
shall not apply to any contribution for medical benefits within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code after
separation from service which is otherwise treated as an Annual
Addition under Section 419A(d)(2) or Section 413(l)(1) of the Code.
(e)(11) "Welfare Benefit Fund" means a welfare benefit fund as defined
in Section 419(e) of the Code.
ARTICLE 6 INVESTMENT OF CONTRIBUTIONS
6.01 MANNER OF INVESTMENT
All contributions made to the Accounts of Participants shall be held for
investment by the Trustee. The Accounts of Participants shall be invested and
reinvested only in eligible investments selected by the Employer in Section
1.14(b), subject to Section 14.10.
6.02 INVESTMENT DECISIONS
Investments shall be directed by each Participant in accordance with this
Section and Section 1.14(a). Pursuant to Section 14.04, the Trustee shall have
no discretion or authority with respect to the investment of the Trust Fund.
(a) Reserved
(b) Each Participant shall direct the investment of his Account among
the Fidelity Funds listed in Section 1. 14(b). The Participant shall
file initial investment instructions with the Administrator, on such
form as the Administrator may provide, selecting the Funds in which
amounts credited to his Account will be invested.
(1) Except as provided in this Section 6.02, only authorized Plan
contacts and the Participant shall have access to a Participant's
Account. While any balance remains in the Account of a
Participant after his death, the Beneficiary of the Participant
shall make decisions as to the investment of the Account as
though the Beneficiary were the Participant. To the extent
required by a qualified domestic relations order as defined in
Section 414(p) of the Code, an alternate payee shall make
investment decisions with respect to a Participant's Account as
though such alternate payee were the Participant.
(2) If the Trustee receives any contribution under the Plan as to
which investment instructions have not been provided, the Trustee
shall promptly notify the Administrator and the Administrator
shall take steps to elicit instructions from the Participant. The
Trustee shall credit any such contribution to the Participant's
Account and such amount shall be invested in the Fidelity Fund
selected by the
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Employer for such purposes or, absent Employer selection, in the
most conservative Fidelity Fund listed in Section 1.14(b), until
investment instructions have been received by the Trustee.
(c) All dividends, interest, gains and distributions of any nature
received in respect of Fund Shares shall be reinvested in additional
shares of that Fidelity Fund.
(d) Expenses attributable to the acquisition of investments shall be
charged to the Account of the Participant for which such investment is
made.
6.03 PARTICIPANT DIRECTIONS TO TRUSTEE
All Participant initial investment instructions filed with the Administrator
pursuant to the provisions of Section 6.02 shall be promptly transmitted by the
Administrator to the Trustee. A Participant shall transmit subsequent investment
instructions directly to the Trustee by means of the telephone exchange system
maintained by the Trustee for such purposes. The method and frequency for change
of investments will be determined under the (a) rules applicable to the
investments selected by the Employer in Section 1.14(b) and (b) the additional
rules of the Employer, if any, limiting the frequency of investment changes,
which are included in a separate written administrative procedure adopted by the
Employer and accepted by the Trustee. The Trustee shall have no duty to inquire
into the investment decisions of a Participant or to advise him regarding the
purchase, retention or sale of assets credited to his Account.
ARTICLE 7 RIGHT TO BENEFITS
7.01 NORMAL OR EARLY RETIREMENT
Each Participant who attains his Normal Retirement Age or, if so provided by the
Employer in Section 1.06(b), Early Retirement Age will have a 100 percent
nonforfeitable interest in his Account regardless of any vesting schedule
elected in Section 1.07. If a Participant retires upon the attainment of Normal
or Early Retirement Age, such retirement is referred to as a normal retirement.
Upon his normal retirement the balance of the Participant's Account, plus any
amounts thereafter credited to his Account, subject to the provisions of Section
7.08, will be distributed to him in accordance with Article 8.
If a Participant separates from service before satisfying the age requirements
for early retirement, but has satisfied the service requirement, the Participant
will be entitled to elect an early retirement distribution upon satisfaction of
such age requirement.
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7.02 LATE RETIREMENT
If a Participant continues in the service of the Employer after attainment of
Normal Retirement Age, he will continue to have a 100 percent nonforfeitable
interest in his Account and will continue to participate in the Plan until the
date he establishes with the Employer for his late retirement. Until he retires,
he has a continuing election to receive all or any portion of his Account. Upon
the earlier of his late retirement or the distribution date required under
Section 8.08, the balance of his Account, plus any amounts thereafter credited
to his Account, subject to the provisions of Section 7.08, will be distributed
to him in accordance with Article 8 below.
7.03 DISABILITY RETIREMENT
If so provided by the Employer in Section 1.06(c), a Participant who becomes
disabled will have a 100 percent nonforfeitable interest in his Account, the
balance of which Account, plus any amounts thereafter credited to his Account,
subject to the provisions of Section 7.08, will be distributed to him in
accordance with Article 8 below. A Participant is considered disabled if he
cannot engage in any substantial, gainful activity because of a medically
determinable physical or mental impairment likely to result in death or to be of
a continuous period of not less than 12 months, and terminates his employment
with the employer. Such termination of employment is referred to as a disability
retirement. Determinations with respect to disability shall be made by the
Administrator who may rely on the criteria set forth in Section 1.06(c) as
evidence that the Participant is disabled.
7.04 DEATH
Subject, if applicable, to Section 8.04, if a Participant dies before the
distribution of his Account has commenced, or before such distribution has been
completed, his Account shall become 100 percent vested and his designated
Beneficiary or Beneficiaries will be entitled to receive the balance or
remaining balance of his Account, plus any amounts thereafter credited to his
Account, subject to the provisions of Section 7.08. Distribution to the
Beneficiary or Beneficiaries will be made in accordance with Article 8.
A Participant may designate a Beneficiary or Beneficiaries, or change any prior
designation of Beneficiary or Beneficiaries by giving notice to the
Administrator on a form designated by the Administrator. If more than one person
is designated as the Beneficiary, their respective interests shall be as
indicated on the designation form. In the case of a married Participant the
Participant's spouse shall be deemed to be the designated Beneficiary unless the
Participant's spouse has consented to another designation in the manner
described in Section 8.03(d).
A copy of the death notice or other sufficient documentation must be filed with
and approved by the Administrator. If upon the death of the Participant there
is, in the opinion of the Administrator, no designated Beneficiary for part or
all of the Participant's Account, such amount will be paid to his surviving
spouse or, if none, to his estate (such spouse or estate shall
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be deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies
after benefits to such Beneficiary have commenced, but before they have been
completed, and, in the opinion of the Administrator, no person has been
designated to receive such remaining benefits, then such benefits shall be paid
in a lump sum to the deceased Beneficiary's estate.
7.05 OTHER TERMINATION OF EMPLOYMENT
If a Participant terminates his employment for any reason other than death or
normal, late, or disability retirement, he will be entitled to a termination
benefit equal to (a) the vested percentage(s) of the value of the Matching
and/or Discretionary Contributions to his Account, as adjusted for income,
expense, gain, or loss, such percentage(s) determined in accordance with the
vesting schedule(s) selected by the Employer in Section 1.07, and (b) the value
of the Deferral, Qualified Discretionary and Rollover Contributions to his
Account as adjusted for income, expense, gain or loss. The amount payable under
this Section 7.05 will be subject to the provisions of Section 7.08 and will be
distributed in accordance with Article 8 below.
7.06 SEPARATE ACCOUNT
If a distribution from a Participant's Account has been made to him at a time
when he has a non-forfeitable right to less than 100 percent of his Account, the
vesting schedule in Section 1.07 will thereafter apply only to amounts in his
Account attributable to Employer Contributions allocated after such
distribution. The balance of his Account immediately after such distribution
will be transferred to a separate account which will be maintained for the
purpose of determining his interest therein according to the following
provisions.
At any relevant time prior to a forfeiture of any portion thereof under Section
7.07 a Participant's nonforfeitable interest in his Account held in a separate
account described in the preceding paragraph will be equal to P(AB +
(RxD))-(RxD), where P is the nonforfeitable percentage at the relevant time
determined under Section 7.05; AB is the account balance of the separate account
at the relevant time; D is the amount of the distribution; and R is the ratio of
the account balance at the relevant time to the account balance after
distribution. Following a forfeiture of any portion of such separate account
under Section 7.07 below, any balance in the Participant's separate account will
remain fully vested and nonforfeitable.
7.07 FORFEITURES
If a Participant terminates his employment, any portion of his Account
(including any amounts credited after his termination of employment) not payable
to him under Section 7.05 will be forfeited by him upon the complete
distribution to him of the vested portion of his Account, if any, subject to the
possibility of reinstatement as described in the following paragraph. For
purposes of this paragraph, if the value of an Employee's vested account balance
is zero, the Employee shall be deemed to have received a distribution of his
vested interest immediately
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following termination of employment. Such forfeitures will be applied to reduce
the contributions of the Employer next payable under the Plan (or administrative
expenses of the Plan); the forfeitures shall be held in a money market fund
pending such application.
If a Participant forfeits any portion of his Account under the preceding
paragraph but does again become an Employee after such date, then the amount so
forfeited, without any adjustment for the earnings, expenses, or losses or gains
of the assets credited to his Account since the date forfeited, will be
recredited to his Account (or to a separate account as described in Section
7.06, if applicable) but only if he repays to the Plan before the earlier of
five years after the date of his re employment or the date he incurs 5
consecutive 1-year breaks in service following the date of the distribution the
amount previously distributed to him, without interest, under Section 7.05. If
an Employee is deemed to receive a distribution pursuant to this Section 7.07,
and the Employee resumes employment before 5 consecutive 1-year breaks in
service, the Employee shall be deemed to have repaid such distribution on the
date of his re employment. Upon such an actual or deemed repayment, the
provisions of the Plan (including Section 7.06) will thereafter apply as if no
forfeiture had occurred. The amount to be recredited pursuant to this paragraph
will be derived first from the forfeitures, if any, which as of the date of
recrediting have yet to be applied as provided in the preceding paragraph and,
to the extent such forfeitures are insufficient, from a special Employer
contribution to be made by the Employer.
If a Participant elects not to receive the nonforfeitable portion of his Account
following his termination of employment, the non-vested portion of his Account
shall be forfeited after the Participant has incurred five consecutive 1-year
breaks in service as defined in Section 2.01(a)(33).
No forfeitures will occur solely as a result of a Participant's withdrawal of
Employee contributions.
7.08 ADJUSTMENT FOR INVESTMENT EXPERIENCE
If any distribution under this Article 7 is not made in a single payment, the
amount retained by the Trustee after the distribution will be subject to
adjustment until distributed to reflect the income and gain or loss on the
investments in which such amount is invested and any expenses properly charged
under the Plan and Trust to such amounts.
7.09 PARTICIPANT LOANS
If permitted under Section 1.09, the Administrator shall allow Participants to
apply for a loan from the Plan, subject to the following:
(a) LOAN APPLICATION. All Plan loans shall be administered by the
Administrator. Applications for loans shall be made to the
Administrator on forms available from the Administrator. Loans shall
be made available to all Participants on a reasonably
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equivalent basis. For this purpose, the term "Participant" means any
Participant or Beneficiary, including an alternate payee under a
qualified domestic relations order, as defined in Section 414(p) of
the Code, who is a party-in-interest (as determined under ERISA
Section 3(14)) with respect to the Plan except no loans will be made
to: (i) an Employee who makes a rollover contribution in accordance
with Section 4.10 who has not satisfied the requirements of Section
3.01, or (ii) a shareholder-Employee or Owner-Employee. For purposes
of this requirement, a shareholder-Employee means an Employee or
officer of an electing small business (Subchapter S) corporation who
owns (or is considered as owning within the meaning of Section
318(a)(1) of the Code), on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the corporation.
A Participant with an existing loan may not apply for another loan
until the existing loan is paid in full and may not refinance an
existing loan or attain a second loan for the purpose of paying off
the existing loan. A Participant may not apply for more than one loan
during each Plan Year.
(b) LIMITATION OF LOAN AMOUNT/PURPOSE OF LOAN. Loans shall not be made
available to Highly Compensated Employees in an amount greater than
the amount made available to other Employees. No loan to any
Participant or Beneficiary can be made to the extent that such loan
when added to the outstanding balance of all other loans to the
Participant or Beneficiary would exceed the lesser of (a) $50,000
reduced by the excess (if any) of the highest outstanding balance of
loans during the one year period ending on the day before the loan is
made over the outstanding balance of loans from the Plan on the date
the loan is made, or (b) one-half the present value of the
nonforfeitable Account of the Participant. For the purpose of the
above limitation, all loans from all Plans of the Employer and Related
Employers are aggregated. A Participant may not request a loan for
less than $1,000. The Employer may provide that loans only be made
from certain contribution sources within Participant Account(s) by
notifying the Trustee in writing of the restricted source.
Loans may be made for any purpose or if elected by the Employer in
Section 1.09(a), on account of hardship only. A loan will be
considered to be made on account of hardship only if made on account
of an immediate and heavy financial need described in Section 7.
10(b)(1).
(c) TERMS OF LOAN. All loans shall bear a reasonable rate of interest
as determined by the Administrator based on the prevailing interest
rates charged by persons in the business of lending money for loans
which would be made under similar circumstances. The determination of
a reasonable rate of interest must be based on appropriate regional
factors unless the Plan is administered on a national basis in which
case the Administrator may establish a uniform reasonable rate of
interest applicable to all regions.
All loans shall by their terms require that repayment (principal and
interest) be amortized in level payments, not less than quarterly,
over a period not extending beyond five years
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from the date of the loan unless such loan is for the purchase of a
Participant's primary residence, in which case the repayment period
may not extend beyond ten years from the date of the loan. A
Participant may prepay the outstanding loan balance prior to maturity
without penalty.
(d) SECURITY. Loans must be secured by the Participant's Accounts not
to exceed 50 percent of the Participant's vested Account. A
Participant must obtain the consent of his or her spouse, if any, to
use a Participant Account as security for the loan, if the provisions
of Section 8.03 apply to the Participant. Spousal consent shall be
obtained no earlier than the beginning of the 90-day period that ends
on the date on which the loan is to be so secured. The consent must be
in writing, must acknowledge the effect of the loan, and must be
witnessed by a Plan representative or notary public. Such consent
shall thereafter be binding with respect to the consenting spouse or
any subsequent spouse with respect to that loan.
(e) DEFAULT. The Administrator shall treat a loan in default if:
(1) any scheduled repayment remains unpaid more than 90 days;
(2) there is an outstanding principal balance existing on a loan
after the last scheduled repayment date.
Upon default or termination of employment, the entire outstanding
principal and accrued interest shall be immediately due and payable.
If a distributable event (as defined by the Code) has occurred, the
Administrator shall direct the Trustee to foreclose on the promissory
note and offset the Participant's vested Account by the outstanding
balance of the loan. If a distributable event has not occurred, the
Administrator shall direct the Trustee to foreclose on the promissory
note and offset the Participant's vested Account as soon as a
distributable event occurs.
(f) PRE-EXISTING LOANS. The provision in paragraph (a) of this Section
7.09 limiting a Participant to one outstanding loan shall not apply to
loans made before the Employer adopted this prototype Plan document. A
Participant may not apply for a new loan until all outstanding loans
made before the Employer adopted this prototype Plan have been paid in
full. The Trustee may accept any loans made before the Employer
adopted this prototype Plan document except such loans which require
the Trustee to hold as security for the loan property other than the
Participant's vested Account.
As of the effective date of amendment of this Plan in Section
1.01(g)(2), the Trustee shall have the right to reamortize the
outstanding principal balance of any Participant loan that is
delinquent. Such reamortization shall be based upon the remaining life
of the loan and the original maturity date may not be extended.
Notwithstanding any other provision of this Plan, the portion of the
Participant's vested Account used as a security interest held by the
Plan by reason of a loan outstanding to the
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Participant shall be taken into account for purposes of determining
the amount of the Account payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's vested Account
(determined without regard to the preceding sentence) is payable to
the surviving spouse, then the Account shall be adjusted by first
reducing the vested Account by the amount of the security used as
repayment of the loan, and then determining the benefit payable to the
surviving spouse.
No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other
loans to the Participant or Beneficiary would exceed the lesser of (a)
$50,000 reduced by the excess (if any) of the highest outstanding
balance of loans during the one year period ending on the day before
the loan is made over the outstanding balance of loans from the Plan
on the date the loan is made, or (b) one-half the present value of the
non-forfeitable Account of the Participant. For the purpose of the
above limitation, all loans from all Plans of the Employer and Related
Employers are aggregated.
7.10 IN-SERVICE/HARDSHIP WITHDRAWALS
Subject to the provisions of Article 8, a Participant shall not be permitted to
withdraw any Employer or Employee Contributions (and earnings thereon) prior to
retirement or termination of employment, except as follows:
(a) AGE 59 1/2. If permitted under Section 1.11(b), a Participant who
has attained the age of 59 1/2 is permitted to withdraw upon request
all or any portion the Accounts specified by the Employer in 1.11(b).
(b) HARDSHIP. If permitted under Section 1.10, a Participant may apply
to the Administrator to withdraw some or all of his Deferral
Contributions (and earnings thereon accrued as of December 31, 1988)
and, if applicable, Rollover Contributions and such other amounts
allowed by a predecessor Plan, if such withdrawal is made on account
of a hardship. For purposes of this Section, a distribution is made on
account of hardship if made on account of an immediate and heavy
financial need of the Employee where such Employee lacks other
available resources. Determinations with respect to hardship shall be
made by the Administrator and shall be conclusive for purposes of the
Plan, and shall be based on the following special rules:
(1) The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for medical
care (within the meaning of Section 213(d) of the Code) of the
Employee, the Employee's spouse, children, or dependents; the
purchase (excluding mortgage payments) of a principal residence
for the Employee; payment of tuition and related educational fees
for the next twelve (12) months of post-secondary education for
the Employee, the Employee's spouse, children or dependents; or
the need to prevent the eviction of the Employee from, or a
foreclosure on the mortgage of, the Employee's principal
residence.
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(2)A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
(i) The Employee has obtained all distributions, other than the
hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all Plans maintained by the
Employer;
(ii) The Employee suspends Deferral Contributions and Employee
Contributions to the Plan for the 12-month period following the
date of his hardship distribution. The suspension must also apply
to all elective contributions and Employee contributions to all
other qualified Plans and non-qualified Plans maintained by the
Employer, other than any mandatory employer contribution portion
of a defined benefit Plan, including stock option, stock purchase
and other similar Plans, but not including health and welfare
benefit Plans (other than the cash or deferred arrangement
portion of a cafeteria Plan);
(iii) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts necessary
to pay any Federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution); and
(iv) The Employee agrees to limit Deferral Contributions
(elective contributions) to the Plan and any other qualified Plan
maintained by the Employer for the Employee's taxable year
immediately following the taxable year of the hardship
distribution to the applicable limit under Section 402(g) of the
Code for such taxable year less the amount of such Employee's
Deferral Contributions for the taxable year of the hardship
distribution.
(3)A Participant must obtain the consent of his or her spouse, if any,
to obtain a hardship withdrawal, if the provisions of Section 8.03
apply to the Participant.
(c) EMPLOYEE CONTRIBUTIONS. A Participant may elect to withdraw, in
cash, up to one hundred percent of the amount then credited to his
Employee Contribution Account. Such withdrawals shall be limited to one
(1) per Plan Year unless this prototype Plan document is an amendment of
a prior Plan document, in which case the rules and restrictions
governing Employee contribution withdrawals, if any, are incorporated
herein by reference.
7.11 PRIOR PLAN IN-SERVICE DISTRIBUTION RULES
If designated by the Employer in Section 1.11(b), or Section 1.11(c)(2) or (3)a
Participant shall be entitled to withdraw at anytime prior to his termination of
employment, subject to the
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provisions of Article 8 and the prior Plan, any vested Employer Contributions
maintained in a Participant's Account for the specified period of time.
ARTICLE 8 DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE.
8.01 DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES
(a) Distributions from the Trust to a Participant or to the
Beneficiary of the Participant shall be made in a lump sum in cash or,
if elected by the Employer in Section 1.11, under a systematic
withdrawal Plan (installment(s)) upon retirement, death, disability,
or other termination of employment, unless another form of
distribution is required or permitted in accordance with paragraph (d)
of this Section 8.01 or Sections 1.11(c), 8.02, 8.03, 8.04 or 11.02. A
distribution may be made in Fund Shares, at the election of the
Participant, pursuant to the qualifying rollover of such distribution
to a Fidelity Investments individual retirement account.
(b) Distributions under a systematic withdrawal Plan must be made in
substantially equal annual, or more frequent, installments, in cash,
over a period certain which does not extend beyond the life expectancy
of the Participant or the joint life expectancies of the Participant
and his Beneficiary, or, if the Participant dies prior to the
commencement of his benefits the life expectancy of the Participant's
Beneficiary, as further described in Section 8.04.
(c) Notwithstanding the provisions of Section 8.01(b) above, if a
Participant's Account is, and at the time of any prior distribution(s)
was, $3,500 or less, the balance of such Account shall be distributed
in a lump sum as soon as practicable following retirement, disability,
death or other termination of employment.
(d) This paragraph (d) applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under
this Article 8, a distributee may elect, at the time and in the manner
prescribed by the Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement Plan
specified by the distributee in a direct rollover. The following
definitions shall apply for purposes of this paragraph (d):
(1) Eligible rollover distribution. An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution
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that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to
employer securities).
(2) Eligible retirement plan. An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity Plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to a surviving spouse, an eligible retirement Plan
is an individual retirement account or individual retirement
annuity.
(3) Distributee. A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(4) Direct rollover. A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
(5) If a distribution is one to which Sections 401(a)(11) and 417
of the Code do not apply, such distribution may commence less
than 30 days after the notice required under Section 1.411(a) -
11(c) of the Income Tax Regulations is given, provided that:
(a) the Plan Administrator clearly informs the Distributee
that the Distributee has a right to a period of at least 30
days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable,
a particular distribution option), and
(b) the Distributee after receiving the notice affirmatively
elects a distribution.
8.02 ANNUITY DISTRIBUTIONS
If so provided in Section 1.11(c), a Participant may elect distributions made in
whole or in part in the form of an annuity contract subject to the provisions of
Section 8.03.
(a) An annuity contract distributed under the Plan must be purchased
from an insurance company and must be nontransferable. The terms of an
annuity contract shall comply with the requirements of the Plan and
distributions under such contract shall be made in accordance with
Section 401(a)(9) of the Code and the regulations thereunder.
(b) The payment period of an annuity contract distributed to the
Participant pursuant to this Section may be as long as the Participant
lives. If the annuity is payable to the Participant and his spouse or
designated Beneficiary, the payment period of an annuity
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contract may be for as long as either the Participant or his spouse or
designated Beneficiary lives. Such an annuity may provide for an
annuity certain feature for a period not exceeding the life expectancy
of the Participant. If the annuity is payable to the Participant and
his spouse such period may not exceed the joint life and last survivor
expectancy of the Participant and his spouse, or, if the annuity is
payable to the Participant and a designated Beneficiary, the joint
life and last survivor expectancy of the Participant and such
Beneficiary. If the Participant dies prior to the commencement of his
benefits, the payment period of an annuity contract distributed to the
Beneficiary of the Participant may be as long as the Participant's
Beneficiary lives, and may provide for an annuity certain feature for
a period not exceeding the life expectancy of the Beneficiary. Any
annuity contract distributed under the Plan must provide for non
increasing payments.
8.03 JOINT AND SURVIVOR ANNUITIES/PRE-RETIREMENT SURVIVOR ANNUITIES
(a) APPLICATION. The provisions of this Section supersede any
conflicting provisions of the Plan; provided, however, that paragraph
(b) of this Section shall not apply if the Participant's Account does
not exceed or at the time of any prior distribution did not exceed
$3,500. A Participant is described in this Section only if (i) the
Participant has elected distribution of his Account in the form of an
Annuity Contract in accordance with Section 8.02, or (ii) the Trustee
has directly or indirectly received a transfer of assets from another
Plan (including a predecessor Plan) to which Section 401(a)(11) of the
Code applies with respect to such Participant.
(b) RETIREMENT ANNUITY. Unless the Participant elects to waive the
application of this subsection in a manner satisfying the requirements
of subsection (d) below, to the extent applicable to the Participant,
within the 90-day period preceding his Annuity Starting Date (which
election may be revoked, and if revoked, remade, at any time in such
period), the vested Account due any Participant to whom this
subsection (b) applies will be paid to him by the purchase and
delivery to him of an annuity contract described in Section 8.02
providing a life annuity only form of benefit or, if the Participant
is married as of his Annuity Starting Date, providing an immediate
annuity for the life of the Participant with a survivor annuity for
the life of the Participant's spouse (determined as of the date of
distribution of the contract) which is 50 percent of the amount of the
annuity which is payable during the joint lives of the Participant and
such spouse. The Participant may elect to receive distribution of his
benefits in the form of such annuity as of the earliest date on which
he could elect to receive retirement benefits under the Plan. With the
period beginning 90 days prior to the Participant's Annuity Starting
Date and ending 30 days prior to such Date, the Administrator will
provide such Participant with a written explanation of (i) the terms
and conditions of the annuity contract described herein, (ii) the
Participant's right to make and the effect of an election to waive
application of this subsection, (iii) the rights of the Participant's
spouse under subsection (d), and (iv) the right to revoke and the
period of time effect of a revocation of the election to waive
application of this subsection.
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(c) ANNUITY DEATH BENEFIT. Unless the Participant elects to waive the
application of this subsection in a manner satisfying the requirements
of subsection (d) below at any time within the applicable election
period (which election may be revoked, and if revoked, remade, at any
time in such period), if a married Participant to whom this Section
applies dies before his Annuity Starting Date, then notwithstanding
any designation of a Beneficiary to the contrary, 50 percent of his
vested Account will be applied to purchase an annuity contract
described in Section 8.02 providing an annuity for the life of the
Participant's surviving spouse, which contract will then be promptly
distributed to such spouse. In lieu of the purchase of such an annuity
contract, the spouse may elect in writing to receive distributions
under the Plan as if he or she had been designated by the Participant
as his Beneficiary with respect to 50 percent of his Account. For
purposes of this subsection, the applicable election period will
commence on the first day of the Plan Year in which the Participant
attains age 35 and will end on the date of the Participant's death,
provided that in the case of a Participant who terminates his
employment the applicable election period with respect to benefits
accrued prior to the date of such termination will in no event
commence later than the date of his termination of employment. A
Participant may elect to waive the application of this subsection
prior to the Plan Year in which he attains age 35, provided that any
such waiver will cease to be effective as of the first day of the Plan
Year in which the Participant attains age 35.
The Administrator will provide a Participant to whom this subsection
applies with a written explanation with respect to the annuity death
benefit described in this subsection (c) comparable to that required
under subsection (b) above. Such explanation shall be furnished within
whichever of the following periods ends last: (i) the period beginning
with the first day of the Plan Year in which the Participant reaches
age 32 and ending with the end of the Plan Year preceding the Plan
Year in which he reaches age 35, (ii) a reasonable period ending after
the Employee becomes a Participant, (iii) a reasonable period ending
after this Section 8.04 first becomes applicable to the Participant in
accordance with Section 8.04(a), (iv) in the case of a Participant who
separates from service before age 35, a reasonable period of time
ending after separation from service. For purposes of the preceding
sentence, the two-year period beginning one year prior to the date of
the event described in clause (ii), (iii) or (iv), whichever is
applicable, and ending one year after such date shall be considered
reasonable, provided, that in the case of a Participant who separates
from service under (iv) above and subsequently recommences employment
with the Employer, the applicable period for such Participant shall be
predetermined in accordance with this subsection.
(d) REQUIREMENTS OF ELECTIONS. This subsection will be satisfied with
respect to a waiver or designation which is required to satisfy this
subsection if such waiver or designation is in writing and either
(1) the Participant's spouse consents thereto in writing, which
consent must acknowledge the effect of such waiver or
designation and be witnessed by a notary public or Plan
representative, or
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(2) the Participant establishes to the satisfaction of the
Administrator that the consent of the Participant's spouse cannot be
obtained because there is no spouse, because the spouse cannot be
located or because of such other circumstances as the Secretary of
Treasury may prescribe.
Any consent by a spouse, or establishment that the consent of a spouse
may not be obtained, will be effective only with respect to a specific
Beneficiary (including any class of beneficiaries or any contingent
beneficiaries) or form of benefits identified in the Participant's
waiver or designation, unless the consent of the spouse expressly
permits designations by the Participant without any requirement of
further consent by the spouse. A consent which permits such
designations by the Participant shall acknowledge that the spouse has
the right to limit consent to a specific Beneficiary and form of
benefits and that the spouse voluntarily elects to relinquish both
such rights. A consent by a spouse shall be irrevocable once made. Any
such consent, or establishment that such consent may not be obtained,
will be effective only with respect to such spouse. For purposes of
subsections (b) and (c) above, no consent of a spouse shall be valid
unless the notice required by such subsection, whichever is
applicable, has been provided to the Participant.
(e) FORMER SPOUSE. For purposes of this Section 8.03, a former spouse of a
Participant will be treated as the spouse or surviving spouse of the
Participant, and a current spouse will not be so treated, to the extent
required under a qualified domestic relations order, as defined in Section
414(p) of the Code.
(f) VESTED ACCOUNT BALANCE. For purposes of this Section, vested Account
shall include the aggregate value of the Participant's vested Account
derived from Employer and Employee contributions (including rollovers),
whether vested before or upon death. The provisions of this Section shall
apply to a Participant who is vested in amounts attributable to Employer
contributions, Employee contributions, or both, upon death or at the time
of distribution.
8.04 INSTALLMENT DISTRIBUTIONS
This Section shall be interpreted and applied in accordance with the regulations
under Section 401(a)(9) of the Code, including the minimum distribution
incidental benefit requirement of section 1.401(a)(9)-2 of the regulations.
(a) IN GENERAL. If a Participant's benefit may be distributed in accordance
with Section 8.01(b), the amount to be distributed for each calendar year
for which a minimum distribution is required shall be at least an amount
equal to the quotient obtained by dividing the Participant's interest in
his Account by the life expectancy of the Participant or Beneficiary or the
joint life and last survivor expectancy of the Participant and his
Beneficiary, whichever is applicable. For calendar years beginning before
January 1,
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1989, if a Participant's Beneficiary is not his spouse, the method of
distribution selected must insure that at least 50 percent of the present
value of the amount available for distribution is paid within the life
expectancy of the Participant. For calendar years beginning after December
31, 1988 the amount to be distributed for each calendar year shall not be
less than an amount equal to the quotient obtained by dividing the
Participant's interest in his Account by the lesser of (i) the applicable
life expectancy under Section 8.01(b), or (ii) if a Participant's
Beneficiary is not his spouse, the applicable divisor determined under
Section 1.401(a)(9)-2, Q&A 4 of the Proposed Treasury Regulations, or any
successor regulations of similar import. Distributions after the death of
the Participant shall be made using the applicable life expectancy under
(i) above, without regard to Section 1.401(a)(9)-2 of such regulations.
The minimum distribution required under this subsection (a) for the
calendar year immediately preceding the calendar year in which the
Participant's required beginning date, as determined under Section 8.08(b),
occurs shall be made on or before the Participant's required beginning
date, as so determined. Minimum distributions for other calendar years
shall be made on or before the close of such calendar year.
(b) ADDITIONAL REQUIREMENTS FOR DISTRIBUTIONS AFTER DEATH OF PARTICIPANT.
(1) DISTRIBUTION BEGINNING BEFORE DEATH. If the Participant dies
before distribution of his benefits has begun, distributions shall be
made in accordance with the provisions of this paragraph.
Distributions under Section 8.01(a) shall be completed by the close of
the calendar year in which the fifth anniversary of the death of the
Participant occurs. Distributions under Section 8.01(b) shall
commence, if the Beneficiary is not the Participant's spouse, not
later than the close of the calendar year immediately following the
calendar year in which the death of the Participant occurs.
Distributions under Section 8.01(b) to a Beneficiary who is the
Participant's surviving spouse shall commence not later than the close
of the calendar year in which the Participant would have attained age
70 1/2 or, if later, the close of the calendar year immediately
following the calendar year in which the death of the Participant
occurs. In the event such spouse dies prior to the date distribution
to him or her commences, he or she will be treated for purposes of
this subsection (other than the preceding sentence) as if he or she
were the Participant. If the Participant has not designated a
Beneficiary, or the Participant or Beneficiary has not effectively
selected a method of distribution, distribution of the Participant's
benefit shall be completed by the close of the calendar year in which
the fifth anniversary of the death of the Participant occurs.
Any amount paid to a child of the Participant will be treated as if it
had been paid to the surviving spouse if the amount becomes payable to
the surviving spouse when the child reaches the age of majority.
For purposes of this subsection (b)(1), the life expectancy of a
Beneficiary who is the Participant's surviving spouse shall be
recalculated annually unless the Participant's spouse irrevocably
elects otherwise prior to the time distributions are required to
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begin. Life expectancy shall be computed in accordance with the
provisions of subsection (a) above.
(2) DISTRIBUTION BEGINNING AFTER DEATH. If the Participant dies after
distribution of his benefits has begun, distributions to the
Participant's Beneficiary will be made at least as rapidly as under
the method of distribution being used as of the date of the
Participant's death.
For purposes of this Section 8.04(b), distribution of a Participant's
interest in his Account will be considered to begin as of the
Participant's required beginning date, as determined under Section
8.08(b). If distribution in the form of an annuity irrevocably
commences prior to such date, distribution will be considered to begin
as of the actual date distribution commences.
(c) LIFE EXPECTANCY. For purposes of this Section, life expectancy shall be
recalculated annually in the case of the Participant or a Beneficiary who
is the Participant's spouse unless the Participant or Beneficiary
irrevocably elects otherwise prior to the time distributions are required
to begin. If not recalculated in accordance with the foregoing, life
expectancy shall be calculated using the attained age of the Participant or
Beneficiary, whichever is applicable, as of such individual's birth date in
the first year for which a minimum distribution is required reduced by one
for each elapsed calendar year since the date life expectancy was first
calculated. For purposes of this Section, life expectancy and joint life
and last survivor expectancy shall be computed by use of the expected
return multiples in Table V and VI of section 1.72-9 of the income tax
Regulations.
A Participant's interest in his Account for purposes of this Section 8.04
shall be determined as of the last valuation date in the calendar year
immediately preceding the calendar year for which a minimum distribution is
required, increased by the amount of any contributions allocated to, and
decreased by any distributions from, such Account after the valuation date.
Any distribution for the first year for which a minimum distribution is
required made after the close of such year shall be treated as if made
prior to the close of such year.
8.05 IMMEDIATE DISTRIBUTIONS
If the Account distributable to a Participant exceeds, or at the time of any
prior distribution exceeded, $3,500, no distribution will be made to the
Participant before he reaches his Normal Retirement Age (or age 62, if later),
unless the written consent of the Participant has been obtained. Such consent
shall be made in writing within the 90-day period ending on the Participant's
Annuity Starting Date. Within the period beginning 90 days before the
Participant's Annuity Starting Date and ending 30 days before such Date, the
Administrator will provide such Participant with written notice comparable to
the notice described in Section 8.03(b) containing a general description of the
material features and an explanation of the relative
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values of the optional forms of benefit available under the Plan and informing
the Participant of his right to defer receipt of the distribution until his
Normal Retirement Age (or age 62, if later).
The consent of the Participant's spouse must also be obtained if the Participant
is subject to the provisions of Section 8.03(a), unless the distribution will be
made in the form of the applicable retirement annuity contract described in
Section 8.03(b). A spouse's consent to early distribution, if required, must
satisfy the requirements of Section 8.03(d).
Neither the consent of the Participant nor the Participant's spouse shall be
required to the extent that a distribution is required to satisfy Section
401(a)(9) or Section 415 of the Code. In addition, upon termination of the Plan
if it does not offer an annuity option (purchased from a commercial provider)
and if the Employer or any Related Employer does not maintain another defined
contribution Plan (other than an Employee stock ownership Plan as defined in
Code Section 4975(e)(7)) the Participant's Account will, without the
Participant's consent, be distributed to the Participant. However, if any
Related Employer maintains another defined contribution Plan (other than an
Employee stock ownership Plan as defined in Section 4975(e)(7) of the Code) then
the Participant's Account will be transferred, without the Participant's
consent, to the other Plan if the Participant does not consent to an immediate
distribution.
8.06 DETERMINATION OF METHOD OF DISTRIBUTION
The Participant will determine the method of distribution of benefits to himself
and may determine the method of distribution to his Beneficiary. Such
determination will be made prior to the time benefits become payable under the
Plan. If the Participant does not determine the method of distribution to his
Beneficiary or if the Participant permits his Beneficiary to override his
determination, the Beneficiary, in the event of the Participant's death, will
determine the method of distribution of benefits to himself as if he were the
Participant. A determination by the Beneficiary must be made no later than the
close of the calendar year in which distribution would be required to begin
under Section 8.04(b) or, if earlier, the close of the calendar year in which
the fifth anniversary of the death of the Participant occurs.
8.07 NOTICE TO TRUSTEE
The Administrator will notify the Trustee in a medium acceptable to the Trustee
whenever any Participant or Beneficiary is entitled to receive benefits under
the Plan. The Administrator's notice shall indicate the form of benefits that
such Participant or Beneficiary shall receive and (in the case of distributions
to a Participant) the name of any designated Beneficiary or Beneficiaries.
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8.08 TIME OF DISTRIBUTION
In no event will distribution to a Participant be made later than the earlier of
the dates described in (a) and (b) below:
(a) Absent the consent of the Participant (and his spouse, if appropriate),
the 60th day after the close of the Plan Year in which occurs the later of
the date on which the Participant attains age 65, the date on which the
Participant ceases to be employed by the Employer; or the 10th anniversary
of the year in which the Participant commenced participation in the Plan;
and
(b) April 1 of the calendar year first following the calendar year in which
the Participant attains age 70-1/2 or, in the case of a Participant who had
attained age 70-1/2 before January 1, 1988, the required beginning date
determined in accordance with (1) or (2) below:
(1) The required beginning date of a Participant who is not a
5-percent owner is the first day of April of the calendar year
following the calendar year in which the later of retirement or
attainment of age 70-1/2 occurs.
(2) The required beginning date of a Participant who is a 5-percent
owner during any year beginning after December 31, 1979, is the first
day of April following the later of:
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which ends
the Plan year in which the Participant becomes a 5-percent owner,
or the calendar year in which the Participant retires.
Notwithstanding the foregoing, in the case of a Participant who attained age
70-1/2 during 1988 and who had not retired prior to January 1, 1989, the
required beginning date described in this paragraph shall be April 1, 1990.
Notwithstanding (a) above, the failure of a Participant (and spouse) to consent
to a distribution while a benefit is immediately distributable, within the
meaning of Section 8.05, shall be deemed to be an election to defer commencement
of payment of any benefit sufficient to satisfy (a) above. Once distributions
have begun to a 5-percent owner under (b) above, they must continue to be
distributed, even if the Participant ceases to be a 5-percent owner in a
subsequent year. For purposes of (b) above, a Participant is treated as a
5-percent owner if such Participant is a 5-percent owner as defined in Section
416(i) of the Code (determined in accordance with Section 416 but without regard
to whether the Plan is top-heavy) at any time during the Plan year ending with
or within the calendar year in which such owner attains age 66-1/2 or any
subsequent Plan year.
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The Administrator shall notify the Trustee in a medium acceptable to the Trustee
whenever a distribution is necessary in order to comply with the minimum
distribution rules set forth in this Section.
8.09 WHEREABOUTS OF PARTICIPANTS AND BENEFICIARIES
The Administrator will at all times be responsible for determining the
whereabouts of each Participant or Beneficiary who may be entitled to benefits
under the Plan and will at all times be responsible for instructing the Trustee
in writing as to the current address of each such Participant or Beneficiary.
The Trustee will be entitled to rely on the latest written statement received
from the Administrator as to such addresses. The Trustee will be under no duty
to make any distributions under the Plan unless and until it has received
written instructions from the Administrator satisfactory to the Trustee
containing the name and address of the distributor, the time when the
distribution is to occur, and the form which the distribution will take.
Notwithstanding the foregoing, if the Trustee attempts to make a distribution in
accordance with the Administrator's instructions but is unable to make such
distribution because the whereabouts of the distributee is unknown, the Trustee
will notify the Administrator of such situation and thereafter the Trustee will
be under no duty to make any further distributions to such distributee until it
receives further written instructions from the Administrator. If a benefit is
forfeited because the Administrator determines that the Participant or
Beneficiary cannot be found, such benefit will be reinstated by the Sponsor if a
claim is filed by the Participant or Beneficiary with the Administrator and the
Administrator confirms the claim to the Sponsor.
ARTICLE 9 TOP-HEAVY PROVISIONS.
9.01 APPLICATION
If the Plan is or becomes a Top-Heavy Plan in any Plan Year or is automatically
deemed to be Top-Heavy in accordance with the Employer's election in Section
1.12(a)(1) of the Adoption Agreement, the provisions of this Article 9 shall
supersede any conflicting provision in the Plan.
9.02 DEFINITIONS
For purposes of this Article 9, the following terms have the meanings set forth
below:
(a) KEY EMPLOYEE. Any Employee or former Employee (and the Beneficiary of
any such Employee) who at any time during the determination period was (i)
an officer of the Employer whose annual Compensation exceeds 50 percent of
the dollar limitation under Section 415(b)(1)(A) of the Code, (ii) an owner
(or considered an owner under Section 318 of the Code) of one of the ten
largest interests in the Employer if such individual's annual Compensation
exceeds the dollar limitation under Section 415(c)(1)(A) of the
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Code, (iii) a 5-percent owner of the Employer, or (iv) a 1-percent owner of
the Employer who has annual Compensation of more than $150,000. For
purposes of this paragraph, the determination period is the Plan Year
containing the Determination Date and the four preceding Plan Years. The
determination of who is a Key Employee shall be made in accordance with
Section 416(i)(1) of the Code and the regulations thereunder. Annual
Compensation means Compensation as defined in Section 5.03(e)(2), but
including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the Employee's gross income
under Section 125, Section 402(a)(8), and Section 403(b) of the Code.
(b) TOP-HEAVY PLAN. The Plan is a Top-Heavy Plan if any of the following
conditions exists:
(1) the Top-Heavy Ratio for the Plan exceeds 60 percent and the Plan
is not part of any Required Aggregation Group or Permissive
Aggregation Group;
(2) the Plan is a part of a Required Aggregation Group but not part of
a Permissive Aggregation Group and the Top-Heavy Ratio for the
Required Aggregation Group exceeds 60 percent; or
(3) the Plan is a part of a Required Aggregation Group and a
Permissive Aggregation Group and the Top-Heavy Ratio for both Groups
exceeds 60 percent.
(c) TOP-HEAVY RATIO.
(1) With respect to this Plan, or with respect to any Required
Aggregation Group or Permissive Aggregation Group that consists solely
of defined contribution Plans (including any simplified Employee
pension Plans) and the Employer has not maintained any defined benefit
Plan which during the 5-year period ending on the determination
date(s) has or has had accrued benefits, the Top-Heavy Ratio is a
fraction, the numerator of which is the sum of the account balances of
all Key Employees under the Plans as of the Determination Date
(including any part of any account balance distributed in the 5-year
period ending on the Determination Date), and the denominator of which
is the sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the Determination
Date) of all Participants under the Plans as of the Determination
Date. Both the numerator and denominator of the Top-Heavy Ratio shall
be increased, to the extent required by Section 416 of the Code, to
reflect any contribution which is due but unpaid as of the
Determination Date.
(2) With respect to any Required Aggregation Group or Permissive
Aggregation Group that includes one or more defined benefit Plans
which, during the 5-year period ending on the Determination Date, has
covered or could cover a Participant in this Plan, the Top-Heavy Ratio
is a fraction, the numerator of which is the sum of the account
balances under the defined contribution Plans for all Key Employees
and the
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present value of accrued benefits under the defined benefit Plans for
all Key Employees, and the denominator of which is the sum of the
account balances under the defined contribution Plans for all
Participants and the present value of accrued benefits under the
defined benefit Plans for all Participants. Both the numerator and
denominator of the Top-Heavy Ratio shall be increased for any
distribution of an account balance or an accrued benefit made in the
5-year period ending on the Determination Date and any contribution
due but unpaid as of the Determination Date.
(3) For purposes of (1) and (2) above, the value of Accounts and the
present value of accrued benefits will be determined as of the most
recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Section
416 of the Code and the regulations thereunder for the first and
second Plan years of a defined benefit Plan. The Account and accrued
benefits of a Participant (i) who is not a Key Employee but who was a
Key Employee in a prior year, or (ii) who has not been credited with
at least one Hour of Service with the Employer at any time during the
5-year period ending on the Determination Date, will be disregarded.
The calculation of the Top-Heavy Ratio, and the extent to which
distributions, rollovers, and transfers are taken into account, shall
be made in accordance with Section 416 of the Code and the regulations
thereunder. Deductible Employee contributions shall not be taken into
account for purposes of computing the Top-Heavy Ratio. When
aggregating Plans, the value of Accounts and accrued benefits shall be
calculated with reference to the Determination Dates that fall within
the same calendar year.
For purposes of determining if the Plan, or any other Plan included in
a Required Aggregation Group of which this Plan is a part, is a
Top-Heavy Plan, the accrued benefit in a defined benefit Plan of an
Employee other than a Key Employee shall be determined under (a) the
method, if any, that uniformly applies for accrual purposes under all
Plans maintained by the Employer, or (b) if there is no such method,
as if such benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional accrual rate of Section
411(b)(1)(C) of the Code.
(d) PERMISSIVE AGGREGATION GROUP. The Required Aggregation Group plus any
other qualified Plans of the Employer or a Related Employer which, when
considered as a group with the Required Aggregation Group, would continue
to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) REQUIRED AGGREGATION GROUP.
(1) Each qualified Plan of the Employer or Related Employer in which
at least one Key Employee participates, or has participated at any
time during the determination period (regardless of whether the Plan
has terminated), and
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(2) any other qualified Plan of the Employer or Related Employer which
enables a Plan described in (1) above to meet the requirements of
Sections 401(a)(4) or 410 of the Code.
(f) DETERMINATION DATE. For any Plan Year of the Plan subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that Plan Year.
(g) VALUATION DATE. The Determination Date.
(h) PRESENT VALUE. Present value shall be based only on the interest rate
and mortality table specified in the Adoption Agreement.
9.03 MINIMUM CONTRIBUTION
(a) Except as otherwise provided in (b) and (c) below, the Discretionary
Contributions made on behalf of any Participant who is not a Key Employee
shall not be less than the lesser of 3 percent (or such other percent
elected by the Employer in Section 1.12(c)) of such Participant's
Compensation or, in the case where the Employer has no defined benefit Plan
which designates this Plan to satisfy Section 401 of the Code, the largest
percentage of Employer contributions, as a percentage of the Key Employee's
Compensation, as limited by Section 401(a)(17) of the Code, made on behalf
of any Key Employee for that year. For purposes of computing the minimum
contribution, Compensation shall mean Compensation as limited by Section
401(a)(17) of the Code. Further, the minimum contribution under this
Section 9.03, shall be made even though, under other Plan provisions, the
Participant would not otherwise be entitled to receive a contribution, or
would have received a lesser contribution for the year, because (i) the
Participant failed to complete 1,000 Hours of Service or any equivalent
service requirement provided in the Adoption Agreement; or (ii) the
Participant's Compensation was less than a stated amount.
(b) The provisions of (a) above shall not apply to any Participant who was
not employed by the Employer on the last day of the Plan Year.
(c) The Employer contributions for the Plan Year made on behalf of each
Participant who is not a Key Employee and who is a Participant in a defined
benefit Plan maintained by the Employer shall not be less than 5 percent of
such Participant's Compensation, unless the Employer has provided in
Section 1.12(c) that the minimum contribution requirement will be met in
the other Plan or Plans of the Employer.
(d) The minimum contribution required under (a) above (to the extent
required to be nonforfeitable under Section 416(b) of the Code) may not be
forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code.
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9.04 ADJUSTMENT TO THE LIMITATION ON CONTRIBUTIONS AND BENEFITS
If this Plan is in Top-Heavy status, the number 100 shall be substituted for the
number 125 in subsections (e)(3) and (e)(4) of Section 5.03. However, this
substitution shall not take effect with respect to this Plan in any Plan Year in
which the following requirements are satisfied:
(a) The Employer contributions for such Plan Year made on behalf of each
Participant who is not a Key Employee and who is a Participant in a defined
benefit Plan maintained by the Employer is not less than 7 1/2 percent of
such Participant's Compensation.
(b) The sum of the present value as of the Determination Date of (i) the
aggregate accounts of all Key Employees under all defined contribution
Plans of the Employer and (ii) the cumulative accrued benefits of all Key
Employees under all defined benefit Plans of the Employer does not exceed
90 percent of the same amounts determined for all Participants under all
Plans of the Employer that are Top-Heavy Plans, excluding Accounts and
accrued benefits for Employees who formerly were but are no longer Key
Employees.
The substitutions of the number 100 for 125 shall not take effect in any
limitation Year with respect to any Participant for whom no benefits are
accrued or contributions made for such Year.
9.05 MINIMUM VESTING
For any Plan Year in which the Plan is a Top-Heavy Plan and all Plan Years
thereafter, the Top-Heavy vesting schedule elected in Section 1.07(a)(1) or
1.12(d), as applicable, will automatically apply to the Plan. The Top-Heavy
vesting schedule applies to all benefits within the meaning of Section 411(a)(7)
of the Code except those attributable to Employee Contributions or those already
subject to a vesting schedule which vests at least as rapidly in all cases as
the schedule elected in Section 1.12(d), including benefits accrued before the
Plan becomes a Top-Heavy Plan. Further, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's status as a
Top-Heavy Plan changes for any Plan Year. However, this Section 9.05 does not
apply to the Account of any Employee who does not have an Hour of Service after
the Plan has initially become a Top-Heavy Plan and such Employee's Account
attributable to Employer Contributions will be determined without regard to this
Section 9.05.
ARTICLE 10 AMENDMENT AND TERMINATION.
10.01 AMENDMENT BY EMPLOYER
The Employer reserves the authority, subject to the provisions of Article I and
Section 10.03, to amend the Plan:
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(a) CHANGING ELECTIONS CONTAINED IN THE ADOPTION AGREEMENT. By filing with
the Trustee an amended Adoption Agreement, executed by the Employer only,
on which said Employer has indicated a change or changes in provisions
previously elected by it. Such changes are to be effective on the effective
date of such amended Adoption Agreement except that retroactive changes to
a previous election or elections pursuant to the regulations issued under
Section 401(a)(4) of the Code shall be permitted. Any such change
notwithstanding, no Participant's Account shall be reduced by such change
below the amount to which the Participant would have been entitled if he
had voluntarily left the employ of the Employer immediately prior to the
date of the change. The Employer may from time to time make any amendment
to the Plan that may be necessary to satisfy Sections 415 or 416 of the
Code because of the required aggregation of multiple Plans by completing
overriding Plan language in the Adoption Agreement. The Employer may also
add certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption will not cause the Plan to
be treated as an individually designed Plan; or
(b) OTHER CHANGES. By amending any provision of the Plan for any reason
other than those specified in (a) above. However, upon making such
amendment, including a waiver of the minimum funding requirement under
Section 412(d) of the Code, the Employer may no longer participate in this
prototype Plan arrangement and will be deemed to have an individually
designed Plan. Following such amendment, the Trustee may transfer the
assets of the Trust to the trust forming part of such newly adopted Plan
upon receipt of sufficient evidence (such as a determination letter or
opinion letter from the Internal Revenue Service or an opinion of counsel
satisfactory to the Trustee) that such trust will be a qualified trust
under the Code.
(c) AMENDMENT PROCEDURE. The Employer reserves the authority to amend the
Plan by filing with the Trustee an amended Adoption Agreement, executed by
the Employer only, on which said Employer has indicated a change or changes
in provisions previously elected by it. Such change(s) is/are to be
effective on the effective date of such amended Adoption Agreement. The
Employer may from time to time make any amendment to the Plan that may be
necessary to satisfy the Internal Revenue Code or ERISA. The Board of
Directors for a Corporate Employer or other individual specified in the
resolution adopting this Plan shall act on behalf of a Corporation.
10.02 AMENDMENT BY PROTOTYPE SPONSOR
The Prototype Sponsor may in its discretion amend the Plan or the Adoption
Agreement at any time, subject to the provisions of Article 1 and Section 10.03,
and provided that the Prototype Sponsor mails a copy of such amendment to the
Employer at its last known address as shown on the books of the Prototype
Sponsor.
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10.03 AMENDMENTS AFFECTING VESTED AND/OR ACCRUED BENEFITS
(a) Except as permitted by Section 10.04, no amendment to the Plan shall be
effective to the extent that it has the effect of decreasing a
Participant's Account or eliminating an optional form of benefit with
respect to benefits attributable to service before the amendment.
Furthermore, if the vesting schedule of the Plan is amended, the
non-forfeitable interest of a Participant in his Account, determined as of
the later of the date the amendment is adopted or the date it becomes
effective, will not be less than the Participant's nonforfeitable interest
in his Account determined without regard to such amendment.
(b) If the Plan's vesting schedule is amended, including any amendment
resulting from a change to or from Top-Heavy Plan status, or the Plan is
amended in any way that directly or indirectly affects the computation of a
Participant's nonforfeitable interest in his Account, each Participant with
at least three (3) Years of Service for Vesting with the Employer may
elect, within a reasonable period after the adoption of the amendment, to
have the nonforfeitable percentage of his Account computed under the Plan
without regard to such amendment. The Participant's election may be made
within 60 days from the latest of (i) the date the amendment is adopted;
(ii) the date the amendment becomes effective; or (iii) the date the
Participant is issued written notice of the amendment by the Employer or
the Administrator.
10.04 RETROACTIVE AMENDMENTS
An amendment made by the sponsor in accordance with Section 10.02 may be made
effective on a date prior to the first day of the Plan Year in which it is
adopted if such amendment is necessary or appropriate to enable the Plan and
Trust to satisfy the applicable requirements of the Code or to conform the Plan
to any change in federal law, or to any regulations or ruling thereunder. Any
retroactive amendment by the Employer shall be subject to the provisions of
Section 10.01.
10.05 TERMINATION
The Employer has adopted the Plan with the intention and expectation that
contributions will be continued indefinitely. However, said Employer has no
obligation or liability whatsoever to maintain the Plan for any length of time
and may discontinue contributions under the Plan or terminate the Plan at any
time by written notice delivered to the Trustee without any liability hereunder
for any such discontinuance or termination.
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10.06 DISTRIBUTION UPON TERMINATION OF THE PLAN
Upon termination or partial termination of the Plan or complete discontinuance
of contributions thereunder, each Participant (including a terminated
Participant with respect to amounts not previously forfeited by him) who is
affected by such termination or partial termination or discontinuance will have
a fully vested interest in his Account, and, subject to Section 4.05 and Article
8, the Trustee will distribute to each Participant or other person entitled to
distribution the balance of the Participant's Account in a single lump sum
payment. In the absence of such instructions, the Trustee will notify the
Administrator of such situation and the Trustee will be under no duty to make
any distributions under the Plan until it receives written instructions from the
Administrator. Upon the completion of such distributions, the Trust will
terminate, the Trustee will be relieved from all liability under the Trust, and
no Participant or other person will have any claims thereunder, except as
required by applicable law.
10.07 MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS
In case of any merger or consolidation of the Plan with, or transfer of assets
and liabilities of the Plan to, any other Plan, provision must be made so that
each Participant would, if the Plan then terminated, receive a benefit
immediately after the merger, consolidation or transfer which is equal to or
greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer if the Plan had then terminated.
ARTICLE 11 AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS TO
OR FROM OTHER QUALIFIED PLANS
11.01 AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN
In the event the Employer has previously established a Plan (the "predecessor
Plan") which is a defined contribution Plan under the Code and which on the date
of adoption of the Plan meets the applicable requirements of section 401(a) of
the Code, the Employer may, in accordance with the provisions of the predecessor
Plan, amend and continue the predecessor Plan in the form of the Plan and become
the Employer hereunder, subject to the following:
(a) Subject to the provisions of the Plan, each individual who was a
Participant or former Participant in the predecessor Plan immediately prior
to the effective date of such amendment and continuation will become a
Participant or former Participant in the Plan;
(b) No election may be made under the vesting provisions of the Adoption
Agreement if such election would reduce the benefits of a Participant under
the Plan to less than the benefits to which he would have been entitled if
he voluntarily separated from the service of the Employer immediately prior
to such amendment and continuation;
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(c) No amendment to the Plan shall decrease a Participant's accrued benefit
or eliminate an optional form of benefit and if the amendment of the
predecessor Plan in the form of the Plan results in a change in the method
of crediting service for vesting purposes between the general method set
forth in Section 2530.200b-2 of the Department of Labor Regulations and the
elapsed time method in Section 2.01(a)(33) of the Plan, each Participant
with respect to whom the method of crediting vesting service is changed
shall be treated in the manner set forth by the provisions of Section
1.410(a)-7(f)(1) of the Treasury Regulations which are incorporated herein
by reference;
(d) The amounts standing to the credit of a Participant's Account
immediately prior to such amendment and continuation which represent the
amounts properly attributable to (i) contributions by the Participant and
(ii) contributions by the Employer and forfeitures will constitute the
opening balance of his Account or Accounts under the Plan;
(e) Amounts being paid to a former Participant or to a Beneficiary in
accordance with the provisions of the predecessor Plan will continue to be
paid in accordance with such provisions;
(f) Any election and waiver of the qualified pre-retirement annuity in
effect after August 23, 1984, under the predecessor Plan immediately before
such amendment and continuation will be deemed a valid election and waiver
of Beneficiary under Section 8.04 if such designation satisfies the
requirements of Section 8.04(d), unless and until the Participant revokes
such election and waiver under the Plan; and
(g) Unless the Employer and the Trustee agree otherwise, all assets of the
predecessor trust will be deemed to be assets of the Trust as of the
effective date of such amendment. Such assets will be invested by the
Trustee as soon as reasonably practicable pursuant to Article 6. The
Employer agrees to assist the Trustee in any way requested by the Trustee
in order to facilitate the transfer of assets from the predecessor trust to
the Trust Fund.
11.02 TRANSFER OF FUNDS FROM AN EXISTING PLAN
The Employer may from time to time direct the Trustee, in accordance with such
rules as the Trustee may establish, to accept cash, allowable Fund Shares or
Participant loan promissory notes transferred for the benefit of Participants
from a trust forming part of another qualified Plan under the Code, provided
such Plan is a defined contribution Plan. Such transferred assets will become
assets of the Trust as of the date they are received by the Trustee. Such
transferred assets will be credited to Participants' Account in accordance with
their respective interests immediately upon receipt by the Trustee. A
Participant's interest under the Plan in transferred assets which were fully
vested and nonforfeitable under the transferring Plan will be fully vested and
nonforfeitable at all times. Such transferred assets will be invested by the
Trustee in accordance with the provisions of paragraph (g) of Section 11.01 as
if such assets were transferred from a predecessor Plan. No transfer of assets
in accordance with this Section may cause a loss of an accrued or optional form
of benefit protected by Section 411(d)(6) of the Code.
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11.03 ACCEPTANCE OF ASSETS BY TRUSTEE
The Trustee will not accept assets which are not either in a medium proper for
investment under the Plan, as set forth in Section 1.14(b), or in cash. Such
assets shall be accompanied by written instructions showing separately the
respective contributions by the prior employer and by the Employee, and
identifying the assets attributable to such contributions. The Trustee shall
establish such accounts as may be necessary or appropriate to reflect such
contributions under the Plan. The Trustee shall hold such assets for investment
in accordance with the provisions of Article 6, and shall in accordance with the
written instructions of the Employer make appropriate credits to the Accounts of
the Participants for whose benefit assets have been transferred.
11.04 TRANSFER OF ASSETS FROM TRUST
The Employer may direct the Trustee to transfer all or a specified portion of
the Trust assets to any other Plan or Plans maintained by the Employer or the
employer or employers of a former Participant or Participants, provided that the
Trustee has received evidence satisfactory to it that such other Plan meets all
applicable requirements of the Code. The assets so transferred shall be
accompanied by written instructions from the Employer naming the persons for
whose benefit such assets have been transferred, showing separately the
respective contributions by the Employer and by each Participant, if any, and
identifying the assets attributable to the various contributions. The Trustee
shall have no further liabilities with respect to assets so transferred.
ARTICLE 12 MISCELLANEOUS
12.01 COMMUNICATION TO PARTICIPANTS
The Plan will be communicated to all Participants by the Employer promptly after
the Plan is adopted.
12.02 LIMITATION OF RIGHTS
Neither the establishment of the Plan and the Trust, nor any amendment thereof,
nor the creation of any fund or account, nor the payment of any benefits, will
be construed as giving to any Participant or other person any legal or equitable
right against the Employer, Administrator or Trustee, except as provided herein;
and in no event will the terms of employment or service of any Participant be
modified or in any way affected hereby. It is a condition of the Plan, and each
Participant expressly agrees by his participation herein, that each Participant
will look solely to the assets held in the Trust for the payment of any benefit
to which he is entitled under the Plan.
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12.03 NONALIENABILITY OF BENEFITS AND QUALIFIED DOMESTIC RELATIONS ORDERS
The benefits provided hereunder will not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind, either voluntarily or
involuntarily, and any attempt to cause such benefits to be so subjected will
not be recognized, except to such extent as may be required by law. The
preceding sentence shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined by the Plan
Administrator to be a qualified domestic relations order, as defined in Section
414(p) of the Code, or any domestic relations order entered before January 1,
1985. The Administrator must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Administrator will promptly notify the Participant and an
alternate payee named in the order, in writing, of the receipt of the order and
the Plan's procedures for determining the qualified status of the order. Within
a reasonable period of time after receiving the domestic relations order, the
Administrator must determine the qualified status of the order and must notify
the Participant and each alternate payee, in writing, of its determination. The
Administrator must provide notice under this paragraph by mailing to the
individual's address specified in the domestic relations order, or in a manner
consistent with the Department of Labor regulations.
If any portion of the Participant's Account is payable during the period the
Administrator is making its determination of the qualified status of the
domestic relations order, the Administrator must make a separate accounting of
the amounts payable. If the Administrator determines the order is a qualified
domestic relations order within 18 months of the date amounts first are payable
following receipt of the order, the Administrator will direct the Trustee to
distribute the payable amounts in accordance with the order. If the
Administrator does not make his determination of the qualified status of the
order within the 18 month determination period, the Administrator will direct
the Trustee to distribute the payable amounts in the manner the Plan would
distribute if the order did not exist and will apply the order prospectively if
the Administrator later determines the order is a qualified domestic relations
order.
A domestic relations order will not fail to be deemed a qualified domestic
relations order merely because it requires the distribution or segregation of
all or part of a Participant's Account with respect to an alternate payee prior
to the Participant's earliest retirement age (as defined in Section 414(p) of
the Code) under the Plan. A distribution to an alternate payee prior to the
Participant's attainment of the earliest retirement age is available only if:
(1) the order specifies distribution at that time; and (2) if the present value
of the alternate payee's benefits under the Plan exceeds $3,500, and the order
requires, the alternate payee consents to any distribution occurring prior to
the Participant's attainment of earliest retirement age.
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12.04 FACILITY OF PAYMENT
In the event the Administrator determines, on the basis of medical reports or
other evidence satisfactory to the Administrator, that the recipient of any
benefit payments under the Plan is incapable of handling his affairs by reason
of minority, illness, infirmity or other incapacity, the Administrator may
direct the Trustee to disburse such payments to a person or institution
designated by a court which has jurisdiction over such recipient or a person or
institution otherwise having the legal authority under State law for the care
and control of such recipient. The receipt by such person or institution of any
such payments shall be complete acquittance therefore, and any such payment to
the extent thereof, shall discharge the liability of the Trust for the payment
of benefits hereunder to such recipient.
12.05 INFORMATION BETWEEN EMPLOYER AND TRUSTEE
The Employer agrees to furnish the Trustee, and the Trustee agrees to furnish
the Employer with such information relating to the Plan and Trust as may be
required by the other in order to carry out their respective duties hereunder,
including without limitation information required under the Code and any
regulations issued or forms adopted by the Treasury Department thereunder or
under the provisions of ERISA and any regulations issued or forms adopted by the
Labor Department thereunder.
12.06 EFFECT OF FAILURE TO QUALIFY UNDER CODE
Notwithstanding any other provision contained herein, if the Employer fails to
obtain or retain approval of the Plan by the Internal Revenue Service as a
qualified Plan under the Code, the Employer may no longer participate in this
prototype Plan arrangement and will be deemed to have an individually designed
Plan.
12.07 NOTICES
Any notice or other communication in connection with this Plan shall be deemed
delivered in writing if addressed as provided below and if either actually
delivered at said address or, in the case of a letter, three business days shall
have elapsed after the same shall have been deposited in the United States
mails, first-class postage prepaid and registered or certified:
(a) If to the Employer or Administrator, to it at the address set forth in
the Adoption Agreement, to the attention of the person specified to receive
notice in the Adoption Agreement;
(b) If to the Trustee, to it at the address set forth in the Adoption
Agreement;
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or, in each case at such other address as the addressee shall have specified by
written notice delivered in accordance with the foregoing to the addresser's
then effective notice address.
12.08 GOVERNING LAW
The Plan and the accompanying Adoption Agreement will be construed, administered
and enforced according to ERISA, and to the extent not preempted thereby, the
laws of the Commonwealth of Massachusetts.
12.09 NON-DISCRIMINATION DATA SUBSTANTIATION
The Employer may elect to follow the guidelines for substantiating compliance
with the non-discrimination rules pursuant to Internal Revenue Service Revenue
Procedure 93-42, Data Substantiation Guidelines and Non-Discrimination
Requirements of Section 401(a)(4), 410(b), and Related Code Sections. The
guidance in this Revenue Procedure is designed to allow Employers to use
alternative methods for substantiating compliance with the non-discrimination
requirements.
ARTICLE 13 PLAN ADMINISTRATION
13.01 POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR
The Administrator has the full power and the full responsibility to administer
the Plan in all of its details, subject, however, to the requirements of ERISA.
The Administrator's powers and responsibilities include, but are not limited to,
the following:
(a) To make and enforce such rules and regulations as it deems necessary or
proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good faith to be
final and conclusive on all persons claiming benefits under the Plan;
(c) To decide all questions concerning the Plan and the eligibility of any
person to participate in the Plan;
(d) To administer the claims and review procedures specified in Section
13.03;
(e) To compute the amount of benefits which will be payable to any
Participant, former Participant or Beneficiary in accordance with the
provisions of the Plan;
(f) To determine the person or persons to whom such benefits will be paid;
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(g) To authorize the payment of benefits and provide for the distribution
of Code Section 402(f) notices;
(h) To comply with the reporting and disclosure requirements of Part 1 of
Subtitle B of Title I of ERISA;
(i) To appoint such agents, counsel, accountants, and consultants as may be
required to assist in administering the Plan;
(j) By written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with Section 405 of ERISA including the
formation of an Administrative Committee to administer the Plan;
(k) To provide bonding coverage as required under Section 412 of ERISA.
13.02 NONDISCRIMINATORY EXERCISE OF AUTHORITY
Whenever, in the administration of the Plan, any discretionary action by the
Administrator is required, the Administrator shall exercise its authority in a
nondiscriminatory manner so that all persons similarly situated will receive
substantially the same treatment.
13.03 CLAIMS AND REVIEW PROCEDURES
(a) CLAIMS PROCEDURE. If any person believes he is being denied any rights
or benefits under the Plan, such person may file a claim in writing with
the Administrator. If any such claim is wholly or partially denied, the
Administrator will notify such person of its decision in writing. Such
notification will contain (i) specific reasons for the denial, (ii)
specific reference to pertinent Plan provisions, (iii). a description of
any additional material or information necessary for such person to perfect
such claim and an explanation of why such material or information is
necessary, and (iv) information as to the steps to be taken if the person
wishes to submit a request for review. Such notification will be given
within 90 days after the claim is received by the Administrator (or within
180 days, if special circumstances require an extension of time for
processing the claim, and if written notice of such extension and
circumstances is given to such person within the initial 90-day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his claim.
(b) REVIEW PROCEDURE. Within 60 days after the date on which a person
receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred),
such person (or his duly authorized representative) may (i) file a written
request with the Administrator for a review of his
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denied claim and of pertinent documents and (ii) submit written issues and
comments to the Administrator. The Administrator will notify such person of
its decision in writing. Such notification will be written in a manner
calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent Plan
provisions. The decision on review will be made within 60 days after the
request for review is received by the Administrator (or within 120 days, if
special circumstances require an extension of time for processing the
request, such as an election by the Administrator to hold a hearing, and if
written notice of such extension and circumstances is given to such person
within the initial 60-day period). If the decision on review is not made
within such period, the claim will be considered denied.
13.04 NAMED FIDUCIARY
The Administrator is a "named fiduciary" for purposes of Section 402(a)(1) of
ERISA and has the powers and responsibilities with respect to the management and
operation of the Plan described herein.
13.05 COSTS OF ADMINISTRATION
Unless some or all are paid by the Employer, all reasonable costs and expenses
(including legal, accounting, and Employee communication fees) incurred by the
Administrator and the Trustee in administering the Plan and Trust will be paid
first from the forfeitures (if any) resulting under Section 7.07, then from the
remaining Trust Fund. All such costs and expenses paid from the Trust Fund will,
unless allocable to the Accounts of particular Participants, be charged, against
the Accounts of all Participants on a prorata basis or in such other reasonable
manner as may be directed by the Employer.
ARTICLE 14 TRUST AGREEMENT
14.01 ACCEPTANCE OF TRUST RESPONSIBILITIES
By executing the Adoption Agreement, the Employer establishes a trust to hold
the assets of the Plan. By executing the Adoption Agreement, the Trustee agrees
to accept the rights, duties and responsibilities set forth in this Article 14.
14.02 ESTABLISHMENT OF TRUST FUND
A trust is hereby established under the Plan and the Trustee will open and
maintain a Trust account for the Plan and, as part thereof, Participants'
Accounts for such individuals as the Employer shall from time to time give
written notice to the Trustee of Participants in the Plan.
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The Trustee will accept and hold in the Trust Fund such contributions on behalf
of Participants as it may receive from time to time from the Employer. The Trust
Fund shall be fully invested and reinvested in accordance with the applicable
provisions of the Plan in Fund Shares or as otherwise provided in Section 14.10.
14.03 EXCLUSIVE BENEFIT
The Trustee shall hold the assets of the Trust Fund for the exclusive purpose of
providing benefits to Participants and Beneficiaries and defraying the
reasonable expenses of administering the Plan. No assets of the Plan shall
revert to the Employer except as specifically permitted by the terms of the
Plan.
14.04 POWERS OF TRUSTEE
The Trustee shall have no discretion or authority with respect to the investment
of the Trust Fund but shall act solely as a directed trustee of the funds
contributed to it. In addition to and not in limitation of such powers as the
Trustee has by law or under any other provisions of the Plan, the Trustee will
have the following powers, each of which the Trustee exercises solely as
directed Trustee in accordance with the written direction of the Employer except
to the extent a Plan asset is subject to Participant direction of investment and
provided that no such power shall be exercised in any manner inconsistent with
the provisions of ERISA:
(a) to deal with all or any part of the Trust Fund and to invest all or a
part of the Trust Fund in investments available under the Plan, without
regard to the law of any state regarding proper investment;
(b) to retain uninvested such cash as it may deem necessary or advisable,
without liability for interest thereon, for the administration of the
Trust;
(c) to sell, convert, redeem, exchange, or otherwise dispose of all or any
part of the assets constituting the Trust Fund;
(d) to enforce by suit or otherwise, or to waive, its rights on behalf of
the Trust, and to defend claims asserted against it or the Trust, provided
that the Trustee is indemnified to its satisfaction against liability and
expenses;
(e) to employ such agents and counsel as may be reasonably necessary in
collecting, managing, administering, investing, distributing and protecting
the Trust Fund or the assets thereof and to pay them reasonable
Compensation;
(f) to compromise, adjust and settle any and all claims against or in favor
of it or the Trust;
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(g) to oppose, or participate in and consent to the reorganization, merger,
consolidation, or readjustment of the finances of any enterprise, to pay
assessments and expenses in connection therewith, and to deposit securities
under deposit agreements;
(h) to apply for or purchase annuity contracts in accordance with Section
8.02;
(i) to hold securities unregistered, or to register them in its own name or
in the name of nominees;
(j) to appoint custodians to hold investments within the jurisdiction of
the district courts of the United States and to deposit securities with
stock clearing corporations or depositories or similar organizations;
(k) to make, execute, acknowledge and deliver any and all instruments that
it deems necessary or appropriate to carry out the powers herein granted;
and
(l) generally to exercise any of the powers of an owner with respect to all
or any part of the Trust Fund.
The Employer specifically acknowledges and authorizes that affiliates of
the Trustee may act as its agent in the performance of ministerial, non
fiduciary duties under the Trust. The expenses and compensation of such
agent shall be paid by the Trustee.
The Trustee shall provide the Employer with reasonable notice of any claim
filed against the Plan or Trust or with regard to any related matter, or of
any claim filed by the Trustee on behalf of the Plan or Trust or with
regard to any related matter.
14.05 ACCOUNTS
The Trustee will keep full accounts of all receipts and disbursements and other
transactions hereunder. Within 60 days after the close of each Plan Year, within
60 days after termination of the Trust, and at such other times as may be
appropriate, the Trustee will determine the then net fair market value of the
Trust Fund as of the close of the Plan Year, as of the termination of the Trust,
or as of such other time, whichever is applicable, and will render to the
Employer and Administrator an account of its administration of the Trust during
the period since the last such accounting, including all allocations made by it
during such period.
14.06 APPROVING OF ACCOUNTS
To the extent permitted by law, the written approval of any account by the
Employer or Administrator will be final and binding, as to all matters and
transactions stated or shown therein, upon the Employer, Administrator,
Participants and all persons who then are or thereafter become interested in the
Trust. The failure of the Employer or Administrator to notify the
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Trustee within six (6) months after the receipt of any account of its objection
to the account will, to the extent permitted by law, be the equivalent of
written approval. If the Employer or Administrator files any objections within
such six (6) month period with respect to any matters or transactions stated or
shown in the account, and the Employer or Administrator and the Trustee cannot
amicably settle the question raised by such objections, the Trustee will have
the right to have such questions settled by judicial proceedings. Nothing herein
contained will be construed so as to deprive the Trustee of the right to have
judicial settlement of its accounts. In any proceeding for a judicial settlement
of any account or for instructions, the only necessary parties will be the
Trustee, the Employer and the Administrator.
14.07 DISTRIBUTION FROM TRUST FUND
The Trustee shall make such distribution from the Trust Fund as the Employer or
Administrator may, in writing or any other form(s) acceptable to the Trustee,
direct, as provided by the terms of the Plan, upon certification by the Employer
or Administrator that the same is for the exclusive benefit of Participants or
their Beneficiaries, or for the payment of expenses of administering the Plan.
14.08 TRANSFER OF AMOUNTS FROM QUALIFIED PLAN
If the Plan provides that amounts may be transferred to the Plan from another
qualified Plan or trust under Section 401(a) of the Code, such transfer shall be
made in accordance with the provisions of the Plan and with such rules as may be
established by the Trustee. The Trustee will only accept assets which are in a
medium proper for investment under this Agreement or in cash. Such amounts shall
be accompanied by written instructions showing separately the respective
contributions by the prior employer and the transferring Employee, and
identifying the assets attributable to such contributions. The Trustee shall
hold such assets for investment in accordance with the provisions of this
Agreement.
14.09 TRANSFER OF ASSETS FROM TRUST
Subject to the provisions of the Plan, the Employer may direct the Trustee to
transfer all or a specified portion of the Trust assets to any other Plan or
Plans maintained by the Employer or the employer or employers of a former
Participant or Participants, provided that the Trustee has received evidence
satisfactory to it that such other Plan meets all applicable requirements of the
Code. The assets so transferred shall be accompanied by written instructions
from the Employer naming the persons for whose benefit such assets have been
transferred, showing separately the respective contributions by the Employer and
by each Participant, if any, and identifying the assets attributable to the
various contributions. The Trustee shall have no further liabilities with
respect to assets so transferred.
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14.10 RESERVED
14.11 VOTING; DELIVERY OF INFORMATION
The Trustee shall deliver, or cause to be executed and delivered, to the
Employer or Plan Administrator all notices, prospectuses, financial statements,
proxies and proxy soliciting materials received by the Trustee relating to
securities held by the Trust or, if applicable, deliver these materials to the
appropriate Participant or the Beneficiary of a deceased Participant. The
Trustee shall not vote any securities held by the Trust except in accordance
with the written instructions of the Employer, Participant or the Beneficiary of
the Participant, if the Participant is deceased; provided, however, that the
Trustee may, in the absence of instructions, vote "present" for the sole purpose
of allowing such shares to be counted for establishment of a quorum at a
shareholders' meeting. The Trustee shall have no duty to solicit instructions
from Participants, the Beneficiary or the Employer.
14.12 COMPENSATION AND EXPENSES OF TRUSTEE
The Trustee's fee for performing its duties hereunder will be such reasonable
amounts as the Trustee may from time to time specify by written agreement with
the Employer. Such fee, any taxes of any kind which may be levied or assessed
upon or in respect of the Trust Fund and any and all expenses, including without
limitation legal fees and expenses of administrative and judicial proceedings,
reasonably incurred by the Trustee in connection with its duties and
responsibilities hereunder will, unless some or all have been paid by said
Employer, be paid first from forfeitures resulting under Section 7.07, then from
the remaining Trust Fund and will, unless allocable to the Accounts of
particular Participants, be charged against the respective Accounts of all
Participants, in such reasonable manner as the Trustee may determine.
14.13 RELIANCE BY TRUSTEE ON OTHER PERSONS
The Trustee may rely upon and act upon any writing from any person authorized by
the Employer or Administrator to give instructions concerning the Plan and may
conclusively rely upon and be protected in acting upon any written order from
the Employer or Administrator or upon any other notice, request, consent,
certificate, or other instructions or paper reasonably believed by it to have
been executed by a duly authorized person, so long as it acts in good faith in
taking or omitting to take any such action. The Trustee need not inquire as to
the basis in fact of any statement in writing received from the Employer or
Administrator.
The Trustee will be entitled to rely on the latest certificate it has received
from the Employer or Administrator as to any person or persons authorized to act
for the Employer or Administrator hereunder and to sign on behalf of the
Employer or Administrator any directions or instructions, until it receives from
the Employer or Administrator written notice that such authority has been
revoked.
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Notwithstanding any provision contained herein, the Trustee will be under no
duty to take any action with respect to any Participant's Account (other than as
specified herein) unless and until the Employer or Administrator furnishes the
Trustee with written instructions on a form acceptable to the Trustee, and the
Trustee agrees thereto in writing. The Trustee will not be liable for any action
taken pursuant to the Employer's or Administrator's written instructions (nor
for the collection of contributions under the Plan, nor the purpose or propriety
of any distribution made thereunder).
14.14 INDEMNIFICATION BY EMPLOYER
The Employer shall indemnify and save harmless the Trustee from and against any
and all liability to which the Trustee may be subjected by reason of any act or
conduct (except willful misconduct or negligence) in its capacity as Trustee,
including all expenses reasonably incurred in its defense.
14.15 CONSULTATION BY TRUSTEE WITH COUNSEL
The Trustee may consult with legal counsel (who may be but need not be counsel
for the Employer or the Administrator) concerning any question which may arise
with respect to its rights and duties under the Plan and Trust, and the opinion
of such counsel will, to the extent permitted by law, be full and complete
protection in respect of any action taken or omitted by the Trustee hereunder in
good faith and in accordance with the opinion of such counsel.
14.16 PERSONS DEALING WITH THE TRUSTEE
No person dealing with the Trustee will be bound to see to the application of
any money or property paid or delivered to the Trustee or to inquire into the
validity or propriety of any transactions.
14.17 RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time by written notice to the Employer, which
resignation shall be effective 60 days after delivery to the Employer. The
Trustee may be removed by the Employer by written notice to the Trustee, which
removal shall be effective 60 days after delivery to the Trustee.
Upon resignation or removal of the Trustee, the Employer may appoint a successor
trustee. Any such successor trustee will, upon written acceptance of his
appointment, become vested with the estate, rights, powers, discretion, duties
and obligations of the Trustee hereunder as if he had been originally named as
Trustee in this Agreement.
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Upon resignation or removal of the Trustee, the Employer will no longer
participate in this prototype Plan and will be deemed to have adopted an
individually designed Plan. In such event, the Employer shall appoint a
successor trustee within said 60-day period and the Trustee will transfer the
assets of the Trust to the successor trustee upon receipt of sufficient evidence
(such as a determination letter or opinion letter from the Internal Revenue
Service or an opinion of counsel satisfactory to the Trustee) that such trust
will be a qualified trust under the Code.
The appointment of a successor trustee shall be accomplished by delivery to the
Trustee of written notice that the Employer has appointed such successor
trustee, and written acceptance of such appointment by the successor trustee.
The Trustee may, upon transfer and delivery of the Trust Fund to a successor
trustee, reserve such reasonable amount as it shall deem necessary to provide
for its fees, Compensation, costs and expenses, or for the payment of any other
liabilities chargeable against the Trust Fund for which it may be liable. The
Trustee shall not be liable for the acts or omissions of any successor trustee.
14.18 FISCAL YEAR OF THE TRUST
The fiscal year of the Trust will coincide with the Plan Year.
14.19 DISCHARGE OF DUTIES BY FIDUCIARIES
The Trustee and the Employer and any other fiduciary shall discharge their
duties under the Plan and this Trust Agreement solely in the interests of
Participants and their Beneficiaries in accordance with the requirements of
ERISA.
14.20 AMENDMENT
In accordance with provisions of the Plan, and subject to the limitations set
forth therein, this Trust Agreement may be amended by an instrument in writing
signed by the Employer and the Trustee. No amendment to this Trust Agreement
shall divert any part of the Trust Fund to any purpose other than as provided in
Section 2 hereof.
14.21 PLAN TERMINATION
Upon termination or partial termination of the Plan or complete discontinuance
of contributions thereunder, the Trustee will make distributions to the
Participants or other persons entitled to distributions as the Employer or
Administrator directs in accordance with the provisions of the Plan. In the
absence of such instructions and unless the Plan otherwise provides, the Trustee
will notify the Employer or Administrator of such situation and the Trustee will
be under no duty to make any distributions under the Plan until it receives
written instructions from the Employer or
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Administrator. Upon the completion of such distributions, the Trust will
terminate, the Trustee will be relieved from all liability under the Trust, and
no Participant or other person will have any claims thereunder, except as
required by applicable law.
14.22 PERMITTED REVERSION OF FUNDS TO EMPLOYER
If it is determined by the Internal Revenue Service that the Plan does not
initially qualify under Section 401 of the Code, all assets then held under the
Plan will be returned by the Trustee, as directed by the Administrator, to the
Employer, but only if the application for determination is made by the time
prescribed by law for filing the Employer's return for the taxable year in which
the Plan was adopted or such later date as may be prescribed by regulations.
Such distribution will be made within one year after the date the initial
qualification is denied. Upon such distribution the Plan will be considered to
be rescinded and to be of no force or effect.
Contributions under Plan are conditioned upon their deductibility under Section
404 of the Code. In the event the deduction of a contribution made by the
Employer is disallowed under Section 404 of the Code, such contribution (to the
extent disallowed) must be returned to the Employer within one year of the
disallowance of the deduction.
Any contribution made by the Employer because of a mistake of fact must be
returned to the Employer within one year of the contribution.
14.23 GOVERNING LAW
This Trust Agreement will be construed, administered and enforced according to
ERISA and, to the extent not preempted thereby, the laws of the Commonwealth of
Massachusetts.
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Exhibit 10.09
LEASE AGREEMENT
BY AND BETWEEN
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
AS
Landlord
AND
CONCORD COMMUNICATIONS, INC.
AS
Tenant
March 17, 1994
<PAGE> 2
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TABLE OF CONTENTS
SECTION PAGE
1. Premises .......................................................... 1
2. Term .............................................................. 1
3. Use, Nuisance or Hazard ........................................... 3
4. Rent .............................................................. 3
5. Rent Adjustment ................................................... 6
6. Services to be Provided by Landlord ............................... 11
7. Repairs and Maintenance by Landlord ............................... 13
8. Repairs and Care of Building Complex by Tenant .................... 14
9. Tenant's Equipment and Installations .............................. 15
10 Force Majeure ..................................................... 15
11. Mechanic's and Materialman's Liens ................................ 16
12. Parking and Service Areas ......................................... 16
13. Insurance ......................................................... 17
14. Quiet Enjoyment ................................................... 18
15. Alterations ....................................................... 19
16. Furniture, Fixtures and Personal Property ......................... 20
17. Taxes ............................................................. 21
18. Assignment and Subletting ......................................... 21
19. Fire and Casualty ................................................. 24
20. Condemnation ...................................................... 25
21. Hold Harmless ..................................................... 26
22. Default by Tenant ................................................. 27
23. Lien for Rent ..................................................... 33
24. Right to Relocate ................................................. 33
25. Attorney's Fees ................................................... 33
26. Non-Waiver ........................................................ 34
27. Rules and Regulations ............................................. 34
28. Assignment by Landlord ............................................ 34
<PAGE> 3
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29. Liability of Landlord ............................................. 35
30. Subordination and Attornment ...................................... 35
31. Holding Over ...................................................... 36
32. Signs ............................................................. 37
33. Hazardous Substances .............................................. 37
34. Compliance with Laws and Other Regulations ........................ 38
35. Severability ...................................................... 39
36. Notices ........................................................... 39
37. Obligations of Successors, Plurality, Gender ...................... 40
<PAGE> 4
LEASE AGREEMENT
This Lease Agreement ("LEASE") is made and entered into as of the
seventeenth day of March 1994, by and between JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation ("LANDLORD"), and CONCORD COMMUNICATIONS,
INC. ("TENANT").
WITNESSETH:
-----------
Section 1. Premises
A. Subject to all of the terms and conditions hereinafter set forth,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those
certain premises ("LEASED PREMISES"), as outlined on EXHIBIT B attached hereto,
containing approximately 19,472 square feet of Rentable Area (as hereinafter
defined) on the third and fourth floors of the six story office building known
as 33 West ("BUILDING") located at 33 Boston Post Road West, Marlborough,
Massachusetts. The land (more fully described in EXHIBIT A attached) and all
improvements thereon and appurtenances thereto, including but not limited to the
Building and related parking areas, shall be collectively hereinafter referred
to as the "BUILDING COMPLEX."
B. The term "RENTABLE AREA" shall be computed by measuring from the
inside surface of the exterior glass of the outer Building walls, to the center
of corridor walls, and to the center of all partitions which separate the Leased
Premises from adjoining areas; plus Tenant's pro rata portion of areas common to
all tenants of the Building including, but not limited to, corridors, lobbies,
rest rooms, public areas, mechanical, electrical, telephone, janitorial or
equipment room, closet or space, and spaces within the entire Building. Elevator
shafts, stairwells, and other vertical chases shall be excluded in computing
Rentable Area.
Section 2. Term
A. Except as provided to the contrary in Exhibit D, the Tenant
Improvement Work Agreement (the "Work Letter"), this Lease shall remain in
effect for a term ("TERM") of sixty (60) months, beginning at 12:01 A.M. on the
first day of July 1994 ("COMMENCEMENT DATE") and expiring at 6:00 P.M. on the
thirty-first day of June 1999 ("EXPIRATION DATE") unless sooner terminated
("TERMINATION DATE") as hereinafter provided.
B. Landlord, subject to delays beyond its control, hereby agrees to
perform its obligations with respect to the Leased Premises as set forth
hereinafter and in the Work Letter. Other than as set forth in the Work Letter,
Landlord shall have no obligation for the completion of the Leased Premises and
except as provided for herein shall not be liable for any claims or damages
arising in connection therewith nor by reason thereof. Tenant shall accept the
Leased Premises in its "as is" condition as of the date Landlord delivers
possession of the Leased Premises to Tenant in accordance with the provisions
hereof and the Work Letter except as noted on the Punch List.
<PAGE> 5
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C. On the conditions (which conditions Landlord may waive, at its
election, by written notice to Tenant at any time) that Tenant is not in default
of its covenants and obligations under the Lease and that only Tenant itself is
occupying the entirety of the Leased Premises then demised to Tenant, both as of
the time of exercise of the Options to Extend, as hereinafter defined, and at
the commencement of the Extension Periods as hereinafter defined, then Tenant
shall have the right to extend the Term hereof (the "Options to Extend") for two
additional terms of three (3) years each (the "Extension Periods"), to commence
immediately upon the expiration of the Term.
Tenant may exercise its Options to Extend by giving written notice to
Landlord (the "Extension Notice") on or before the date which is not earlier
than six (6) months, but not later than four (4) months, prior to the expiration
of the Term (as to exercise of the Options to Extend for the second three (3)
year period, such Extension Notice being given not earlier than six (6) months,
but not later than four (4) months, prior to the expiration of the first
Extension Period herein referred to). Such Extension Periods shall be upon the
same terms and conditions of this Lease, except that the Base Rent payable shall
be 95% of the then fair market effective rent for the Leased Premises and the
parking rate, if any, shall be the then fair market effective rate as determined
by the local marketplace. For the purpose of this Section, fair market effective
rent shall mean the Base Rent plus such additional financial terms in the nature
of rent and rent adjustments customarily then being included in leases for
comparable premises in such areas. Tenant shall, during the Extension Periods
pay its proportionate share of any increase in Landlord's Operating Expenses, in
either case over the base year then being quoted for leases in such premises in
such areas. Said fair market effective rent for the Leased Premises shall be
agreed upon by Landlord and Tenant; provided, however, if Landlord and Tenant
are unable to agree on said fair market effective rent within thirty (30) days
of the date of the Extension Notice, said fair market effective rent shall be
conclusively determined by three (3) appraisers. Within fifteen (15) days of the
expiration of such thirty (30) day period, Landlord and Tenant shall each select
an appraiser, who shall select a third. Should the two appraisers fail to agree
on a third within fifteen (15) days of the date on which such appraisers have
been appointed, or if either Landlord or Tenant shall fail to appoint an
appraiser within the time provided, such appraiser shall be appointed by the
American Institute of Appraisers. Each party shall bear the cost of the
appraiser selected by such party, and the cost of the third appraiser shall be
shared equally by Landlord and Tenant. If the three appraisers are unable to
agree upon such fair market effective rent within fifteen (15) days of the
appointment of the third appraiser, the fair market effective rent shall be that
determined by the appraiser not selected by either Landlord or Tenant.
Section 3. Use, Nuisance or Hazard
A. The Leased Premises shall be used and occupied by Tenant solely for
general office, software research and development, and service purposes and for
no other purposes without the prior written consent of Landlord.
B. Tenant shall not use, occupy or permit the use or occupancy of the
Leased Premises for any purpose which Landlord, in its reasonable discretion,
deems to be illegal, immoral or dangerous; permit any public or private
nuisance; do or permit any act or thing which
<PAGE> 6
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may disturb the quiet enjoyment of any other tenant of the Building Complex;
keep any substance or carry on or permit any operation which might introduce
offensive odors or conditions into other portions of the Building Complex; use
any apparatus which might make undue noise or set up vibrations in or about the
Building Complex; permit anything to be done which would increase the premiums
paid by Landlord for fire and extended coverage insurance on the Building
Complex or its contents or cause a cancellation of any insurance policy covering
the Building Complex or any part thereof or any of its contents; or permit
anything to be done which is prohibited by or which shall in any way conflict
with any law, statute, ordinance, or governmental rule or regulation now or
hereinafter in force. Should Tenant do any of the foregoing without the prior
written consent of Landlord, it shall constitute an Act of Default (as
hereinafter defined) and shall enable Landlord to resort to any of its remedies
hereunder.
Section 4. Rent
A. Tenant hereby agrees to pay Landlord, at the address set forth in
Section 36 below, a base annual rental ("BASE RENT") of Two Hundred Thirty-Three
Thousand Six Hundred Sixty-Four and 00/100 Dollars ($233,664.00) per year for
the first, second and third year during the Term. The Base Rent shall be due and
payable in twelve (12) equal installments ("MONTHLY RENT") in check or money
order on or before the first day of each calendar month, in the sum of Nineteen
Thousand Four Hundred Seventy-Two and 00/100 Dollars ($19,472.00) each. The Base
Rent will increase to Two Hundred Fifty-Three Thousand One Hundred Thirty-Six
and 00/100 Dollars ($253,136.00) per year for the fourth and fifth year during
the Term, payable in twelve (12) equal installments ("MONTHLY RENT") in check or
money order on or before the first day of each calendar month, in the sum of
Twenty-One Thousand Ninety-Four and 67/100 Dollars($21,094.67) each.
Notwithstanding the foregoing, provided no default of Tenant remains uncured
beyond any applicable cure period, no monthly installment of Base Rent shall be
due for the first and second month of the Term. In addition to the Base Rent,
Tenant also agrees to pay any and all other sums of money as shall be become due
and payable by Tenant as hereinafter set forth ("ADDITIONAL RENT"). The Monthly
Rent and/or Additional Rent are sometimes hereinafter collectively called "Rent"
and shall be paid when due in lawful money of the United States without demand,
deduction, abatement or offset except as otherwise provided for herein at such
place as Landlord may designate from time to time. All Rent and any other
charges due and unpaid as of the Expiration Date or Termination Date shall be
deemed due and payable thereon and, if unpaid as of such date, shall survive the
Expiration Date or Termination Date. Landlord expressly reserves the right to
apply the payment of Base Rent to any other items of Rent that are not paid by
Tenant.
B. Notwithstanding the above, in the event any Rent or other amounts
owing hereunder are not paid within five business (5) days after the due date,
then Landlord and Tenant agree that Landlord will incur additional
administrative expenses, the amount of which will be difficult, if not
impossible, to determine. Accordingly, in addition to such required payment,
Tenant shall pay to Landlord, upon demand, an additional one time late charge
("LATE CHARGE"), as Additional Rent, for any such late payment in the amount of
ten percent (10%) (unless such payment is lost in transit) of the amount of such
late payment. Failure to pay any applicable Late Charge shall be deemed Monetary
Default (as hereinafter defined). Provision for the Late
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Charge shall be in addition to all other rights and remedies available to
Landlord hereunder, at law or in equity, and shall not be construed as
liquidated damages or limiting Landlord's remedies in any manner. Failure to
charge or collect such Late Charge in connection with any one or more such late
payments shall not constitute a waiver of Landlord's right to charge and collect
such Late Charges in connection with any other or similar or like late payments.
The amount of Nineteen Thousand Four Hundred Seventy-Two and 00/100
Dollars ($19,472.00) shall be due and payable upon the execution of this Lease
by Tenant, which sum shall be the Monthly Rent for the third complete calendar
month of occupancy of the Term. Additionally, Tenant agrees to establish an
irrevocable standby Letter of Credit for the benefit of the Landlord in the sum
of Thirty-Eight Thousand Nine Hundred Forty-Four and 00/1 00 Dollars
($38,944.00) upon the execution of this Lease as security for Tenant's faithful
performance of all of the terms, covenants, conditions, and obligations required
to be performed by Tenant hereunder ("SECURITY DEPOSIT"). Should Tenant default
on any of such terms, covenants, conditions, or obligations hereunder, Landlord
may, from time-to-time and without prejudice to any other remedy, use the
Security Deposit to the extent necessary to make good any arrears of Rent; or to
pay any sums owed to Landlord by Tenant; or for any damage, injury, expense or
liability sustained by Landlord as a result of any default, including but not
limited to any damages or deficiencies incurred in the reletting of the Leased
Premises, or any attorneys' fees associated therewith, regardless of whether the
accrual of such damages or deficiencies occurs before or after an eviction, or
for the cost of cleaning the Leased Premises. Should Landlord ever use all or
any portion of the Security Deposit to cure any such default by Tenant, Tenant
shall be required to replace and replenish all or any portion of the Security
Deposit used in connection with such cure within ten (10) days from Tenant's
receipt of written request by Landlord therefor. Failure by Tenant to replace or
replenish the Security Deposit within said time shall constitute an Act of
Default (as hereinafter defined) and shall enable Landlord to resort to any of
its remedies hereunder. The Security Deposit shall not be considered an advance
payment of Rent nor a measure of Landlord's damages in case of default by
Tenant. Landlord shall not be required to separately account for the Security
Deposit and may comingle same with any of Landlord's funds. If Tenant performs
all of its obligations hereunder, the Security Deposit shall be returned without
payment of interest thereon to Tenant within sixty (60) days after the
Expiration Date or Termination Date, whichever is later.
D. If the Term commences on a date other than the first day of a
calendar month or terminates on a date other than the last day of a calendar
month, the Rent for such partial months shall be prorated to the actual number
of days Tenant is in occupancy of the Leased Premises for said partial months.
E. All Rents and any other amounts payable by Tenant to Landlord
hereunder, if not paid when due, shall bear interest from the date due until
paid at a rate equal to the prime commercial rate established from time to time
by Bank of Boston plus two (2%) percent per annum but not in excess of the
maximum legal rate permitted by law. Failure to charge or collect such interest
in connection with any one or more such late payments shall not constitute a
waiver of Landlord's right to charge and collect such interest in connection
with any other or similar or like late payments.
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F. If Tenant fails to timely make two (2) consecutive payments of
Monthly Rent or makes two (2) consecutive payments of Monthly Rent which are
returned to Landlord by Tenant's financial institution for insufficient
funds, Landlord may require, by giving written notice to Tenant, that all future
payments of Rent shall be made in cashier's check or money order. The foregoing
is in addition to any other remedy of Landlord hereunder, at law or in equity.
Section 5. Rent Adjustment
A. Definitions
1. "OPERATING EXPENSES", as said term is used herein,
shall mean all expenses, costs and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay because of
or in connection with the ownership, operation or maintenance of the
Building Complex. If less than ninety-five percent (95%) of the
Rentable Area of the Building is actually occupied during any Lease
Year (as hereinafter defined), Operating Expenses for such Lease Year
shall be the amount that the Operating Expenses should have been for
such Lease Year had ninety-five percent (95%) of the Rentable Area of
the Building been occupied during all of such Lease Year, as determined
by Landlord. Operating Expenses shall be computed on an accrual basis,
determined in accordance with generally accepted accounting principles,
consistently applied, and shall include, but not be limited to, the
items as listed below.
a. Wages, salaries and any and all taxes, insurance
and benefits of the Building manager and any clerical or
maintenance employees directly associated with the operation
of the Building.
b. All expenses for the Building management office
including rent, office supplies, and materials therefor.
c. All supplies, materials and tools used for the
Building Complex.
d. All costs incurred in connection with the
operation, maintenance and repair of the Building Complex
including, but not limited to, the following: elevators;
heating, ventilating and air conditioning systems; security;
cleaning and janitorial; parking lot and landscape; window
washing; and license, permit and inspection fees, excluding
expenses for any item or service which Tenant separately
reimburses Landlord and expenses incurred by Landlord to the
extent the same are reimbursable or reimbursed from any other
tenants.
e. Costs of water, sewer, electric and any other
utility charges related to the Building Complex.
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f. Costs of casualty, rental interruption and
liability insurance, and any deductibles payable thereunder
related to the Building Complex.
g. Management fees not to exceed a sum equal to five
percent (5%) of the Rents derived from the Building Complex.
h. Any and all Taxes (as hereinafter defined) whether
Federal, State, County or Municipal and whether by taxing
districts or authorities presently in existence or by others
subsequently created (excluding, however, Federal and State
taxes on income, if any) and any costs and expenses of
contesting the validity of same. "TAXES" shall mean all ad
valorem taxes, personal property taxes, and all other taxes,
assessments, use and occupancy taxes, transit taxes, water and
sewer charges, excises, levies, license and all other similar
charges, levies, or taxes, if any, which are levied, assessed,
or imposed upon or due and payable in connection with, or a
lien upon, the land, the Building, or facilities used in
connection therewith, and (other than taxes, assessments or
other charges measured by net income) rentals or receipts
therefrom and all taxes of whatsoever nature that are imposed
in substitution for or in lieu of any of the taxes,
assessments, or other charges included in this definition of
Taxes.
i. The cost of any capital improvements made to the
Building Complex by Landlord after the date of this Lease
which is or may be required by any law, ordinance, rule,
regulation or otherwise that was not applicable or in effect
at the time the Building Complex was constructed, including
but not limited to the Americans with Disabilities Act,
amortized over such period consistent with generally accepted
accounting principles, consistently applied as Landlord shall
reasonably determine, together with interest not to exceed
prime plus one percent (1%) on the unamortized balance.
Landlord shall be responsible for complying with the Americans
with Disabilities Act requirements in the Common Areas of the
Building Complex. Tenant shall be responsible for complying
with the Americans with Disabilities Act requirements in the
Leased Premises.
j. The cost of any labor or energy saving device or
other equipment installed by Landlord which improves the
operating efficiency of any system within the Building Complex
and thereby reduces Operating Expenses. Landlord may add to
Operating Expenses in each Lease Year during the useful life
of such device or equipment an amount equal to the annual
amortization allowance of the cost of such device or equipment
as determined in accordance with generally accepted accounting
principles, consistently applied, together with interest not
to exceed prime plus one percent (1%) on the unamortized
balance thereof; provided, however, that the amount of such
allowance and interest shall not exceed the annual cost or
expense reduction attributed by Landlord to such device or
equipment; and further provided that in no event shall such
allowance and interest increase Tenant's Share (as hereinafter
defined) of increases in Operating
<PAGE> 10
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Expenses over what it would have been if such device or
equipment had not been installed.
k. Legal, accounting, inspection and consultation
fees incurred in connection with the operation of the Building
Complex, excluding those costs incurred in connection with
leasing activities.
Expressly excluded from Operating Expenses are the following items:
a. Replacement of capital investment items (except as
provided hereinabove);
b. Advertising and leasing commissions;
c. Repairs and restoration paid for by the proceeds
of any insurance policies or recoveries of any nature;
d. Principal, interest and other costs directly
related to financing the Building Complex;
e. The cost of special services to tenants (including
Tenant) for which a special charge is made;
f. Any costs or expenses associated with or incurred
in connection with the removal, enclosure, encapsulation or
other handling of asbestos or other hazardous or toxic
materials or substances, excluding removal of such material in
ordinary maintenance and repair of the Building Complex;
g. Cost of installing, operation and maintaining any
specialty services, such as an observatory, broadcast
facilities, excluding cafeteria and athletic or recreation
center;
h. Any cost of painting or decoration of any interior
parts of the Building or Project other than the common areas,
common facilities, and mechanical rooms;
i. Landlord's general overhead attributable to the
activities of Landlord's officers and executives;
j. Cost of acquiring sculptures, paintings and other
objects of art exceeding $5,000.
2. "LEASE YEAR" shall mean the twelve (12) month period
commencing January 1 and ending December 31.
<PAGE> 11
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3. "TENANT'S BUILDING PERCENTAGE" shall mean Tenant's
percentage of the entire Building as determined by dividing the
Rentable Area of the Leased Premises by the total Rentable Area of the
Building, which is 106,347 square feet. For the purposes of this
Section, Tenant's Building Percentage is 18.31%. If there is a change
in the total Building Rentable Area as a result of an addition to the
Building, partial destruction, modification or similar cause, which
event causes a reduction or increase on a permanent basis, Landlord
shall cause adjustments in the computations as shall be necessary to
provide for any such changes. Landlord's system for measurement applied
to all lessees shall be used to determine Rentable Area.
B. In the event that the Operating Expenses of Landlord's
operation of the Building Complex during any Lease Year of the Term shall exceed
the actual Operating Expenses for the Building Complex for the 1994 calendar
year as adjusted to ninety-five percent (95%) occupancy ("BASE YEAR"), Tenant
shall pay to Landlord, as Additional Rent, "TENANT'S SHARE" (as hereinafter
defined) of the difference between the Operating Expenses for a particular Lease
Year and the Base Year. "TENANT'S SHARE" shall be determined by multiplying any
such difference between Operating Expenses for any Lease Year and the Base Year
or pro rata portion thereof, respectively, by Tenant's Building Percentage.
Landlord shall have the right, at any time during the Term after January 1,
1995, to collect monthly ("MONTHLY ESCALATION PAYMENTS") from Tenant any amounts
owed or to be owed by Tenant under this Section, said Monthly Escalation
Payments shall be in such amounts reasonably estimated by Landlord for any Lease
Year and shall be based on Landlord's operating budget for such Lease Year. The
Monthly Escalation Payments shall be due and payable at the same time and in the
same manner as the Monthly Rent. Landlord shall, within ninety (90) days after
the end of each Lease Year in which Tenant shall owe Additional Rent as herein
provided, give written notice thereof to Tenant, which notice shall also contain
or be accompanied by a statement of the Operating Expenses during such Lease
Year and by a computation of any Additional Rent due as the result of any such
differences in Operating Expenses. Failure of Landlord to give Tenant said
notice within said time period shall not be a waiver of Landlord's right to
collect said Additional Rent. When Landlord presents Tenant with a statement of
any Additional Rent due by Tenant for any Lease Year, Tenant shall pay Landlord
the difference between Tenant's Share of any increases in Operating Expenses and
the amount of Monthly Escalation Payments made by Tenant attributable to said
Lease Year within thirty (30) days; or Tenant shall receive a credit therefor if
Tenant's Share is less than the amount of Monthly Escalation Payments collected
by Landlord attributable to said Lease Year, said credit shall be applied to
future Monthly Escalation Payments to become due hereunder. If real estate
taxes, utilities, janitorial services or any other components of Operating
Expenses increase during any Lease Year, Landlord may revise Monthly Escalation
Payments due during such Lease Year by giving Tenant thirty (30) days written
notice to that effect; and, thereafter Tenant, shall pay, in each of the
remaining months of such Lease Year, a sum equal to the amount of revised
difference in Operating Expenses times Tenant's Building Percentage divided by
the number of months remaining in such Lease Year.
C. During the Term, Tenant or Tenant's duly authorized
representative, at Tenant's sole cost and expense, shall have the right to audit
Landlord's books and records pertaining to Operating Expenses at the
Massachusetts offices of Landlord during Landlord's ordinary
<PAGE> 12
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business hours; or, at Landlord's sole discretion, Landlord may provide an audit
of such books and records prepared by a certified public accountant of
Landlord's selection, which shall be deemed to be conclusive for the purposes of
this Lease. If within sixty (60) days following receipt of the Operating Expense
statement, neither party hereto delivers to the other party a notice referring
in reasonable detail to one or more errors in such statement, it shall be deemed
conclusively that the information set forth in such statement is correct
provided, however, that if Landlord receives a real estate tax abatement
attributable to any year or partial year in which Tenant paid Additional Rent
for Operating Expenses attributable to real estate taxes then, after deducting
all costs incurred by Landlord in obtaining such abatement, Tenant shall be
entitled to an equitable share of such an abatement based upon the percentage of
the real estate taxes for such year that Tenant had paid as part of its
Additional Rent for Operating Expenses. Tenant shall be entitled to conduct or
require such audit to be conducted not more than one time during any Lease Year
of the Term. In no event shall payment of Rent ever be contingent upon the
performance of such audit.
The Tenant's obligation with respect to its pro rata share of the
Operating Expenses shall survive the Expiration Date or Termination Date of this
Lease and the Landlord shall have the right to retain the Security Deposit, or
so much thereof as it deems necessary, to secure payment of the Tenant's Share
for the portion of the final year of the Lease during which the Tenant was
obligated to pay such expenses. If the Tenant occupies the Leased Premises for
less than a full calendar year during the first or last calendar years of the
Term, the Tenant's Share for such partial year shall be calculated by
proportionately reducing the Base Year Operating Expenses to reflect the number
of months in such year during which Tenant occupied the Leased Premises (the
"ADJUSTED BASE OPERATING EXPENSES"). The Adjusted Base Operating Expenses shall
then be compared with the actual Operating Expenses for said partial year to
determine the amount, if any, of any increases in the actual Operating Expenses
for such partial year over the Adjusted Base Operating Expenses. The Tenant
shall pay its Tenant's Share of any such increases within thirty (30) days
following receipt of notice thereof.
Section 6. Services to be Provided by Landlord
A. Subject to Section 5 herein, Landlord shall pay for and
furnish to Tenant, while occupying the Leased Premises, the following services:
1. Electrical facilities to furnish sufficient power for
lighting in the Leased Premises, typewriters, voice writers,
calculating machines, personal computers, and other machines of similar
low electrical consumption and requirements indicated on Exhibit D-1;
but not including electricity required for any other item of electrical
equipment which singly consumes more than 0.5 kilowatts at rated
capacity or requires a voltage other than 120 volts single phase.
Tenant shall pay directly to the applicable utility company, such
charges as may be separately metered (the cost of such meter and its
installation shall be borne by Tenant).
2. Hot, cold and refrigerated water at those points of supply
provided for general use of all lessees in the Building;
<PAGE> 13
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3. Janitorial service on a five (5) day week basis at no extra
charge pursuant to EXHIBIT F. Carpet cleaning, except as provided in
normal business services, shall be performed at Tenant's request and at
Tenant's expense;
4. Air conditioning and heating as reasonably required for
comfortable use and occupancy under ordinary office conditions from
7:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00
p.m., Saturdays; but not on Sundays or any holidays observed by a
majority of the Building lessees from time to time;
5. Replacement of all standard fluorescent bulbs in all areas
and all incandescent bulbs in public areas, rest room areas, and
stairwells. Routine maintenance and electric lighting service for all
public areas of the Building Complex in a manner and to the extent
deemed by Landlord to be standard;
6. Security for the Building Complex as may be deemed
necessary by Landlord. Landlord shall not be liable to Tenant for
losses due to theft, burglary or damages done by unauthorized persons
on the Building Complex.
B. Landlord shall not be liable for any loss or damage arising or
alleged to arise in connection with the failure, stoppage or interruption of any
such services; nor shall the same be construed as an eviction of Tenant, work an
abatement of Rent, entitle Tenant to any reduction in Rent, or relieve Tenant
from the operation of any covenant or condition herein contained. It being
further agreed that Landlord reserves the right to temporarily discontinue such
services or any of them at such times as may be necessary by reason of accident,
unavailability of employees, repairs, alterations, or improvements, or whenever
by reason of strikes, lockouts, riots, acts of God or any other happening or
occurrence beyond the reasonable control of Landlord. In the event of any such
failure, stoppage or interruption of services, Landlord shall use reasonable
diligence to have the same restored. Notwithstanding the foregoing, if such
services shall be discontinued for more than one hundred eighty (180)
consecutive days, Tenant shall be entitled to terminate the Lease during the
time of interruption with thirty (30) days prior written notice. Neither
diminution nor shutting off of light or air or both nor any other effect on the
Building Complex by any structure erected or condition now or hereafter existing
on lands adjacent to the Building Complex shall affect this Lease, abate Rent,
or otherwise impose any liability on Landlord.
Landlord shall have the right to reduce heating, cooling or lighting
within the Leased Premises and in the public area in the Building as required by
any mandatory fuel or energy-saving program.
Unless otherwise provided by Landlord, Tenant shall separately arrange
with the applicable local public authorities or utilities, as the case may be,
for the furnishing of and payment for all electricity and telephone services as
may be required by Tenant in the use of the Leased Premises. Tenant shall
directly pay for such electricity and telephone services, including the
establishment and connection thereof, at the rates charged for such services by
said authority
<PAGE> 14
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or utility; and the failure of Tenant to obtain or to continue to receive such
services for any reason whatsoever shall not relieve Tenant of any of its
obligations under this Lease.
Section 7. Repairs and Maintenance by Landlord
A. Landlord shall provide for the cleaning and maintenance of the
public portions of the Building Complex in keeping with the ordinary standard
for first class office buildings as a part of Operating Expenses. Unless
otherwise expressly stipulated herein, Landlord shall not be required to make
any improvements or repairs of any kind or character to the Leased Premises
during the Term, except such repairs as may be required to the exterior walls,
corridors, windows, roof and other structural elements and equipment of the
Building Complex, and such additional maintenance as may be necessary because of
the damage caused by persons other than Tenant, its agents, employees, licensees
or invitees. Special leasehold improvements will, at Tenant's written request,
be maintained by Landlord, at Tenant's cost, plus an additional charge of ten
percent (10%) of such cost to maintain same to cover Landlord's overhead.
B. Landlord, or Landlord's officers, agents and representatives
(subject to any security regulations imposed by any governmental authority)
shall have the right subject to 24-hour notification to enter all parts of the
Leased Premises at all reasonable hours to inspect, clean, make repairs,
alterations, and additions to the Building Complex or the Leased Premises which
it may deem necessary or desirable, to make repairs to adjoining spaces, to cure
any defaults of Tenant hereunder that Landlord elects to cure, to show this
Leased Premises to prospective Tenants, or to provide any service which it is
obligated or elects to furnish to Tenant; and Tenant shall not be entitled to
any abatement or reduction of Rent by reason thereof. Landlord shall have the
right to enter the Leased Premises at any time and by any means in the case of
an emergency.
Section 8. Repairs and Care of Building Complex by Tenant
If the Building, the Building Complex or any portion thereof including
but not limited to the elevators, boilers, engines, pipes and other apparatus,
or members of elements of the Building (or any of them) used for the purpose of
climate control of the Building or operating the elevators, or if the water
pipes, drainage pipes, electric lighting or other equipment of the Building or
the roof or outside walls of the Building or parking facilities of Landlord and
also the Leased Premises improvements including but not limited to the carpet,
wall covering, doors and woodwork, become damaged or are destroyed through the
negligence, carelessness or misuse of the Tenant, its servants, agents,
employees or anyone permitted by Tenant to be in the Building, or through it or
them, then the cost of the necessary repairs, replacements or alterations shall
be borne by the Tenant who shall forthwith pay the same on demand to the
Landlord as Additional Rent. Landlord shall have the exclusive right, but not
the obligation, to make any repairs necessitated by such damage.
Tenant agrees, at its sole cost and expense, to repair or replace any
damage or injury done to the Building Complex, or any part thereof, caused by
Tenant, Tenant's agents, employees, licensees or invitees which Landlord elects
not to repair. Tenant shall not injure the Building
<PAGE> 15
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Complex or the Leased Premises and shall maintain the Leased Premises in a
clean, attractive condition and in good repair. If Tenant fails to keep the
Leased Premises in such good order, condition and repair as required hereunder
to the satisfaction of Landlord, Landlord may restore the Leased Premises to
such good order and condition and make such repairs without liability to Tenant
for any loss or damage that may accrue to Tenant's property or business by
reason thereof, and upon completion thereof, Tenant shall pay to Landlord, as
Additional Rent, upon demand, the cost of restoring the Leased Premises to such
good order and condition and of the making of such repairs plus an additional
charge of ten percent (10%) thereof. Tenant shall leave the Leased Premises at
the end of each business day in a reasonably tidy condition for the purpose of
allowing the performance of the Landlord's cleaning services. Upon the
Expiration Date or Termination Date, Tenant shall surrender and deliver up the
Leased Premises to Landlord in the same condition in which they existed at the
Commencement Date, excepting only ordinary wear and tear and damage arising from
any cause not required to be repaired by Tenant. Upon the Expiration Date or
Termination Date, Landlord shall have the right to re-enter and possession of
the Leased Premises.
Tenant shall not provide any janitorial or cleaning services without
Landlord's written consent, and then only subject to supervision of Landlord, at
Tenant's sole responsibility, and by a janitorial or cleaning contractor or
employees at all time satisfactory to Landlord.
Section 9. Tenant's Equipment and Installations
If heat-generating machines or equipment, including telephone
equipment, cause the temperature in the Leased Premises, or any part thereof, to
exceed the temperatures the Building's air conditioning system would be able to
maintain in such Leased Premises were it not for such heat generating equipment,
then Landlord reserves the right to install supplementary air conditioning units
in the Leased Premises, and the cost thereof, including the cost of installation
and the cost of operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Except for desk or table mounted typewriters, adding machines, office
calculators, dictation equipment, personal computers, and other equipment used
in its normal business operations, Tenant shall not install within the Leased
Premises any fixtures, equipment, facilities or other improvements without the
specific written consent of Landlord. Tenant shall not, without the specific
written consent of Landlord, install or maintain any apparatus or device within
the Leased Premises which shall increase the usage of electrical power or water
for the Leased Premises to an amount greater than would be normally required for
general office use for space of comparable size in Boston, Massachusetts; and if
any such apparatus or device is so installed, Tenant agrees to furnish Landlord
written agreement to pay for any additional costs of utilities as the result of
said installation.
Section 10. Force Majeure
It is understood and agreed that with respect to any service to be
furnished or obligations to be performed by Landlord or Tenant that in no event
shall Landlord or Tenant be liable for
<PAGE> 16
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failure to furnish or perform the same when prevented from doing so by strike,
lockout, breakdown, accident, supply or inability by the exercise of reasonable
diligence to obtain supplies, parts, or employees necessary to furnish such
service or meet such obligation; or because of war or other emergency; or for
any cause beyond Landlord's or Tenant's reasonable control; or for any cause due
to any act or omission of Landlord or Tenant or its agents, employees,
licensees, invitees, or any persons claiming by, through or under Landlord or
Tenant.
Section 11. Mechanic's and Materialman's Liens
A. Tenant shall not suffer or permit any mechanic's or
materialman's lien to be filed against the Leased Premises or any portion of the
Building Complex by reason of work, labor, services, or materials supplied or
claimed to have been supplied to Tenant. Nothing herein contained shall be
deemed or construed in any way as constituting the consent or request of the
Landlord, expressed or implied, by inference or otherwise, for any contractor,
subcontractor, laborer or materialman to perform any labor or to furnish any
materials or to make any specific improvement, alteration or repair of or to the
Leased Premises or any portion of the Building Complex; nor of giving the Tenant
any right, power or authority to contract for, or permit the rendering of, any
services or the furnishing of any materials that could give rise to the filing
of any mechanic's or materialman's lien against the Leased Premises or any
portion of the Building Complex.
B. If any such mechanic's or materialman's lien shall at any time
be filed against the Leased Premises or any portion of the Building Complex as
the result of any act or omission of Tenant, Tenant covenants that it shall,
within twenty (20) days after the Tenant has notice of the claim for lien,
procure the discharge thereof by payment or by giving security or in such other
manner as is or may be required or permitted by law or which shall otherwise
satisfy Landlord. If Tenant fails to take such action, Landlord, in addition to
any other right or remedy it may have, may take such action as may be reasonably
necessary to protect its interests. Any amounts paid by Landlord in connection
with such action and all reasonable legal and other expenses of Landlord
incurred in connection therewith, including reasonable attorney's fees, court
costs and other necessary disbursements shall be repaid by the Tenant to the
Landlord on demand.
Section 12. Parking and Service Areas
A. Tenant as well as all of Tenant's employees, shall park their
vehicles in those areas designated by Landlord, provided that the parking area
is on the existing site, and shall comply with all municipal, subdivisional or
other restrictive covenants imposed on Landlord by any restrictive authorities.
Vehicles shall be towed at owner's expense for any of the following violations:
1. parking in any area other than as specifically designated
by Landlord; or
2. failure of such vehicle to have a parking permit, if issued
by Landlord, properly affixed thereto; or
<PAGE> 17
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3. parking across stripes marking the parking spaces.
At all times during the Term, Landlord has the right, but not the
obligation, to issue parking permits which shall authorize the parking of
vehicles of Tenant or its employees in such areas as may be designated by
Landlord. Landlord, at its discretion, may designate the specific space or area
in which vehicles shall be parked and may change the same from time-to-time.
Landlord may make, modify, or enforce rules and regulations relating to the
parking of vehicles, and Tenant hereby agrees to obey such rules and regulations
that apply to all tenants.
B. Landlord agrees to furnish not less than sixty-eight (68)
parking spaces throughout the Term. Said spaces shall include three (3) covered,
reserved and sixty-five (65) uncovered, unreserved. Within ten (10) days from
Tenant's receipt of Landlord's written request, Tenant shall furnish to Landlord
the license numbers of all vehicles of Tenant's employees. Landlord shall not be
liable for any property damage or bodily injury arising from the use of the
parking areas by Tenant, its agents, employees, licensees or invitees; and
Tenant hereby agrees to indemnify and hold Landlord harmless from any and all
claims arising or alleged to arise in connection therewith.
Section 13. Insurance
A. Landlord shall maintain, as a part of Operating Expenses, fire
and extended coverage insurance on the Building Complex. Such insurance shall be
maintained with an insurance company, in amounts desired by Landlord or
Landlord's mortgagee, and payment for losses thereunder shall be made solely to
Landlord subject to the rights of the holder of any mortgage or deed of trust
which may now or hereafter encumber the Building Complex.
B. Tenant shall maintain, at its sole cost and expense,
comprehensive general liability insurance (including coverage for bodily injury
and death, property damage, fire legal liability, and owner's contractors
protective liability with respect to the Leased Premises to the extent that the
same is not covered by Landlord's own insurance) in a form and with an insurance
company acceptable to Landlord in a minimum amount of $500,000 for property
damage, $500,000 for injury to or death of one person, and $1,000,000 for injury
to or death of more than one person in each occurrence. At all times during the
Term, such insurance shall be maintained, and Tenant shall cause a current and
valid certificate of such policy to be deposited with Landlord. If Tenant fails
to have a current and valid certificate of such policy on deposit with Landlord
at all times during the Term, then Landlord shall have the right, but not the
obligation, to obtain such an insurance policy, and Tenant shall be obligated to
pay Landlord the amount of the premiums applicable to such insurance within ten
(10) days after Tenant's receipt of Landlord's request for payment thereof. Said
policy of insurance shall name Landlord and Tenant as the insureds and shall be
non-cancelable with respect to Landlord except after thirty (30) days' written
notice from the insurer to Landlord.
C. Notwithstanding anything herein to the contrary, Landlord and
Tenant each hereby waives any and all rights of recovery, claim, action or cause
of action against the other, its agents, employees, licensees or invitees for
any loss or damage to or by the Leased Premises or
<PAGE> 18
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the Building Complex or any personal property of such party therein or thereon
by reason of fire, the elements, or any other cause which would be insured
against under the terms of the insurance policies referred to hereinabove,
regardless of cause or origin, including act or omission of the other party
hereto, its agents, employees, licensees or invitees. Landlord and Tenant
covenant that no insurer shall hold any right of subrogation against either of
such parties. This waiver shall be ineffective against any insurer of Landlord
or Tenant to the extent that such waiver is prohibited by the laws and insurance
regulations of the state of Massachusetts. The parties hereto agree that any and
all such insurance policies required to be carried by either shall be endorsed
with a subrogation clause, substantially as follows: "This insurance shall not
be invalidated should the insured waive, in writing prior to a loss, any and all
right of recovery against any party for loss occurring to the property described
therein."
Section 14. Quiet Enjoyment
Provided Tenant has performed all its obligations under this Lease,
including but not limited to the payment of Rent and all other sums due
hereunder, Tenant shall peaceably and quietly hold and enjoy the Leased Premises
for the Term, without hindrance by Landlord, subject to the provisions and
conditions set forth in this Lease.
Section 15. Alterations
Tenant agrees that it shall not make or allow to be made any
alterations, physical additions, or improvements in or to the Leased Premises
without first obtaining the written consent of Landlord in each instance, which
consent may be given or withheld in Landlord's reasonable discretion. At the
time of said request, Tenant shall submit to Landlord plans and specifications
of the proposed alterations, additions or improvements; and Landlord shall have
a period of not less than fifteen (15) business days therefrom in which to
review and approve or disapprove said plans. In any instance where Landlord
grants such consent, it shall be contingent and conditioned upon Tenant's
contractors, laborers, materialmen and others furnishing labor or materials for
Tenant's construction working in harmony and not interfering with any laborer
utilized by Landlord, Landlord's contractors, laborers or materialmen; and if at
any time such entry by one or more persons furnishing labor or materials for
Tenant's work shall cause such disharmony or interference, the consent granted
by Landlord to Tenant may be withdrawn immediately upon written notice from
Landlord to Tenant. Upon the completion of such work and upon request thereof by
Landlord, Tenant shall provide Landlord copies of all waivers or releases of
lien from any and all of Tenant's contractors, laborers, materialmen and others
furnishing labor or materials for Tenant's construction. All Tenant Work (all as
defined in EXHIBIT D attached) and any alterations, modifications or additions
thereto to the Building Complex or the Leased Premises shall not be removed by
Tenant either during the Term or upon the Expiration Date or Termination Date
without the express written approval of Landlord. Tenant shall not be entitled
to any reimbursement or compensation resulting from its payment of the cost of
constructing all or any portion of said improvements or modifications thereto
unless otherwise expressly agreed by Landlord in writing. Tenant agrees
specifically that no food, soft drink, or other vending machine shall be
installed within the Leased Premises, without the prior
<PAGE> 19
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written consent of Landlord provided that the current cafeteria, food and
vending services remain available.
Landlord's approval of Tenant's plans for work shall create no
responsibility or liability on the part of Landlord for their completeness,
design sufficiency, or compliance with all laws, rules and regulations of
governmental agencies or authorities, including but not limited to the Americans
with Disabilities Act. Landlord may, at its option, at Tenant's expense, require
that the Landlord's contractors be engaged for any mechanical or electrical work
or other leasehold improvement.
At least five (5) days prior to the commencement of any work permitted
to be done by persons requested by the Tenant on the Leased Premises, the Tenant
shall notify the Landlord of the proposed work and the names and addresses of
the persons supplying labor and materials for the proposed work. During any such
work on the Leased Premises, the Landlord, or its representatives, shall have
the right to go upon and inspect the Leased Premises at all reasonable times,
and shall have the right to post and keep posted thereon building permits or to
take any further action which the Landlord may deem to be proper for the
protection of the Landlord's interest in the Leased Premises.
Section 16. Furniture, Fixtures and Personal Property
A. Tenant, at its sole cost and expense, may remove its trade
fixtures, office supplies and moveable office furniture and equipment not
attached to the Building Complex or Leased Premises provided:
1. such removal is made not later than the Expiration Date or
Termination Date;
2. Tenant is not in default of any obligation or covenant
under this Lease at the time of such removal; and
3. Tenant promptly repairs all damage caused by such removal.
B. If Tenant does not remove its trade fixtures, office supplies
and moveable furniture and equipment as hereinabove provided by the Expiration
or Termination Date (unless prior arrangements have been made with Landlord and
Landlord has agreed in writing to permit Tenant to leave such items in the
Leased Premises for an agreed period), then, in addition to its other remedies
at law or in equity, Landlord shall have the right to have such items removed
and stored at Tenant's sole cost and expense and all damage to the Building
Complex or the Leased Premises resulting from said removal shall be repaired at
the cost of Tenant, and Tenant shall not have any further rights with respect
thereto or reimbursement therefor. Unless agreed in writing to the contrary, all
other property in the Leased Premises, any alterations or additions to the
Leased Premises (including wall-to-wall carpeting, paneling, wall covering,
specially constructed or built-in cabinetry or bookcases), and any other article
attached or affixed to the floor, wall or ceiling of the Leased Premises shall
become the property of Landlord and shall remain upon and
<PAGE> 20
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be surrendered with the Leased Premises as a part thereof at the Expiration of
Termination Date regardless of initial payor; and Tenant hereby waives all
rights to any payment or compensation therefor. If, however, Landlord so
requests in writing, Tenant shall remove, prior to the Expiration Date or
Termination Date, any and all alterations, additions, fixtures, equipment and
property placed or installed in the Leased Premises and shall repair any damage
caused by such removal.
C. All the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and of all persons claiming by,
through or under Tenant which, during the continuance of this Lease or any
occupancy of the Leased Premises by Tenant or anyone claiming under Tenant, may
be on the Leased Premises or elsewhere in the Building Complex shall be at the
sole risk and hazard of Tenant, and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage or bursting
of water pipes, steam pipes, or other pipes, by theft, or from any other cause,
no part of said loss or damage is to be charged to or be borne by Landlord
unless due to the gross negligence of Landlord.
Section 17. Taxes
During the Term hereof, Tenant shall pay, prior to delinquency, all
business and other taxes, charges, notes, duties and assessments levied, and
rates or fees imposed, charged, or assessed against or in respect of Tenant's
occupancy of the Leased Premises (except to the extent otherwise payable by
Landlord hereunder) or in respect of the personal property, trade fixtures,
furnishings, equipment, and all other personal property of Tenant contained in
the Building Complex, and shall hold Landlord harmless from and against all
payment of such taxes, charges, notes, duties, assessments, rates, and fees.
Tenant shall cause said fixtures, furnishings, equipment, and other personal
property to be assessed and billed separately from the real and personal
property of Landlord. In the event any or all of Tenant's fixtures, furnishings,
equipment, and other personal property shall be assessed and taxed with
Landlord's real property, Tenant shall pay to Landlord Tenant's share of such
taxes within ten (10) days after delivery to Tenant by Landlord of a statement
in writing setting forth the amount of such taxes applicable to Tenant's
property provided however that Tenant has not previously made such payments.
Section 18. Assignment and Subletting
A. Neither Tenant nor Tenant's legal representatives nor successors in
interest by operation of law or otherwise shall assign this Lease or sublease
the Leased Premises or any part thereof or mortgage, pledge or hypothecate its
leasehold interest therein, and any attempt to do so without the prior express
written consent of Landlord shall be void, of no effect, and constitute an Act
of Default (as hereinafter defined). This prohibition against assigning or
subletting shall be construed to include a prohibition against any assignment or
subletting by operation of law. The voluntary or other surrender of this Lease
by Tenant or a mutual cancellation hereof shall not work a merger and shall, at
the option of Landlord, terminate all or any existing subleases or may, at the
option of Landlord, operate as an assignment to Landlord of Tenant's interest in
any or all such subleases.
<PAGE> 21
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B. A sale, transfer, pledge or hypothecation by Tenant of all or
substantially all of its assets or all or substantially all of its stock, if
Tenant is a publicly traded corporation, a merger of Tenant with another
corporation; or the sale, transfer, pledge or hypothecation of fifty percent
(50%) or more of the stock of Tenant if Tenant's stock is not publicly traded;
or the sale, transfer, pledge or hypothecation of fifty percent (50%) or more of
the beneficial ownership interest in Tenant if Tenant is a partnership without
the prior written consent of Landlord, shall constitute a prohibited assignment
hereunder, subject to the limitations set forth above; provided that no consent
shall be required (but ten business days prior written notice shall be provided
to Landlord) in the event of the merger of Tenant or the sale or transfer of 50%
or more of the stock of Tenant provided the net worth of Tenant (or the
resulting corporation if Tenant is merged) is not less than the net worth of
Tenant immediately prior thereto and the nature of Tenant's business remains
unchanged.
C. If Tenant should desire to assign this Lease or sublease the
Leased Premises or any portion thereof, Tenant shall give Landlord written
notice of such desire to make such assignment or effect such sublease. At the
time of giving such notice, Tenant shall provide Landlord with a copy of the
proposed assignment or sublease document, and such information as Landlord may
reasonably request concerning the proposed sublessee or assignee to assist
Landlord in making an informed judgment regarding the financial condition,
reputation, operation and general desirability of the proposed sublessee or
assignee. Landlord shall then have a period of fifteen (15) business days
following receipt of such notice within which to notify Tenant in writing of
Landlord's election to:
1. terminate this Lease a to the space so affected as of the
date specified by Tenant, in which event Tenant shall be relieved of
all further obligations hereunder as to the Leased Premises or said
portion thereof, after paying all Rent due as of the Termination Date,
or
2. permit Tenant to assign or sublet the Leased Premises or
said portion thereof, or
3. refuse to consent to Tenant's assignment or subleasing of
the Leased Premises or said portion thereof and to continue this Lease
in full force and effect as to the entire Leased Premises.
If Landlord should fail to notify lessee of its election within said
fifteen (15) business day period, Landlord shall have elected option C.2. above.
Landlord and Tenant agree that, in the event of any approved assignment or
subletting, the rights of any such assignee or sublessee of Tenant herein shall
be subject to all of the terms, conditions and provisions of this Lease,
including, without limitation, restriction on use and the covenant to pay Rent.
Landlord, at Tenant's option, may collect Rent directly from such assignee or
sublessee and apply the amount so collected to the Rent herein reserved. No such
consent to or recognition of any such assignment or subletting shall constitute
a release of Tenant or any guarantor of Tenant's performance hereunder from
further performance by Tenant or such guarantor of covenants
<PAGE> 22
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undertaken to be performed by Tenant herein. Tenant and/or such guarantor shall
remain liable and responsible for all Rent and other obligations herein imposed
upon Tenant. Consent by Landlord to a particular assignment, sublease or other
transaction shall not be deemed a consent to any other or subsequent
transaction. In any case the Landlord consents to any such assignment, sublease
or other transaction, Tenant shall pay any reasonable attorneys' fees incurred
by Landlord in connection with such transaction. All documents utilized by
Tenant to evidence any subletting or assignment for which Landlord's consent has
been requested, shall be subject to prior approval by Landlord or its attorney.
If any Rent payable to Tenant by any sublessee, assignee, licensee or other
transferee exceeds the Rent reserved herein; then Tenant shall be bound and
obligated to pay Landlord 50% of such excess Rent within ten (10) days following
receipt thereof by Tenant from such sublessee, assignee, licensee or other
transferee, as the case might be; provided that Tenant shall be entitled to
deduct from the excess Rent all expenses directly or indirectly incurred as a
result of the subletting, assignment, licensing, of other transferring as the
case might be.
D. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq. ("BANKRUPTCY
CODE"), any and all monies or other consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord, and shall not
constitute property of Tenant or of the estate of Tenant within the meaning of
the Bankruptcy Code. Any such monies or other consideration not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and
shall be promptly paid or delivered to Landlord. Any person or entity to whom
this Lease is so assigned shall be deemed, without further act or deed, to have
assumed all of the obligations arising under this Lease as of the date of such
assignment. Any such assignee shall, upon demand therefor, execute and deliver
to Landlord an instrument confirming such assumption. In no event shall Tenant
have any right to sublet or assign if there exists any default under this Lease.
E. Notwithstanding the foregoing provisions, any consents required by
Landlord under this Section shall not be unreasonably withheld or untimely
delayed.
Section 19. Fire and Casualty
A. If the Leased Premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give prompt written notice thereof to Landlord.
If the Building Complex shall be so damaged by fire or other casualty that (1)
substantial alteration or reconstruction of the Building Complex shall be, in
Landlord's reasonable opinion, required (whether or not the Leased Premises
shall have been damaged by such fire or other casualty), or (2) if any mortgagee
under a mortgage or deed of trust covering the Building Complex should require
that the insurance proceeds payable as a result of said fire or other casualty
be used to retire the mortgage debt; Landlord may, at its option, terminate this
Lease by notifying Tenant in writing of such termination within thirty (30) days
after the date of such damage or casualty, in which event the Rent hereunder
shall be abated as of the date of such notice.
<PAGE> 23
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B. If Landlord does not elect to terminate this Lease as herein
provided and if repairs have not been commenced within forty-five (45) days from
the date of such damage and thereafter completed within four (4) months
(excepting that Landlord shall not be responsible for delays brought about by
force majeure, as described in Section 10 hereof), this Lease may be immediately
terminated by Tenant by serving written notice upon the Landlord.
C. To the extent of the insurance proceeds available to Landlord
therefor, Landlord shall repair and restore the Building Complex and/or the
Leased Premises to substantially the same condition in which they were
immediately prior to the fire or other casualty, except that Landlord shall not
be required to rebuild, repair or replace any part of Tenant's furniture,
fixtures, furnishings, or equipment. Such repair or restoration work shall not
exceed the scope of work done by Landlord in originally constructing the
Building Complex and installing Tenant Work (as defined in EXHIBIT D attached)
and subsequent improvements made to Tenant's premises by Landlord and paid for
by Tenant in the Leased Premises. Landlord shall not be liable for any
inconvenience, annoyance, or injury done to the business of Tenant resulting in
any way from such damage or the repair thereof, except Landlord shall allow
Tenant an equitable reduction of Rent during the time and to the extent the
Leased Premises are unfit for occupancy, save for Tenant's fault or negligence
hereinbelow described.
D. If the Leased Premises or the Building Complex shall be totally or
partially damaged by fire or other casualty resulting from the fault or
negligence of Tenant, or its agents, employees, licensees or invitees, such
damage shall be repaired by and at the expense of Tenant (to the extent that
such destruction or damage is not covered by the fire and extended coverage
insurance carried by Landlord as provided herein), under the direction and
supervision of Landlord, and Rent shall continue without abatement.
Section 20. Condemnation
If there shall be taken by exercise of the power of eminent domain, or
by conveyance in lieu thereof, during the Term any part of the Leased Premises
or the Building Complex, Landlord may elect to terminate this Lease upon written
notice to Tenant within thirty (30) days after the date of such taking or
transfer in lieu thereof or to continue the same in effect. All compensation
awarded for any taking (or the proceeds of private sale in lieu thereof) of the
Leased Premises, Building or Building Complex shall be the property of Landlord,
and Tenant hereby assigns its interest in any such award to Landlord; provided,
however, Landlord shall have no interest in any award made for the benefit of
Tenant for the taking of Tenant's fixtures and other personal property or moving
expenses if a separate award for such items is made to Tenant. If this Lease is
terminated as a result of any such exercise of the power of eminent domain, Rent
shall be payable up to the date that possession is taken by the condemning
authority; Landlord shall refund to Tenant any prepaid unaccrued Rent less any
sum then owing by Tenant to Landlord; and Tenant shall have no claim against
Landlord for the value of any unexpired portion of the Term. If such
condemnation doesn't result in the termination of this Lease, the Rent
thereafter to be paid shall be proportionately reduced as to the space so
affected. However, if such space reduction constitutes a reduction of over
fifteen percent (15%) of Tenant's premises then the Lease may be terminated by
Tenant at its sole discretion within sixty (60) days of such taking.
<PAGE> 24
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Section 21. Hold Harmless
A. Tenant agrees to defend, with counsel approved by Landlord in
its reasonable discretion, all actions against Landlord, any partner, trustee,
stockholder, officer, director, employee or beneficiary of Landlord, holders of
mortgages secured by the Leased Premises or the Building Complex and any other
party having an interest therein ("Indemnified Parties") with respect to, and to
pay, protect, indemnify and save harmless, to the extent permitted by law, all
Indemnified Parties from and against, any and all liabilities, losses damages,
costs, expenses (including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature (a) to which any
Indemnified party is subject because of its estate or interest in the Leased
Premises or the Building Complex (to the extent arising out of acts or omissions
of Tenant, its employees, agents, invitees and licensees), or (b) arising from
(i) injury to or death of any person, or damage to or loss of property, on the
Leased Premises, the Building Complex, or on adjoining sidewalks, streets or
ways, or connected with the use, condition or occupancy of any thereof (with
respect to the Building Complex excepting the Leased Premises, and said
sidewalks, streets or ways, only to the extent arising out of acts or omissions
of Tenant, its employees, agents, invitees and licensees) unless in any such
event caused by the negligence of Landlord or its servants or agents, (ii)
violation of this Lease by Tenant, or (iii) any act, fault, omission, or other
misconduct of Tenant or its agents, contractors, licenses, sublessees or
invitees. Tenant agrees to use and occupy the Leased Premises and other
facilities of the Building Complex at its own risk, and hereby releases the
Indemnified Parties from any and all claims for any damage or injury to the
fullest extent permitted by law except as provided for herein.
B. Tenant agrees that Landlord shall not be responsible or liable
to Tenant, its agents, employees, licensees or invitees for fatal or non-fatal
bodily injury or property damage occasioned by the acts or omissions of any
other tenant, or such other tenant's agents, employees, licensees or invitees,
of the Building Complex and further agrees to indemnify and hold Landlord
harmless from any and all claims arising or alleged to arise from the same
except as provided for herein.
Section 22. Default by Tenant
A. The term "ACT OF DEFAULT" refers to the occurrence of any one
or more of the following:
1. failure of Tenant to pay when due any sum required to be
paid hereunder ("MONETARY DEFAULT"). For a Monetary Default, Tenant
shall be entitled to a five (5) day grace period twice in any Lease
Year;
2. failure of Tenant, after fifteen (15) days written notice
thereof, to perform any of Tenant's obligations, covenants or
agreements except a Monetary Default;
<PAGE> 25
-22-
3. if Tenant, or any guarantor of Tenant's obligations under
this Lease ("GUARANTOR"), admits in writing that it cannot meet its
obligations as they become due; or is declared insolvent according to
any law; or assignment of Tenant's or Guarantor's property is made for
the benefit of creditors; or a receiver or trustee is appointed for
Tenant or Guarantor or its property; or the interest of Tenant or
Guarantor under this Lease is levied on under execution or other legal
process; or any petition is filed by or against Tenant or Guarantor to
declare Tenant bankrupt or to delay, reduce or modify Tenant's debts or
obligations; or any assignment for the benefit of creditors is made; or
any petition is filed to reorganize or modify Tenant's capital
structure; or other action taken to reorganize or modify Tenant's or
Guarantor's capital structure if the same decreases by more than five
percent (5%) Tenant's or Guarantor's net worth. Any such levy,
execution, legal process or petition filed against Tenant or Guarantor
shall not constitute a breach of this Lease provided Tenant or
Guarantor shall vigorously contest the same by appropriate proceedings
and shall remove or vacate the same within sixty (60) days from the
date of its creation, service or filing;
4. the abandonment of the Leased Premises by Tenant which
shall mean that Tenant has vacated the Leased Premises for ten (10)
consecutive days, whether or not Tenant is in Monetary Default; or that
Tenant, in the judgment of Landlord, is vacating the Leased Premises by
removing furniture and fixtures;
5. the discovery by Landlord that any financial statement
given by Tenant or any of its assignees, subtenants or
successors-in-interests, or Guarantors, was materially false;
6. if Tenant or any Guarantor shall die, cease to exist as a
corporation or partnership or be otherwise dissolved or liquidated or
become insolvent, or shall make a transfer in fraud of creditors.
B. In the event of any Act of Default by Tenant, Landlord, at its
option, may pursue one or more of the following remedies (for a non-Monetary
Default after fifteen (15) days written notice or demand and for a Monetary
Default after a five (5) day grace period twice in any Lease Year), in addition
to all other rights and remedies provided for in law or in equity:
1. terminate this Lease, in which event Tenant shall
immediately surrender possession of the Leased Premises to Landlord;
2. enter upon or take possession of the Leased Premises and
expel or remove Tenant, any other occupant and any contents therefrom
using such force as may be reasonably necessary, with or without having
terminated the Lease and without being liable for prosecution of any
claim of damages therefor; and/or
3. Alter locks and other security devices from the Leased
Premises, without being liable for prosecution of any claim of damages
therefor.
<PAGE> 26
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C. If Landlord shall exercise any one or more remedies hereunder
granted or otherwise available, it shall not be deemed to be an acceptance or
surrender of the Leased Premises by Tenant, whether by agreement or by operation
of law; it is understood that such surrender can be effected only by the written
agreement of Landlord and Tenant. No alteration of security devices and no
removal or other exercise of dominion by Landlord over the property of Tenant or
others in the Leased Premises shall be deemed unauthorized or constitute a
conversion. Notwithstanding any other provision hereof, in no event shall
Landlord have or acquire any rights in any intangible property of tenant. All
claims for damages by reason of such reentry and/or repossession and/or
alteration of locks or other security devices are hereby waived as are all
claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings, or other legal process. Tenant agrees
that any reentry by Landlord may be pursuant to a judgment obtained in legal
proceedings, and Landlord shall not be liable in trespass or otherwise.
In the event Landlord may elect to regain possession of the Leased
Premises by forcible detainer proceedings, Tenant hereby specifically waives, to
the extent permitted by law, any statutory notice which may be required prior to
such proceeding, and agrees that Landlord's execution of this Lease, is in part
consideration for this waiver.
D. Should Landlord elect to terminate this Lease, Landlord may, without
further notice, repossess the Leased Premises and Tenant shall be liable as if
the expiration of the term fixed in such notice were the end of the Term herein
originally demised. In the event this Lease is terminated pursuant to the
provisions of this subsection, Tenant shall remain liable to Landlord for
damages in an amount equal to (i) the Rent and other sums which would have been
owing by Tenant hereunder for the balance of the Term had this Lease not been
terminated, less the net proceeds, if any, of any reletting of the Leased
Premises by Landlord subsequent to such termination after deducting all of
Landlord's expenses in connection with such reletting, including, but without
limitation, the expenses enumerated in Subsection E. below. Landlord shall be
entitled to collect such damages from Tenant monthly on the days on which the
Rent and other amounts would have been payable hereunder if this Lease had not
been terminated, and Landlord shall be entitled to receive the same from Tenant
on each such day. Alternatively, at the option of Landlord, in the event this
Lease is terminated, Landlord shall be entitled to recover forthwith against
Tenant as damages for loss of the bargain and not as a penalty and Tenant shall
be liable for and shall pay to Landlord the sum of all Rent and other
indebtedness accrued to the date of such termination, plus, as damages for loss
of the bargain and not as a penalty, an amount equal to the then present value
of the Rent and any and all other sums reserved hereunder for the remaining
portion of the Term (had such Term not been terminated by Landlord prior to the
Expiration Date), plus all costs of reletting enumerated in Section E. below,
less the present value of the then fair rental value of the Leased Premises for
such period. The parties hereby stipulate that such fair rental value shall in
no event be deemed to exceed sixty percent (60%) of the then present value of
the Rent reserved for such period. For computations of present value, the
parties agree to use a six percent (6%) per annum interest figure. The
foregoing, together with any other damages incurred by Landlord in connection
with the termination of this Lease, shall accrue interest at the prime rate plus
two percent (2%) as published by the Bank of Boston.
<PAGE> 27
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E. Should Landlord elect to immediately terminate Tenant's right of
possession of the Leased Premises but not terminate the Lease, Landlord may,
without notice or demand, enter upon the Leased Premises or any part thereof and
take absolute possession of the same, and, at Landlord's option, Landlord may
relet the Leased Premises or any part thereof upon such terms and such rents as
Landlord may reasonably elect (which may include concessions of free rent and
alteration of the Leased Premises). Landlord shall use reasonable efforts to
relet the Leased Premises, but, Landlord shall not have any duty to lease the
Leased Premises below the then current market rental rates being obtained for
similar office buildings in a similar area and shall in no way be responsible or
liable for any failure to relet the Leased Premises, or any part thereof, or for
any failure to collect any rent due upon such reletting. In the event Landlord
shall elect to so relet, then any rent received by Landlord from such reletting
shall be applied first to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord; second to the payment of any reasonable cost
of such reletting, including, without limitation, all repossession costs, legal
expenses, attorneys' fees, concessions, moving and/or storage costs, alteration,
remodeling and repair costs, leasing commissions, and other expenses of
preparation for such reletting; and third to the payment of Rent due and unpaid
hereunder, and Tenant shall satisfy and pay any deficiency between the rents so
collected from the Rents reserved herein upon demand therefor from time to time,
and the unamortized portion of the cost of the Tenant Work, amortized on a
straight-line basis over the initial term of this Lease. In no event shall
Tenant be entitled to any excess of any rent obtained by reletting over and
above the Rent herein reserved.
F. Tenant further agrees that Landlord may file suit from time to time
to recover any sums due under the terms of this Section and that no recovery of
any portion due Landlord hereunder shall be a defense to any subsequent action
brought for any amount not theretofore reduced to judgment in favor of Landlord.
Reletting the Leased Premises shall not be construed as an election on the part
of Landlord to terminate this Lease, and notwithstanding any such reletting
without termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach, whereupon the foregoing provisions with respect
to termination shall apply. Nothing herein shall be deemed to require Landlord
to await the date whereon this Lease or the Term hereof would have expired by
limitation had there been no such default by Tenant, or no such termination, as
the case may be. Each right and remedy provided for in this Lease shall be
cumulative and shall be in addition to every other right or remedy provided for
in this Lease or now or hereafter existing at law or in equity or by statute or
otherwise including but not limited to suits for injunctive relief and specific
performance. The exercise or beginning of the exercise by Landlord of any one or
more of the rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise. All such rights and remedies shall be
considered cumulative and non-exclusive. All costs incurred by Landlord in
connection with collecting any Rent or other amounts and damages owing by Tenant
pursuant to the provisions of this Lease, or to enforce any provision of this
Lease, including reasonable attorneys' fees from the date such matter is turned
over to an attorney, whether or not one or more actions are commenced by
Landlord, shall also be recoverable by Landlord from Tenant.
<PAGE> 28
-25-
G. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Tenant (and enter
the Leased Premises for such purpose), and thereupon Tenant shall be obligated
and hereby agrees to pay Landlord, upon demand, all reasonable costs, expenses
and disbursements plus ten percent (10%) overhead cost incurred by Landlord in
connection therewith.
H. In addition to Landlord's rights set forth above, if Tenant fails to
pay its Rent and all other amounts owing hereunder within the time period set
forth in Section 21.A.1. above more than two (2) times during any calendar year
during the Term, or any extension thereof, then upon the occurrence of the third
or any subsequent default in the payment of monies during said calendar year,
Landlord at its sole option, shall have the right to require that Tenant, as a
condition precedent to curing such default; pay to Landlord, in check or money
order, in advance, the Rent and Landlord's estimate of all other amounts which
will become due and owing hereunder by Tenant for a period of two (2) months.
All such amounts shall be paid by Tenant within thirty (30) days after notice
from Landlord demanding the same. All monies so paid shall be retained by
Landlord, without interest, for the balance of the Term and any extension
thereof, and shall be applied by Landlord to the last due amounts owing
hereunder by Tenant. If, however, Landlord's estimate of the Rent and other
amounts for which Tenant is responsible hereunder are inaccurate, when such
error is discovered, Landlord shall pay to Tenant, or Tenant shall pay to
Landlord, within thirty (30) days after written notice thereof the excess or
deficiency, as the case may be, which is required to reconcile the amount on
deposit with Landlord with the actual amounts for which Tenant is responsible.
I. Nothing contained in this Section shall limit or prejudice the right
of Landlord to prove and obtain as liquidated damages in any bankruptcy,
insolvency, receivership, reorganization or dissolution proceeding, an amount
equal to the maximum allowed by any statute or rule of law governing such a
proceeding and in effect at the time when such damages are to be proved, whether
or not such amount be greater, equal or less than the amounts recoverable,
either as damages or Rent, referred to in any of the preceding provisions of
this Section. Notwithstanding anything contained in this Section to the
contrary, any such proceeding or action involving bankruptcy, insolvency,
reorganization, arrangement assignment for the benefit of creditors, or
appointment of a receiver or trustee, as set forth above, shall be considered to
be an Act of Default only when such proceeding, action or remedy shall be taken
or brought by or against the then holder of the leasehold estate under this
Lease.
J. In the event of any Act of Default or breach by Tenant, Tenant shall
also be liable and shall pay to Landlord, in addition to any sums provided to be
paid above, broker's fees incurred by Landlord in connection with reletting the
whole or any part of the Leased Premises; the costs of removing and storing
Tenant's or other occupants' property; the costs of repairing, altering,
remodeling, or otherwise putting the Leased Premises into condition acceptable
to a new tenant or tenants; and all reasonable expenses incurred by Landlord in
enforcing or defending Landlord's rights and/or remedies, including reasonable
attorneys' fees if suit was actually filed.
<PAGE> 29
-26-
K. In the event of termination or repossession of the Leased Premises
for an Act of Default, Landlord shall not have any obligation to relet or
attempt to relet the Leased Premises or any portion thereof, or to collect
rental after reletting; and in the event of reletting, Landlord may relet the
whole or any portion of the Leased Premises for any period to any Tenant and for
any use or purpose.
L. Landlord is entitled to accept, receive, in check or money order,
and deposit any payment made by Tenant for any reason or purpose or in any
amount whatsoever, and apply them at Landlord's option to any obligation of
Tenant, and such amounts shall not constitute payment of any amount owed except
that to which Landlord has applied them. No endorsement or statement on any
check or letter of Tenant shall be deemed an accord and satisfaction or
recognized for any purpose whatsoever. The acceptance of any such check or
payment shall be without prejudice to Landlord's rights to recover any and all
amounts owed by Tenant hereunder and shall not be deemed to cure any other
default nor prejudice Landlord's rights to pursue any other available remedy.
M. In the event of any default by Landlord, Tenant's exclusive remedy
shall be an action for damages, Tenant hereby waiving the benefit of any laws
granting it a lien upon the property of Landlord and/or upon Rent due Landlord.
Prior to any such action for damages, Tenant shall give Landlord written notice
specifying such default with particularity, and Landlord shall thereupon have
fifteen (15) business days (plus such additional reasonable period as may be
required in the exercise by Landlord of due diligence) in which to cure any such
default. Unless and until Landlord fails to cure any default after such notice,
Tenant shall not have any remedy or cause of action by reason thereof. All
obligations of Landlord hereunder shall be construed as covenants, not
conditions.
N. In addition to and without limiting the foregoing, in the event of
any abandonment of the Leased Premises by Tenant and Landlord does not elect to
declare this Lease terminated, then Tenant shall remain obligated,
notwithstanding any such discontinuance or cessation of operations, to perform
all covenants and agreements under this Lease, including without limitation,
payment of all Base Rent, and all Additional Rent and other sums provided for
herein.
Section 23. Lien for Rent
Intentionally omitted.
Section 24. Right to Relocate
Intentionally omitted.
Section 25. Attorneys' Fees
Should it be necessary for Landlord or Tenant, because of a breach of
the other, to place the enforcement of this Lease or any part thereof, or the
collection of any Rent due or to become due hereunder, or recovery of the
possession of the Leased Premises, in the hands of an attorney,
<PAGE> 30
-27-
or file suit upon the same, it is agreed that the prevailing party shall recover
its reasonable attorneys' fees from the non-prevailing party.
Section 26. Non-Waiver
Neither acceptance of any payment by Landlord from Tenant nor failure
by Landlord to complain of any action, non-action, or default of Tenant shall
constitute a waiver of any of Landlord's rights hereunder. Time is of the
essence with respect to the performance of every obligation of Tenant under this
Lease in which time of performance is a factor. Waiver by Landlord of any right
or arising in connection with any default of Tenant shall not constitute a
waiver of such right or remedy or any other right or remedy arising in
connection with either a subsequent default of the same obligation or any other
default. No right or remedy of Landlord hereunder or covenant, duty, or
obligation of Tenant hereunder shall be deemed waived by Landlord unless such
waiver is in writing, signed by Landlord or Landlord's duly authorized agent.
Section 27. Rules and Regulations
Such reasonable rules and regulations applying to all lessees in the
Building Complex as may be hereafter adopted by Landlord for the safety, care
and cleanliness of the Building Complex and the preservation of good order
thereon are hereby made a part hereof as EXHIBIT C, and Tenant agrees to comply
with all such rules and regulations. Landlord shall have the right at all times
to change such rules and regulations or to amend them in any reasonable manner
applicable to all Tenants as may be deemed advisable by Landlord, all of which
changes and amendments shall be sent by Landlord to Tenant in writing and shall
be thereafter carried out and observed by Tenant. Landlord shall not have any
liability to Tenant for any failure of any other lessees of the Building Complex
to comply with such Rules and Regulations.
Section 28. Assignment by Landlord
Landlord shall have the right to transfer or assign, in whole or in
part, all its rights and obligations hereunder and in the Leased Premises and
the Building Complex. In such event, no further liability and obligation shall
thereafter accrue to Landlord provided that assignee fulfills all obligations of
this agreement.
Section 29. Liability of Landlord
It is expressly understood and agreed that the obligations of Landlord
under this Lease shall be binding upon Landlord and its successors and assigns
and any future owner of the Building Complex only with respect to events
occurring during its and their respective ownership of the Building Complex. In
addition, Tenant agrees to look solely to Landlord's interest in the Building
Complex for recovery of any judgment against Landlord arising in connection with
this Lease, it being agreed that neither Landlord nor any successor or assign of
Landlord nor any future owner of the Building Complex, nor any partner,
shareholder, or officer of any of the foregoing shall ever be personally liable
for any such judgment.
<PAGE> 31
-28-
Section 30. Subordination, Attornment and Non-disturbance
This Lease, at Landlord's option, shall be subordinate to any mortgage,
deed of trust (now or hereafter placed upon the Building), ground lease or
declaration of covenants (hereafter placed upon the Building) regarding
maintenance and use of any areas contained in any portion of the Building, and
to any and all advances made under any mortgage or deed of trust and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Tenant agrees, with respect to any of the foregoing documents, that no
documentation other than this Lease shall be required to evidence such
subordination. If any holder of a mortgage or deed of trust shall elect for this
Lease to be superior to the lien of its mortgage or deed of trust, and shall
give written notice thereof to Tenant, then this Lease shall automatically be
deemed prior to such mortgage or deed of trust, whether this Lease is dated
earlier or later than the date of said mortgage or deed of trust or the dote of
recording thereof. Tenant agrees to execute such documents as may be further
required to evidence such subordination or to make this Lease prior to the lien
of any mortgage or deed of trust, as the case may be, and by failing to do so
within ten (10) days after written demand, Tenant does hereby make, constitute
and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's
name, place and stead, to do so. This power of attorney is coupled with an
interest. Tenant hereby attorns to all successor owners of the Building, whether
or not such ownership is acquired as a result of a sale through foreclosure of a
deed of trust or mortgage, or otherwise. Notwithstanding the foregoing, Tenant
shall only be obligated to subordinate its leasehold interest to any mortgage,
deed of trust, ground lease or declaration of covenants now or hereafter placed
upon the Building if the holder of such mortgage or deed of trust or the
landlord under such ground lease or the declarant under such declaration of
covenants will grant to Tenant a non-disturbance agreement, using the form of
document then being employed by such holder, landlord or declarant for such
purposes, provided that such document obliges such a holder or landlord to
perform the obligations of Landlord hereunder from the date it takes possession
of the Building, which will provide that Tenant, notwithstanding any default of
Landlord hereunder, shall have the right to remain in possession of the Leased
Premises described herein in accordance with the terms and provisions of this
Lease for so long as Tenant shall not be in default under this Lease.
Additionally, Tenant shall, at such time or times as Landlord may request, upon
not less than ten (10) days' prior written request by Landlord sign and deliver
to Landlord a certificate stating whether this Lease is in full force and
effect; whether any amendments or modifications exist; whether there are any
defaults hereunder; and such other information and agreements as may be
reasonably requested, it being intended that any such statement delivered
pursuant to this Section may be relied upon by Landlord and by any prospective
purchaser of all or any portion of Landlord's interest herein, or a holder or
prospective holder of any mortgage or deed of trust encumbering the Building.
Tenant's failure to deliver such statement within such time shall constitute an
Act of Default (as that term is defined elsewhere in this Lease) and shall
conclusively be deemed to be an admission by Tenant of the matters set forth in
the request for an estoppel certificate. Landlord shall provide such
certificates on the same terms and conditions.
<PAGE> 32
-29-
Section 31. Holding Over
In the event Tenant, or any party claiming under Tenant, retains
possession of the Leased Premises after the Expiration Date or Termination Date,
such possession shall be an unlawful detainer. No tenancy or interest shall
result from such possession, and such parties shall be subject to immediate
eviction and removal. Tenant or any such party shall pay Landlord, as Rent for
the period of such holdover, an amount equal to one hundred fifty percent (150%)
Rent otherwise provided for herein during the time of holdover. Tenant shall
also be liable for any and all damages sustained by Landlord as a result of such
holdover. Tenant shall vacate the Leased Premises and deliver same to Landlord
immediately upon Tenant's receipt of notice from Landlord to so vacate. The Rent
during such holdover period shall be payable to Landlord on demand. No holding
over by Tenant, whether with or without consent of Landlord, shall operate to
extend this Lease.
Section 32. Signs
No sign, symbol or identifying marks shall be put upon the Building
Complex, Building, in the halls, elevators, staircases, entrances, parking areas
or upon the doors or walls, without prior written approval of Landlord. Should
such approval ever be granted, all signs or lettering shall conform in all
respects to the sign and/or lettering criteria established by Landlord.
Landlord, at Landlord's sole cost and expense, reserves the right to change the
door plaques as Landlord deems reasonably desirable.
Section 33. Hazardous Substances
With respect to Tenant's use of the Building Complex, Tenant shall at
all times, at its own cost and expense, comply with all federal, state and local
laws, ordinances, regulations and standards relating to the use, analysis,
production, storage, sale, disposal or transportation of any hazardous materials
("Hazardous Substance Laws"), including oil or petroleum products or their
derivatives, solvents, PCB'S, explosive substances, asbestos, radioactive
materials or waste, and any other toxic, ignitable, reactive, corrosive,
contaminating or pollution materials ('Hazardous Substances") which are now or
in the future subject to any governmental regulation.
Tenant shall not generate, store or dispose of any Hazardous Substances
other than commonly used general office and cleaning supplies in or on the
Leased Premises or the Building Complex. Except in emergencies or as otherwise
required by law, Tenant shall not take any remedial action in response to the
presence or release of any Hazardous Substances on or about the Building Complex
without first giving written notice of the same to Landlord. Tenant shall not
enter into any settlement agreement, consent decree or other compromise with
respect to any claims relating to any Hazardous Substances in any way connected
with the Building Complex without first notifying Landlord of Tenant's intention
to do so and affording Landlord the opportunity to participate in any such
proceedings.
All costs and expenses incurred by Landlord in connection with any
environmental audit shall be paid by Landlord (and may be included in Operating
Expenses unless such audit is being
<PAGE> 33
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conducted because the Building Complex is being sold, transferred, or
mortgaged), except that if any such environmental audit shows that the Tenant
has materially failed to comply with the provisions of this Section, or that the
Building Complex (including surrounding soil and any underlying or adjacent
groundwater) have become contaminated due to the operations or activities in any
way materially attributable to Tenant, then all of the costs and expenses of
such audit shall be paid by Tenant.
In the event Tenant's occupancy or conduct of business in or on the
Leased Premises, whether or not Landlord has consented to the same, results in
any increase in premiums for the insurance carried from time to time by Landlord
with respect to the Building, Tenant shall pay any such increase in premiums as
Rent within fifteen (15) days after bills for such additional premiums shall be
rendered by Landlord. In determining whether increased premiums are a result of
Tenant's use or occupancy of the Leased Premises, a schedule issued by the
organization computing the insurance rate on the Building showing the various
components of such rate, shall be conclusive evidence of the several items and
charges which make up such rate. Tenant shall promptly comply with all
reasonable requirements of the insurance authority or of any insurer now or
hereafter in effect relating to the Leased Premises.
Section 34. Compliance with Laws and Other Regulations
Tenant, at its sole cost and expense, shall promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or requirements
now in force or which may hereafter become in force, of federal, state, county,
and municipal authorities, including but not limited to the Americans with
Disabilities Act, with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted, and with any occupancy
certificate issued pursuant to any law by any public officer or officers, which
impose any duty upon Landlord or Tenant, insofar as any thereof relate to or
affect the condition, use, alteration or occupancy of the Leased Premises.
Landlord's approval of Tenant's plans for any improvements shall create no
responsibility or liability on the part of Landlord for their completeness,
design sufficiency, or compliance with all laws, rules and regulations of
governmental agencies or authorities, including but not limited to the Americans
with Disabilities Act.
Landlord shall comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter become in force, of federal, state, county, and municipal authorities,
including but not limited to the Americans with Disabilities Act, with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted, and with any occupancy certificate issued pursuant to any
law by any public officer or officers, which impose any duty upon Landlord,
insofar as any thereof relate to or affect the condition, use or alteration of
the Common Areas of the Building Complex.
Section 35. Severability
This Lease shall be construed in accordance with the laws of the
Commonwealth of Massachusetts. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws effective during
the Term, then it is the intention of the parties hereto that
<PAGE> 34
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the remainder of this Lease shall not be affected thereby. It is also the
intention of both parties that in lieu of each clause or provision that is
illegal, invalid or unenforceable, there is added as a part of this Lease a
clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and still be legal, valid,
and enforceable.
Section 36. Notices
Whenever in this Lease it shall be required or permitted that notice or
demand be given or served by either party to this Lease to or on the other, such
notice or demand shall be given or served and shall not be deemed to have been
given or served unless in writing and delivered personally or forwarded by
Certified or Registered Mail, postage prepaid, addressed as follows:
TO THE LANDLORD: John Hancock Mutual Life Insurance Company
c/o The Real Estate Investment Group
200 Berkeley Street
Boston, MA 02117
TO THE TENANT: Concord Communications, Inc.
33 Boston Post Road West
Marlborough, MA 01752
and Louis J. Marrett
Nutter, McClennen & Fish
One International Place
Boston, MA 02210-2699
Prior to the Commencement Date, the address for notices to Tenant shall
be the address set forth below its signature hereto; after the Commencement
Date, the address for notices to Tenant shall be as hereinabove set forth. Such
notices shall be deemed to be delivered as of the first day after posting,
whether actually received or not and such address may be changed from
time-to-time by either party serving notice as provided above.
Section 37. Obligations of Successors, Plurality, Gender
Landlord and Tenant agree that all the provisions hereof are to be
construed as covenants and agreements as though the words imparting such
covenants were used in each paragraph hereof, and that, except as restricted by
the provisions hereof, shall bind and inure to the benefit of the parties
hereto, their respective heirs, legal representatives, successors and assigns.
If the rights of Tenant hereunder are owned by two or more parties or two or
more parties are designated herein as Tenant, then all such parties shall be
jointly and severally liable for the obligations of Tenant hereunder. Whenever
the singular or plural number, masculine or feminine or neuter gender is used
herein, it shall equally include the other.
<PAGE> 35
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Section 38. Entire Agreement
This Lease and any attached addenda or exhibits constitute the entire
agreement between Landlord and Tenant. No prior or contemporaneous written or
oral uses or representations shall be binding. This Lease shall not be amended,
changed or extended except by written instrument signed by Landlord and Tenant.
Section 39. Paragraph Captions
Paragraph captions are for Landlord's and Tenant's convenience only,
and neither limit nor amplify the provisions of this Lease. Each party agrees,
at the request of the other, to execute a recordable Memorandum of this Lease.
Section 40. Changes
Should any mortgagee or beneficiary under a deed of trust require a
modification of this Lease, which modification will not bring about any
increased cost or expense to Tenant or will in any other way materially change
the rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified.
Section 41. Authority
All rights and remedies of Landlord under this Lease, or those which
may be provided by law, may be exercised by Landlord in its own name
individually, or in its name by its agent, and all legal proceedings for the
enforcement of any such rights or remedies, including distress for Rent,
unlawful detainer, and any other legal or equitable proceedings, may be
commenced and prosecuted to final judgment and be executed by Landlord in its
own name individually or in its name by its agent. Landlord and Tenant each
represent to the other that each has full power and authority to execute this
Lease and to make and perform the agreements herein contained, and Tenant and
Landlord expressly stipulate that any rights or remedies available to Tenant or
Landlord, either by the provisions of this Lease or otherwise, may be enforced
by Landlord in its own name individually or in its name by its agent or
principal.
Section 42. Brokerage
Tenant represents and warrants to Landlord that it has dealt only with
Meredith & Grew, Inc. ("Landlord's Broker"), and McCall & Almy, Inc. ("Tenant's
Broker") in the negotiation of this Lease. Landlord shall make payment of the
brokerage fee due to Landlord's Broker pursuant to and in accordance with a
separate agreement between Landlord and Landlord's Broker. Tenant's Broker shall
look only to Landlord's Broker for any commission or fee claimed by Tenant's
Broker, and Landlord shall have no liability therefor. Tenant hereby agrees to
indemnify and hold Landlord and/or Landlord's agent harmless of and from any and
all damages, losses, costs or expenses (including without limitation, all
attorneys' fees and disbursements) by reason of any claim of or liability to
Tenant's Broker and any other broker or other person claiming through Tenant and
arising out of or in connection with the negotiation, execution and
<PAGE> 36
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delivery of this Lease, except for Landlord's Broker. Additionally, Tenant
acknowledges and agrees that Landlord shall have no obligation for payment of
any brokerage fee or similar compensation to any person with whom Tenant has
dealt or may in the future deal with respect to leasing of any additional or
expansion space in the Building or renewals or extensions of this Lease.
Notwithstanding the foregoing, at the Tenant's request, Landlord will
acknowledge and pay a fee through Landlord's Broker to an outside broker with
respect to Tenant leasing expansion space in the Building provided such broker
is actively involved in the transaction on behalf of Tenant.
Section 43. Changes, Deletions and Additions to Lease
Exhibits "A" through "G" are attached hereto and incorporated herein
for all purposes and are hereby acknowledged by both parties to this Lease.
Section 44. Right of First Refusal
Provided Tenant is not in default of the Lease, is in occupancy of the
entire Leased Premises and subject to existing encumbrances (including but not
limited to existing tenant rights and privileges), Tenant shall have the Right
of First Refusal to lease office space on the third and fourth floors of the
Building ("Expansion Space"), see Exhibit B attached for location in the
Building, prior to Landlord leasing said Expansion Space to any bona fide third
party. Prior to leasing said Expansion Space to any bona fide third party,
Landlord shall first offer the Expansion Space offered to and verbally accepted
by the bona fide third party to Tenant, in writing, under the same terms and
conditions as the bona fide third party offer. Tenant shall have ten (10) days
from receipt of said written notice from Landlord within which to notify
Landlord of its intent to exercise this Right of First Refusal. In the event
Tenant notifies Landlord it does not intend to exercise this Option or fails to
notify Landlord as hereinabove provided, Landlord shall be relieved of any
future obligations under this First Right of Refusal for the specific space
offered and may, thereafter, lease that specified Expansion Space to any bona
fide third party without further notification to Tenant. In the event Tenant
elects to exercise this Option, Tenant agrees to execute documents reasonably
requested by Landlord to evidence the expansion. This Right of First Refusal
shall be ongoing during the Term and Extension Periods, if exercised, but this
sentence shall not be deemed to require Landlord to offer any space to Tenant
more than once without Landlord having entered into an intervening lease for
such space. The foregoing Section 44 shall not be deemed to limit or encumber
Landlord's right to enter into a new lease, extend or renew a lease with an
existing tenant for space then occupied by such a tenant.
Section 45. Right of Relocation to the Fourth Floor
On the condition that Tenant is not in default of its covenants and
obligations under the Lease, Tenant shall have a right of relocating a portion
of the Leased Premises as set forth below. If all of the space on the fourth
floor of the Building not leased to the Tenant (the "Additional Premises")
becomes available, Landlord shall, by written notice, offer to lease such space
to Tenant and to terminate this Lease with respect to the portion of the Leased
Premises on the third floor of the Building. Upon receipt of such offer, at the
request of Tenant, Landlord and Tenant
<PAGE> 37
-34-
shall enter into good faith negotiations with respect to a lease for the
Additional Premises and termination of the third floor premises. Should Landlord
and Tenant fail to agree on terms within thirty (30) days from receipt of
Landlord's notice hereunder, then Landlord shall have fulfilled its obligations
hereunder and Tenant shall have no remaining, rights in the Additional Premises.
Tenant acknowledges that Landlord has disclosed that the Additional Premises are
subject to a lease through November 10, 1997 with one three-year option to
extend. The foregoing Section 45 shall not be deemed to limit or encumber
Landlord's right to enter into a new lease, extend or renew a lease with an
existing tenant for space then occupied by such a tenant.
IN WITNESS WHEREOF, the Landlord and Tenant, acting herein through duly
authorized individuals, have caused these presents to be executed in multiple
counterparts, each of which shall have the force and effect of an original on
this 17th day of MARCH, 1994
TENANT: CONCORD COMMUNICATIONS, INC.,
a Massachusetts corporation
753 Forest Street
Marlboro, MA 01752
By: /s/ John M. Bogdan
----------------------------------------
Its: Vice President, Finance
TAX ID OR TAX EXEMPT NO. 04-2710876
----------
LANDLORD: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY, a Massachusetts corporation
By: HANCOCK REALTY INVESTORS, INC.,
a Massachusetts corporation
Its: Agent
By: /s/ Meliha E. Armour
----------------------------------------
Meliha E. Armour
Its: Associate
(Signature page to Lease dated March 17, 1994 covering 19,472 Rentable Square
Feet on the third and fourth floors, Suites 360 and 400 of 33 Boston Post Road
West, Marlborough, Massachusetts.)
<PAGE> 38
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
A certain parcel of land, with the buildings thereon, known as and numbered 33
Boston Post, situated in Marlborough, Middlesex County, Massachusetts, bounded
and described as follows:
Beginning at the southeast corner of the premises on the northerly side of the
Boston Post Rd. and at land of the Northborough-Marlborough Development Trust,
thence by the northerly side of said Boston Post Rd. S70(degree) -51' 58" W
385.05' to an angle, thence still by the northerly side of said Boston Post Rd.
S73(degree) -18' -16" W 16.95' to a corner at land now or formerly of the
Metropolitan Life Insurance Co., thence by land of said Metropolitan Life
Insurance Co. N19(degree) -08' 02" W 419.99' to a corner, thence still by land
of said Metropolitan Life Insurance Co. S70(degree) -51' -58" W 122.23' to a
corner at land now or formerly of the Ahepa Charitable Corp. of Marlborough
thence by land of said Ahepa Charitable Corp. of Marlborough N02(degree) -20'
- -30" E 162.00' to a concrete bound set at a corner on the southerly side of
Northboro Road., thence by the southerly side of said Northboro Rd. S80(degree)
- -14' -32" E 181.94' to an angle, thence still by the southerly side of said
Northboro Rd. S66(degree) -39' -21 " E 36.02' to an angle, thence still by the
southerly side of said Northboro Rd. S64(degree) -36' -24' E 127.57' to an
angle, thence still by the southerly side of said Northboro Rd. S63(degree) -32'
- -33" E 96.31' to an angle, thence still by the southerly side of said Northboro
Rd. S63(degree) -44' -30" E 1.71.12' to a corner at land of said
Northborough-Marlborough Development Trust, thence by land of said
Northborough-Marlborough Development Trust S26(degree) -15' -30",W 70.00' to a
corner, thence still by land of said Northborough-Marlborough Development Trust
S63(degree) -44' -30" E 71.73' to a corner, thence still by land of said
Northborough-Marlborough Development Trust S19(degree) -08' 02' E 78.93' to the
point of beginning. Said described lot contains 3.7 acres and is shown on a plan
entitled `Plan of Land in Marlborough, Mass." Owned by: Metropolitan Life
Insurance Co., Scale: 1" = 40'. Dated: December 16, 1975. Highland Land
Surveyors Inc., 69 Maple Street, Marlboro, Mass. which plan is recorded with
Middlesex South District Registry of Deeds in Book 12975 at Page 144.
<PAGE> 39
EXHIBIT C
---------
RULES AND REGULATIONS
---------------------
1. The sidewalks, entries, passages, court, corridor, stairways, and
elevators shall not be obstructed or used for purposes other than those
consistent with the normal business operations (as defined in Section 3.A) of
Tenant, Tenant's employees, agents or invitees.
2. Tenant shall not place within the Building any objects which exceed
the floor weight specifications of the Building without the express prior
written consent of Landlord. The placement and positioning of all such objects
within the Building shall be reasonably prescribed by Landlord and such objects
shall, in all cases, be placed upon plates or footings of such size as shall be
reasonably prescribed by Landlord. Any damage done to the Building by taking in
or removing any heavy article from or overloading any floor in any way shall be
paid by Tenant. Defacing or injuring in any way any part of the Building Complex
by Tenant, his agents or servants, shall be paid by Tenant.
3. Initial name and number plates on doors shall be provided by
Landlord and any revisions or changes thereto shall be at the expense of Tenant.
A directory, located in a conspicuous place and listing the names of the tenants
of the Building, shall be provided by Landlord. Initial directory listings shall
be at the cost of Landlord and any revisions or changes thereto shall be at the
expense of Tenant. Any necessary revision in such directory shall be made by
Landlord within a reasonable time after written notice from Tenant, but the
Landlord shall not be responsible for any inconvenience or damage caused to
Tenant as a result of error in such directory.
4. Tenant shall not mark, paint, drill into, cut, string wires within,
or in any way deface any part of the Building with anything except normal
picture hanging apparatus, without the express prior written consent of Landlord
except Tenant may do the same provided that the alterations are non-structural
in nature, do not affect the Building's systems, and do not exceed a total cost
of $5,000.00 in the aggregate except that the value limit shall be subsequent to
the initial build-out work. Upon removal of any wall decorations or
installations or floor coverings by Tenant, any damage to the walls or floors
shall be repaired by Tenant at Tenant's sole cost and expense. Without
limitation upon any of the provisions of the Lease, Tenant shall refer all
contractors representatives, installation technicians, and other mechanics,
artisans and laborers rendering any service in connection with the repair, or
permanent improvements of the Leased Premises to Landlord for Landlord's
approval before performance of any such service. This Paragraph 4 shall apply to
all work performed in the Building, including without limitation installation of
telephones, telegraph equipment, electrical devices and attachments and
installations of any nature affecting floors, walls, woodwork, trim, windows,
ceilings, equipment or any other portion of the Building. Plans and
specifications for such work, prepared at Tenant's sole expense other than build
out prior to occupancy, shall be submitted to Landlord and shall be subject to
Landlord's express prior written approval in each instance before the
commencement of work. Subject to the provisions of the Lease, all installations,
alterations and additions shall be constructed by Tenant in a good and
workmanlike manner and only good grades of material shall be used in connection
therewith. The means by which telephone,
<PAGE> 40
-2-
telegraph and similar wires are to be introduced to the Building Complex and
Leased Premises and the location of telephones, call boxes and other office
equipment affixed to the Building Complex shall be subject to the express prior
written approval of Landlord.
5. Tenant shall not employ any person other than the janitor of
Landlord for the purpose of cleaning the Leased Premises, without the written
consent of Landlord. The Landlord shall not be responsible to Tenant for loss of
property from the Leased Premises or for any damage done to the furniture by the
janitor, any of his employees, or by any other person. Any person employed by
the Tenant for the purposes of cleaning the Leased Premises, with the written
consent of Landlord, must be subject to and under the control and direction of
the Building janitor. The janitor of Landlord shall be bonded and insured.
6. Landlord shall furnish Tenant ten (10) keys for each corridor door
entering the Leased Premises. Additional keys shall be furnished at a charge by
Landlord on an order signed by Tenant or Tenant's authorized representative. All
keys to the exterior doors of the Building Complex shall be obtained by Tenant
from Landlord, and Tenant shall pay to Landlord a reasonable deposit determined
by Landlord from time to time upon written notice to Tenant for such keys.
Tenant shall not make duplicate copies of such keys. Tenant shall not install
additional locks or bolts of any kind upon any of the doors or windows of, or
within, the Building, nor shall Tenant make any changes in existing locks or the
mechanisms thereof, with the exception of Tenant's private security system.
Tenant shall, upon the termination of its tenancy, provide Landlord or its
representative with the combinations to all combination locks on safes, safe
cabinets and vaults and deliver to Landlord all keys to the Building, the Leased
Premises and all interior doors, cabinets, and other key-controlled mechanisms
therein, whether or not such keys were furnished to Tenant by Landlord. Tenant
shall pay to Landlord the reasonable cost of replacing the same or of changing
the lock or locks opened by such lost key if Landlord shall reasonably deem it
necessary to make such a change.
7. Tenant shall comply with all requirements necessary for the security
of the Building Complex, including the use of service passes issued by Landlord
for after-hours removal of office equipment, packages, and signing in and/or out
in the security register in the Building lobby after-hours. Landlord reserves
the right to deny entrance to the Building or remove any person from the
Building Complex in any case where the conduct of such person involves a hazard
or nuisance to any tenant of the Building Complex or to the public or in the
event of fire or other emergency, riot, civil commotion or similar disturbance
involving risk to the Building Complex, tenants or the general public. The
Landlord also reserves the right to make such rules and regulations applicable
to all tenants as it may see fit concerning the use of electric current, water
and other supplies of the Building and to designate such hours as the Building
may be closed.
8. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed. Any damage resulting
to them from misuse or the defacing or injury of any part of the Building shall
be paid for by Landlord, excepting only where defacing or injury is done by
Tenant or an agent of Tenant. Tenant shall not waste water by interfering with
the operation of any plumbing fixture.
<PAGE> 41
-3-
9. Tenant shall not disturb the occupants of the Building by the use
of any musical or sound producing instruments, making unseemly noises, or by
interference in any way. Tenant shall not bring any dogs or other animals into
the Building.
10. Tenant shall not bring or keep within the Building any bicycle or
motorcycle.
11. All office equipment and any other device of any electrical or
mechanical nature shall be placed by Tenant in the Leased Premises in settings
reasonably approved by Landlord, so as to absorb or prevent any vibration,
noise, or annoyance. Tenant shall not cause improper noises, vibrations, or
odors within the Building.
12. Nothing shall be thrown out of the doors of the Building or down
stairways or other passages by Tenant.
13. All glass, locks and trimmings, in or about the doors and windows
and all electric globes and shades belonging to the Building Complex shall be
kept whole; and whenever broken by Tenant, shall be immediately replaced or
repaired and put in order by Tenant under the direction and to the satisfaction
of Landlord.
14. Canvassing, soliciting and peddling in the Building is prohibited,
and Tenant shall cooperate to prevent the same. Tenant shall notify the Building
Manager promptly of any unauthorized person who is soliciting from or causing
annoyance to tenants, their employees, guests or invitees.
15. All vehicles shall be parked within stripped lanes. Parking across
strips or in unmarked areas, blocking of walkways, loading areas, entrances or
driveways, shall not be permitted. Should such a situation exist, Landlord, at
its option, shall have the right to tow such vehicle away at the owner's
expense.
16. Landlord shall not be responsible for, and Tenant hereby
indemnities and holds Landlord harmless from any liability in connection with,
the loss, theft, misappropriation or other disappearance of furniture,
furnishings, fixtures, machinery, equipment, money, jewelry or other items of
personal property from the Leased Premises or other parts of the Building
regardless of whether the Leased Premises or Building are locked at the time of
such loss unless the loss arises from Landlord's willful or negligent acts or
omissions.
17. Tenant, its agents, servants and employees shall, before leaving
the Leased Premises unattended, close and lock all doors and shut off all
lights. Corridor doors, when not in use, shall be kept closed. Subject to
applicable fire or other safety regulations, all doors opening onto Common
Areas, as hereinafter defined, and all doors upon the perimeter of the Leased
Premises shall be kept closed and, during non-business hours, locked, except
when in use for ingress or egress. If Tenant uses the Leased Premises after
regular business hours or on non-business days, Tenant shall lock any entrance
doors to the Building or to the Leased Premises used by Tenant immediately after
using such doors.
<PAGE> 42
-4-
18. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building except in refuse containers
provided therefor.
19. There shall not be used in any space or in the public halls of the
Building, either by Tenant, by jobbers, or others, in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and side
guards.
20. Tenant shall be responsible for any damage other than reasonable
wear and tear to carpeting and flooring as a result of rust or corrosion of the
file cabinets, pot holders, roller chairs and metal objects.
21. Movement in or out of the Building Complex of furniture or office
equipment, or dispatch or receipt by Tenant of any bulky materials, merchandise,
or materials which requires use of elevators, is restricted to the freight
elevator. Tenant shall use its best efforts to protect common areas and building
elevator during movement in and out of the building complex of furniture or
office equipment, or dispatch and receipt by Tenant of any bulky materials or
merchandise. Non-standard business operational movement through the building
entrances or lobby shall be restricted to such hours as Landlord shall
designate. All non-standard business operational movement shall be scheduled
with the Building Management Office and done in a manner agreed between the
Tenant and Landlord by prearrangement before performance. Such prearrangement
initiated by Tenant shall include determination by Landlord, and subject to its
reasonable decisions and control, as to the time, method, and routing of
movement and as to limitations for safety or other concerns which may prohibit
any article, equipment, or any other item being brought into the Building.
Tenant shall assume all risk regarding damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including equipment,
property, and personnel of Landlord if damaged or injured as a result of an act
in connection with carrying out this service for Tenant from time of entering
Building Complex to completion of work; and Landlord shall not be liable for
acts of any person engaged in, or any damage or loss to any of said property or
person resulting from any act in connection with such service performed for
Tenant.
22. Tenant shall not use the Building for lodging, sleeping, or for any
immoral or illegal purposes or for any purpose that will damage the Building, or
the reputation thereof, or for any purposes other than those specified in the
Lease in the Landlord's reasonable judgment.
23. Tenant shall not obstruct or interfere with the rights of other
tenants of the Building or of persons having business in the Building or in any
way injure or annoy such tenants or persons.
24. Tenant shall not commit any act or permit anything in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on, in or about the Building or for any other reason,
subject to the terms of this Lease.
<PAGE> 43
-5-
25. Tenant shall not commercially cook or prepare food, or place or use
any inflammable, combustible, explosive or hazardous fluid, chemical, device,
substance or material in or about the Building with the exception of commonly
used office and cleaning supplies without the prior written consent of Landlord
over and above its initial use and leased purpose of the Leased Premises. Tenant
shall comply with the statutes, ordinances, rules, orders, regulations and
requirements imposed by governmental or quasi governmental authorities in
connection with fire and public safety and fire prevention and shall not commit
any act or permit any object to be brought or kept in the Building, which shall
result in an increase in the cost of any insurance purchased by Landlord in
connection with this Lease.
26. Tenant shall not install or use in the Building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator or any other similar apparatus without the
express prior written consent of Landlord, and then only as Landlord may
reasonably direct. Tenant is permitted to install water coolers, two (2)
microwave ovens and two (2) refrigerators.
27. Landlord reserves the right to exclude or expel from the Building
Complex any person who, in the reasonable judgment of Landlord, is intoxicated
or under the influence of liquor or drugs or who shall in any manner act in
violation of the rules and regulations of the Building Complex.
28. No signs, awning, showcases, advertising devices or other
projections or obstructions shall be attached to the outside walls of the
Building or attached or placed upon any Common Areas without the express prior
written consent of Landlord. No blinds, drapes or other window coverings shall
be installed in the Building without the express prior written consent of
Landlord. No sign, picture, advertisement, window display or other public
display or notice shall be inscribed, exhibited, painted or affixed by Tenant
upon or within any part of the Leased Premises in such a fashion as to be seen
from the outside of the Leased Premises or the Building without the express
prior written consent of Landlord. In the event of the violation of any of the
foregoing by Tenant, Landlord may after fifteen (15) days written notice to
Tenant during which period Tenant may repair same, remove the articles
constituting the violation without any liability unless a loss other than said
removal, arises from Landlord's willful or negligent acts or omissions, and
Tenant shall reimburse Landlord for the reasonable expenses incurred in such
removal upon demand and upon submission of applicable bills as Additional Rent
under the Lease. Interior signs on doors and upon the Building directory shall
be subject to the express prior written approval of Landlord and shall be
inscribed, painted, or affixed by Landlord at the reasonable expense of Tenant
upon submission of applicable bills to Tenant.
29. Tenant shall not use the name of the Building or the name of the
Landlord in its business name, trademarks, signs, advertisements, descriptive
material, letterhead, insignia or any other similar item without Landlord's
express prior written consent.
30. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light or air into the Common Areas shall not be covered or obstructed
by Tenant, through placement of objects upon window sills or otherwise. Tenant
shall cooperate with Landlord in obtaining
<PAGE> 44
-6-
maximum effectiveness of the cooling system of the Building by closing drapes
and other window coverings when the sun's rays fall upon windows of the Leased
Premises. Tenant shall not obstruct, alter or in any way impair the efficient
operation of Landlord's heating, ventilating, air conditioning, electrical,
fire, safety, or lighting systems.
31. Employees of Landlord shall not receive or carry messages for or to
Tenant or any other person, nor contract with nor render free or paid services
to Tenant or Tenant's servants, employees, contractors, jobbers, agents,
invitees, licensees, guests or visitors.
32. Tenant shall not tamper with or attempt to adjust temperature
control thermostats in the Leased Premises or the Building Complex. Landlord
shall make adjustments, if necessary, in Landlord's reasonable discretion, to
thermostats on call from Tenant.
Landlord reserves the right to rescind any of these rules and
regulations and to make such other and further reasonable rules and regulations
of general application to all tenants as in its judgment shall, from time to
time be needed for the safety, protection, care and cleanliness of the Building
Complex, the operation thereof, the preservation of good order therein, and the
protection of comfort of the tenants and their agents, employees and invitees,
which rules and regulations, when made and written notice thereof is given to
Tenant, shall be binding upon Tenant in like manner as if originally prescribed.
<PAGE> 45
EXHIBIT D
---------
TENANT IMPROVEMENT WORK AGREEMENT
---------------------------------
1. TENANT FINISH ALLOWANCE
Intentionally Omitted.
2. TENANT WORK
Landlord agrees to complete the work depicted in the space plan
attached hereto as EXHIBIT D-1 (the "Tenant Work") in a good and workmanlike
manner on or before July 1, 1994, subject, however, to extensions equal to the
delays suffered by Landlord and caused by strikes, lockouts, fire or other
casualty loss, acts of God, unavailability of materials, hostile or war-like
action, riot or other causes beyond Landlord's reasonable control. If Tenant
shall require any changes to the attached plans and specifications or the Tenant
Work depicted in such attached plans and specifications ("Additional Work"),
then, providing Landlord agrees to such changes, Tenant shall, within five (5)
days of the billing therefore, deposit with Landlord Landlord's projected costs
and expenses for the Additional Work, which costs shall include profit and
overhead at the same rate as the tenant finish contract. Landlord shall provide
Tenant construction estimates for such Additional Work and Tenant shall make
such reimbursement to Landlord prior to Landlord's undertaking any changes in
the Tenant Work. If such projected costs for the Additional Work are in excess
of Landlord's actual costs then Landlord shall refund any excess to Tenant, and
if Landlord's costs for the Additional Work are in excess of the estimated sum
paid by Tenant, then Tenant shall pay such deficiency to Landlord on demand.
3. COMMENCEMENT OF RENT
Tenant's obligation to pay Rent under the Lease shall not commence
until the Commencement Date provided, however, that if Landlord shall be delayed
in rendering the Leased Premises Ready for Occupancy beyond the Commencement
Date set out in Section 2 of this Lease as a result of one or more of the
following:
(a) Tenant's failure to devote the time or furnish the
information required in connection with the space plan for the Tenant Work; or
(b) Tenant's failure to timely deposit the estimated costs for
the Additional Work within the time period specified in Paragraph 2 above; or
(c) Tenant's changes in the Tenant Work, in the space plan
relating thereto, or in the plans for the Additional Work (notwithstanding
Landlord's approval of any such changes); or
(d) Any other act or omission by Tenant or its agents;
<PAGE> 46
-2-
then and in any such event, Tenant's obligation to commence the payment of Rent
under the Lease on the Commencement Date provided for in Section 2 shall not be
affected or deferred on account of such delay.
4. ALTERNATE COMMENCEMENT DATE
If Landlord is unable to cause the Leased Premises to be Ready for
Occupancy by the Commencement Date for reasons other than those set out in
subsection (a) through (d) of Paragraph 3 above then the Landlord shall give
five (5) business days notice of the date on which the Premises shall be Ready
for Occupancy and the Commencement Date of the Lease shall be on the first date
after the expiration of such five (5) business day period that the Leased
Premises are Ready for Occupancy; provided, however if the date the Leased
Premises are Ready for Occupancy is not the first day of a month, then the
Commencement Date shall be the first day of the month immediately following the
date the Leased Premises are Ready for Occupancy. In no event shall the
Commencement Date be prior to July 1, 1994. The period between the date the
Leased Premises are Ready for Occupancy and the Commencement Date shall be
deemed to be the Interim Lease Term and Tenant shall be obligated to pay Rent
for such Interim Lease Term on a pro rata basis based on the Base Rent for the
first full month of the Term and Tenant shall hold the Leased Premises during
the Interim Lease Term under all of the other terms and conditions of this
Lease. In the event the Commencement Date set out in Section 2 of the Lease is
changed as provided for in this Paragraph 4 then (i) if the Leased Premises are
Ready for Occupancy after the Commencement Date set out in Section 2 of the
Lease then the Expiration Date of the Lease as provided for in Section 2 of the
Lease shall be extended such that beginning with the adjusted Commencement Date
the Term shall extend for the number of months set out in Section 2 of the
Lease, or (ii) if the Leased Premises are Ready for Occupancy prior to the
Commencement Date set out in Section 2 of the Lease then at Tenant's option or
if Tenant occupies any portion of the Premises the Commencement Date shall be
adjusted as provided for in this Paragraph 4, however the Expiration Date shall
remain as set out in Section 2 of the Lease. In either such event, Tenant shall,
at Landlord's request, execute a Memorandum of Commencement Date in which the
parties specify the Commencement Date and Expiration Date of the Lease.
"Ready for Occupancy" as used herein shall mean the date on which
Landlord shall have substantially completed all its work outlined in this Work
Letter. The issuance of a Certificate of Occupancy (or its equivalent) for the
Leased Premises or a certificate from Landlord's architect or space planner
certifying substantial completion of the work shall conclusively control the
date the Leased Premises are substantially complete and the date on which the
Leased Premises are Ready for Occupancy. Landlord agrees to use its best efforts
to provide Tenant with at least fifteen (15) days' prior notice of the date the
Leased Premises are expected to be Ready for Occupancy. Landlord's undertaking
to provide fifteen (15) days' prior notice to Tenant shall not change, alter, or
otherwise affect Tenant's obligations under this Lease.
5. MISCELLANEOUS
<PAGE> 47
-3-
(a) Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Tenant Improvement Work Agreement shall have the
meanings assigned to them in the Lease.
(b) The terms and provisions of this Tenant Improvement Work Agreement
are intended to supplement and are specifically subject to all the terms and
provisions of the Lease. In the event of conflict between the terms of this
Tenant Improvement Work Agreement and the Lease, then the provisions of the
Lease shall govern.
(c) Prior to the date the Leased Premises are Ready for Occupancy,
Landlord's contractor and Tenant shall inspect the Leased Premises and jointly
complete a "punch list" of incomplete or defective work and thereafter Landlord
shall exercise due diligence to cause such punch list items to be completed.
(d) This Tenant Improvement Work Agreement may not be amended or
modified other than by supplemental written agreement executed by authorized
representatives of the parties hereto.
(e) Tenant shall not be entitled to any credits, whether in the form of
materials or money, for unused work or materials.
(f) All standard Tenant Work shall be performed in accordance with
Exhibit D-1.
(g) Landlord's approval of Tenant's plans or the Tenant Work shall
create no responsibility or liability on the part of Landlord for their
completeness, design sufficiency, or compliance with all laws, rules and
regulations of governmental agencies or authorities, including but not limited
to the Americans with Disabilities Act.
Notwithstanding the foregoing, to the extent that (i) the Leased
Premises do not comply with any laws, rules and regulations of government
agencies or authorities on the Commencement Date (ii) any such governmental
agency or authority subsequently requires the Leased Premises be modified to
comply with such laws, rules and regulations and (iii) such modification is not
required due to a change in tenant's operations, Landlord shall cause such
modifications to be undertaken at its cost and expense provided that Tenant
cooperates with Landlord in undertaking of the same.
<PAGE> 48
-4-
CONCORD COMMUNICATIONS, INC.,
a Massachusetts corporation ("Tenant")
By: __________________________
Its: Vice President, Finance
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY,
a Massachusetts corporation
By: HANCOCK REALTY INVESTORS, INC.,
a Massachusetts corporation ("Landlord")
Its: Agent
By: _____________________________
Meliha E. Armour
Its: Associate
<PAGE> 49
EXHIBIT D-1 (a)
<PAGE> 50
EXHIBIT D-1 (c)
Scope of Work
-------------
Concord Communications
----------------------
Demolition
- ----------
Remove all existing walls, carpet, electrical and HVAC as required-to
accommodate the new office layout plan as shown on Exhibit D-1 (a) and (b).
Remove all materials from the site including the miscellaneous construction
debris from previous renovations.
Carpentry
- ---------
Install all wood blocking as required. Provide a shelf and rod in the two (2)
coat closets. Provide a plywood mounting board in the telephone room. Install
approximately 14 feet of base and upper cabinets with counter tops and door
hardware (building standard white) in the coffee/break areas.
Doors, Frames & Hardware
- ------------------------
Hollow Metal Frames
- -------------------
Quantity 53 hollow frames for interior door units. Sidelights shall be 12" x
88". Quantity 4 hollow metal frames for double doors (6' x 8' 1" x 5-3/4")
Quantity 17 hollow metal frames (3' x 8' 1" x 1-3/4/") DOORS All doors shall be
solid core oak doors (3' x 8' 1" x 1-3/4")
Hardware
- --------
Install Russwin mortise sets.
Interior doors shall have lever passage sets.
Exterior doors shall have deadbolts.
Double doors shall have one flushbolt and passage set.
Exterior doors shall have door closers.
All doors shall have silencers and door stops.
Door hardware to be brushed aluminum.
Glass and Glazing
- -----------------
<PAGE> 51
Install 1/2" laminated butt glass as shown for Boardroom, Conference Room, and
Main Entrance. Glass doors shall be at least 38" wide. All hardware shall be
provided by contractor. Install 53 side light panels.
Finishes
- --------
Drywall shall be, 5/8" gypsum wall board with 3-5/8" metal studs.
Interior partitions are floor to ceiling. "J" channels shall be provided at the
top elevation of all interior partitions where they butt to the underside of the
ceiling. Exterior partitions shall be fire rated as required by code and shall
be insulated.
Ceilings
- --------
Existing ceiling grid to remain.
Replace all damaged grid where needed. Replace all missing or damaged ceiling
tiles.
Flooring
- --------
Carpet shall be Stratton Design Series, cut pile 26 oz. (one color)
VCT shall be Armstrong.
Vinyl base shall be Armstrong, 4" straight on carpet; 4" cove on VCT.
Painting
- --------
All interior drywall shall receive primer and two (2) coats of paint (one
color). Hollow metal frames shall receive primer and finish coat of paint.
All interior doors shall receive stain and two (2) coats of polyurethane.
All window sills shall be sanded and shall receive two (2) coats of
polyurethane.
Fire Protection
- ---------------
All work shall be performed in accordance with N.F.P.A. requirements.
Piping shall be concealed above the acoustical ceilings with surface mounted
chrome pendant sprinkler heads.
Sprinkler heads to be added and/or relocated to provide appropriate coverage for
the new layout.
Heating, Ventilating and Air Conditioning
- -----------------------------------------
Provide appropriate HVAC distribution for the premises. Reuse existing
diffusers, flex duct, controls as appropriate. Add new diffusers, flex duct, and
controls to develop a complete system (at least one diffuser and return air
grille in each office.)
<PAGE> 52
Plumbing
- --------
Install one (1) stainless steel sink, faucet, and hot water heater in Coffee
Area "Q" with appropriate water piping and venting.
Electrical/Fire Alarm Systems
- -----------------------------
All electrical systems shall meet the National Electric Code and the
Massachusetts codes.
Demolish all electrical switches, receptacles, exit signs, emergency lights,
thermostats, and floor outlets.
Rework all existing lighting. Supply and install 180 2' x 4' 277 V 3 Lamp 30
Cell parabolic light fixtures to meet building standard.
Supply and install exit lights and emergency lights with battery packs.
Rework the fire alarm system. Fire alarm horn/lights to meet ADA standards. Pull
stations shall be installed to meet ADA height requirement.
Supply and install new wiring to each area as noted on Exhibit D-1(d) and all
code required outlets in premises.
Supply and install new meter and distribution panels for third floor premises.
<PAGE> 53
EXHIBIT E
---------
ACCEPTANCE LETTER (SAMPLE ONLY)
-------------------------------
Tenant:
Date:
RE: Lease Agreement (the "LEASE') dated ________________ by and between JOHN
HANCOCK MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation ____________
("Landlord") and _______________ ("Tenant") on the Leased Premises located at
____________________________.
This is to advise that the undersigned, as Tenant, has inspected the
improvements at the above-referenced Leased Premises and hereby confirms the
following:
1. That it has accepted possession of the Leased Premises pursuant to the
terms of the Lease.
2. That the improvements and space required to be furnished according to
the aforesaid Lease have been completed and supplied in all respects.
3. That the Landlord has fulfilled all of its obligations under the Lease.
4. That no Rent has been prepaid except as provided by the Lease.
5. That there are no existing defenses or offsets which the undersigned
has against the enforcement of said Lease by the Landlord.
6. That the aforesaid Lease has not been modified, altered or except as
follows:
7. That the Rent commenced to accrue on the _____ day of ____________
19__. The primary Lease Term expires on the _____ day of
_______________ 19__.
8. That the Lease is now in full force and effect.
("Tenant")
- ------------------------------
By:
<PAGE> 54
EXHIBIT F
---------
JANITORIAL AND CLEANING SERVICES
--------------------------------
Landlord shall furnish janitorial and cleaning services adequate to keep the
demised premises clean at all times, subject, however, to the following minimum
requirements:
1 Daily cleaning routine:
Empty waste baskets and other waste receptacles. Empty ash trays and
wipe clean. Dust railings, ledges, furniture, phones and cabinets.
Sweep floors and steps, vacuum carpet traffic areas. Spot clean doors,
walls and glass. Remove rubbish. Toilets and lavatories--clean bowls,
basins, seats, urinals, partitions and walls; damp mop floors, polish
fixtures, dispensers, mirrors and other polished surfaces; and
replenish all dispensers.
2. Other routines:
Scrub and wax resilient floors, outside of business hours, monthly.
Wash windows inside and outside at least annually.
3. Areas not included:
Kitchen areas will only be swept, mopped and have the trash removed.
An extra charge will be required for any special janitorial needs over
and above "NORMAL" cleaning practices.
<PAGE> 55
EXHIBIT G
---------
BASE RENT SCHEDULE
------------------
Years 1-3 $233,664.00 per year;
($19,472.00 per month, $12.00 per rentable
square foot)
Years 4-5 $253,136.00 per year;
($21,094.67 per month, $13.00 per rentable
square foot)
<PAGE> 1
Exhibit 10.10
FIRST AMENDMENT TO LEASE
FOR PREMISES LOCATED AT
33 BOSTON POST ROAD WEST
MARLBOROUGH, MASSACHUSETTS
THIS FIRST AMENDMENT TO LEASE is made as of the 25th day of March, 1997
by and among JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, a Massachusetts
corporation (hereinafter "Landlord"), with an address c/o The Real Estate
Investment Group, John Hancock Place, P.O. Box 111, Boston, Massachusetts 02117,
and CONCORD COMMUNICATIONS, INC., a Massachusetts corporation (hereinafter
"Tenant"), with an address at 33 Boston Post Road West, Marlborough,
Massachusetts 01752.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into a lease dated March 17, 1994
(the "Lease") for certain premises located at 33 Boston Post Road West,
Marlborough, Massachusetts, more particularly described in the Lease (the
"Premises"); and
WHEREAS, Landlord and Tenant desire to amend the Lease to extend the
term of the Lease, to expand the Premises by 10,612 square feet (the "Expanded
Premises"), and to make certain improvements to the Premises.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant hereby amend
the Lease effective July 1, 1997 as follows:
1. DEFINITIONS. All capitalized terms not specifically defined
herein and not otherwise proper nouns shall be defined as set forth in the
Lease.
2. Section 1., PREMISES, is amended by deleting the first sentence
of Paragraph A in its entirety and inserting the following in its place:
"Subject to all of the terms and conditions hereinafter set forth, Landlord
hereby leases to Tenant and Tenant hereby leases from Landlord those certain
premises ("Leased Premises"), as outlined on EXHIBIT B attached hereto,
containing approximately 30,084 square feet of Rentable Area (as hereinafter
defined) on the third, fourth, and fifth floors of the six story office building
known as 33 West ("Building") located at 33 Boston Post Road West in
Marlborough, Massachusetts."
3. Section 2., TERM. In Paragraph A, the Expiration Date shall be
amended to the thirtieth day of June 2002.
Paragraph C shall be deleted in its entirety and the following shall be
inserted in its place:
<PAGE> 2
-2-
C. On the conditions (which conditions Landlord may waive, at its
election, by written notice to Tenant at any time) that Tenant is not in default
of its covenants and obligations under the lease and that only Tenant itself is
occupying the entirety of the Leased Premises then demised to Tenant, both as of
the time of exercise of the Option to Extend, as hereinafter defined, and at the
commencement of the Extension Period as hereinafter defined, then Tenant shall
have the right to extend the Term hereof (the "Options to Extend") for one
additional term of five (5) years (the "Extension Period"), to commence
immediately upon the expiration of the Term.
Tenant may exercise its Option to Extend by giving written notice to
Landlord (the "Extension Notice") on or before the date which is not earlier
than sixteen (16) months, but not later than twelve (12) months prior to the
expiration of the Term. Such Extension Period shall be upon the same terms and
conditions of this Lease, except that the Base Rent payable shall be the then
fair market effective rent for the Leased Premises and the parking rate, if any,
shall be the then fair market effective rate as determined by the local
marketplace. Landlord agrees to furnish Tenant with an Improvement Allowance not
to exceed $75,210.00 ($2.50 per square foot). For the purpose of this section,
fair market effective rent shall mean the Base Rent plus such additional
financial terms in the nature of rent and rent adjustments customarily then
being included in leases for comparable premises in such areas. Tenant shall,
during the Extension Period pay its proportionate share of any increase in
Landlord's Operating Expenses, in either case over the base year then being
quoted for leases in such premises in such areas. Said fair market effective
rent for the Leased Premises shall be agreed upon by Landlord and Tenant;
provided, however, if Landlord and Tenant are unable to agree on said fair
market effective rent within thirty (30) days of the date of the extension
Notice, said fair market effective rent shall be conclusively determined by
three (3) appraisers. Within fifteen (15) days of the expiration of such thirty
(30) day period, Landlord and Tenant shall each select an appraiser, who shall
select a third. Should the two appraisers fail to agree on a third within
fifteen (15) days of the date on which such appraisers have been appointed, or
if either Landlord or Tenant shall fail to appoint an appraiser within the time
provided, such appraiser shall be appointed by the American Institute of
Appraisers. Each party shall bear the costs of the appraiser selected by such
party, and the cost of the third appraiser shall be shared equally by Landlord
and Tenant. If the three appraisers are unable to agree upon such fair market
effective rent within fifteen (15) days of the appointment of the third
appraiser, the fair market effective rent shall be that determined by the
appraiser not selected by either Landlord or Tenant".
4. Section 4., RENT, is amended by deleting the third sentence in
its entirety and inserting the following in its place: "Effective July 1, 1997,
the Base Rent shall be Four Hundred Forty-Four thousand One Hundred Fifty-two
and 00/100 Dollars ($444,152.00) per year payable in twelve (12) equal
installments ("MONTHLY RENT") in check or money order on or before the first day
of each calendar month, in the sum of Thirty-Seven Thousand Twelve and 67/100
Dollars ($37,012.67) each. Effective July 1, 1999, the Base Rent shall be Five
Hundred Sixty-Four Thousand Seventy-Five and 00/100 Dollars ($564,075.00) per
year, payable in twelve (12) equal installments of Forty-Seven Thousand Six and
25/100 Dollars ($47,006.25) on or before the first day of each calendar month.
Effective July 1, 2001, Base Rent shall be Five Hundred Eighty-six Thousand Six
Hundred Thirty-Eight and 00/100 Dollars ($586,638.00) per year, payable in
<PAGE> 3
-3-
twelve (12) equal installments of Forty-Eight Thousand Eight Hundred Eighty-Six
and 50/100 Dollars ($48,886.50) on or before the first day of each calendar
month."
5. Section 5., RENT ADJUSTMENT, Paragraph A.3 is amended by
inserting the following after the second sentence: "Effective July 1, 1997,
Tenant's Building Percentage for Suite 500, consisting of 10,612 square feet, is
9.98%, the Base Year is the 1997 calendar year as adjusted to 95% occupancy, and
controllable Operating Expenses shall not increase at an accumulative rate
greater than seven percent (7%) per year. Effective July 1, 1999, Tenant's
Building Percentage for Suites 360, 400 and 500, totaling 30,084 square feet, is
28.29%, the Base Year is the 1997 calendar year as adjusted to 95% occupancy,
and controllable Operating Expenses shall not increase at an accumulative rate
greater than seven percent (7%) per year."
6. Section 12., PARKING AND SERVICE AREAS, Paragraph B is amended
by inserting the following after the second sentence: "Effective July 1, 1997,
Landlord agrees to furnish one hundred six (106) parking spaces throughout the
remainder of the Term. Said spaces shall include five (5) covered, reserved and
one hundred one (101) uncovered, reserved."
7. Section 42., BROKERAGE, is amended by inserting the following at
the end of Section 42: "Tenant represents and warrants to Landlord that is has
dealt only with Meredith & Grew, Inc. ("Landlord's Broker") in the negotiation
of this renewal and expansion of the Lease."
8. Section 44., RIGHT OF FIRST REFUSAL, is amended by deleting the
first sentence in its entirety and inserting the following in its place:
"Provided Tenant is not in default of the Lease, is in occupancy of the entire
Leased Premises and subject to existing encumbrances (including but not limited
to existing tenants rights and privileges), Tenant shall have the Right of First
Refusal to lease office space on the third, fourth and fifth floors of the
Building ("Expansion Space"), see Exhibit B attached for location in the
Building, prior to Landlord leasing said Expansion Space to any bona fide third
party."
9. Exhibit B, FLOOR PLAN WITH OUTLINE OF LEASED PREMISES, is
deleted in its entirety and replaced with a new Exhibit B attached hereto.
10. Exhibit D, TENANT IMPROVEMENT WORK AGREEMENT FOR THE EXPANDED
PREMISES, as attached hereto is added to the Lease.
11. NO OTHER AMENDMENTS. Except as specifically amended hereby, the
Lease shall be unmodified, remains in full force and effect, and is hereby
ratified.
<PAGE> 4
-4-
Executed under seal as of the date first set forth above.
LANDLORD: TENANT:
JOHN HANCOCK MUTUAL CONCORD COMMUNICATIONS, INC.
LIFE INSURANCE COMPANY
By: /s/ JENNIFER A. MELHUISH By: /s/ GARY E. HAROIAN
------------------------------ ----------------------------------
Jennifer A. Melhuish Gary E. Haroian
Its: Associate Investment Officer
Its: Vice President
Chief Financial Officer
By: /s/ ANNE W. COMSTOCK
------------------------------
Anne W. Comstock
Its: Senior Investment Officer
<PAGE> 5
EXHIBIT B
---------
FLOOR PLAN WITH OUTLINE OF LEASED PREMISES
------------------------------------------
Third Floor Plan
<PAGE> 6
EXHIBIT B
---------
FLOOR PLAN WITH OUTLINE OF LEASED PREMISES
------------------------------------------
Fourth Floor Plan
<PAGE> 7
EXHIBIT B
---------
FLOOR PLAN WITH OUTLINE OF LEASED PREMISES
------------------------------------------
Fifth Floor Plan
<PAGE> 8
EXHIBIT D
TENANT IMPROVEMENT WORK AGREEMENT FOR
THE EXPANDED PREMISES
1. Tenant Finish Allowance
-----------------------
Landlord hereby grants to Tenant a Tenant Finish Allowance not to exceed
$176,024.00 ($12.00 per rentable square foot for the Expanded Premises and $2.50
per rentable square foot for the existing Premises) inclusive of space planning
and engineering fees and expenses. Said Tenant Finish Allowance shall be
credited against the aggregate cost of Tenant Work, as hereinafter defined. If
Tenant requires tenant Work in excess of the Tenant Finish Allowance, then
Tenant agrees that it shall pay for said work in excess of the Tenant Finish
Allowance in accordance with the terms for payment of Additional Work as more
specifically set forth in Paragraph 2 hereof, including provision of profit and
overhead.
2. Tenant Work
-----------
Landlord agrees to complete the work depicted it the space plan attached
hereto as Exhibit D-1 (the "Tenant Work") in a good and workmanlike manner or on
before July 1, 1997, subject, however, to extension equal to the delays suffered
by Landlord and caused by strikes, lockouts, fire or other casualty loss, acts
of God, unavailability of materials, hostile of war-like action, riot or other
causes beyond Landlord's reasonable control. If tenant shall requires any
changes to the attached plans and specifications or the Tenant work depicted in
such attached plans and specifications ("Additional Work"), then, providing
Landlord agrees to such changes, Tenant shall, within five (5) days of the
billing therefore, deposit with Landlord Landlord's projected costs and expenses
for the Additional Work, which costs shall include profit and overhead at the
same rate as the tenant finish contract. Landlord shall provided Tenant
construction estimates for such Additional Work and Tenant shall make such
reimbursement to Landlord prior to Landlord's undertaking any changes in the
Tenant Work. If such projected costs for the Additional Work are in excess of
Landlord's actual costs then Landlord shall refund any excess to Tenant, and if
Landlord's costs for the Additional Work are in excess of the estimated sum paid
by Tenant, then Tenant shall pay such deficiency to Landlord on demand.
3. Commencement of Rent
--------------------
Tenant's obligation to pay Rent for the Expanded Premises under the
Lease shall not commence until the date of the Expanded Premises are ready of
Occupancy; provided, however, that if Landlord shall be delayed in rendering the
Expanded Premises Ready for Occupancy beyond July 1, 1997 as a result of one or
more of the following:
(a) Tenant's failure to devote the time or furnish the
information required in connection with the space plan for the Tenant work; or
(b) Tenant's failure to timely deposit the estimated costs
for the Additional Work within the time period specified in Paragraph 2 above;
or
<PAGE> 9
-2-
(c) Tenant's changes in the Tenant Work, in the space plan
relating thereto, or in the plans for the Additional Work (notwithstanding
Landlord's approval of any such changes); or
(d) Any other act or omission by Tenant or its agents;
then and in any such event, Tenant's obligation to commence the payment of Rent
for the Expanded Premises under the Lease on July 1, 1997 shall not be affected
or deferred on account of such delay.
"Ready for Occupancy" as used herein shall mean the date on which
Landlord shall have substantially completed all work outlined in this Work
Letter. The issuance of a Certificate of Occupancy (or its equivalent) for the
Expanded Premises or a certificate from Landlord's architect or space planner
certifying substantial completion of the work shall conclusively control the
date the Expanded Premises are substantially complete, the date on which the
Expanded Premises are Ready for Occupancy and the date Tenant's obligation to
pay Rent commences. Landlord agrees to use its best efforts to provide Tenant
with at least five (5) days' prior notice of the date the Expanded Premises are
expected to be Ready for Occupancy. Landlord's undertaking to provide five (5)
days' prior notice to Tenant shall not change, alter, or otherwise affect
Tenant's obligations under this Lease to take occupancy of the Expanded Premises
when the same are Ready for Occupancy.
4. Miscellaneous
-------------
(a) Except to the extent otherwise indicated herein, the
initially capitalized terms used in this Tenant Improvement Work Agreement shall
have the meanings assigned to them in the Lease.
(b) The terms and provisions of this Tenant Improvement Work
Agreement are intended to supplement and are specifically subject to all the
terms and provisions of the Lease. In the event of a conflict between the terms
of this Tenant Improvement Work Agreement and the Lease, then the provisions of
the Lease shall govern.
(c) Prior to the date the Expanded Premises are Ready for
Occupancy, Landlord's contractor and Tenant shall inspect the Expanded Premises
and jointly complete a "punch list" of incomplete or defective work and
thereafter Landlord shall exercise due diligence to cause such punch list items
to be completed.
(d) This Tenant Improvement Work Agreement may not be
amended or modified other than by supplemental written agreement executed by
authorized representatives of the parties hereto.
(e) Tenant shall not be entitled to any credits, whether in
the form of materials or money, for unused work or materials.
<PAGE> 10
-3-
(f) All standard Tenant Work shall be performed in
accordance with Exhibit D-1.
(g) Landlord's approval of Tenant's plans or the Tenant Work
shall create no responsibility or liability on the part of Landlord for their
completeness, design sufficiency, or compliance with all laws, rules and
regulations of governmental agencies or authorities, including but not limited
to the Americans with Disabilities act.
CONCORD COMMUNICATIONS, INC., A MASSACHUSETTS CORPORATION ("TENANT")
By: /s/ GARY E. HAROIAN
----------------------------------
Gary E. Haroian
Its: Vice President
Chief Financial Officer
hereunto duly authorized
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, A MASSACHUSETTS CORPORATION
("LANDLORD")
By: /s/ JENNIFER A. MELHUISH
----------------------------------
Jennifer A. Melhuish
Its: Associate Investment Officer
By: /s/ ANNE W. COMSTOCK
---------------------------------
Anne W. Comstock
Its: Senior Investment Officer
<PAGE> 11
EXHIBIT D-1
TENANT WORK
Tenant work plans and specifications to follow.
<PAGE> 1
Exhibit 10.11
FORM OF INDEMNIFICATION AGREEMENT
This Agreement is made and entered into this [Date] (the "Agreement"),
by and between Concord Communications, Inc., a Massachusetts corporation (the
"Company", which term shall include any one or more of its subsidiaries where
appropriate), and [Name] ("Indemnitee"). Certain capitalized terms are used in
this Agreement as specifically defined in Section 7.
In consideration of the premises and the covenants contained herein,
the Company and Indemnitee do hereby covenant and agree as follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue
to serve as a director or executive officer of the Company for so long as he is
duly elected or appointed or until his written resignation.
2. INDEMNIFICATION AND ADVANCES.
2.1 The Company shall advance all Expenses incurred by or on
behalf of Indemnitee in connection with any Proceeding within fifteen days after
the receipt by the Company of a request therefor, accompanied or preceded by
reasonable evidence of such Expenses and by an undertaking to repay all Expenses
advanced to the extent Indemnitee shall be adjudicated, or determined pursuant
to Section 3.2 or 3.3, to be not entitled to indemnification therefor (which
undertaking shall be accepted by the Company without reference to Indemnitee's
financial ability to repay any such advances).
2.2 Except as specifically provided in Sections 3.1, 3.2 and
3.3, within 60 days after receipt of a request therefor the Company shall
indemnify Indemnitee to the full extent permitted by law against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with any Proceeding or
any claim, issue or matter therein. A request for indemnification must be
accompanied by reasonable evidence of the amount for which indemnification is
requested, and must indicate a choice of Independent Counsel, if any, to make
any determination pursuant to Section 3.3.
2.3 Notwithstanding any other provision of this Agreement,
Indemnitee shall be indemnified against all Expenses attributable to any
Proceeding (or any claim, issue or matter relating thereto) which was
adjudicated or determined by a court of competent jurisdiction, on the merits or
otherwise, in Indemnitee's favor or which was terminated by dismissal or
withdrawal with or without prejudice.
3. EXCEPTIONS.
3.1 No indemnification shall be provided hereunder with
respect to any claim, issue or matter to the extent that Indemnitee has been
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Company (or, in the case of
<PAGE> 2
2
service with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan).
3.2 If a Change of Control has not occurred, no
indemnification shall be provided hereunder to the extent that, within 60 days
of the receipt by the Company of a request for indemnification, Indemnitee has
been determined (after investigation) by (a) the Board of Directors of the
Company by majority vote of a quorum of Disinterested Directors, or (b) if such
a quorum is not "obtainable, or if directed by majority vote of a quorum of
Disinterested Directors, Independent Counsel (selected by majority vote of the
Disinterested Directors or, if none, by majority vote of the Board of Directors)
in a written opinion, not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Company (or, in the case of
service with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan).
3.3 If a Change in Control has occurred, no indemnification
shall be provided hereunder to the extent that, within 60 days of the receipt by
the Company of a request for indemnification, Indemnitee has been determined
(after investigation) by (a) the Independent Counsel specified by Indemnitee in
the request for indemnification or (b) if no such specification is made, by a
person, persons or entity who would be entitled to make such a determination
pursuant to Section 3.2 if a Change in Control had not occurred, not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the Company (or, in the case of service with respect to an employee
benefit plan, in the best interests of the participants or beneficiaries of such
employee benefit plan). A person, persons or entity making a determination
pursuant to this Section 3.3 shall presume that Indemnitee acted so as to be
entitled to indemnification, and the Company shall have the burden of proof in
overcoming that presumption.
3.4 Indemnitee shall cooperate with any person, persons or
entity making an investigation pursuant to Section 3.2 or 3.3 to the extent
reasonably requested. Any costs or expenses (including attorneys fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification), and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
4. REMEDIES OF INDEMNITEE.
4.1 In the event that (i) a determination is made that
Indemnitee is not entitled to indemnification under this Agreement, (ii) a
required advancement of Expenses is not timely made or (iii) payment of any
required indemnification is not timely made within the 60 day period prescribed
in Sections 3.2 and 3.3, Indemnitee shall be entitled to an adjudication in an
appropriate court of the Commonwealth of Massachusetts, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association, and judgment upon any arbitration
award may be entered in any court having jurisdiction. Indemnitee shall
<PAGE> 3
3
commence a proceeding seeking such an adjudication or an award in arbitration
within 180 days following the date on which Indemnitee first has the right to
commence such proceeding. The Company shall not oppose Indemnitee's right to
seek any such adjudication or award in arbitration.
4.2 In the event that a determination shall have been made
pursuant to this Agreement that Indemnitee is not entitled to indemnification,
any such judicial proceeding or arbitration shall be conducted in all respects
as a DE NOVO trial, or arbitration, on the merits and Indemnitee shall not be
prejudiced by reason of such adverse determination. If a Change of Control shall
have occurred, in any such judicial proceeding or arbitration the Company shall
have the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be, notwithstanding such adverse
determination.
4.3 The Company shall be precluded from asserting in any
judicial proceeding or arbitration that the procedures and presumptions of this
Agreement are not valid, binding and enforceable and shall stipulate in any such
court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement.
4.4 In the event that Indemnitee seeks a judicial adjudication
of or an award in arbitration to enforce his rights under, or to recover damages
for breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all expenses
(of the types described in the definition of Expenses) actually and reasonably
incurred by him in such judicial adjudication or arbitration, if he prevails
therein or if such recovery is ordered by the court or the arbitrator. If it
shall be determined in such judicial adjudication that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately pro-rated.
5. SECURITY. To the extent requested by the Indemnitee and
approved by the Company's Board of Directors, the Company may at any time and
from time to time provide security to the Indemnitee for the Company's
obligations hereunder through an irrevocable bank letter of credit, funded trust
or other collateral. Any such security, once provided to the Indemnitee, may not
be revoked or released without the prior written consent of Indemnitee.
6. INSURANCE. To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors or
executive officers of the Company (or fiduciaries of any other enterprise),
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for any director or
executive officer (or fiduciary) under such policy or policies, whether or not
Indemnitee is still a director or executive officer of the Company. The Company
shall not be liable under this Agreement to make any payment of amounts
otherwise indemnifiable hereunder if and to the extent Indemnitee has otherwise
actually received such payment under any insurance policy, contract, agreement
or otherwise.
<PAGE> 4
4
7. DEFINITIONS.
7.1 "Change in Control" means a change in control of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "Person" (as such term is
used in Section 13(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least two
thirds of the members of the Board of Directors in office immediately prior to
such person attaining such percentage interest; (ii) the Company is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a majority
of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least two thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.
7.2 "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
7.3 "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the type
customarily incurred in connection with prosecuting, defending, appearing as a
witness in, preparing to prosecute or defend or appear as a witness in, or
investigating a Proceeding.
7.4 "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party, or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in any action to determine Indemnitee's rights
under this Agreement.
7.5 "Proceeding" means any pending, threatened or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative in which Indemnitee is or may be
involved as a witness or defendant by reason of being, having been or having
agreed to
<PAGE> 5
5
become a director or executive officer of the Company or, at the request of the
Company, being, having been or having agreed to become a director, officer or
fiduciary of any other entity or enterprise, except such a proceeding initiated
by Indemnitee.
8. GENERAL.
8.1 The rights provided by this Agreement shall not be
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Company's articles of incorporation or by-laws, any
other agreement, a vote of stockholders or a resolution of directors, or
otherwise.
8.2 This Agreement shall continue until and terminate upon the
later of: (a) ten (10) years after the date that Indemnitee shall have ceased to
serve as a director or executive officer of the Company or fiduciary of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which Indemnitee served at the request of the Company; or (b)
the final termination of all pending Proceedings in respect of which Indemnitee
is granted rights hereunder and of any proceeding commenced by Indemnitee
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
heirs, executors and administrators.
8.3 In the event of any 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 take all action necessary to secure such
rights, including execution of such documents as are necessary to enable the
Company to bring suit to enforce such rights.
8.4 If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby; and (b) to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
8.5 No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by both of the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
8.6 Indemnitee agrees promptly to notify the Company in
writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter
which may be subject to indemnification or advancement of Expenses covered
hereunder; provided, however, that the failure to give any such notice shall not
disqualify the Indemnitee from indemnification hereunder.
<PAGE> 6
6
8.7 All notices, requests, demands and other communications
hereunder shall be in writing and shall have been duly given if (i) actually
received, or (ii) mailed by certified or registered mail, postage prepaid, on
the third business day after the date on which it is so mailed.
8.8 This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Massachusetts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Attest: CONCORD COMMUNICATIONS, INC.
By: By:
------------------------------- -------------------------------
INDEMNITEE
-----------------------------------
[Name]
[Address1]
[Address2]
<PAGE> 1
Exhibit 10.12
RESTATED COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
THIS RESTATED COMMON STOCK REGISTRATION RIGHTS AGREEMENT is entered
into as of the 7th day of August, 1986, by and among Concord Communications,
Inc., a Massachusetts corporation (the "Company"), and those purchasers listed
as Purchasers in a certain Common Stock Registration Rights Agreement (the
"Common Stock Registration Rights Agreement") dated as of July 15, 1984, those
persons listed as Purchasers in a certain Amendment thereto dated as of December
16, 1985, those persons listed as Purchasers in a certain Second Amendment
thereto dated as of April 25, 1986, those persons listed as Purchasers in a
certain Third Amendment thereto dated as of April 25, 1986, those persons listed
as Purchasers in a certain Fourth Amendment thereto dated as of May 22, 1986,
those persons listed as Purchasers in a certain Purchase Agreement dated as of
June 18, 1992, (the "Purchase Agreement"), those persons listed as New
Purchasers in a certain Amendment No. 1 to the Purchase Agreement dated as of
September 10, 1982, those persons listed as Purchasers in a certain Amendment
No. 2 thereto dated as of June 18, 1984, those persons listed as Purchasers in a
certain Amendment No. 3 thereto, dated as of December 16, 1985, and certain
purchasers of the Company's Series A Preferred Stock (the "Preferred Stock"),
listed as Purchasers in a certain Series A Preferred Stock Purchase Agreement,
dated as of the date hereof (collectively, the "Purchasers").
RECITALS
The Company has agreed to provide to the Purchasers the registration
rights set forth herein to induce the Purchasers to enter into various stock
purchase agreements among the Company and the Purchasers;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. EFFECTIVE DATE OF AGREEMENT. The Company and the Purchasers
agree that, effective upon the closing of the purchase and sale of the shares of
Preferred Stock, under the Series A Preferred Stock Purchase Agreement, the
registration rights and other terms provided herein set forth the sole and
entire agreement on the subject matter between the Company and the Purchasers.
Section 2. AMENDMENT OF PURCHASE AGREEMENT. Section 7 of the Purchase
Agreement, as amended, is hereby further amended by the deletion of subsections
7(d) through 7(h).
Section 3. RESTATEMENT OF COMMON STOCK REGISTRATION RIGHTS AGREEMENT.
This Agreement hereby amends, restates and supersedes the Common Stock
Registration Rights Agreement.
<PAGE> 2
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Section 4. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
4.1 DEFINITIONS. As used in this Agreement:
(a) "Commission" means the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
(b) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(c) "Holder" means any Purchaser who holds Registrable
Securities or anyone who holds Registrable Securities to whom the registration
rights conferred by this Section 4 have been transferred in compliance with
Subsection 4.12.
(d) "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.
(e) "Registrable Securities" means shares of the Company's
Common Stock, $.01 par value (the "Shares"), held by a Purchaser or a transferee
pursuant to Subsection 4.12 and (i) issued and sold by the Company pursuant to
the Purchase Agreement, as amended to date, (ii) issued and sold by the Company
pursuant to a certain Common Stock Purchase Agreement dated as of July 15, 1984
(the "Stock Purchase Agreement"), (iii) issued and sold by the Company pursuant
to a certain Amendment No. 1 to the Purchase Agreement dated as of September 10,
1982, (iv) issued or issuable upon conversion of the 9.7% Convertible
Subordinated Notes or exercise of the Common Stock Purchase Warrants issued and
sold by the Company pursuant to the Convertible Subordinated Note and Warrant
Purchase Agreement dated as of December 16, 1985, or conversion or exercise of
similar Notes and Warrants issued and sold by the Company to Grace Ventures
Corp., pursuant to a certain Supplementary Purchase Agreement and Amendment
dated as of April 25, 1986, or to Southeast Asia Venture Investment Company,
N.V., or Venture Investment (Singapore) Ltd., pursuant to a certain Convertible
Subordinated Note and Warrant Purchase Agreement dated as of April 25, 1986, (v)
issued and sold by the Company to Venture Investment (Singapore) Ltd., Venture
Manufacturing (Singapore) Pte Ltd. and South East Asia Venture Investment
Company, N.V. pursuant to a certain Stock Purchase and Loan Agreement, dated as
of April 25, 1986, (vi) issued or issuable upon conversion of the Preferred
Stock, or (vii) issued as a dividend or other distribution with respect to, or
in exchange for or in replacement of, such Shares, PROVIDED, HOWEVER, that
Registrable Securities shall not include any Shares which have previously been
registered or previously been sold to the public.
(f) "Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations
thereunder, all as the same shall be in effect at the time.
<PAGE> 3
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4.2 PIGGYBACK REGISTRATION RIGHTS. If at any time, or from time to
time, the Company proposes or determines to register any of its securities under
the Securities Act (other than a registration effected solely to implement an
employee benefit plan or to effect a business combination pursuant to Rule 145
promulgated under the Securities Act or any successor rule thereto), the Company
will:
(a) Promptly give written notice thereof (which notice shall
include a list of the jurisdictions, if any, in which the Company intends to
qualify such securities under the applicable blue sky or other state securities
laws) to each Holder, and
(b) Include among the securities which it then registers and
qualifies all the Registrable Securities specified in a written request or
requests, received by the Company within 15 days after the dispatch of such
written notice by the Company, by any Holder or Holders; PROVIDED THAT (i) the
Company shall not be required to include any Registrable Securities in the
initial public offering of securities of the Company under the Securities Act
unless the Company includes in the registration statement filed with the
Commission in connection with such registration any securities being sold for
the account of anyone other than the Company and (ii) if the registration of
which the Company gives notice is for a registered public offering involving an
underwriting, the underwriter may, if in the written opinion of the underwriter
market conditions require a limitation on the number of shares to be
underwritten, reduce the aggregate number of Registrable Securities proposed to
be registered by the Company on behalf of such Holders to an amount which is not
less than 20%, 30% and 40% of the total number of shares of Common Stock
registered in the first, second, third and all subsequent registrations,
respectively, provided, however, that any and all securities held by C. Kenneth
Miller are excluded from such registration prior to the exclusion of any other
securities.
In all registered public offerings, whether underwritten or not, the
amount of securities of Holders entitled to registration which are included in
such registration, in accordance with the limitations set forth above, shall be
allocated to each Holder in proportion, as nearly as practicable, to the number
of Registrable Securities as of the date of the notice given pursuant to
Subsection 4.2(a), held by such Holder seeking registration; PROVIDED, HOWEVER,
that such allocation among the Holders shall not operate to reduce the number of
Registrable Securities to be included in such registration as determined in
accordance with the foregoing provisions.
4.3 DEMAND REGISTRATION RIGHTS. If, at any time after December 31,
1987, the Holders of not less than 1,000,000 shares of the outstanding
Registrable Securities (which Holders shall include the Holders of not less than
250,000 shares of Preferred Stock, or Shares issued upon conversion of such
Preferred Stock) (which numbers of shares shall be adjusted ratably in the event
of any stock split, reclassification, combination or other similar event
occurring after the date of this Agreement) shall deliver to the Company a
written request that the Company effect a registration under the Securities Act
with respect to all or a part of the Registrable Securities, then the Company
shall use its best efforts promptly to effect such registration.
<PAGE> 4
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Notwithstanding the foregoing, the Company shall not be obligated to
effect any registration pursuant to this Subsection 4.3 (i) within nine months
of the closing of the initial public offering of securities of the Company
pursuant to an effective registration of securities under the Securities Act, if
such initial public offering shall have occurred prior to December 31, 1987, or
(ii) if the Holders initiating the request for registration propose to dispose
of less than 1,000,000 shares of Registrable Securities (which number of shares
shall be adjusted ratably in the event of any stock split, reclassification,
combination or other similar event occurring after the date of this Agreement).
The Company shall be obligated to effect only two registrations
pursuant to this Subsection 4.3. Upon receipt of a request for registration as
to which the Company is obligated to effect a registration pursuant to this
Subsection 4.3, the Company will, promptly after becoming so obligated, give
notice to all Holders (other than those initiating the request) and include in
the registration all the Registrable Securities specified by such Holders in a
written request or requests received by the Company within 15 days after the
dispatch of such notice by the Company. The Company shall be entitled to include
in any such registration (i) shares of Common Stock to be offered and sold for
its own account and (ii) shares of Common Stock to be offered and sold for the
accounts of any other shareholders. Any request for registration under this
Subsection 4.3 must be for a firmly underwritten public offering to be managed
by an underwriter or underwriters selected by the Company. If, in the opinion of
the underwriter or underwriters so selected market conditions require a
limitation of the number of shares to be underwritten, the Company shall be
obligated only to include an amount of securities that the underwriter or
underwriters reasonably believe is compatible with the success of the offering.
If such a limitation is necessary, the Company shall include shares in the
offering in the following order: FIRST, Registrable Securities of Holders
requesting registration; PROVIDED, HOWEVER, that the shares be included, in
accordance with the limitations set forth above, shall be allocated to each
Holder, as nearly as practicable, in proportion to the number of Registrable
Securities held by such Holder requesting registration (as of the date of the
notice given); SECOND, Common Stock proposed to be included for the account of
the Company; and THIRD, Common Stock proposed to be included for the account of
any other shareholders. Any Registrable Securities or other securities that are
so excluded from the underwriting shall be excluded from the registration.
4.4 FORM S-3 REGISTRATION RIGHTS. The limitations of
Subsection 4.3 to the contrary notwithstanding, if, after the Company has
qualified for the use of Form S-3, a Holder or Holders shall deliver to the
Company a written request that the Company effect a registration on Form S-3
with respect to Registrable Securities held by them, then the Company shall use
its best efforts to effect promptly such registration (such requests shall be in
writing and shall state the number of Registrable Securities to be disposed of
and the intended method of disposition of such shares by each such Holder).
Notwithstanding the foregoing:
(a) The Company shall not be obligated to cause a registration
on Form S-3 to become effective within the 90-day period preceding the effective
date of a Company-initiated or shareholder-initiated registration;
<PAGE> 5
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(b) The Company shall not be obligated to cause a registration
on Form S-3 to become effective prior to expiration of 90 days following the
effective date of the most recent Company-initiated registration or
shareholder-initiated registration;
(c) The Company shall not be required to effect a registration
pursuant to this Section 4.4 unless the Holder or Holders initiating the request
for registration propose to dispose of Registrable Securities having an
aggregate net offering price of not less than $500,000; and
(d) The Company shall not be required to maintain and keep any
such registration on Form S-3 effective for a period exceeding 180 days from the
effective date thereof.
In the event the Company receives a request as to which the Company is
obligated to effect a registration pursuant to this Subsection 4.4, the Company
shall, promptly after becoming so obligated, give notice to all Holders of the
receipt of such request and include in the registration all the Registrable
Securities specified by such Holders in a written request or requests, received
by the Company within 15 days after the dispatch of such notice by the Company.
Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all Registrable Securities on Form S-3 to the
extent requested by the Holder or Holders thereof. If the registration to be
effected pursuant to this Subsection 4.4 is to be an underwritten public
offering, it shall be managed by an underwriter or underwriters selected by the
Company. If, in the written opinion of the underwriter or underwriters so
selected, market conditions require a limitation of the number of shares to be
underwritten, and if the total amount of securities that all Holders (initiating
and non-initiating) request pursuant to this Subsection 4.4 to be included in
such offering exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, the Company shall only be
required to include in the offering the amount of securities of such Holders
that the underwriters believe will not jeopardize the success of the offering,
and such amount shall be allocated among such Holders in proportion to the
respective number of Registrable Securities held by each of such Holders. Any
Registrable Securities that are so excluded from the underwriting shall be
excluded from the registration. As used throughout this Section 4 the term "Form
S-3" shall be deemed to include any equivalent successor form for registration
pursuant to the Securities Act.
4.5 REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Subsection 4.3 or Subsection 4.4 to use its best
efforts to effect promptly the registration of Registrable Securities under the
Securities Act, the Company shall be entitled to postpone the filing of any such
registration for a period of 90 days from the giving of notice of or receipt of
a request for such registration if a valid corporate purpose exists for
withholding the public release of information which in the reasonable judgment
of the Company would be required to be disclosed in the applicable registration
statement, but, subject to such right, the Company shall:
<PAGE> 6
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(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 and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition of the prospective
seller or sellers of such Registrable Securities, but for no longer than six
months subsequent to the effective date of such registration in the case of a
registration statement on Form S-1 (or any similar form of registration
statement required to set forth substantially identical information) and for no
longer than 90 days in the case of a registration statement on Form S-3);
(c) furnish to each prospective seller of Registrable
Securities 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 such seller may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities of such
seller; and
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky or other applicable laws of such jurisdictions within the
United States as each prospective seller shall reasonably request, to enable
such seller to consummate the public sale or other disposition in such
jurisdictions of the Registrable Securities of such seller; PROVIDED, HOWEVER,
that the Company shall not be obligated to so register or qualify such
Registrable Securities in any jurisdiction in which the Company would be
required to execute a general consent to service of process as a condition
thereof and the Company is not already subject or otherwise required to become
subject to such service of process in such jurisdiction.
It shall be a condition precedent to the obligations of the Company to
take action pursuant to this Section 4 that each prospective seller of
Registrable Securities, and each underwriter designated by such seller, will
furnish to the Company such information as the Company may reasonably request,
which information may be included by the Company in a registration statement
(and the prospectus included therein).
If, in the opinion of counsel to the Company, it is necessary or
appropriate in order to comply with any applicable rule, regulation or release
promulgated by the Commission, the Company's obligations under this Section 4
shall be conditioned upon each Holder whose Registrable Securities are being
registered and any underwriter participating in such public offering executing
and delivering to the Company an appropriate agreement, in form satisfactory to
counsel for the Company, that he will comply with all prospectus delivery
requirements of the Securities Act and with all anti-stabilization, manipulation
and similar provisions of Section 10 of the Exchange Act, and any rules issued
thereunder by the Commission, and will furnish to the Company information about
sales made in such public offering. The Holders of Registrable
<PAGE> 7
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Securities included in the registration statement will not (until further
notice) effect sales thereof after receipt of telegraphic or written notice from
the Company to suspend sales to permit the Company to correct or update a
registration statement or prospectus; but the obligations of the Company with
respect to maintaining any registration statement current and effective shall be
extended by a period of days equal to the period such suspension is in effect.
At the end of the period during which the Company is obligated to keep
any registration statement current and effective (and any extensions thereof
required by the preceding paragraph), the Holders of registrable Securities
included in the registration statement shall discontinue sales of such
Registrable Securities pursuant to such registration statement upon receipt of
notice from the Company of its intention to remove from registration the
securities covered by such registration statement which remain unsold, and such
Holder shall notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
No Holder shall have any right to take any action to restrain, enjoin
or otherwise delay any registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section 4.
4.6 EXPENSE OF REGISTRATION. All expenses (which term does not
include underwriting fees or discounts or fees or disbursements of counsel to
any Holder) incurred in effecting any registration pursuant to this Section 4,
including, without limitation, all registration and filing fees, printing
expenses, expenses of compliance with blue sky laws, fees and disbursements of
counsel for the Company, and any accounting and audit expenses incidental to or
required by any such registration, shall be borne by the Company.
4.7 INDEMNIFICATION. In the event any of the Registrable
Securities are included in a registration statement under this Section 4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder and any underwriter (as defined in the Securities
Act) for him, each officer, director and partner of a Holder, and each person,
if any, who controls such Holder or such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon 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 arise out of or
are based on any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to any action or
non-action required of the Company in connection with any such registration; and
will reimburse each such Holder, such underwriter, such officer, director and
partner or such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim,
<PAGE> 8
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damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Subsection 4.7(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 to a particular
Holder, underwriter, officer, director, partner or controlling person 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 an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, underwriter, officer, director, partner or controlling person or
arise out of or are based upon 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, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary
prospectus, final prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there were material
misstatements or omissions. It is agreed that the indemnity agreement contained
in this Subsection 4.7(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 affected Holder (which consent shall not be
unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
Subsection 4.7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Subsection 4.7, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party desires, jointly with
any other indemnifying party similarly notified, to assume the defense thereof
with counsel mutually satisfactory to the parties. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Subsection 4.7, but the omission so to notify the indemnifying party will not
relieve him of any liability which he may have to any indemnified party other
than under this Subsection 4.7.
(d) If the indemnification provided for in this Subsection 4.7
is for any reason unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The relative fault of
<PAGE> 9
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the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall be controlling. The Company will use its best efforts, in
connection with any registration under Sections 4.2 and 4.3 hereof, to obtain
indemnification obligations on the part of requesting Holders which are no
greater than those contained in this Subsection 4.7.
4.8 LETTER OR OPINION OF COUNSEL IN LIEU OF REGISTRATION. If,
after the initial public offering of the Company's Common Stock under the
Securities Act of 1933, in the opinion of counsel for the Company, concurred in
by counsel for such Holders, a Holder is able to sell all his Registrable
Securities in a three-month period pursuant to Rule 144 under the Securities
Act, the Company will not be required to register any Registrable Securities,
notwithstanding any provision of this Section 4 to the contrary.
4.9 LOCKUP AGREEMENT. In consideration for the Company agreeing to
its obligations under this Section 4, each Holder agrees in connection with the
registration of the initial public offering of the Company's securities, upon
the request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 120 days) from the effective date of such
registration as the Company or the underwriters may specify; PROVIDED, HOWEVER,
that (i) such Holder shall have no obligation to enter into the agreement
described herein unless all executive officers and directors of the Company and
all other Holders enter into similar agreements and (ii) nothing herein shall
prevent any Holder that is a partnership from making a distribution of
Registrable Securities to the partners thereof that is otherwise in compliance
with applicable securities laws provided each partner who receives Registrable
Securities in such a distribution agrees to be bound by this Section 4.9.
4.10 INFORMATION BY HOLDERS. The Holder or Holders of Registrable
Securities including in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in Subsections 4.2, 4.3 or 4.4.
4.11 FUTURE GRANTS OF REGISTRATION RIGHTS. The Company may grant
registration rights substantially similar to the registration rights contained
in Subsection 4.2 to subsequent investors in the Company. Such rights may be
granted with respect to registrations initiated by the
<PAGE> 10
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Company and with respect to registrations requested by the Holders of
registrable Securities, and shall be limited in all cases so as not to reduce
the number of shares of Holders that would otherwise be included in the
registration.
The Company may not grant to subsequent investors in the Company rights
of registration upon request or any other rights of registration different from
those contained herein unless (i) such rights are limited to shares of Common
Stock issued to or issuable upon conversion of other securities of the Company
issued to such subsequent investors, and (ii) such rights, although separate,
are not more extensive than the rights granted hereunder and are not exercisable
prior to the time at which the corresponding rights granted herein are
exercisable.
4.12 TRANSFER OF REGISTRATION RIGHTS. The registration rights of a
Purchaser under this Section 4 may be transferred only to a transferee who (i)
is not a competitor of the Company, (ii) acquires the equivalent of at least 20%
of the shares of Common Stock originally acquired by the Holder and (iii) is
acceptable to the Company, which acceptance shall not be unreasonably withheld.
In the case of a Purchaser that is a partnership, the restriction on transfer
shall not apply to a distribution by such Purchaser to any or all of its
partners, or to transfers by such partners for estate planning purposes. In
order for a transfer of registration rights to be effective, the Company must be
given written notice by the Holder at the time of such transfer stating the name
and address of the transferee and identifying the shares with respect to which
the rights under this Section 4 are being assigned.
Section 5. MISCELLANEOUS.
5.1 ASSIGNMENT. Subject to the provisions of Subsection 4.12, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties hereto.
5.2 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
5.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 NOTICES. Except as otherwise expressly provided herein, any notice
required or permitted hereunder shall be given in writing and shall be deemed
effectively given upon receipted personal delivery (professional courier
permissible), receipted United States certified mail delivery or confirmed
telegraph or telex transmission to the following address: (a) if to a Purchaser,
to the address set forth with respect to such purchaser on the attached Schedule
of
<PAGE> 11
- 11 -
Purchasers, or to such other address as such Purchaser shall have given notice
of pursuant hereto to the Company, or (b) if to the Company, to Concord Data
Systems, Inc., Attention: Secretary, 397 William Street, Marlborough, MA 01752,
or to such other address as the Company shall have given notice of pursuant
thereto.
5.6 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
5.7 AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended with the written consent of the Company and the Holders of at least
two-thirds of the outstanding Registrable Securities. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder and
the Company. In addition, the Company may waiver performance of any obligation
owing to it, as to some or all of the Holders or agree to accept alternatives to
such performance, without obtaining the consent of any Holder.
5.8 EFFECT OF AMENDMENT OR WAIVER. Each purchaser and its successors
and assigns acknowledge that by operation of Subsection 5.7 the Holders of
two-thirds of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Agreement.
5.9 RIGHTS OF HOLDERS. Each Holder shall have the absolute right to
exercise or refrain from exercising any right or rights that such Holder may
have by reason of this Agreement, including, without limitation, the right to
consent to the waiver or modification of any obligation under this Agreement,
and such Holder shall not incur any liability to any other holder of any
securities of the Company as a result of exercising or refraining from
exercising any such right or rights.
5.10 DELAYS OR OMISSIONS. No delay or omission to exercise any rights,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such rights, power or remedy of
such non-breaching party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
<PAGE> 12
-12-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CONCORD COMMUNICATIONS INC.
By: /s/ Anthony M. Helies
----------------------------------------
President
PURCHASERS:
DOME INVESTMENT GROUP
By: /s/
----------------------------------------
Title: General Partner
FLEET VENTURE RESOURCES, INC.
By: /s/
----------------------------------------
Title: President
GRACE VENTURES CORP.
By: /s/ Charles G. Bauer
----------------------------------------
Title: Vice President
THE SCOTTISH INVESTMENT TRUST
For and on behalf of
The Scottish Investment Trust PLC
By: /s/ Harding
----------------------------------------
Title: Secretary
DELAWARE TRUST COMPANY
Agent for Robert R.M. Carpenter
By: /s/ Leigh Hill
----------------------------------------
Title: Senior Trust Officer
DELAWARE TRUST COMPANY
Agent for Keith P. Carpenter
By: /s/ Leigh Hill
----------------------------------------
Title: Senior Trust Officer
<PAGE> 13
- 13 -
DELAWARE TRUST COMPANY
Trustee for George Strawbridge, Jr.
By: /s/ Leigh Hill
----------------------------------------
Title: Senior Trust Officer
DELAWARE TRUST COMPANY
Trustee for Nina S. Strawbridge
By: /s/ Leigh Hill
----------------------------------------
Title: Senior Trust Officer
THE SCOTTISH MORTGAGE & TRUST
By: /s/ Baillie Gifford Sr.
----------------------------------------
Title: Secretary
BAILLIE, GIFFORD TECHNOLOGY, PLC
By: /s/ Baillie Gifford Sr.
----------------------------------------
Title: Secretary
MURRAY ELECTRONICS PLC
By: /s/ R.S. Peters
----------------------------------------
Title: Director
STEUBEN PARTNERS, L.P.
By: Fairfield Venture Partners II L.P.,
Its General Partner
By: /s/
----------------------------------------
Title: A General Partner
FAIRFIELD VENTURE CAPITAL FUND L.P.
By: Fairfield Venture Partners L.P.,
Its General Partner
By: /s/
----------------------------------------
Title:
<PAGE> 14
- 14 -
STEUBEN PARTNERS INTERNATIONAL
VENTURE FUND, L.P.
By: Fairfield Venture Partners II, L.P.
Its General Partner
By: /s/
-----------------------------------------
Title: A General Partner
PUTNAM INFORMATION SCIENCES TRUST
By: /s/
-----------------------------------------
Title:
/s/ Steven R. Finley
--------------------------------------------
Steven R. Finley
H&Q VENTURES INTERNATIONAL C.V.
By: Hambrecht & Quist Venture Partners
By: /s/
-----------------------------------------
Title: Attorney-in-fact
H&Q VENTURES IV
By: Hambrecht & Quist Venture Partners
By: /s/
-----------------------------------------
Title: General Partner
ANGLO-CONTINENTAL VENTURE INVESTORS S.A.
By: Hambrecht & Quist Venture Partners
By: /s/
-----------------------------------------
Title: Attorney-in-fact
H&Q INVESTORS
By: Hambrecht & Quist Management
Corporation, General Partner
By: /s/
-----------------------------------------
Title: Attorney-in-fact
<PAGE> 15
- 15 -
HAMQUIST
By: Hambrecht & Quist Group,
General Partner
By: /s/
-----------------------------------------
Title: Authorized Principal
HAMCO CAPITAL CORPORATION
By: /s/
-----------------------------------------
Title: Attorney-in-fact
H&Q ALLIANCE FUND
By: Hambrecht & Quist Group
General Partner
By: /s/
-----------------------------------------
Title: Authorized Principal
DBS NOMINEES PTE LTD. (as Nominee of
SINGACON INVESTMENTS PTE LTD)
By: /s/
-----------------------------------------
Title: Director
SINGACON INVESTMENTS PTE LTD.
By: /s/
-----------------------------------------
Title: General Manager
/s/ Robert T. Wall
--------------------------------------------
Robert T. Wall
FIRST VENTURE CAPITAL CORPORATION OF BOSTON
By: /s/
-----------------------------------------
Title:
MD CO.
By: /s/
-----------------------------------------
Title: Partner
<PAGE> 16
- 16 -
ADVENT V
By: TA Associates V, General Partner
By: /s/ Michael G. Rivene
-----------------------------------------
Title: General Partner
ADVENT IV
By: TA Associates IV, General Partner
By: /s/ Michael G. Rivene
-----------------------------------------
Title: Authorized Signator
SOCIETE INTERNATIONALE DE FINANCE
(A-B ACCOUNT)
By: TA Associates IV, Attorney-in-fact
By: /s/ Michael G. Rivene
-----------------------------------------
Title: Authorized Signator
B.V. BEVER BELEGGINGEN
By: /s/
-----------------------------------------
Title: Attorney-in-fact
THE FIRST NATIONAL BANK OF BOSTON CUSTODIAN
FOR GESELLSCHAFT DES BURGERLICHEN RECHTS ZUR
VERWALTUNG VON U.S.-WERTPAPIEREN
By: /s/ Bob Shea
-----------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON CUSTODIAN
FOR CHESTNUT CAPITAL INTERNATIONAL LTD.
By: /s/ Bob Shea
-----------------------------------------
Title:
B.U.N.P.
By: /s/
-----------------------------------------
Title: Partner
<PAGE> 17
- 17 -
BROOKE & COMPANY, INC. PROFIT SHARING TRUST
f/b/o P. ANDREWS MCLANE
By: /s/ Michael E. Evans
-----------------------------------------
Title: Trustee
VISTA I, L.P.
By: Vista Partners L.P.
By: /s/ Gerald B. Bay
-----------------------------------------
Title: General Partner
FLEET VENTURE RESOURCES, INC.
By: /s/
-----------------------------------------
Title:
PIONEER CAPITAL CORPORATION
By: /s/
-----------------------------------------
Title: Vice President
FIRST VENTURE CAPITAL CORPORATION OF BOSTON
By: /s/
-----------------------------------------
Title:
/s/ Frank M. Polestra
--------------------------------------------
Frank M. Polestra
SOUTH EAST ASIA VENTURE INVESTMENT
COMPANY N.V.
By: /s/ S.H. Haight
-----------------------------------------
Title:
VENTURE INVESTMENT (SINGAPORE) PTE. LTD.
By: /s/ S.H. Haight
-----------------------------------------
Title:
<PAGE> 18
\ - 18 -
VENTURE MANUFACTURING (SINGAPORE) PTE. LTD.
By: /s/ S.H. Haight
-----------------------------------------
Title:
KANEMATSU-GOSHO (USA), INC.
By: /s/ Richard R. Jeykel
-----------------------------------------
Title: Vice President
KANEMATSU-GOSHO LTD.
By: /s/
-----------------------------------------
Title: General Manager, Electronics
Division
BATTERY VENTURES, L.P.
By: ABF Partners, L.P.
By: /s/ Richard B. Frisbie
-----------------------------------------
Title: General Partner
TVM TECHNO VENTURE ENTERPRISES NO. 1 LIMITED
PARTNERSHIP
By: /s/ Michael L. Schiavo
-----------------------------------------
Title: Attorney-in-fact
VAN GOGH LIMITED
By: /s/
-----------------------------------------
Title: Managing Director
CASE POMEROY & CO., INC.
By: /s/ R.W. McDaniel
-----------------------------------------
Title: Attorney-in-fact
FIRST CENTURY PARTNERSHIP III
By: /s/ Michael J. Myers
-----------------------------------------
Title: General Partner
<PAGE> 19
- 19 -
/s/ C. Sage Givens
--------------------------------------------
C. Sage Givens
/s/ David S. Lobel
--------------------------------------------
David S. Lobel
/s/ Lisa Roumell
--------------------------------------------
Lisa Roumell
/s/ Geoffrey Y. Yang
--------------------------------------------
Geoffrey Y. Yang
EUROPEAN DEVELOPMENT CAPITAL LIMITED
PARTNERSHIP
By: /s/ H. Mollemet
-----------------------------------------
Title: General Partner
WFG-HARVEST PARTNERS
By: /s/ H. Mollemet
-----------------------------------------
Title:
ASEA-HARVEST PARTNERS I
By: /s/ H. Mollemet
-----------------------------------------
Title: General Partner
NORO VENTURE PARTNERS IV
By: /s/ H. Mollemet
-----------------------------------------
Title: General Partner
767 VCI VENTURES NV
By: /s/ Leonard Gerbar
-----------------------------------------
Title: Attorney-in-fact
BOHLEN CAPITAL CORPORATION
By: /s/ H. Mollemet
-----------------------------------------
Title: Vice President
<PAGE> 20
- 20 -
NORDIC INVESTORS LIMITED
By: DIC Capital Corp.
By: /s/ J.A. Prizri
-----------------------------------------
Title: Managing Director
PROCORDIA-HARVEST PARTNERS I
By: /s/ H. Mollemet
-----------------------------------------
Title: General Partner
EVERGREEN I LIMITED PARTNERSHIP
By its General Partner:
Back Bay Partners L.P.
By One of its General Partners:
John Hancock Venture Capital
Management, Inc.
By: /s/ Nancy C. Raulston
-----------------------------------------
Title: Associate
JOHN HANCOCK VENTURE CAPITAL LIMITED
PARTNERSHIP II
By its General Partner:
Back Bay Partners L.P. II
By one of its General Partners:
John Hancock Venture Capital
By: /s/ Nancy C. Raulston
-----------------------------------------
Title: Associate
<PAGE> 1
Exhibit 10.13
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
December 28, 1995
To each of the several Purchasers named in Schedule I to the
Series B Convertible Preferred Stock Purchase Agreement of
even date herewith
Dear Sirs:
This will confirm that in consideration of your agreement on the date
hereof to purchase an aggregate of up to 4,479,613 shares (the "Series B
Preferred Shares") of Series B Convertible Preferred Stock, $.01 par value
("Series B Preferred Stock"), of Concord Communications, Inc., a Massachusetts
corporation (the "Company"), pursuant to the Series B Convertible Preferred
Stock Purchase Agreement of even date herewith (the "Purchase Agreement")
between the Company and you and as an inducement to you to consummate the
transactions contemplated by the Purchase Agreement, the Company covenants and
agrees with each of you as follows:
1. TERMINATION OF 1993 AGREEMENT. Certain of the parties hereto agree to
amend and restate in its entirety the Registration Rights Agreement dated
November 8, 1993, as amended by an Amendment No. 1 dated December 9, 1994 (the
"1993 Agreement") with this Agreement.
1A. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Stock, $.01 par value, of the
Company, as constituted as of the date of this Agreement.
"CONVERSION SHARES" shall mean shares of Common Stock issued upon
conversion of the Preferred Shares.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"PREFERRED SHARES" shall mean the Preferred Stock held by the
Purchasers and any parties to the 1993 Agreement who are not Purchasers.
"PREFERRED STOCK" shall mean the Company's Series A Convertible
Preferred Stock, $.01 par value, Series A-1 Convertible Preferred Stock,
$.01 par value, and Series B Preferred Stock.
<PAGE> 2
-2-
"REGISTRATION EXPENSES" shall mean the expenses so described in
Section 8.
"RESTRICTED STOCK" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and
disposed of in accordance with the registration statement covering them or
(b) publicly sold pursuant to Rule 144 under the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean the expenses so described in
Section 8.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred
Shares or Conversion Shares shall, except as otherwise provided in this
Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT
AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault
shall be satisfactory) the securities being sold thereby may be publicly sold
without registration under the Securities Act and any applicable state
securities laws.
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of any
Preferred Shares or Conversion Shares (other than under the circumstances
described in Sections 4, 5 or 6), the holder thereof shall give written notice
to the Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company (it
being agreed that Testa, Hurwitz & Thibeault shall be satisfactory) to the
effect that the proposed transfer may be effected without registration under the
Securities Act and any applicable state securities laws, whereupon the holder of
such stock shall be entitled to transfer such stock in accordance with the terms
of its notice; PROVIDED, HOWEVER, that no such opinion of counsel shall be
required for a transfer to one or more partners of the transferor (in the case
of a transferor that is a partnership) or to an affiliated corporation (in the
case of a transferor that is a corporation). Each certificate for Preferred
Shares or Conversion Shares transferred as above provided shall bear the legend
set forth in Section 2, except that such certificate shall not bear such legend
if (i) such transfer is in accordance with the provisions of Rule 144 or Rule
144A (or any other rule
<PAGE> 3
-3-
permitting public sale without registration under the Securities Act) or (ii)
the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to transfer such securities in a public sale without
registration under the Securities Act. The restrictions provided for in this
Section 3 shall not apply to securities which are not required to bear the
legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. REQUIRED REGISTRATION. (a) At any time after the earlier of (i) six
months after any registration statement covering a public offering of securities
of the Company under the Securities Act shall have become effective, and (ii)
November 8, 1996, the holders of Restricted Stock constituting at least 40% of
the total shares of Restricted Stock then outstanding may request the Company to
register under the Securities Act all or any portion of the shares of Restricted
Stock held by such requesting holder or holders for sale in the manner specified
in such notice, PROVIDED that the shares of Restricted Stock for which
registration has been requested shall constitute at least 20% of the total
shares of Restricted Stock originally issued if such holder or holders shall
request the registration of less than all shares of Restricted Stock then held
by such holder or holders (or any lesser percentage if the reasonably
anticipated aggregate price to the public of such public offering would exceed
$5,000,000). For purposes of this Section 4 and Sections 5, 6, 13(a) and 13(d),
the term "Restricted Stock" shall be deemed to include the number of shares of
Restricted Stock which would be issuable to a holder of Preferred Shares upon
conversion of all shares of Preferred Stock held by such holder at such time,
PROVIDED, HOWEVER, that the only securities which the Company shall be required
to register pursuant hereto shall be shares of Common Stock, and PROVIDED,
FURTHER, HOWEVER, that, in any underwritten public offering contemplated by this
Section 4 or Sections 5 and 6, the holders of Preferred Shares shall be entitled
to sell such Preferred Shares to the underwriters for conversion and sale of the
shares of Common Stock issued upon conversion thereof. Notwithstanding anything
to the contrary contained herein, no request may be made under this Section 4
within 120 days after the effective date of a registration statement filed by
the Company covering a firm commitment underwritten public offering in which the
holders of Restricted Stock shall have been entitled to join pursuant to
Sections 5 or 6 and in which there shall have been effectively registered all
shares of Restricted Stock as to which registration shall have been requested.
(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to register Restricted Stock
pursuant to this Section 4 on two occasions only, PROVIDED, HOWEVER, that such
obligation shall be deemed satisfied only when a registration statement covering
all shares of Restricted Stock specified in notices received as aforesaid, for
sale in accordance with the method of disposition specified by
<PAGE> 4
-4-
the requesting holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. Except for registration statements
on Form S-4, S-8 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders, from the date of
receipt of a notice from requesting holders pursuant to this Section 4 until the
completion of the period of distribution of the registration contemplated
thereby.
5. INCIDENTAL REGISTRATION. If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so requested
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holder of such Restricted Stock so registered.
In the event that any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
(pro rata among the requesting holders based upon the number of shares of
Restricted Stock owned by such holders) if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would adversely affect
the marketing of the securities to be sold by the Company therein, PROVIDED,
HOWEVER, that such number of shares of Restricted Stock shall not be reduced if
any shares are to be included in such underwriting for the account of any person
other than the Company or requesting holders of Restricted Stock except that if
any shares which have the benefit of a certain Registration Rights Agreement
dated August 7, 1986 are to be included in such underwriting, then the number of
shares of Restricted Stock to be included may be reduced on a pro rata basis
among the requesting holders of Restricted Stock and the holders of such other
shares based upon the aggregate number of shares of Conversion Shares and Common
Stock owned by such persons, and PROVIDED, FURTHER, HOWEVER, that in no event
may less than one-third of the total number of shares of Common Stock to be
included in such underwriting be made available for shares of Restricted Stock.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby incurring
any liability to the holders of Restricted Stock.
<PAGE> 5
-5-
6. REGISTRATION ON FORM S-3. If at any time (i) a holder or holders of
Preferred Shares or Restricted Stock request that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the shares of Restricted Stock held by such
requesting holder or holders, the reasonably anticipated aggregate price to the
public of which would exceed $1,000,000, and (ii) the Company is a registrant
entitled to use Form S-3 or any successor thereto to register such shares, then
the Company shall use its best efforts to register under the Securities Act on
Form S-3 or any successor thereto, for public sale in accordance with the method
of disposition specified in such notice, the number of shares of Restricted
Stock specified in such notice. Whenever the Company is required by this Section
6 to use its best efforts to effect the registration of Restricted Stock, each
of the procedures and requirements of Section 4 (including but not limited to
the requirement that the Company notify all holders of Restricted Stock from
whom notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration, PROVIDED,
HOWEVER, that there shall be no limitation on the number of registrations on
Form S-3 which may be requested and obtained under this Section 6, and PROVIDED,
FURTHER, HOWEVER, that the requirements contained in the first sentence of
Section 4(a) shall not apply to any registration on Form S-3 which may be
requested and obtained under this Section 6.
7. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
PROVIDED, HOWEVER, that the Company shall not for any such
<PAGE> 6
-6-
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained 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 light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
<PAGE> 7
-7-
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of Restricted
Stock will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. EXPENSES. All expenses incurred by the Company in complying with
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance and fees and
disbursements of one counsel for the sellers of Restricted Stock, but excluding
any Selling Expenses, are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Restricted Stock are
called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of a registration of
any of the Restricted Stock under the Securities Act pursuant to Sections 4, 5
or 6, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement
<PAGE> 8
-8-
thereof, or arise out of or are based upon 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, and will reimburse each such seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, PROVIDED, HOWEVER,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon 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, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
PROVIDED, FURTHER, HOWEVER, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such seller under such registration statement bears to the total public
offering price of all securities sold thereunder, but not in any event to exceed
the proceeds received by such seller from the sale of Restricted Stock covered
by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it
<PAGE> 9
-9-
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, PROVIDED,
HOWEVER, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; PROVIDED, HOWEVER, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
10. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often as, there
is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions
<PAGE> 10
-10-
hereof so that the rights and privileges granted hereby shall continue with
respect to the Common Stock or the Preferred Stock as so changed.
11. 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 Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
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;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
13. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Shares or Restricted Stock), whether so
expressed or not, PROVIDED, HOWEVER, that registration rights
<PAGE> 11
-11-
conferred herein on the holders of Preferred Shares or Restricted Stock shall
only inure to the benefit of a transferee of Preferred Shares or Restricted
Stock if (i) there is transferred to such transferee at least 20% of the total
shares of Restricted Stock originally issued pursuant to the Purchase Agreement
or the Series A Convertible Preferred Stock Purchase Agreement dated November 8,
1993, as amended ("1993 Purchase Agreement"), as applicable, to the direct or
indirect transferor of such transferee or (ii) such transferee is a partner,
shareholder or affiliate of a party hereto.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
if to the Company or any other party hereto, at the address of such
party set forth in the Purchase Agreement or in the 1993 Purchase
Agreement with respect to any party who is not a Purchaser;
if to any subsequent holder of Preferred Shares or Restricted Stock,
to it at such address as may have been furnished to the Company in writing
by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Shares or
Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in
the case of the Company) in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least two-thirds of the outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted
Stock under Sections 4, 5 or 6 shall terminate on the fifteenth anniversary of
the date of this Agreement.
(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement (including any party to the
1993 Agreement who is not a Purchaser) shall agree not to sell publicly any
shares of Restricted Stock or any other shares of Common Stock (other than
shares of Restricted Stock or other shares of Common Stock being registered in
such offering), without the consent of such underwriters, for a period of not
more than 120 days
<PAGE> 12
following the effective date of the registration statement relating to such
offering; PROVIDED, HOWEVER, that all persons entitled to registration rights
with respect to shares of Common Stock who are not parties to this Agreement,
all other persons selling shares of Common Stock in such offering, all persons
holding in excess of 1% of the capital stock of the Company on a fully diluted
basis and all executive officers and directors of the Company shall also have
agreed not to sell publicly their Common Stock under the circumstances and
pursuant to the terms set forth in this Section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 24-month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of the Company, should not be disclosed.
(i) The Company shall not grant to any third party any registration
rights more favorable than any of those contained herein, so long as any of the
registration rights under this Agreement remains in effect.
(j) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
<PAGE> 13
-13-
[SIGNATURE PAGES TO REGISTRATION RIGHTS AGREEMENT]
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
CONCORD COMMUNICATIONS, INC.
By:/s/ JOHN A. BLAESER
-------------------
Title: President
<PAGE> 14
-14-
AGREED TO AND ACCEPTED as of the date first
above written.
Purchasers named in Schedule I to the
Purchase Agreement:
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: CHARLES RIVER VII GP LIMITED PARTNERSHIP
----------------------------------------
Its: General Partner
By: /s/ R.M. BURNES
----------------------------------------
General Partner
APEX INVESTMENT FUND II, L.P.
By: Apex Management Partnership, L.P.
Its: General Partner
By: /s/
----------------------------------------
General Partner
THE PRODUCTIVITY FUND II, L.P.
By: First Analysis Management Co. II
Its: General Partner
By: First Analysis Corporation,
General Partner
By: /s/
----------------------------------------
<PAGE> 15
-15-
CANAAN VENTURES II LIMITED PARTNERSHIP
By: Canaan Venture Partners II L.P.
Its: General Partner
By: /s/
----------------------------------------
General Partner
CANAAN VENTURES II OFFSHORE C.V.
By: Canaan Venture Partners II L.P.
Its: General Partner
By: /s/
----------------------------------------
General Partner
PIONEER VENTURES LIMITED PARTNERSHIP
By: Pioneer SBIC Corp.
Its: General Partner
By: /s/ L.W. DIEK
----------------------------------------
L.W. Diek
Vice President
MASSACHUSETTS TECHNOLOGY
DEVELOPMENT CORPORATION
By: /s/ ROBERT J. CREEDON
----------------------------------------
Vice President
<PAGE> 16
-16-
JOHN HANCOCK VENTURE CAPITAL
FUND LIMITED PARTNERSHIP II
By: its General Partner:
Back Bay Partners L.P. II
By: One of Its General Partners:
Hancock Venture Partners, Inc.
By: /s/ ROBERT M. WADSWORTH
----------------------------------------
Vice President
BATTERY VENTURES L.P.
By: /s/ RICH FRISBEE
----------------------------------------
EVERGREEN I LIMITED PARTNERSHIP
By: its General Partner:
Back Bay Partners L.P.
By: One of Its General Partners:
Hancock Venture Partners, Inc.
By: /s/ ROBERT M. WADSWORTH
----------------------------------------
Vice President
B.U.N.P
By: /s/ JOHN E. BAGALY
----------------------------------------
BAY PARTNERS IV
By: Bay Management Company IV, L.P.
General Partner
By: /s/ JOHN GORCH
----------------------------------------
General Partner
<PAGE> 17
-17-
CALIFORNIA BPIV, L.P.
By: /s/ JOHN GORCH
----------------------------------------
General Partner
BAY PARTNERS SBIC, L.P.
By: Bay Management Company 1995,
General Partner
By: /s/ JAY FREEDMAN
----------------------------------------
General Partner
/s/ ANTHONY M. HELIES
Anthony M. Helies
GRACE VENTURES CORP.
By: /s/ ROBERT E. PERDIGO
----------------------------------------
Robert E. Perdigo
Executive Vice President
<PAGE> 1
Exhibit 10.14
MANAGEMENT CHANGE IN CONTROL AGREEMENT
MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 7th day of
August, 1997, by and among Concord Communications, Inc., a Massachusetts
corporation ("Concord"), and the undersigned employee of Concord, John A.
Blaeser (the "Employee").
WITNESSETH:
WHEREAS, Concord and the Employee desire to set forth certain terms and
conditions relating to benefits to be afforded to Employee upon the occurrence
of a Change in Control (as hereinafter defined) of Concord;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. SEVERANCE AND OPTION ACCELERATION. (a) During the Term (as
hereinafter defined), if within six (6) months of a Change in Control of
Concord, Concord (or any successor corporation) terminates (each, a "Termination
Event") the Employee's employment without Cause (as hereinafter defined) or the
Employee voluntarily terminates his employment for Good Reason (as hereinafter
defined), the Employee shall receive a single severance payment in cash in an
amount equal to twelve months' base annual salary (at the rate being paid to him
immediately prior to such termination) (the "Severance Benefit"). The Employee
shall not be entitled to continue to receive (i) any other salary or bonus in
the event of a termination for any reason or (ii) any other employee benefits
(other than those specified in the following sentence) in the event of a
termination for any reason. Notwithstanding the foregoing, Concord shall
continue to pay Concord's share of the Employee's health insurance in accordance
with Concord's general policies for a period of six months following any
Termination Event.
(b) "Good Reason" means the occurrence of one or more of the
following events during the Term and following a Change in Control:
(i) Without the Employee's express written consent,
Concord shall reduce the Employee's duties and
responsibilities from those assigned to the Employee
immediately prior to the Change in Control; or
(ii) Without the Employee's express written consent,
Concord shall require the Employee to have his principal
location of work changed to any location which is in excess of
60 miles from the location thereof immediately prior to the
Change in Control; or
<PAGE> 2
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(iii) Without the Employee's express written consent,
Concord shall materially reduce the Employee's benefits under
existing benefit plans, unless there is a concurrent reduction
uniformly among all persons entitled to such benefits.
(c) Effective upon the date immediately following any Change in
Control of Concord, the "Full Vest" date(s) set forth in each of the Employee's
then outstanding Notice of Option Grant shall be automatically accelerated by
twenty-four (24) months. Notwithstanding the foregoing, if within twenty-four
(24) months after a Change in Control there is a Termination Event, all of the
Employee's unvested options (but only such options as have been granted to the
Employee by Concord as of the date of the Change in Control or such options as
have been exchanged by the Employee for new options in any acquiring company at
the time of a Change in Control) shall automatically become fully vested as of
the date of such Termination Event. This Section 1 shall modify and supersede
Section 3 of each of the Employee's Notice of Option Grants, other than the
Option Agreements of the Employee dated as of January 1, 1996 containing the
reference numbers B9601-059 and B9601-006 which shall remain in full force and
effect.
(d) For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time any of the following events shall occur:
(A) Concord is merged, consolidated or reorganized
into or with another corporation or other legal person, and
as a result of such merger, consolidation or reorganization
less than a majority of the combined voting power of the
then-outstanding securities of the combined corporation or
person immediately after such transaction are held in the
aggregate by the holders of the combined voting power of
the then-outstanding securities entitled to vote generally
in the election of directors of Concord ("Voting Stock")
immediately prior to such transaction;
(B) Concord sells or otherwise transfers all or
substantially all of its assets to any other corporation or
other legal person, and less than a majority of the
combined voting power of the then-outstanding securities of
such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of the
Voting Stock of Concord immediately prior to such sale or
transfer;
(C) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Exchange Act of 1934
(the "1934 Act"), disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of
the 1934 Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the 1934
Act) of securities representing 33% or more of the Voting
Stock; or
<PAGE> 3
-3-
(D) Concord files a report or proxy statement with
the Securities and Exchange Commission pursuant to the 1934
Act disclosing in response to Form 8-K or Schedule 14A (or
any successor schedule, form or report or item therein)
that a change in control of Concord has or may have
occurred or will or may occur in the future pursuant to any
then-existing contract or transaction.
PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section
1, a "Change in Control" shall not be deemed to have occurred for purposes of
this Agreement solely because (i) Concord, (ii) an entity in which Concord
directly or indirectly beneficially owns 50% or more of the voting securities,
(iii) any Concord sponsored employee stock ownership plan or any other employee
benefit plan of Concord, or (iv) any corporation or legal person approved by the
Board of Directors prior to the occurrence of the event that, absent such
approval by the Board of Directors, would have constituted a Change in Control,
either files or becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the 1934 Act,
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 33% or otherwise, or because Concord reports that a change in control
of Concord has or may have occurred or will or may occur in the future by reason
of such beneficial ownership.
(e) Notwithstanding anything to the contrary in this Agreement, if
the Employee is a Disqualified Individual (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) and if any portion of
any acceleration of vesting, payment or transfer of property under this
Agreement would be an Excess Parachute Payment (as defined in Section 280G of
the Code) but for the application of this sentence, then the amount of such
acceleration, payment or transfer otherwise payable to the Employee pursuant to
this Agreement shall be reduced to the minimum extent necessary (but in no event
to less than zero) so that no portion of such payment, as so reduced,
constitutes an Excess Parachute Payment; provided, however, that no reduction
shall be made if the net economic effect would be disadvantageous to the
Employee, taking into account all the facts and circumstances including any tax
savings resulting from the reduction.
2. TERMINATION. (a) Concord may, immediately and unilaterally,
terminate the Employee's employment hereunder for "Cause" at any time. As used
in this Agreement, the term "Cause" shall mean:
(i) the Employee's willful and substantial
misconduct with respect to the business and affairs of
Concord, or any subsidiary or affiliate thereof;
(ii) the Employee's gross neglect of duties,
dishonesty, deliberate disregard of any material rule or
policy of Concord or the commission by the Employee of any
other action with the intent to injure Concord, or any
subsidiary or affiliate thereof;
(iii) the Employee's commission of an act involving
embezzlement or fraud or commission of a felony; or
<PAGE> 4
-4-
(iv) the commission of an act which induces any
customer of Concord to breach a contract or purchase order
with Concord, or any subsidiary or affiliate thereof.
In the event of a termination for "Cause" as described herein, the
Employee shall not be entitled to severance or other termination benefits,
including, without limitation, the benefits described in Section 1 herein.
(b) The Employee's employment shall automatically terminate upon his
death and may be terminated by Concord due to his disability. If the Employee
dies or his employment is terminated due to disability during the Term, then
Employee shall be eligible for such benefits as shall apply to employees of
Concord generally under such circumstances at the time of such termination.
As used in this Agreement, the term "disability" shall mean the
occurrence of a mental or physical condition which renders the Employee
incapable of performing his duties for a total of six consecutive months.
(c) The Employee understands that, prior to any Change in Control,
Concord may terminate the Employee with or without "Cause" at any time and that
upon any such termination the Employee shall not be entitled to any severance or
other termination benefits. Following any Change in Control, Concord may also
terminate the Employee with or without "Cause" at any time subject to the
Employee's rights and Concord's obligations specified in this Agreement.
3. NO OBLIGATION OF EMPLOYMENT. Employee understands that the
employment relationship between Employee and Concord will be "at will" and that
Concord may terminate such relationship with or without Cause or for any reason
or no reason.
4. NONCOMPETITION AGREEMENT. Employee shall execute concurrently
herewith the form of Noncompetition Agreement attached hereto as EXHIBIT A.
5. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby
represents and warrants that he has obtained all waivers and/or consents from
third parties which are necessary to enable him to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party.
6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the Commonwealth of Massachusetts and
this Agreement shall be deemed to be performable in Massachusetts.
<PAGE> 5
-5-
7. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and this Agreement shall
be construed to the maximum extent permitted by law.
8. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and
the rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 8. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought.
9. ASSIGNMENT. The Employee may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The rights and
obligations of Concord under this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and assigns of Concord.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties relating to the subject matter hereof and
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between the Employee and Concord relating to the subject matter hereof;
provided, however, that the Employee's (i) existing option agreements, as
modified hereby, and (ii) Shareholder Agreement dated December 28, 1995, each
shall remain in effect.
11. NOTICES. All notices hereunder shall be in writing and shall be
delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to Concord, to: Concord Communications, Inc.
33 Boston Post Road West
Marlboro, MA 01752
Attention: Gary E. Haroian
With a copy to:
Louis J. Marett, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the
signature page hereto.
<PAGE> 6
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12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13. SECTION HEADINGS. The descriptive section headings herein have
been inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.
14. TERM. The term of this Agreement (the "Term") shall commence
upon the date hereof and terminate upon the earlier of (i) twenty-four (24)
months following any Change in Control of Concord, (ii) the date prior to any
Change in Control of Concord that the Employee for any reason ceases to be an
employee of Concord and (iii) the date following any Change in Control of
Concord that the Employee is terminated for Cause or voluntary terminates his
employment (other than for Good Reason).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CONCORD COMMUNICATIONS, INC.
By:/s/ Gary E. Haroian
---------------------------
Name: Gary E. Haroian
Title: Vice President
EMPLOYEE
/s/ John A. Blaeser
------------------------------
Name: John A. Blaeser
Address: 21 Georgetown Road
Boxford, MA 01921
<PAGE> 8
EMPLOYEE NONCOMPETITION AGREEMENT
In consideration and as a condition of my continued employment, I
hereby agree with Concord Communications, Inc. ("Concord") as follows:
1. During the period of my employment by Concord (the "Employment
Period"), I will devote my full working time and best efforts to the business of
Concord. Further, (i) for as long as I am an employee of Concord and (ii) for
the period beginning as of the date of the occurrence of a Change in Control
through and including the date to occur which is six months following the date
upon which I am no longer an employee of Concord, I agree that I will not,
directly or indirectly, alone or as a partner, officer, director, employee or
stockholder of any entity (except that I may own not more than 1% of the
outstanding shares of any publicly-traded company), engage in any business
activity which is in competition with the products or services being developed,
manufactured or sold by Concord. The provisions of clause (ii) of the preceding
sentence shall (A) apply only if following a Change in Control my employment
with Concord shall have been terminated (1) without cause or for cause pursuant
to Section 2 of my Management Change in Control Agreement of even date herewith
or (2) for "Good Reason" (as that term is defined in my Management Change in
Control Agreement) and (B) not apply if I shall have voluntarily terminated my
employment with Concord. The period following the termination of my employment
during which the restrictions described above shall apply (the "Post-employment
Period") shall be extended by the length of any period of time during the
Post-employment Period during which I am in violation of this paragraph. Nothing
contained herein shall exclude me from participating in civic, charitable,
religious or non-profit activities so long as such activities do not interfere
with the performance of my duties to Concord.
2. I agree that any breach of this Agreement by me will cause
irreparable damage to Concord and that in the event of such breach Concord shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder. I further agree and acknowledge that the post-employment
non-competition provision set forth in Paragraph 1 hereof, and the remedies set
forth in this paragraph, are necessary and reasonable to protect the business of
Concord.
3. I understand that this Agreement does not create an obligation on
Concord or any other person or entity to continue my employment.
4. No claim of mine against Concord shall serve as a defense against
Concord's enforcement of any provision of this Agreement.
5. I hereby represent that I am not a party to, or bound by the terms
of, any agreement with any previous employer, other than Concord, or other party
to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of my employment with Concord or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party, which would prevent me from performing
services to or for Concord in any material way. I further represent that my
performance of all the terms of this Agreement and as an employee of Concord
does not and will not breach any agreement to
<PAGE> 9
keep in confidence proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with Concord, and I will not
disclose to Concord or induce Concord to use any confidential or proprietary
information or material belonging to any previous employer or others. I have not
entered into, and I agree I will not enter into, any agreement, either written
or oral, in conflict with the terms of this Agreement.
6. Any waiver by Concord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the termination
of my employment regardless of the manner of such termination.
9. The term "Concord" as used herein shall also include Concord's
subsidiaries, subdivisions or affiliates. Concord shall have the right to assign
this Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns.
10. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts. Any claims or legal
actions by one party against the other arising out of the relationship between
the parties contemplated herein (whether or not arising under this Agreement)
shall be governed by the laws of the Commonwealth of Massachusetts and shall be
commenced and maintained in any state or federal court located in Massachusetts,
and both parties hereby submit to the jurisdiction and venue of any such court.
11. Capitalized terms used herein and not otherwise defined shall have
the meanings provided in the Management Change in Control Agreement of even date
herewith.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the 7th day of August, 1997.
/s/ John A. Blaeser
---------------------------
Name: John A. Blaeser
<PAGE> 1
Exhibit 10.15
MANAGEMENT CHANGE IN CONTROL AGREEMENT
MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 23rd day of
July, 1997, by and among Concord Communications, Inc., a Massachusetts
corporation ("Concord"), and the undersigned employee of Concord, Kevin J.
Conklin (the "Employee").
WITNESSETH:
WHEREAS, Concord and the Employee desire to set forth certain terms and
conditions relating to benefits to be afforded to Employee upon the occurrence
of a Change in Control (as hereinafter defined) of Concord;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. SEVERANCE AND OPTION ACCELERATION. (a) During the Term (as
hereinafter defined), if within six (6) months of a Change in Control of
Concord, Concord (or any successor corporation) terminates (each, a "Termination
Event") the Employee's employment without Cause (as hereinafter defined) or the
Employee voluntarily terminates his employment for Good Reason (as hereinafter
defined), the Employee shall receive a single severance payment in cash in an
amount equal to six months' base annual salary (at the rate being paid to him
immediately prior to such termination) (the "Severance Benefit"). The Employee
shall not be entitled to continue to receive (i) any other salary or bonus in
the event of a termination for any reason or (ii) any other employee benefits
(other than those specified in the following sentence) in the event of a
termination for any reason. Notwithstanding the foregoing, Concord shall
continue to pay Concord's share of the Employee's health insurance in accordance
with Concord's general policies for a period of six months following any
Termination Event.
(b) "Good Reason" means the occurrence of one or more of the
following events during the Term and following a Change in Control:
(i) Without the Employee's express written consent,
Concord shall reduce the Employee's duties and
responsibilities from those assigned to the Employee
immediately prior to the Change in Control; or
(ii) Without the Employee's express written consent,
Concord shall require the Employee to have his principal
location of work changed to any location which is in excess of
60 miles from the location thereof immediately prior to the
Change in Control; or
<PAGE> 2
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(iii) Without the Employee's express written consent,
Concord shall materially reduce the Employee's benefits under
existing benefit plans, unless there is a concurrent reduction
uniformly among all persons entitled to such benefits.
(c) Effective upon the date immediately following any Change in
Control of Concord, the "Full Vest" date(s) set forth in each of the Employee's
then outstanding Notice of Option Grant shall be automatically accelerated by
twenty-four (24) months. Notwithstanding the foregoing, if within twenty-four
(24) months after a Change in Control there is a Termination Event, all of the
Employee's unvested options (but only such options as have been granted to the
Employee by Concord as of the date of the Change in Control or such options as
have been exchanged by the Employee for new options in any acquiring company at
the time of a Change in Control) shall automatically become fully vested as of
the date of such Termination Event. This Section 1 shall modify and supersede
Section 3 of each of the Employee's Notice of Option Grants.
(d) For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time any of the following events shall occur:
(A) Concord is merged, consolidated or reorganized
into or with another corporation or other legal person, and as
a result of such merger, consolidation or reorganization less
than a majority of the combined voting power of the
then-outstanding securities of the combined corporation or
person immediately after such transaction are held in the
aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the
election of directors of Concord ("Voting Stock") immediately
prior to such transaction;
(B) Concord sells or otherwise transfers all or
substantially all of its assets to any other corporation or
other legal person, and less than a majority of the combined
voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of the Voting Stock of
Concord immediately prior to such sale or transfer;
(C) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Exchange Act of 1934 (the
"1934 Act"), disclosing that any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the 1934
Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the 1934 Act) of securities
representing 33% or more of the Voting Stock; or
<PAGE> 3
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(D) Concord files a report or proxy statement with
the Securities and Exchange Commission pursuant to the 1934
Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
change in control of Concord has or may have occurred or will
or may occur in the future pursuant to any then-existing
contract or transaction.
PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section
1, a "Change in Control" shall not be deemed to have occurred for purposes of
this Agreement solely because (i) Concord, (ii) an entity in which Concord
directly or indirectly beneficially owns 50% or more of the voting securities,
(iii) any Concord sponsored employee stock ownership plan or any other employee
benefit plan of Concord, or (iv) any corporation or legal person approved by the
Board of Directors prior to the occurrence of the event that, absent such
approval by the Board of Directors, would have constituted a Change in Control,
either files or becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the 1934 Act,
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 33% or otherwise, or because Concord reports that a change in control
of Concord has or may have occurred or will or may occur in the future by reason
of such beneficial ownership.
(e) Notwithstanding anything to the contrary in this Agreement, if
the Employee is a Disqualified Individual (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) and if any portion of
any acceleration of vesting, payment or transfer of property under this
Agreement would be an Excess Parachute Payment (as defined in Section 280G of
the Code) but for the application of this sentence, then the amount of such
acceleration, payment or transfer otherwise payable to the Employee pursuant to
this Agreement shall be reduced to the minimum extent necessary (but in no event
to less than zero) so that no portion of such payment, as so reduced,
constitutes an Excess Parachute Payment; provided, however, that no reduction
shall be made if the net economic effect would be disadvantageous to the
Employee, taking into account all the facts and circumstances including any tax
savings resulting from the reduction.
2. TERMINATION. (a) Concord may, immediately and unilaterally,
terminate the Employee's employment hereunder for "Cause" at any time. As used
in this Agreement, the term "Cause" shall mean:
(i) the Employee's willful and substantial
misconduct with respect to the business and affairs of
Concord, or any subsidiary or affiliate thereof;
(ii) the Employee's gross neglect of duties,
dishonesty, deliberate disregard of any material rule or
policy of Concord or the commission by the Employee of any
other action with the intent to injure Concord, or any
subsidiary or affiliate thereof;
(iii) the Employee's commission of an act involving
embezzlement or fraud or commission of a felony; or
<PAGE> 4
(iv) the commission of an act which induces any
customer of Concord to breach a contract or purchase order
with Concord, or any subsidiary or affiliate thereof.
In the event of a termination for "Cause" as described herein, the
Employee shall not be entitled to severance or other termination benefits,
including, without limitation, the benefits described in Section 1 herein.
(b) The Employee's employment shall automatically terminate upon
his death and may be terminated by Concord due to his disability. If the
Employee dies or his employment is terminated due to disability during the Term,
then Employee shall be eligible for such benefits as shall apply to employees of
Concord generally under such circumstances at the time of such termination.
As used in this Agreement, the term "disability" shall mean the
occurrence of a mental or physical condition which renders the Employee
incapable of performing his duties for a total of six consecutive months.
(c) The Employee understands that, prior to any Change in Control,
Concord may terminate the Employee with or without "Cause" at any time and that
upon any such termination the Employee shall not be entitled to any severance or
other termination benefits. Following any Change in Control, Concord may also
terminate the Employee with or without "Cause" at any time subject to the
Employee's rights and Concord's obligations specified in this Agreement.
3. NO OBLIGATION OF EMPLOYMENT. Employee understands that the
employment relationship between Employee and Concord will be "at will" and that
Concord may terminate such relationship with or without Cause or for any reason
or no reason.
4. NONCOMPETITION AGREEMENT. Employee shall execute concurrently
herewith the form of Noncompetition Agreement attached hereto as EXHIBIT A.
5. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby
represents and warrants that he has obtained all waivers and/or consents from
third parties which are necessary to enable him to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party.
6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts and this Agreement shall be deemed to be performable in
Massachusetts.
<PAGE> 5
-5-
7. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and this Agreement shall
be construed to the maximum extent permitted by law.
8. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and
the rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 8. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought.
9. ASSIGNMENT. The Employee may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The rights and
obligations of Concord under this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and assigns of Concord.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties relating to the subject matter hereof and
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between the Employee and Concord relating to the subject matter hereof;
provided, however, that the Employee's existing option agreements, as modified
hereby, shall remain in effect.
11. NOTICES. All notices hereunder shall be in writing and shall
be delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to Concord, to: Concord Communications, Inc.
33 Boston Post Road West
Marlboro, MA 01752
Attention: John A. Blaeser
With a copy to:
Louis J. Marett, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the
signature page hereto.
<PAGE> 6
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12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13. SECTION HEADINGS. The descriptive section headings herein
have been inserted for convenience only and shall not be deemed to define,
limit, or otherwise affect the construction of any provision hereof.
14. TERM. The term of this Agreement (the "Term") shall commence
upon the date hereof and terminate upon the earlier of (i) twenty-four (24)
months following any Change in Control of Concord, (ii) the date prior to any
Change in Control of Concord that the Employee for any reason ceases to be an
employee of Concord and (iii) the date following any Change in Control of
Concord that the Employee is terminated for Cause or voluntary terminates his
employment (other than for Good Reason).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
-7-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CONCORD COMMUNICATIONS, INC.
By: /s/ JOHN A. BLAESER
---------------------------------------
Name: John A. Blaeser
Title: President
EMPLOYEE
/s/ KEVIN J. CONKLIN
--------------------------------------------
Name: Kevin J. Conklin
Address: 75 Green Road
Bolton, MA 01740
<PAGE> 8
EMPLOYEE NONCOMPETITION AGREEMENT
In consideration and as a condition of my continued employment, I
hereby agree with Concord Communications, Inc. ("Concord") as follows:
1. During the period of my employment by Concord (the "Employment
Period"), I will devote my full working time and best efforts to the business of
Concord. Further, (i) for as long as I am an employee of Concord and (ii) for
the period beginning as of the date of the occurrence of a Change in Control
through and including the date to occur which is six months following the date
upon which I am no longer an employee of Concord, I agree that I will not,
directly or indirectly, alone or as a partner, officer, director, employee or
stockholder of any entity (except that I may own not more than 1% of the
outstanding shares of any publicly-traded company), engage in any business
activity which is in competition with the products or services being developed,
manufactured or sold by Concord. The provisions of clause (ii) of the preceding
sentence shall (A) apply only if following a Change in Control my employment
with Concord shall have been terminated (1) without cause or for cause pursuant
to Section 2 of my Management Change in Control Agreement of even date herewith
or (2) for "Good Reason" (as that term is defined in my Management Change in
Control Agreement) and (B) not apply if I shall have voluntarily terminated my
employment with Concord. The period following the termination of my employment
during which the restrictions described above shall apply (the "Post-employment
Period") shall be extended by the length of any period of time during the
Post-employment Period during which I am in violation of this paragraph. Nothing
contained herein shall exclude me from participating in civic, charitable,
religious or non-profit activities so long as such activities do not interfere
with the performance of my duties to Concord.
2. I agree that any breach of this Agreement by me will cause
irreparable damage to Concord and that in the event of such breach Concord shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder. I further agree and acknowledge that the post-employment
non-competition provision set forth in Paragraph 1 hereof, and the remedies set
forth in this paragraph, are necessary and reasonable to protect the business of
Concord.
3. I understand that this Agreement does not create an obligation on
Concord or any other person or entity to continue my employment.
4. No claim of mine against Concord shall serve as a defense against
Concord's enforcement of any provision of this Agreement.
5. I hereby represent that I am not a party to, or bound by the terms
of, any agreement with any previous employer, other than Concord, or other party
to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of my employment with Concord or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party, which would prevent me from performing
services to or for Concord in any material way. I further represent that my
performance of all the terms of this Agreement and as an employee of Concord
does not and will not breach any agreement to
<PAGE> 9
-2-
keep in confidence proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with Concord, and I will not
disclose to Concord or induce Concord to use any confidential or proprietary
information or material belonging to any previous employer or others. I have not
entered into, and I agree I will not enter into, any agreement, either written
or oral, in conflict with the terms of this Agreement.
6. Any waiver by Concord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the
termination of my employment regardless of the manner of such termination.
9. The term "Concord" as used herein shall also include Concord's
subsidiaries, subdivisions or affiliates. Concord shall have the right to assign
this Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns.
10. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts. Any claims or legal
actions by one party against the other arising out of the relationship between
the parties contemplated herein (whether or not arising under this Agreement)
shall be governed by the laws of the Commonwealth of Massachusetts and shall be
commenced and maintained in any state or federal court located in Massachusetts,
and both parties hereby submit to the jurisdiction and venue of any such court.
11. Capitalized terms used herein and not otherwise defined shall
have the meanings provided in the Management Change in Control Agreement of even
date herewith.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the 23rd day of July, 1997.
/s/ KEVIN J. CONKLIN
-----------------------------------
Name: Kevin J. Conklin
<PAGE> 1
Exhibit 10.16
MANAGEMENT CHANGE IN CONTROL AGREEMENT
MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 23rd day of
July, 1997, by and among Concord Communications, Inc., a Massachusetts
corporation ("Concord"), and the undersigned employee of Concord, Ferdinand
Engel (the "Employee").
WITNESSETH:
WHEREAS, Concord and the Employee desire to set forth certain terms and
conditions relating to benefits to be afforded to Employee upon the occurrence
of a Change in Control (as hereinafter defined) of Concord;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. SEVERANCE AND OPTION ACCELERATION. (a) During the Term (as
hereinafter defined), if within six (6) months of a Change in Control of
Concord, Concord (or any successor corporation) terminates (each, a "Termination
Event") the Employee's employment without Cause (as hereinafter defined) or the
Employee voluntarily terminates his employment for Good Reason (as hereinafter
defined), the Employee shall receive a single severance payment in cash in an
amount equal to six months' base annual salary (at the rate being paid to him
immediately prior to such termination) (the "Severance Benefit"). The Employee
shall not be entitled to continue to receive (i) any other salary or bonus in
the event of a termination for any reason or (ii) any other employee benefits
(other than those specified in the following sentence) in the event of a
termination for any reason. Notwithstanding the foregoing, Concord shall
continue to pay Concord's share of the Employee's health insurance in accordance
with Concord's general policies for a period of six months following any
Termination Event.
(b) "Good Reason" means the occurrence of one or more of the
following events during the Term and following a Change in Control:
(i) Without the Employee's express written consent,
Concord shall reduce the Employee's duties and
responsibilities from those assigned to the Employee
immediately prior to the Change in Control; or
(ii) Without the Employee's express written consent,
Concord shall require the Employee to have his principal
location of work changed to any location which is in excess of
60 miles from the location thereof immediately prior to the
Change in Control; or
<PAGE> 2
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(iii) Without the Employee's express written consent,
Concord shall materially reduce the Employee's benefits under
existing benefit plans, unless there is a concurrent reduction
uniformly among all persons entitled to such benefits.
(c) Effective upon the date immediately following any Change in
Control of Concord, the "Full Vest" date(s) set forth in each of the Employee's
then outstanding Notice of Option Grant shall be automatically accelerated by
twenty-four (24) months. Notwithstanding the foregoing, if within twenty-four
(24) months after a Change in Control there is a Termination Event, all of the
Employee's unvested options (but only such options as have been granted to the
Employee by Concord as of the date of the Change in Control or such options as
have been exchanged by the Employee for new options in any acquiring company at
the time of a Change in Control) shall automatically become fully vested as of
the date of such Termination Event. This Section 1 shall modify and supersede
Section 3 of each of the Employee's Notice of Option Grants.
(d) For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time any of the following events shall occur:
(A) Concord is merged, consolidated or reorganized
into or with another corporation or other legal person, and as
a result of such merger, consolidation or reorganization less
than a majority of the combined voting power of the
then-outstanding securities of the combined corporation or
person immediately after such transaction are held in the
aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the
election of directors of Concord ("Voting Stock") immediately
prior to such transaction;
(B) Concord sells or otherwise transfers all or
substantially all of its assets to any other corporation or
other legal person, and less than a majority of the combined
voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of the Voting Stock of
Concord immediately prior to such sale or transfer;
(C) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Exchange Act of 1934 (the
"1934 Act"), disclosing that any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the 1934
Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the 1934 Act) of securities
representing 33% or more of the Voting Stock; or
<PAGE> 3
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(D) Concord files a report or proxy statement with
the Securities and Exchange Commission pursuant to the 1934
Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
change in control of Concord has or may have occurred or will
or may occur in the future pursuant to any then-existing
contract or transaction.
PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section
1, a "Change in Control" shall not be deemed to have occurred for purposes of
this Agreement solely because (i) Concord, (ii) an entity in which Concord
directly or indirectly beneficially owns 50% or more of the voting securities,
(iii) any Concord sponsored employee stock ownership plan or any other employee
benefit plan of Concord, or (iv) any corporation or legal person approved by the
Board of Directors prior to the occurrence of the event that, absent such
approval by the Board of Directors, would have constituted a Change in Control,
either files or becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the 1934 Act,
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 33% or otherwise, or because Concord reports that a change in control
of Concord has or may have occurred or will or may occur in the future by reason
of such beneficial ownership.
(e) Notwithstanding anything to the contrary in this Agreement, if
the Employee is a Disqualified Individual (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) and if any portion of
any acceleration of vesting, payment or transfer of property under this
Agreement would be an Excess Parachute Payment (as defined in Section 280G of
the Code) but for the application of this sentence, then the amount of such
acceleration, payment or transfer otherwise payable to the Employee pursuant to
this Agreement shall be reduced to the minimum extent necessary (but in no event
to less than zero) so that no portion of such payment, as so reduced,
constitutes an Excess Parachute Payment; provided, however, that no reduction
shall be made if the net economic effect would be disadvantageous to the
Employee, taking into account all the facts and circumstances including any tax
savings resulting from the reduction.
2. TERMINATION. (a) Concord may, immediately and unilaterally,
terminate the Employee's employment hereunder for "Cause" at any time. As used
in this Agreement, the term "Cause" shall mean:
(i) the Employee's willful and substantial
misconduct with respect to the business and affairs of
Concord, or any subsidiary or affiliate thereof;
(ii) the Employee's gross neglect of duties,
dishonesty, deliberate disregard of any material rule or
policy of Concord or the commission by the Employee of any
other action with the intent to injure Concord, or any
subsidiary or affiliate thereof;
(iii) the Employee's commission of an act involving
embezzlement or fraud or commission of a felony; or
<PAGE> 4
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(iv) the commission of an act which induces any
customer of Concord to breach a contract or purchase order
with Concord, or any subsidiary or affiliate thereof.
In the event of a termination for "Cause" as described herein, the
Employee shall not be entitled to severance or other termination benefits,
including, without limitation, the benefits described in Section 1 herein.
(b) The Employee's employment shall automatically terminate upon
his death and may be terminated by Concord due to his disability. If the
Employee dies or his employment is terminated due to disability during the Term,
then Employee shall be eligible for such benefits as shall apply to employees of
Concord generally under such circumstances at the time of such termination.
As used in this Agreement, the term "disability" shall mean the
occurrence of a mental or physical condition which renders the Employee
incapable of performing his duties for a total of six consecutive months.
(c) The Employee understands that, prior to any Change in Control,
Concord may terminate the Employee with or without "Cause" at any time and that
upon any such termination the Employee shall not be entitled to any severance or
other termination benefits. Following any Change in Control, Concord may also
terminate the Employee with or without "Cause" at any time subject to the
Employee's rights and Concord's obligations specified in this Agreement.
3. NO OBLIGATION OF EMPLOYMENT. Employee understands that the
employment relationship between Employee and Concord will be "at will" and that
Concord may terminate such relationship with or without Cause or for any reason
or no reason.
4. NONCOMPETITION AGREEMENT. Employee shall execute concurrently
herewith the form of Noncompetition Agreement attached hereto as EXHIBIT A.
5. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby r
epresents and warrants that he has obtained all waivers and/or consents from
third parties which are necessary to enable him to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party.
6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts and this Agreement shall be deemed to be performable in
Massachusetts.
<PAGE> 5
-5-
7. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and this Agreement shall
be construed to the maximum extent permitted by law.
8. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and
the rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 8. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought.
9. ASSIGNMENT. The Employee may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The rights and
obligations of Concord under this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and assigns of Concord.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties relating to the subject matter hereof and
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between the Employee and Concord relating to the subject matter hereof;
provided, however, that the Employee's existing option agreements, as modified
hereby, shall remain in effect.
11. NOTICES. All notices hereunder shall be in writing and shall
fbe delivered in person or mailed by certified or registered mail, return
receipt requested, addressed as follows:
If to Concord, to: Concord Communications, Inc.
33 Boston Post Road West
Marlboro, MA 01752
Attention: John A. Blaeser
With a copy to:
Louis J. Marett, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the
signature page hereto.
<PAGE> 6
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12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13. SECTION HEADINGS. The descriptive section headings herein
have been inserted for convenience only and shall not be deemed to define,
limit, or otherwise affect the construction of any provision hereof.
14. TERM. The term of this Agreement (the "Term") shall commence
upon the date hereof and terminate upon the earlier of (i) twenty-four (24)
months following any Change in Control of Concord, (ii) the date prior to any
Change in Control of Concord that the Employee for any reason ceases to be an
employee of Concord and (iii) the date following any Change in Control of
Concord that the Employee is terminated for Cause or voluntary terminates his
employment (other than for Good Reason).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
-7-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CONCORD COMMUNICATIONS, INC.
By: /s/ JOHN A. BLAESER
----------------------------------------
Name: John A. Blaeser
Title: President
EMPLOYEE
/s/ FERDINAND ENGEL
--------------------------------------------
Name: Ferdinand Engel
Address: 21 Joseph Road
Northboro, MA 01532
<PAGE> 8
EMPLOYEE NONCOMPETITION AGREEMENT
In consideration and as a condition of my continued employment, I
hereby agree with Concord Communications, Inc. ("Concord") as follows:
1. During the period of my employment by Concord (the "Employment
Period"), I will devote my full working time and best efforts to the business of
Concord. Further, (i) for as long as I am an employee of Concord and (ii) for
the period beginning as of the date of the occurrence of a Change in Control
through and including the date to occur which is six months following the date
upon which I am no longer an employee of Concord, I agree that I will not,
directly or indirectly, alone or as a partner, officer, director, employee or
stockholder of any entity (except that I may own not more than 1% of the
outstanding shares of any publicly-traded company), engage in any business
activity which is in competition with the products or services being developed,
manufactured or sold by Concord. The provisions of clause (ii) of the preceding
sentence shall (A) apply only if following a Change in Control my employment
with Concord shall have been terminated (1) without cause or for cause pursuant
to Section 2 of my Management Change in Control Agreement of even date herewith
or (2) for "Good Reason" (as that term is defined in my Management Change in
Control Agreement) and (B) not apply if I shall have voluntarily terminated my
employment with Concord. The period following the termination of my employment
during which the restrictions described above shall apply (the "Post-employment
Period") shall be extended by the length of any period of time during the
Post-employment Period during which I am in violation of this paragraph. Nothing
contained herein shall exclude me from participating in civic, charitable,
religious or non-profit activities so long as such activities do not interfere
with the performance of my duties to Concord.
2. I agree that any breach of this Agreement by me will cause
irreparable damage to Concord and that in the event of such breach Concord shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder. I further agree and acknowledge that the post-employment
non-competition provision set forth in Paragraph 1 hereof, and the remedies set
forth in this paragraph, are necessary and reasonable to protect the business of
Concord.
3. I understand that this Agreement does not create an obligation
on Concord or any other person or entity to continue my employment.
4. No claim of mine against Concord shall serve as a defense
against Concord's enforcement of any provision of this Agreement.
5. I hereby represent that I am not a party to, or bound by the
terms of, any agreement with any previous employer, other than Concord, or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of my employment with Concord or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party, which would prevent me from performing
services to or for Concord in any material way. I further represent that my
performance of all the terms of this Agreement and as an employee of Concord
does not and will not breach any agreement to
<PAGE> 9
-2-
keep in confidence proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with Concord, and I will not
disclose to Concord or induce Concord to use any confidential or proprietary
information or material belonging to any previous employer or others. I have not
entered into, and I agree I will not enter into, any agreement, either written
or oral, in conflict with the terms of this Agreement.
6. Any waiver by Concord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the
termination of my employment regardless of the manner of such termination.
9. The term "Concord" as used herein shall also include Concord's
subsidiaries, subdivisions or affiliates. Concord shall have the right to assign
this Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns.
10. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts. Any claims or legal
actions by one party against the other arising out of the relationship between
the parties contemplated herein (whether or not arising under this Agreement)
shall be governed by the laws of the Commonwealth of Massachusetts and shall be
commenced and maintained in any state or federal court located in Massachusetts,
and both parties hereby submit to the jurisdiction and venue of any such court.
11. Capitalized terms used herein and not otherwise defined shall
have the meanings provided in the Management Change in Control Agreement of even
date herewith.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the 23rd day of July, 1997.
/s/ FERDINAND ENGEL
-------------------------------
Name: Ferdinand Engel
<PAGE> 1
Exhibit 10.17
MANAGEMENT CHANGE IN CONTROL AGREEMENT
MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 23rd day of
July, 1997, by and among Concord Communications, Inc., a Massachusetts
corporation ("Concord"), and the undersigned employee of Concord, Gary E.
Haroian (the "Employee").
WITNESSETH:
WHEREAS, Concord and the Employee desire to set forth certain terms and
conditions relating to benefits to be afforded to Employee upon the occurrence
of a Change in Control (as hereinafter defined) of Concord;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. SEVERANCE AND OPTION ACCELERATION. (a) During the Term (as
hereinafter defined), if within six (6) months of a Change in Control of
Concord, Concord (or any successor corporation) terminates (each, a "Termination
Event") the Employee's employment without Cause (as hereinafter defined) or the
Employee voluntarily terminates his employment for Good Reason (as hereinafter
defined), the Employee shall receive a single severance payment in cash in an
amount equal to six months' base annual salary (at the rate being paid to him
immediately prior to such termination) (the "Severance Benefit"). The Employee
shall not be entitled to continue to receive (i) any other salary or bonus in
the event of a termination for any reason or (ii) any other employee benefits
(other than those specified in the following sentence) in the event of a
termination for any reason. Notwithstanding the foregoing, Concord shall
continue to pay Concord's share of the Employee's health insurance in accordance
with Concord's general policies for a period of six months following any
Termination Event.
(b) "Good Reason" means the occurrence of one or more of the
following events during the Term and following a Change in Control:
(i) Without the Employee's express written consent,
Concord shall reduce the Employee's duties and
responsibilities from those assigned to the Employee
immediately prior to the Change in Control; or
(ii) Without the Employee's express written consent,
Concord shall require the Employee to have his principal
location of work changed to any location which is in excess of
60 miles from the location thereof immediately prior to the
Change in Control; or
<PAGE> 2
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(iii) Without the Employee's express written consent,
Concord shall materially reduce the Employee's benefits under
existing benefit plans, unless there is a concurrent reduction
uniformly among all persons entitled to such benefits.
(c) Effective upon the date immediately following any Change in
Control of Concord, the "Full Vest" date(s) set forth in each of the Employee's
then outstanding Notice of Option Grant shall be automatically accelerated by
twenty-four (24) months. Notwithstanding the foregoing, if within twenty-four
(24) months after a Change in Control there is a Termination Event, all of the
Employee's unvested options (but only such options as have been granted to the
Employee by Concord as of the date of the Change in Control or such options as
have been exchanged by the Employee for new options in any acquiring company at
the time of a Change in Control) shall automatically become fully vested as of
the date of such Termination Event.
(d) For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time any of the following events shall occur:
(A) Concord is merged, consolidated or reorganized
into or with another corporation or other legal person, and
as a result of such merger, consolidation or reorganization
less than a majority of the combined voting power of the
then-outstanding securities of the combined corporation or
person immediately after such transaction are held in the
aggregate by the holders of the combined voting power of
the then-outstanding securities entitled to vote generally
in the election of directors of Concord ("Voting Stock")
immediately prior to such transaction;
(B) Concord sells or otherwise transfers all or
substantially all of its assets to any other corporation or
other legal person, and less than a majority of the
combined voting power of the then-outstanding securities of
such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of the
Voting Stock of Concord immediately prior to such sale or
transfer;
(C) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Exchange Act of 1934
(the "1934 Act"), disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of
the 1934 Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the 1934
Act) of securities representing 33% or more of the Voting
Stock; or
<PAGE> 3
-3-
(D) Concord files a report or proxy statement with
the Securities and Exchange Commission pursuant to the 1934
Act disclosing in response to Form 8-K or Schedule 14A (or
any successor schedule, form or report or item therein)
that a change in control of Concord has or may have
occurred or will or may occur in the future pursuant to any
then-existing contract or transaction.
PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section
1, a "Change in Control" shall not be deemed to have occurred for purposes of
this Agreement solely because (i) Concord, (ii) an entity in which Concord
directly or indirectly beneficially owns 50% or more of the voting securities,
(iii) any Concord sponsored employee stock ownership plan or any other employee
benefit plan of Concord, or (iv) any corporation or legal person approved by the
Board of Directors prior to the occurrence of the event that, absent such
approval by the Board of Directors, would have constituted a Change in Control,
either files or becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the 1934 Act,
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 33% or otherwise, or because Concord reports that a change in control
of Concord has or may have occurred or will or may occur in the future by reason
of such beneficial ownership.
(e) Notwithstanding anything to the contrary in this Agreement, if
the Employee is a Disqualified Individual (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) and if any portion of
any acceleration of vesting, payment or transfer of property under this
Agreement would be an Excess Parachute Payment (as defined in Section 280G of
the Code) but for the application of this sentence, then the amount of such
acceleration, payment or transfer otherwise payable to the Employee pursuant to
this Agreement shall be reduced to the minimum extent necessary (but in no event
to less than zero) so that no portion of such payment, as so reduced,
constitutes an Excess Parachute Payment; provided, however, that no reduction
shall be made if the net economic effect would be disadvantageous to the
Employee, taking into account all the facts and circumstances including any tax
savings resulting from the reduction.
2. TERMINATION. (a) Concord may, immediately and unilaterally,
terminate the Employee's employment hereunder for "Cause" at any time. As used
in this Agreement, the term "Cause" shall mean:
(i) the Employee's willful and substantial
misconduct with respect to the business and affairs of
Concord, or any subsidiary or affiliate thereof;
(ii) the Employee's gross neglect of duties,
dishonesty, deliberate disregard of any material rule or
policy of Concord or the commission by the Employee of any
other action with the intent to injure Concord, or any
subsidiary or affiliate thereof;
(iii) the Employee's commission of an act involving
embezzlement or fraud or commission of a felony; or
<PAGE> 4
-4-
(iv) the commission of an act which induces any
customer of Concord to breach a contract or purchase order
with Concord, or any subsidiary or affiliate thereof.
In the event of a termination for "Cause" as described herein, the
Employee shall not be entitled to severance or other termination benefits,
including, without limitation, the benefits described in Section 1 herein.
(b) The Employee's employment shall automatically terminate upon
his death and may be terminated by Concord due to his disability. If the
Employee dies or his employment is terminated due to disability during the Term,
then Employee shall be eligible for such benefits as shall apply to employees of
Concord generally under such circumstances at the time of such termination.
As used in this Agreement, the term "disability" shall mean the
occurrence of a mental or physical condition which renders the Employee
incapable of performing his duties for a total of six consecutive months.
(c) The Employee understands that, prior to any Change in Control,
Concord may terminate the Employee with or without "Cause" at any time and that
upon any such termination the Employee shall not be entitled to any severance or
other termination benefits. Following any Change in Control, Concord may also
terminate the Employee with or without "Cause" at any time subject to the
Employee's rights and Concord's obligations specified in this Agreement.
3. NO OBLIGATION OF EMPLOYMENT. Employee understands that the
employment relationship between Employee and Concord will be "at will" and that
Concord may terminate such relationship with or without Cause or for any reason
or no reason.
4. NONCOMPETITION AGREEMENT. Employee shall execute concurrently
herewith the form of Noncompetition Agreement attached hereto as EXHIBIT A.
5. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby
represents and warrants that he has obtained all waivers and/or consents from
third parties which are necessary to enable him to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party.
6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts and this Agreement shall be deemed to be performable in
Massachusetts.
<PAGE> 5
-5-
7. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and this Agreement shall
be construed to the maximum extent permitted by law.
8. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and
the rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 8. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought.
9. ASSIGNMENT. The Employee may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The rights and
obligations of Concord under this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and assigns of Concord.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties relating to the subject matter hereof and
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between the Employee and Concord relating to the subject matter hereof;
provided, however, that the Employee's existing option agreements, as modified
hereby, shall remain in effect.
11. NOTICES. All notices hereunder shall be in writing and shall
be delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to Concord, to: Concord Communications, Inc.
33 Boston Post Road West
Marlboro, MA 01752
Attention: John A. Blaeser
With a copy to:
Louis J. Marett, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the
signature page hereto.
<PAGE> 6
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12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13. SECTION HEADINGS. The descriptive section headings herein
have been inserted for convenience only and shall not be deemed to define,
limit, or otherwise affect the construction of any provision hereof.
14. TERM. The term of this Agreement (the "Term") shall commence
upon the date hereof and terminate upon the earlier of (i) twenty-four (24)
months following any Change in Control of Concord, (ii) the date prior to any
Change in Control of Concord that the Employee for any reason ceases to be an
employee of Concord and (iii) the date following any Change in Control of
Concord that the Employee is terminated for Cause or voluntary terminates his
employment (other than for Good Reason).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CONCORD COMMUNICATIONS, INC.
By:/s/ JOHN A. BLAESER
----------------------------
Name: John A. Blaeser
Title: President
EMPLOYEE
/s/ GARY E. HAROIAN
-------------------------------
Name: Gary E. Haroian
Address: 31 Tammer Lane
Hopkinton, MA 01742
<PAGE> 8
EMPLOYEE NONCOMPETITION AGREEMENT
In consideration and as a condition of my continued employment, I
hereby agree with Concord Communications, Inc. ("Concord") as follows:
1. During the period of my employment by Concord (the "Employment
Period"), I will devote my full working time and best efforts to the business of
Concord. Further, (i) for as long as I am an employee of Concord and (ii) for
the period beginning as of the date of the occurrence of a Change in Control
through and including the date to occur which is six months following the date
upon which I am no longer an employee of Concord, I agree that I will not,
directly or indirectly, alone or as a partner, officer, director, employee or
stockholder of any entity (except that I may own not more than 1% of the
outstanding shares of any publicly-traded company), engage in any business
activity which is in competition with the products or services being developed,
manufactured or sold by Concord. The provisions of clause (ii) of the preceding
sentence shall (A) apply only if following a Change in Control my employment
with Concord shall have been terminated (1) without cause or for cause pursuant
to Section 2 of my Management Change in Control Agreement of even date herewith
or (2) for "Good Reason" (as that term is defined in my Management Change in
Control Agreement) and (B) not apply if I shall have voluntarily terminated my
employment with Concord. The period following the termination of my employment
during which the restrictions described above shall apply (the "Post-employment
Period") shall be extended by the length of any period of time during the
Post-employment Period during which I am in violation of this paragraph. Nothing
contained herein shall exclude me from participating in civic, charitable,
religious or non-profit activities so long as such activities do not interfere
with the performance of my duties to Concord.
2. I agree that any breach of this Agreement by me will cause
irreparable damage to Concord and that in the event of such breach Concord shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder. I further agree and acknowledge that the post-employment
non-competition provision set forth in Paragraph 1 hereof, and the remedies set
forth in this paragraph, are necessary and reasonable to protect the business of
Concord.
3. I understand that this Agreement does not create an obligation
on Concord or any other person or entity to continue my employment.
4. No claim of mine against Concord shall serve as a defense
against Concord's enforcement of any provision of this Agreement.
5. I hereby represent that I am not a party to, or bound by the
terms of, any agreement with any previous employer, other than Concord, or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of my employment with Concord or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party, which would prevent me from performing
services to or for Concord in any material way. I further represent that my
performance of all the terms of this Agreement and as an employee of Concord
does not and will not breach any agreement to
<PAGE> 9
keep in confidence proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with Concord, and I will not
disclose to Concord or induce Concord to use any confidential or proprietary
information or material belonging to any previous employer or others. I have not
entered into, and I agree I will not enter into, any agreement, either written
or oral, in conflict with the terms of this Agreement.
6. Any waiver by Concord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the
termination of my employment regardless of the manner of such termination.
9. The term "Concord" as used herein shall also include Concord's
subsidiaries, subdivisions or affiliates. Concord shall have the right to assign
this Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns.
10. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts. Any claims or legal
actions by one party against the other arising out of the relationship between
the parties contemplated herein (whether or not arising under this Agreement)
shall be governed by the laws of the Commonwealth of Massachusetts and shall be
commenced and maintained in any state or federal court located in Massachusetts,
and both parties hereby submit to the jurisdiction and venue of any such court.
11. Capitalized terms used herein and not otherwise defined shall
have the meanings provided in the Management Change in Control Agreement of even
date herewith.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the 23rd day of July, 1997.
/s/ GARY E. HAROIAN
-----------------------------------
Name: Gary E. Haroian
<PAGE> 1
Exhibit 10.18
MANAGEMENT CHANGE IN CONTROL AGREEMENT
MANAGEMENT CHANGE IN CONTROL AGREEMENT entered into this 23rd day of
July, 1997, by and among Concord Communications, Inc., a Massachusetts
corporation ("Concord"), and the undersigned employee of Concord, Daniel D.
Phillips, Jr. (the "Employee").
WITNESSETH:
WHEREAS, Concord and the Employee desire to set forth certain terms and
conditions relating to benefits to be afforded to Employee upon the occurrence
of a Change in Control (as hereinafter defined) of Concord;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. SEVERANCE AND OPTION ACCELERATION. (a) During the Term (as
hereinafter defined), if within six (6) months of a Change in Control of
Concord, Concord (or any successor corporation) terminates (each, a "Termination
Event") the Employee's employment without Cause (as hereinafter defined) or the
Employee voluntarily terminates his employment for Good Reason (as hereinafter
defined), the Employee shall receive a single severance payment in cash in an
amount equal to six months' base annual salary (at the rate being paid to him
immediately prior to such termination) (the "Severance Benefit"). The Employee
shall not be entitled to continue to receive (i) any other salary or bonus in
the event of a termination for any reason or (ii) any other employee benefits
(other than those specified in the following sentence) in the event of a
termination for any reason. Notwithstanding the foregoing, Concord shall
continue to pay Concord's share of the Employee's health insurance in accordance
with Concord's general policies for a period of six months following any
Termination Event.
(b) "Good Reason" means the occurrence of one or more of the
following events during the Term and following a Change in Control:
(i) Without the Employee's express written consent,
Concord shall reduce the Employee's duties and
responsibilities from those assigned to the Employee
immediately prior to the Change in Control; or
(ii) Without the Employee's express written consent,
Concord shall require the Employee to have his principal
location of work changed to any location which is in excess of
60 miles from the location thereof immediately prior to the
Change in Control; or
<PAGE> 2
-2-
(iii) Without the Employee's express written consent,
Concord shall materially reduce the Employee's benefits under
existing benefit plans, unless there is a concurrent reduction
uniformly among all persons entitled to such benefits.
(c) Effective upon the date immediately following any Change in
Control of Concord, the "Full Vest" date(s) set forth in each of the Employee's
then outstanding Notice of Option Grant shall be automatically accelerated by
twenty-four (24) months. Notwithstanding the foregoing, if within twenty-four
(24) months after a Change in Control there is a Termination Event, all of the
Employee's unvested options (but only such options as have been granted to the
Employee by Concord as of the date of the Change in Control or such options as
have been exchanged by the Employee for new options in any acquiring company at
the time of a Change in Control) shall automatically become fully vested as of
the date of such Termination Event. This Section 1 shall modify and supersede
Section 3 of each of the Employee's Notice of Option Grants.
(d) For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time any of the following events shall occur:
(A) Concord is merged, consolidated or reorganized
into or with another corporation or other legal person, and as
a result of such merger, consolidation or reorganization less
than a majority of the combined voting power of the
then-outstanding securities of the combined corporation or
person immediately after such transaction are held in the
aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the
election of directors of Concord ("Voting Stock") immediately
prior to such transaction;
(B) Concord sells or otherwise transfers all or
substantially all of its assets to any other corporation or
other legal person, and less than a majority of the combined
voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of the Voting Stock of
Concord immediately prior to such sale or transfer;
(C) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Exchange Act of 1934 (the
"1934 Act"), disclosing that any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the 1934
Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the 1934 Act) of securities
representing 33% or more of the Voting Stock; or
<PAGE> 3
-3-
(D) Concord files a report or proxy statement with
the Securities and Exchange Commission pursuant to the 1934
Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
change in control of Concord has or may have occurred or will
or may occur in the future pursuant to any then-existing
contract or transaction.
PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section
1, a "Change in Control" shall not be deemed to have occurred for purposes of
this Agreement solely because (i) Concord, (ii) an entity in which Concord
directly or indirectly beneficially owns 50% or more of the voting securities,
(iii) any Concord sponsored employee stock ownership plan or any other employee
benefit plan of Concord, or (iv) any corporation or legal person approved by the
Board of Directors prior to the occurrence of the event that, absent such
approval by the Board of Directors, would have constituted a Change in Control,
either files or becomes obligated to file a report or a proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the 1934 Act,
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 33% or otherwise, or because Concord reports that a change in control
of Concord has or may have occurred or will or may occur in the future by reason
of such beneficial ownership.
(e) Notwithstanding anything to the contrary in this Agreement, if
the Employee is a Disqualified Individual (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) and if any portion of
any acceleration of vesting, payment or transfer of property under this
Agreement would be an Excess Parachute Payment (as defined in Section 280G of
the Code) but for the application of this sentence, then the amount of such
acceleration, payment or transfer otherwise payable to the Employee pursuant to
this Agreement shall be reduced to the minimum extent necessary (but in no event
to less than zero) so that no portion of such payment, as so reduced,
constitutes an Excess Parachute Payment; provided, however, that no reduction
shall be made if the net economic effect would be disadvantageous to the
Employee, taking into account all the facts and circumstances including any tax
savings resulting from the reduction.
2. TERMINATION. (a) Concord may, immediately and unilaterally,
terminate the Employee's employment hereunder for "Cause" at any time. As used
in this Agreement, the term "Cause" shall mean:
(i) the Employee's willful and substantial
misconduct with respect to the business and affairs of
Concord, or any subsidiary or affiliate thereof;
(ii) the Employee's gross neglect of duties,
dishonesty, deliberate disregard of any material rule or
policy of Concord or the commission by the Employee of any
other action with the intent to injure Concord, or any
subsidiary or affiliate thereof;
(iii) the Employee's commission of an act involving
embezzlement or fraud or commission of a felony; or
<PAGE> 4
-4-
(iv) the commission of an act which induces any
customer of Concord to breach a contract or purchase order
with Concord, or any subsidiary or affiliate thereof.
In the event of a termination for "Cause" as described herein, the
Employee shall not be entitled to severance or other termination benefits,
including, without limitation, the benefits described in Section 1 herein.
(b) The Employee's employment shall automatically terminate upon
his death and may be terminated by Concord due to his disability. If the
Employee dies or his employment is terminated due to disability during the Term,
then Employee shall be eligible for such benefits as shall apply to employees of
Concord generally under such circumstances at the time of such termination.
As used in this Agreement, the term "disability" shall mean the
occurrence of a mental or physical condition which renders the Employee
incapable of performing his duties for a total of six consecutive months.
(c) The Employee understands that, prior to any Change in Control,
Concord may terminate the Employee with or without "Cause" at any time and that
upon any such termination the Employee shall not be entitled to any severance or
other termination benefits. Following any Change in Control, Concord may also
terminate the Employee with or without "Cause" at any time subject to the
Employee's rights and Concord's obligations specified in this Agreement.
3. NO OBLIGATION OF EMPLOYMENT. Employee understands that the
employment relationship between Employee and Concord will be "at will" and that
Concord may terminate such relationship with or without Cause or for any reason
or no reason.
4. NONCOMPETITION AGREEMENT. Employee shall execute concurrently
herewith the form of Noncompetition Agreement attached hereto as EXHIBIT A.
5. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby
represents and warrants that he has obtained all waivers and/or consents from
third parties which are necessary to enable him to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party.
6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts and this Agreement shall be deemed to be performable in
Massachusetts.
<PAGE> 5
-5-
7. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and this Agreement shall
be construed to the maximum extent permitted by law.
8. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and
the rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 8. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought.
9. ASSIGNMENT. The Employee may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The rights and
obligations of Concord under this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and assigns of Concord.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties relating to the subject matter hereof and
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between the Employee and Concord relating to the subject matter hereof;
provided, however, that the Employee's existing option agreements, as modified
hereby, shall remain in effect.
11. NOTICES. All notices hereunder shall be in writing and shall
be delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to Concord, to: Concord Communications, Inc.
33 Boston Post Road West
Marlboro, MA 01752
Attention: John A. Blaeser
With a copy to:
Louis J. Marett, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the
signature page hereto.
<PAGE> 6
-6-
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13. SECTION HEADINGS. The descriptive section headings herein have
been inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.
14. TERM. The term of this Agreement (the "Term") shall commence
upon the date hereof and terminate upon the earlier of (i) twenty-four (24)
months following any Change in Control of Concord, (ii) the date prior to any
Change in Control of Concord that the Employee for any reason ceases to be an
employee of Concord and (iii) the date following any Change in Control of
Concord that the Employee is terminated for Cause or voluntary terminates his
employment (other than for Good Reason).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
-7-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CONCORD COMMUNICATIONS, INC.
By: /s/ JOHN A. BLAESER
----------------------------
Name: John A. Blaeser
Title: President
EMPLOYEE
/s/ DANIEL D. PHILLIPS, JR.
--------------------------------
Name: Daniel D. Phillips, Jr.
Address: 72 Elm Street
Medfield, MA 02052
<PAGE> 8
EMPLOYEE NONCOMPETITION AGREEMENT
In consideration and as a condition of my continued employment, I
hereby agree with Concord Communications, Inc. ("Concord") as follows:
1. During the period of my employment by Concord (the "Employment
Period"), I will devote my full working time and best efforts to the business of
Concord. Further, (i) for as long as I am an employee of Concord and (ii) for
the period beginning as of the date of the occurrence of a Change in Control
through and including the date to occur which is six months following the date
upon which I am no longer an employee of Concord, I agree that I will not,
directly or indirectly, alone or as a partner, officer, director, employee or
stockholder of any entity (except that I may own not more than 1% of the
outstanding shares of any publicly-traded company), engage in any business
activity which is in competition with the products or services being developed,
manufactured or sold by Concord. The provisions of clause (ii) of the preceding
sentence shall (A) apply only if following a Change in Control my employment
with Concord shall have been terminated (1) without cause or for cause pursuant
to Section 2 of my Management Change in Control Agreement of even date herewith
or (2) for "Good Reason" (as that term is defined in my Management Change in
Control Agreement) and (B) not apply if I shall have voluntarily terminated my
employment with Concord. The period following the termination of my employment
during which the restrictions described above shall apply (the "Post-employment
Period") shall be extended by the length of any period of time during the
Post-employment Period during which I am in violation of this paragraph. Nothing
contained herein shall exclude me from participating in civic, charitable,
religious or non-profit activities so long as such activities do not interfere
with the performance of my duties to Concord.
2. I agree that any breach of this Agreement by me will cause
irreparable damage to Concord and that in the event of such breach Concord shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder. I further agree and acknowledge that the post-employment
non-competition provision set forth in Paragraph 1 hereof, and the remedies set
forth in this paragraph, are necessary and reasonable to protect the business of
Concord.
3. I understand that this Agreement does not create an obligation on
Concord or any other person or entity to continue my employment.
4. No claim of mine against Concord shall serve as a defense against
Concord's enforcement of any provision of this Agreement.
5. I hereby represent that I am not a party to, or bound by the terms
of, any agreement with any previous employer, other than Concord, or other party
to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of my employment with Concord or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party, which would prevent me from performing
services to or for Concord in any material way. I further represent that my
performance of all the terms of this Agreement and as an employee of Concord
does not and will not breach any agreement to
<PAGE> 9
-2-
keep in confidence proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with Concord, and I will not
disclose to Concord or induce Concord to use any confidential or proprietary
information or material belonging to any previous employer or others. I have not
entered into, and I agree I will not enter into, any agreement, either written
or oral, in conflict with the terms of this Agreement.
6. Any waiver by Concord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the termination
of my employment regardless of the manner of such termination.
9. The term "Concord" as used herein shall also include Concord's
subsidiaries, subdivisions or affiliates. Concord shall have the right to assign
this Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns.
10. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts. Any claims or legal
actions by one party against the other arising out of the relationship between
the parties contemplated herein (whether or not arising under this Agreement)
shall be governed by the laws of the Commonwealth of Massachusetts and shall be
commenced and maintained in any state or federal court located in Massachusetts,
and both parties hereby submit to the jurisdiction and venue of any such court.
11. Capitalized terms used herein and not otherwise defined shall have
the meanings provided in the Management Change in Control Agreement of even date
herewith.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the 23rd day of July, 1997.
/s/ DANIEL D. PHILLIPS, JR.
-----------------------------
Name: Daniel D. Phillips, Jr.
<PAGE> 1
Exhibit 10.19
John A. Blaeser Options - Full Vesting in the Event of Acquisition
of the Company or Termination as a Director
Option Number B9601-059
CONCORD COMMUNICATIONS, INC.
Stock Option Agreement
Concord Communications, Inc., a Massachusetts corporation (the "Company"),
hereby grants this 1st day of 1996 to John Blaeser (the "Employee") an Option
(the "Option") to purchase a maximum of 530,896 shares of its Common Stock, $.01
par value, at the price of .05 per share, on the following terms and conditions.
1. GRANT UNDER 1995 STOCK PLAN
This Option is granted pursuant to and is governed by the Company's
1995 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. In the event
of any inconsistency or conflict between this Agreement and the Plan,
the terms of the Plan shall govern.
2. OTHER OPTIONS
This Option is in addition to any other Options heretofore or hereafter
granted to the Employee by the Company, but a duplicate original of
this instrument shall not effect the grant of another Option.
3. EXTENT OF OPTION IF EMPLOYMENT CONTINUES
If the Employee continues to be employed by the Company on the following dates,
the Employee may exercise this Option for the number of shares set forth in the
schedule below:
<PAGE> 2
- 2 -
<TABLE>
<CAPTION>
Cumulative Cumulative
Shares Shares
Date Exercisable Date Exercisable
-------- ----------- -------- -----------
<S> <C> <C> <C>
01/01/96 0 04/01/98 298,629
04/01/96 0 07/01/98 331,810
07/01/96 0 10/01/98 364,991
10/01/96 0 01/01/99 398,172
01/01/97 132,724 04/01/99 431,353
04/01/97 165,905 07/01/99 464,534
07/01/97 199,086 10/01/99 497,715
10/01/97 232,267 01/01/00 530,896
01/01/98 265,448
</TABLE>
Provided, however, this Option shall become exercisable in full upon
the consolidation or merger of the Company with or into any other
entity (other than a consolidation or merger in which the Company is
the continuing corporation and which does not result in any
reclassification of, or change in, the outstanding shares of the
capital stock of the Company), or a sale, conveyance, or disposition of
all or substantially all of the assets of the Company.
The foregoing rights are cumulative and, while the Employee continues
to be employed by the Company, may be exercised up to and including the
date which is eight (8) years from the date this Option is granted. All
of the foregoing rights are subject to Sections 4 and 5 below, as
appropriate, if the Employee ceases to be employed by the Company or
becomes disabled or dies while in the employ of the Company.
If the Company becomes a party to a merger, consolidation,
reorganization or similar corporate transaction, the Company agrees to
send written notice of such event to the Employee. The Company agrees
to request for the holders of unexercised Options rights comparable to
those granted under the 1995 Plan but shall incur no liability for
failure to secure such rights.
4. TERMINATION OF EMPLOYMENT
If the Employee ceases to be employed by the Company other than by
reason of death, this Option shall terminate after the passage of sixty
(60) days from the date employment ceases, but in no event later than
the scheduled expiration date. In such a case, the Employee's only
rights hereunder shall be those which are properly exercised before the
termination of this Option.
5. DEATH OR DISABILITY
If the Employee dies while in the employ of the Company, this Option
may be exercised, to the extent of the number of shares with respect to
which the Employee could have
<PAGE> 3
- 3 -
exercised it on the date of his death, by his estate, personal
representative, or beneficiary to whom this option has been assigned
pursuant to Article 10, at any time within 180 days after the date of
death, but not later than the scheduled expiration date. If the
Employee ceases to be employed by the Company by reason of his
disability (as-defined in the Plan), this option may be exercised to
the extent of the number of shares with respect to which he could have
exercised it on the date of the termination of his employment, at any
time within 180 days after such termination, but not later than the
scheduled expiration date. At the expiration of such 180 day period or
the scheduled expiration date, whichever is earlier, this option shall
terminate and the only rights hereunder shall be those as to which the
option was properly exercised before such termination.
6. PARTIAL EXERCISE
Exercise of this Option up to the extent above stated may be made in
part at any time and from time to time within the above limits, except
that this Option may not be exercised for a fraction of a share unless
such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be
issued to permit the Employee to exercise completely such final
installment.
7. AGREEMENT TO PURCHASE FOR INVESTMENT
By acceptance of this Option, the Employee agrees that a purchase of
shares under this Option will not be made with a view to their
distribution, as that term is used in the Securities Act of 1933, as
amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of the Act, and the Employee agrees to sign a
certificate to such effect at the time of exercising this Option and
agrees that the certificate for the shares so purchased may be
inscribed with a legend to ensure compliance with the Act and with any
applicable state securities laws.
8. METHOD OF EXERCISING OPTION
Subject to the terms and conditions of this Agreement, this Option may
be exercised by written notice to the Company, at the principal
executive office of the Company, or to such transfer agent as the
Company shall designate. Such notice shall state the election to
exercise this option and the number of shares in respect of which it is
being exercised and shall be signed by the person or persons so
exercising this Option. Such notice shall be accompanied by payment of
the full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as
practicable after the notice and payment have been received. The
certificate or certificates for the shares as to which this Option
shall have been so exercised shall be registered in the name of the
person or persons so exercising this Option (or, if this Option shall
be exercised by the Employee and if the Employee shall so request in
the notice exercising this Option, shall be registered in the name of
the Employee and another person jointly, with right of
<PAGE> 4
- 4 -
survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising this Option. In the
event this Option shall be exercised, pursuant to Section 5 hereof, by
any person or persons other than the Employee, such notice shall be
accompanied by appropriate proof of the right of such person or persons
to exercise this Option. All shares that shall be purchased upon the
exercise of this Option as provided herein shall be fully paid and
nonassessable.
9. OPTION NOT TRANSFERABLE
This Option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime, only
the Employee can exercise this Option.
10. NO OBLIGATION TO EXERCISE OPTION
The grant and acceptance of this Option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT
The Company is not by the Plan or this Option obligated to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE
The Employee shall have no rights as a stockholder with respect to
shares subject to this Agreement until a stock certificate therefor has
been issued to the Employee and is fully paid for. Except as is
expressly provided in the Plan with respect to certain changes in the
capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to the
date such stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS
It is the purpose of this Option to encourage the Employee to work for
the best interest of the Company and its stockholders. Since, for
example, that might require the issuance of a stock dividend or a
merger with another corporation, the purpose of this Option would not
be served if such a stock dividend, merger, or similar occurrence would
cause the Employee's rights hereunder to be diluted or terminated and
thus be contrary to the Employee's interest. The Plan contains
extensive provisions designed to preserve options at full value in a
number of contingencies. Therefore, provisions in the Plan for
adjustments with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company
are hereby made applicable hereunder and are incorporated herein by
reference. In particular, without limiting the generality of the
foregoing, it is understood that for the purposes of Sections 3 and 5
<PAGE> 5
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hereof, both inclusive, employment by the Company includes employment
by a related corporation as described in the Plan.
14. EARLY DISPOSITION
The Employee agrees to notify the Company of any disposition of any
shares of Common Stock acquired on the exercise of this Option within
the two year period beginning on the date of grant or within one year
after the date of the transfer of such shares to the Employee. The
Employee also agrees to provide the Company with any information which
it shall request concerning any such Disposition. Employees who receive
incentive stock options will be disqualified under Section 422 of the
Code from receiving the favorable income tax treatment otherwise
available with respect to the exercise of such an option if they
dispose of the stock received on exercise of the option within either
of the one or two year periods described in the preceding sentence.
15. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the internal laws of Massachusetts.
IN WITNESS WHEREOF the Company and the Employee have caused this instrument to
be executed, and the Employee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this Agreement.
CONCORD COMMUNICATIONS, INC.
By: /s/
-------------------------------
/s/ John A. Blaeser
-----------------------------------
EMPLOYEE
<PAGE> 1
Exhibit 10.20
John A. Blaeser Options - Full Vesting in the Event of Acquisition
of the Company or Termination as a Director
Option Number B9601-006
CONCORD COMMUNICATIONS, INC.
Stock Option Agreement
Concord Communications, Inc., a Massachusetts corporation (the "Company"),
hereby grants this 1st day of 1996 to John Blaeser (the "Employee") an Option
(the "Option") to purchase a maximum of 563,139 shares of its Common Stock, $.01
par value, at the price of .05 per share, on the following terms and conditions.
1. GRANT UNDER 1995 STOCK PLAN
This Option is granted pursuant to and is governed by the Company's
1995 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this Option pursuant to the Plan
shall be governed by the Plan as it exists on this date. In the event
of any inconsistency or conflict between this Agreement and the Plan,
the terms of the Plan shall govern.
2. OTHER OPTIONS
This option is in addition to any other Options heretofore or hereafter
granted to the Employee by the Company, but a duplicate original of
this instrument shall not effect the grant of another Option.
3. EXTENT OF OPTION IF EMPLOYMENT CONTINUES
If the Employee continues to be employed by the Company on the
following dates, the Employee may exercise this Option for the number
of shares set forth in the schedule below:
<PAGE> 2
- 2 -
<TABLE>
<CAPTION>
Cumulative Cumulative
Shares Shares
Date Exercisable Date Exercisable
-------- ----------- -------- -----------
<S> <C> <C> <C>
01/01/96 18,396 04/01/98 344,165
04/01/96 26,045 07/01/98 377,739
07/01/96 45,402 10/01/98 411,311
10/01/96 62,905 01/01/99 444,883
01/01/97 172,092 04/01/99 478,457
04/01/97 206,506 07/01/99 510,326
07/01/97 240,921 10/01/99 537,993
10/01/97 275,337 01/01/00 563,139
01/01/98 309,751
</TABLE>
Provided, however, this Option shall become exercisable in full upon the first
to occur of the following:
(a) The consolidation or merger of the Company with or into any other
entity (other than a consolidation or merger in which the Company is
the continuing corporation and which does not result in any
reclassification of, or change in, the outstanding shares of the
capital stock of the Company), or a sale, conveyance, or disposition of
all or substantially all of the assets of the Company; and
(b) The time when the Employee shall cease to be a Director of the Company
other than by reason of death, disability or resignation.
The foregoing rights are cumulative and, while the Employee continues to be
employed by the Company, may be exercised up to and including the date which is
eight (8) years from the date this Option is granted. All of the foregoing
rights are subject to Sections 4 and 5 below, as appropriate, if the Employee
ceases to be employed by the Company or becomes disabled or dies while in the
employ of the Company.
If the Company becomes a party to a merger, consolidation, reorganization or
similar corporate transaction, the Company agrees to send written notice of such
event to the Employee. The Company agrees to request for the holders of
unexercised Options rights comparable to those granted under the 1995 Plan but
shall incur no liability for failure to secure such rights.
4. TERMINATION OF EMPLOYMENT
If the Employee ceases to be employed by the Company other than by
reason of death, this Option shall terminate after the passage of sixty
(60) days from the date employment ceases, but in no event later than
the scheduled expiration date. In such a case, the Employee's only
rights hereunder shall be those which are properly exercised before the
termination of this Option.
<PAGE> 3
- 3 -
5. DEATH OR DISABILITY
If the Employee dies while in the employ of the Company, this Option
may be exercised, to the extent of the number of shares with respect to
which the Employee could have exercised it on the date of his death, by
his estate, personal representative, or beneficiary to whom this Option
has been assigned pursuant to Article 10, at any time within 180 days
after the date of death, but not later than the scheduled expiration
date. If the Employee ceases to be employed by the Company by reason of
his disability (as defined in the Plan), this Option may be exercised
to the extent of the number of shares with respect to which he could
have exercised it on the date of the termination of his employment, at
any time within 180 days after such termination, but not later than the
scheduled expiration date. At the expiration of such 180 day period or
the scheduled expiration date, whichever is earlier, this Option shall
terminate and the only rights hereunder shall be those as to which the
Option was properly exercised before such termination.
6. PARTIAL EXERCISE
Exercise of this Option up to the extent above stated may be made in
part at any time and from time to time within the above limits, except
that this Option may not be exercised for a fraction of a share unless
such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be
issued to permit the Employee to exercise completely such final
installment.
7. AGREEMENT TO PURCHASE FOR INVESTMENT
By acceptance of this Option, the Employee agrees that a purchase of
shares under this Option will not be made with a view to their
distribution, as that term is used in the Securities Act of 1933, as
amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of the Act, and the Employee agrees to sign a
certificate to such effect at the time of exercising this Option and
agrees that the certificate for the shares so purchased may be
inscribed with a legend to ensure compliance with the Act and with any
applicable state securities laws.
8. METHOD OF EXERCISING OPTION
Subject to the terms and conditions of this Agreement, this Option may
be exercised by written notice to the Company, at the principal
executive office of the Company, or to such transfer agent as the
Company shall designate. Such notice shall state the election to
exercise this Option and the number of shares in respect of which it is
being exercised and shall be signed by the person or persons so
exercising this Option. Such notice shall be accompanied by payment of
the full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as
practicable after the notice and payment have been received. The
certificate or certificates for the
<PAGE> 4
- 4 -
shares as to which this Option shall have been so exercised shall be
registered in the name of the person or persons so exercising this
Option (or, if this Option shall be exercised by the Employee and if
the Employee shall so request in the notice exercising this Option,
shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided
above to or upon the written order of the person or persons exercising
this Option. In the event this Option shall be exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this Option. All shares that shall
be purchased upon the exercise of this Option as provided herein shall
be fully paid and nonassessable.
9. OPTION NOT TRANSFERABLE
This Option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime,
only the Employee can exercise this Option.
10. NO OBLIGATION TO EXERCISE OPTION
The grant and acceptance of this Option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT
The Company is not by the Plan or this Option obligated to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE
The Employee shall have no rights as a stockholder with respect to
shares subject to this Agreement until a stock certificate therefor has
been issued to the Employee and is fully paid for. Except as is
expressly provided in the Plan with respect to certain changes in the
capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to the
date such stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS
It is the purpose of this Option to encourage the Employee to work for
the best interest of the Company and its stockholders. Since, for
example, that might require the issuance of a stock dividend or a
merger with another corporation, the purpose of this Option would not
be served if such a stock dividend, merger, or similar occurrence would
cause the Employee's rights hereunder to be diluted or terminated and
thus be contrary to the Employee's interest. The Plan contains
extensive provisions designed to preserve Options at full value in a
number of contingencies. Therefore, provisions in the Plan for
adjustments with respect to stock subject to Options and the related
provisions with
<PAGE> 5
- 5 -
respect to successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference. In
particular, without limiting the generality of the foregoing, it is
understood that for the purposes of Sections 3 and 5 hereof, both
inclusive, employment by the Company includes employment by a related
corporation as described in the Plan.
14. EARLY DISPOSITION
The Employee agrees to notify the Company of any disposition of any
shares of Common Stock acquired on the exercise of this Option within
the two year period beginning on the date of grant or within one year
after the date of the transfer of such shares to the Employee. The
Employee also agrees to provide the Company with any information which
it shall request concerning any such disposition. Employees who receive
incentive stock options will be disqualified under Section 422 of the
Code from receiving the favorable income tax treatment otherwise
available with respect to the exercise of such an Option if they
dispose of the stock received on exercise of the Option within either
of the one or two year periods described in the preceding sentence.
15. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the internal laws of Massachusetts.
IN WITNESS WHEREOF the Company and the Employee have caused this instrument to
be executed, and the Employee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this Agreement.
CONCORD COMMUNICATIONS, INC.
By: /s/
-------------------------------
/s/ John A. Blaeser
-----------------------------------
EMPLOYEE
<PAGE> 1
Exhibit 10.21
March 25, 1996
Concord Communications, Inc.
Jack Blaeser, CEO
33 Boston Post Road West
Marlboro, MA 01752
Dear Jack:
We are pleased to inform you that Silicon Valley Bank, a California-chartered
bank ("Lender") with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, Massachusetts 02181 doing
business under the name "Silicon Valley East," has approved an equipment line of
credit in the amount of One Million and 00/100 Dollars ($1,000,000.00) (the
"Equipment Line") for use by Concord Communications, Inc., (the "Borrower")
subject to the following terms and to the Lender's periodic review.
The Equipment Line shall not become effective unless and until an executed copy
of this letter together with all necessary accompanying documentation as well as
the facility fee described below has been returned to the Lender, which must
take place within 30 days from the date of this letter.
Borrowings under the Equipment Line will be permitted through March 25, 1997
(the "Draw Period"). Borrower shall pay regular monthly payments of all accrued
interest due as of each payment date, beginning April 25, 1996 and all
subsequent interest payments will be due on the same day of each month
thereafter. The Equipment Line shall convert to a term loan payable in
thirty-six (36) even payments of principal plus interest beginning March 25,
1997, and all subsequent payments of principal plus interest will be due on the
same day of each month thereafter. The final payment, due March 25, 2000, shall
be for all outstanding principal plus all accrued interest not yet paid.
Borrowings under the Equipment Line shall be secured by a first security
interest in the Borrower's accounts receivable, inventory, machinery, equipment,
general intangibles all other assets, all monies, and all other property in
Lender's possession which Lender may use to pay Borrower's obligations.
At any time from the date hereof through the end of the Draw Period, Borrower
may request advances (each an "Advance" and collectively the "Advances") from
Lender in an aggregate amount not to exceed the principal amount of the Note. To
evidence the Advances, Borrower shall deliver to Lender, at the time of each
advance request, an invoice for the equipment to be purchased. The Advances
shall be used for purchases of equipment only and shall not exceed ninety
percent (90%) of the invoice amount approved from time to time by Lender,
excluding taxes, shipping and installation expenses. Software may, however,
comprise up to $300,000.00 of the Advances.
1
<PAGE> 2
Borrowings under the Equipment Line shall bear interest at a rate of two
percentage point (2.000%) over Lender's Prime Rate. Prime Rate means the rate
from time to time announced and made effective by Lender as its Prime Rate.
Borrower's interest rate shall change each time the Prime Rate changes. Interest
will be charged monthly in arrears and shall be calculated on a 360-day year.
Lender shall be authorized to debit Borrower's principal account or any other
account maintained by Borrower with Lender for any principal, interest or fees
associated with Borrower's Equipment Line with or without notice to Borrower.
Borrower shall pay to Lender a facility fee in the amount of Five Thousand and
00/100 Dollars ($5,000.00) for the Equipment Line, as well as all out-of-pocket
expenses incurred by Lender in connection with the establishment of the
Equipment Line, which must be paid at the time the documents are returned to
Lender.
Borrowings under the Equipment Line shall be secured by a security interest in
all of Borrower's assets pursuant to a Commercial Security Agreement of even
date and perfected pursuant to a UCC Financing Statement.
Any advances hereunder or renewal hereof will be made only if in the opinion of
the Lender there exists no default under any loan documentation executed by you
with the Lender. A default is as defined in the accompanying Promissory Note of
even date.
A. REQUIREMENTS.
1. AFFIRMATIVE COVENANTS. So long as the Equipment Line remains
outstanding, Borrower agrees to maintain the following
covenants:
a. To provide the Lender with duplicate unaudited
monthly financial statements, together with a
Compliance Certificate, prepared in accordance with
generally accepted accounting principals and
duplicate audited annual (consolidated and
consolidating) financial statements certified by
public accountants with an unqualified opinion, to be
received 25 and 90 days, respectively after the close
of the period. Notwithstanding the foregoing,
Borrower shall deliver its audited annual financial
statements for the fiscal year ended 1995 on or
before April 30, 1996.
b. LIQUIDITY - (Tested Quarterly) Maintain minimum
unrestricted cash plus eighty percent (80%) of
eligible accounts receivable under 90 days from date
of invoice, of $2,300,000.00.
C. PROFITABILITY - (Tested Quarterly) Borrower shall
achieve profitability on a quarterly basis.
Notwithstanding the foregoing, Borrower may incur
quarterly losses, provided such losses shall not to
exceed $1,300,000.00 for quarter ending March 31,
1996, decreasing to $1,200,000.00 for the quarter
ending June 30, 1996, further decreasing to
$900,000.00 for the quarter ending September 30,
1996, and further decreasing to $100,000.00 for the
quarter ending December 31, 1996. In addition, a
maximum loss of $2,500,000.00 shall be allowed for
the fiscal year ending December 31, 1996.
d. TANGIBLE NET WORTH - (Tested Quarterly) Maintain a
minimum Tangible Net Worth (TNW) of $2,000,000.00.
TNW is defined as Stockholders' Equity plus
Subordinated Debt (debt which is formally
subordinated to the Lender) less intangibles
(including but not limited to Goodwill, Capitalized
Software and Excess Purchase Costs).
2
<PAGE> 3
e. TOTAL LIABILITIES/TANGIBLE NET WORTH - (Tested
Quarterly) Maintain a ratio of Total Liabilities
divided by TNW not to exceed 1.00 to 1.00, increasing
to 1.25 to 1.00 beginning with the month ending April
30, 1996, and thereafter.
f. File all tax returns and to pay all taxes due.
g. Reimburse the Lender for any reasonable expenses
incurred by the Lender to enforce the terms of this
obligation.
h. Maintain adequate fire and liability insurance
satisfactory to the Lender, a copy of which shall be
forwarded to the Lender.
2. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not, without the
prior written consent of Lender.
a. Participate in any merger or consolidation or to pay
any dividends.
b. Dispose of any material assets other than in the
ordinary course of business.
c. Be in default of any other loan agreement with any
other bank.
d. File for protection under the Bankruptcy Code.
e. Directly or indirectly pledge, grant, create or
permit to exist any security interest, lien or other
encumbrance upon any of Borrower's assets except in
favor of the Lender. Without the Lender's prior
written consent, which will not be unreasonably
withheld.
f. Invest in any securities other than U.S. Treasury
securities, commercial paper and money market
instruments acceptable to the Lender, without the
Lender's prior written consent which will not be
unreasonably withheld.
g. Incur indebtedness for borrowed money, except for
either a) indebtedness to Silicon Valley Bank or
b)indebtedness incurred for the purchase or lease of
equipment.
If the Lender waives any rights under this Agreement, it will not affect any
future action the Lender may wish to take. This Agreement shall be binding upon
any of the Borrower's successors in interest. The laws of the Commonwealth of
Massachusetts shall apply to this Agreement. THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND,
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS LETTER AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON LENDER IS PROHIBITED FROM AVAILING ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA
CLARA COUNTY, CALIFORNIA. (INITIAL HERE [/s/ JB]) LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
3
<PAGE> 4
It is our understanding that the Borrower will consider the Silicon Valley Bank
to be one of its banks. Among other things, the Borrower agrees to maintain a
reasonable portion of its excess funds in Silicon Valley Bank.
This Agreement shall become effective only when it shall have been executed by
the Borrower and the Lender (provided, however, in no event shall this Agreement
become effective until signed by an officer of the Lender in California).
We are delighted to expand our relationship with Concord Communications, Inc.
and look forward to many successful years of working together.
Sincerely,
SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SILICON VALLEY BANK
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
(Signed at Santa Clara County, CA)
Agreed and Accepted this 25th day of March, 1996.
CONCORD COMMUNICATIONS, INC.
By: /s/ John A. Blaeser
------------------------------------
Name: John A. Blaeser
----------------------------------
Title: President
---------------------------------
4
<PAGE> 5
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of November 14,
1996, by and between Concord Communications, Inc. ("Borrower") whose address is
33 Boston Post Road West, Suite 400, Marlboro, MA 01752 and Silicon Valley
Bank, a California-chartered bank ("Lender"), with its principal place of
business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production
office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley
MA 02181 doing business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Lender, Borrower is indebted to Lender pursuant to,
among other documents, a Promissory Note, dated March 25, 1996 in the original
principal amount of One Million and 00/100 Dollars ($1,000,000.00), which may be
amended from time to time (the "Note). The Note, together with other promissory
notes from Borrower to Lender, is governed by the terms of a Letter Agreement,
dated March 25, 1996, between Borrower and Lender, as such agreement may be
amended from time to time (the "Loan Agreement"). Capitalized terms used but not
otherwise defined herein shall have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured by
a Commercial Security Agreement, dated March 25, 1996 (the "Security
Agreement").
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents". Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. Lender hereby waives Borrower's existing default
under the Loan Agreement by virtue of Borrower's
failure to comply with the Tangible Net Worth, the
Total Liabilities/Tangible Net Worth and the
Profitability covenants as of period ended June 30,
1996. Lender's waiver of Borrower's compliance of
these covenants shall apply only to the foregoing
period. Accordingly, for the quarter ended September
30, 1996, Borrower shall be in compliance with these
covenants, as modified herein.
Lender's agreement to waive the above-described
default (1) in no way shall be deemed an agreement by
the Lender to waive Borrower's compliance with the
above-described covenants as of all other dates and
(2) shall not limit or impair the Lender's right to
demand strict performance of these covenants as of
all other dates and (3) shall not limit or impair the
Lender's right to demand strict performance of all
other covenants as of any date.
1
<PAGE> 6
2. Paragraphs "c", "d" and "e" under the sub-heading
"AFFIRMATIVE COVENANTS" are hereby amended, in their
entirety, to read as follows:
c. PROFITABILITY - (Tested Quarterly) Borrower shall
achieve profitability on a quarterly basis.
Notwithstanding the foregoing, Borrower may incur
quarterly losses, provided such losses shall not
exceed $900,000.00 for quarter ended September 30,
1996 and decreasing to $500,000.00 for quarter ending
December 31, 1996. In addition, a maximum loss of
$4,000,000.00 shall be allowed for the fiscal year
ending December 31, 1996.
d. TANGIBLE NET WORTH - (Tested Quarterly) Maintain a
minimum Tangible Net Worth (TNW) of $500,000.00,
beginning as of the quarter ended September 30, 1996.
TNW is defined as Stockholders' Equity plus
Subordinated Debt (debt which is formally
subordinated to the Lender) less intangibles
(including but not limited to Goodwill, Capitalized
Software and Excess Purchase Costs).
e. TOTAL LIABILITIES/TANGIBLE NET WORTH - (Tested
Quarterly) Maintain a ratio of Total Liabilities
divided by TNW not to exceed 7.00 to 1.00, beginning
as of the quarter ended September 30, 1996.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
7 JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
2
<PAGE> 7
8. COUNTERSIGNATURE. This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Lender
(provided, however, in no event shall this Loan Modification Agreement become
effective until signed by an officer of Lender in California).
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER:
CONCORD COMMUNICATIONS, INC.
By: /s/ Mary Campopiano
-------------------------------------
Name: Mary Campopiano
-----------------------------------
Title: Controller
----------------------------------
LENDER:
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Pamela J. Lowe
-------------------------------------
Name: Pamela J. Lowe
-----------------------------------
Title: Vice President
----------------------------------
SILICON VALLEY BANK
By: /s/ Christina Ware
-------------------------------------
Name: Christina Ware
-----------------------------------
Title: Vice President
----------------------------------
(Signed at Santa Clara County, CA)
3
<PAGE> 1
EXHIBIT 11.01
CONCORD COMMUNICATIONS, INC.
COMPUTATION OF PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED)(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
DECEMBER 28, 1996 1996 1997
------------------ ----------- -----------
<S> <C> <C> <C>
Net Loss:...................................... $ (5,054,863) $(2,795,042) $ (966,417)
================= ========== ==========
Shares used in Computing Pro Forma Net Loss Per
Common and Common Equivalent Shares
Outstanding (Unaudited):
Weighted average common stock outstanding
during the period....................... 761,030 760,622 767,947
Dilutive effect of common stock issued
subsequent to June 30, 1996(2).......... 263,290 263,290 263,290
Dilutive effect of common equivalent
shares issued subsequent to June 30,
1996(2)................................. 635,415 635,415 635,415
Pro forma conversion of redeemable
convertible preferred stock to common
stock (unaudited)....................... 8,108,258 8,108,258 8,108,258
------------------ ----------- -----------
9,767,993 9,767,585 9,774,910
------------------ ----------- -----------
Pro Forma Net Loss Per Common Share
(unaudited).................................. $ (0.52) $ (0.29) $ (0.10)
================= ========== ==========
</TABLE>
- ---------------
(1) Historical net loss per common share has not been separately presented as
the amounts would not be meaningful.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock, preferred stock, stock options and warrants issued at
prices below the initial public offering price per share ("cheap stock")
during the twelve month period immediately preceding the filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented until the effective date
of the Company's initial public offering. The dilutive effect of the common
and common stock equivalents was computed in accordance with the treasury
stock method.
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 6, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CONCORD COMMUNICATIONS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-28-1996 DEC-31-1997
<PERIOD-START> DEC-31-1995 DEC-29-1996
<PERIOD-END> DEC-28-1996 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 1,663,896 1,872,727
<SECURITIES> 0 0
<RECEIVABLES> 2,483,255 1,981,180
<ALLOWANCES> 210,000 280,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,086,085 3,667,124
<PP&E> 5,455,725 5,881,472
<DEPRECIATION> 3,957,519 4,188,704
<TOTAL-ASSETS> 5,584,291 5,585,789
<CURRENT-LIABILITIES> 5,473,530 6,134,547
<BONDS> 667,502 859,535
14,477,729 14,919,286
0 0
<COMMON> 8,445 9,095
<OTHER-SE> (15,042,915) (16,336,674)
<TOTAL-LIABILITY-AND-EQUITY> 5,584,291 5,585,789
<SALES> 7,844,523 6,889,982
<TOTAL-REVENUES> 9,006,765 7,701,385
<CGS> 1,956,889 1,279,495
<TOTAL-COSTS> 1,956,889 1,279,495
<OTHER-EXPENSES> 12,150,083 7,346,413
<LOSS-PROVISION> 80,000 70,000
<INTEREST-EXPENSE> 48,564 42,886
<INCOME-PRETAX> (5,054,863) (966,417)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,054,863) (966,417)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,054,863) (966,417)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
